the problem of multiple commons a market design approach abstract there are several locations each of which is endowed with a resource that is specific to that location each agent will go to a single location and harvest some of the resource there several agents may go to each location and thereby cause a congestion effect that is modeled in a general way we assign harvesting rights based on preferences alone though we later extend the model to accommodate private endowments of money we find the best allocation rule in the class of rules that are strategy proof anonymous and that satisfy a weak continuity property for a special class of preferences we also find an ascending mechanism similar to an auction that implements the rule the rule coincides with a special pseudo market equilibrium wherein agents buy their desired resource with tokens distributed by the social planner

seasonality and the production smoothing model abstract the debate over whether firms smooth production relative to demand continues in this paper we find that results obtained in blinder quarterly journal of economics 101 3 1986 431 453 and blinder and maccini journal of economic surveys 5 4 1991 293 328 indicating that firms do not smooth production are greatly influenced by the seasonal adjustment of the census data for us manufacturing using seasonally adjusted data we find significant evidence of production smoothing in 10 of 14 manufacturing industries for the years 1982 1997 further the prevalence of production smoothing has increased over time which we attribute either to fundamental changes in the collection of the data or to the advent of improved methods of inventory management

structural instability and the production smoothing model of inventories the production smoothing model of inventories implies that inventories labor inputs sales and factor input prices are cointegrated if sales and factor prices are i 1 with one cointegrating vector for each state variable held these propositions are tested in six nondurable goods industries all industries provide evidence of cointegration fewer quasi fixed factors are found than previous research often assumed estimates of cointegrating vectors provide implausible parameter estimates rank stability tests with fixed or seqentially chosen breakpoints indicate that the cointegrating matrix has unstable rank parameter estimates of cointegrating vectors do not provide much support for the production smoothing model of inventories

constrainedly fair job assignments under minimum wages a number of jobs are to be assigned to a greater number of workers while having to abide by the law of minimum wages firms must determine who should be assigned which job and at what salary in such situations fair envy free allocations usually fail to exist to cope with this situation this paper proposes a new concept of fairness called constrained fairness among the set of constrainedly fair allocations the so called constrainedly fair and minimal allocations are of particular interest the reason for this is that the salaries are not only compatible with the minimum wages they are also optimal from the standpoint of cost minimizing firms and the assignment of jobs is efficient from the viewpoint of workers a convergent dynamic procedure that identifies constrainedly fair and minimal allocations is proposed furthermore strategic properties of the mechanism are derived and two notions of efficiency are evaluated

applied fairness theory comment william baumol 1982 presented a provocative and potentially valuable piece of analysis on fairness but his contribution suffers from the flaw of defining terms in a manner similar to but with important differences from their common definitions as a result of this terminological problem it would be possible for a real world outcome to be fair or even superfair according to baumol s criteria but to be unfair according to the commonly accepted meaning of the word conversely what would commonly be accepted as fair in the real world might not be fair according to baumol s criteria my objection here is largely with baumol s terminology but its significance extends well beyond terminology because it affects the way economists think about equity issues ranging from the particular case of fairness theory to welfare economics in general the remarks that follow fall into two categories first i argue that it is unfair in the traditional meaning of the word for baumol to redefine the meaning of fair second i argue that fair outcomes can only be judged within the context of the institutional setting that produces the outcomes as a result any analysis like baumol s which examines only the outcome of a process without examining the process itself can never determine whether an outcome is fair

classical and variance bounds tests of the production smoothing hypothesis in this paper we test the controversial production smoothing role of inventories by applying both classical econometric techniques and variance bounds tests we use seasonally unadjusted data measured in physical units for five industries the model used is a version of the familiar holt et al 1960 inventory model we also use the data on one industry disaggregated at the district level to investigate potential bias which may arise from aggregation overall the empirical evidence suggests production smoothing in the great majority of the industries examined

measuring noise in inventory models this paper has two purposes one is to assess different models of inventory behavior in terms of their ability to approximate the realized data we do this initially for the pure production smoothing model and then for a sequence of generalizations our analysis both performs specification tests as well as measures the deviations of the data from each null model through use of a noise ratio statistic a second purpose is to explore whether observed cost shocks in particular raw materials prices help explain inventory movements we find that the production smoothing model of inventories augmented by buffer stock motives stockout avoidance motives and observed cost shocks well approximates monthly data

inventory behavior with permanent sales shocks abstract empirically adf tests fail to reject the null hypothesis that sales are i 1 we build a model of inventory behavior that incorporates permanent sales shocks analytically the model with i 1 sales implies that the variance ratio of log production to log sales is one in the long run regardless of the strength of production smoothing stockout avoidance or cost shocks but that at business cycle horizons the conditional variance ratio conditional on past production and sales is greater than one we explain analytically using our model and intuitively four traditional inventory puzzles and three puzzles about inventories and monetary policy

temporal aggregation and estimation of inventory functions abstract in this paper we extend the analysis of the effects of aggregation on the estimated speed of adjustment in inventory models into two directions first we try to find out if lovell s 1993 conclusions regarding the effects of aggregation on the speed of adjustment hold a when real firm data rather than experimental data are used b when the model is modified or when models other than the flexible accelerator are used secondly we examine whether temporal aggregation also leads to underestimation when disaggregated nonseasonally adjusted data are used the evidence we provide gives strong support to mundlak s and zellner s conjectures cited in christiano and eichenbaum 1987 that temporal aggregation leads to downward bias in the estimated speed of adjustment

markups aggregation and inventory adjustment in this paper i suggest a unified explanation for two puzzles in the inventory literature first estimates of inventory speeds of adjustment in aggregate data are very small relative to the apparent rapid reaction of stocks to unanticipated variations in sales second estimates of inventory speeds of adjustment in firm level data are significantly higher than in aggregate data the paper develops a multisector model where inventories are held to avoid stockouts and price markups vary along the business cycle the omission of countercyclical markup variations from inventory targets introduces a downward bias in estimates of adjustment speeds obtained from partial adjustment models when the cyclicality of markups differs across sectors this downward bias is shown to be more severe with aggregate rather than firm level data similar results apply not only to inventories but also to labor and prices montercarlo simulations of a calibrated version of the model suggest that these biases are quantitatively significant

the long run implications of the production smoothing model of inventories an empirical test summary this paper provides an empirical test of the long run implications of the production smoothing model of inventories the dominant framework for inventory investment research in the past intertemporal models of a firm holding inventories of finished goods predict a long run relationship between inventories shipments factor input prices and the real interest rate which is tested here using cointegration test procedures these tests provide little support for the predictions of the production smoothing model in most of the data sets used test statistics indicate that inventories shipments factor input prices the nominal interest rate and the inflation rate maintain a long run equilibrium relationship but parameter estimates of cointegrating vectors are often implausible typically rejecting hypotheses implied by structural models of the production smoothing motive for holding inventories

characterizations of pareto efficient fair and strategy proof allocation rules in queueing problems a set of agents with possibly different waiting costs have to receive the same service one after the other efficiency requires to maximize total welfare fairness requires to treat equal agents equally one must form a queue set up monetary transfers to compensate agents having to wait and not a priori arbitrarily exclude agents from positions as one may not know agents waiting costs they may have no incentive to reveal them we identify the only rule satisfying pareto efficiency equal treatment of equals in welfare or symmetry and strategy proofness it satisfies stronger axioms as no envy and anonymity further its desirability extends to related problems to obtain these results we prove that a rule single valued or not satisfies queue efficiency and strategy proofness if and only if it always selects efficient queues and sets transfers a la groves groves t 1973 incentives in teams econometrica 41 617 631 this holds in other problems provided the domain of quasilinear preferences is rich enough

simulating the inventory cycle abstract simulations of the inventory cycle utilizing a model based on 84 interacting firms in 21 industries reveals that the ratio of the variance of sales to the variance of output is an unreliable indicator of how seriously firms attempt to smooth production or whether such efforts in the aggregate even out economic fluctuations it is also shown that the two slow estimates of the speed of adjustment reported in many econometric studies of united states data may result in part from aggregation bias rather than from limitations of the flexible accelerator model itself

are incentives against economic justice abstract we consider the problem of fairly allocating a social endowment of indivisible goods and money when the domain of admissible preferences contains but is not restricted to quasi linear preferences we analyze the manipulability of the generalized money rawlsian fair gmrf solutions i we show that the nash and strong nash equilibrium correspondences of the preference revelation game form associated with each gmrf solution coincide with the no envy solution in equilibrium efficiency is preserved according to agents true preferences ii a corollary is that the gmrf solutions naturally implement the no envy solution in nash and strong nash equilibria

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

a note on the econometric use of constant dollar inventory series abstract one dollar of finished goods inventories does not represent the same amount of physical goods as one dollar of sales when department of commerce constant dollar series are used this can cause seriously biased regression estimates

seasonality aggregation and the testing of the production smoothing hypothesis one of the leading hypotheses concerning the dynamics of production over time is the production smoothing hypothesis given a planning horizon which spans a number of production periods the firm need not produce in each period an amount equal to expected sales rather resorting to inventory accumulation and liquidation the firm may follow a production plan temporally smoother than the path of demand if firms faced with convex cost functions chose to smooth the rate of output in order to minimize costs one would expect to observe that the rate of output would vary less than the rate of sales with variations in inventory stocks absorbing some of the fluctuations in sales recently work on the testing of the production smoothing hypothesis has cast doubt on its empirical validity the evidence presented by alan blinder seems to indicate that the variance of production exceeds that of sales in seven out of eight two digit retail industries 1981 and in eighteen out of twenty two digit manufacturing industries 1983 and 1986 the purpose of this paper then is to examine the validity of such tests when seasonally adjusted aggregated data are used the evidence presented show that the relative size of the variances of the seasonally adjusted production and sales does not provide valid tests of the production smoothing hypothesis in addition aggregating over firms where the seasonal patterns differ may also distort tests of production smoothing blinder realized that the use of seasonally adjusted data may not provide an adequate test of the hypothesis stating had they been available i would have preferred to use data that were not seasonally adjusted since the production smoothing model presumably applies to seasonal fluctuations in sales however such data are not available 1983 fn 19 in this paper i focus on the cement industry because the unadjusted disaggregated data are available for the direct testing of the conjecture that aggregate seasonally adjusted data mask production smoothing phenomenon aggregate monthly data on five other industries will also be examined

the interrelationship between price and output decisions and investment decisions microfoundations and aggregate implications abstract this paper develops a model of firm behavior in which both price and output decisions and investment decisions are made the model permits an analysis of the dynamics of inventory and capital accumulation on price and output behavior there are two main results 1 short run price and output levels will differ from long run levels as desired stocks of inventory and capital diverge from actual levels 2 the size of the elasticities of price and output to changes in demand and cost variables depends on the speed with which gaps between desired and actual stocks are closed through investment

oligopoly supergames some empirical evidence on prices and margins this paper is a panel data study on the behavior of prices and margins of oligopolies involved in repeated games the authors examine two supergame models which generate very different predictions about the cyclical behavior of prices and margins evidence on the levels of price cost margins indicates that oligopolies achieve equilibria that more closely resemble a one shot cournot nash outcome than monopoly the authors find however that industries with high price cost margins exhibit cyclical price behavior which is quite different from that of unconcentrated industries little evidence of price wars during either recessions or booms is found copyright 1987 by blackwell publishing ltd

cost sharing versus block funding in a federal system a demand systems approach this paper employs a maximizing framework consistent with the axioms of consumer preference to analyze local government s choice of spending on different social services within this framework it is possible to include both block funding and cost sharing intergovernment transfer schemes canada s movement to block funding from the cost sharing method of financing provincial expenditures on hospitals medical care and post secondary education is analyzed the results indicate that the provincial governments actions are generally consistent with a significant maximizing model of consumer behavior and that the change to block funding had a significant impact on real provincial funding of some previously cost shared social services

social orderings for the assignment of indivisible objects in the assignment problem of indivisible objects with money we study social ordering functions which satisfy the requirement that social orderings should be independent of changes in preferences over infeasible bundles we combine this axiom with efficiency consistency and equity axioms our result is that the only social ordering function satisfying those axioms is the leximin function in money utility

maximal manipulation of envy free solutions in economies with indivisible goods and money abstract we consider the problem of the fair allocation of indivisible goods and money with non quasi linear preferences the purpose of the present study is to examine strategic manipulation under envy free solutions we show that under a certain domain richness condition each individual obtains the welfare level of his optimal envy free allocation by maximally manipulating the solutions this maximal manipulation theorem is helpful in analyzing the set of nash equilibrium allocations in the direct revelation games associated with a given envy free solution if an envy free solution satisfies a mild condition the set of nash equilibrium allocations in its associated direct revelation game coincides with that of envy free allocations

transferring ownership of public housing to existing tenants a market design approach this paper explores a housing market with an existing tenant in each house and where the existing tenants initially rent their houses the idea is to identify equilibrium prices for the housing market given the prerequisite that a tenant can buy any house on the housing market including the one that he is currently possessing or continue renting the house he is currently occupying the main contribution is the identification of an individually rational equilibrium selecting and group non manipulable price mechanism in a restricted preference domain that contains almost all preference profiles in this restricted domain the identified mechanism is the minimum price equilibrium selecting mechanism that transfers the maximum number of ownerships to the existing tenants we also relate the theoretical model and the main findings to the u k housing act 1980 whose main objective is to transfer ownerships of houses to existing tenants

the production and inventory behavior of the american automobile industry understanding inventory movements is central to an understanding of business cycles this paper presents an empirical study of the behavior of inventories in the automobile industry it finds that inventory behavior is well explained by the assumption of intertemporal optimization with rational expectations the underlying cost structure appears to have substantial costs of changing production as well as substantial costs of being away from target inventory thelatter being a function of current sales given this cost structure whether inventory behavior is stabilizing or destabilizing depends on the characteristics of the demand process in the automobile industry inventory behavior is destabilizing the variance of production is larger than the variance of sales

coalition formation in games of fair division abstract i consider economies with a single indivisible good and money allowing agents to form coalitions i show that the set of equilibrium allocations in the manipulation game associated with any subcorrespondence of the no envy correspondence coincides with the set of envy free allocations for the true preference profile

house allocation with transfers we consider the shapley scarf house allocation problem where monetary transfers are allowed we characterize the class of mechanisms that are strategy proof ex post individually rational ex post budget balanced and collusion proof in these mechanisms the price of each object is fixed in advance and the objects are reallocated according to the unique core assignment of the shapley scarf economy associated with the prices the special case in which all prices are zero is the core mechanism studied by shapley and scarf our mechanisms are compelling alternatives to the groves mechanisms which satisfy neither budget balance nor our condition of collusion proofness journal of economic literature classification numbers c71 c78 d71 d78 d89

the speed of adjustment and production smoothing bayesian estimation abstract the models used for empirical studies of inventory behavior typically include the lagged stock of inventories as a result of the partial adjustment assumption and also exhibit serial correlation in the residuals some researchers suggested that the very low speed of adjustment of the actual inventories to their desired levels and also the lack of empirical support for the production smoothing hypothesis may be the results of applying inappropriate estimation methods to the data recently a bayesian estimator that applies to models containing both lagged dependent variables and autocorrelated disturbances was developed in this paper we examine the empirical evidence on the speed of adjustment of inventories to their desired levels and the degree to which firms smooth production by applying this new estimation method to monthly industry data the results show that the low speeds of adjustment reported in the literature as well as the low degree or lack of production smoothing also reported in the literature may indeed be artifacts of the estimation procedures used

fair income tax fairness is a key concept in redistribution issues in this paper we study how particular requirements of fairness can shed light on the design of the optimal income tax schedule we consider a population of heterogeneous individuals or households who differ in two respects first they have unequal skills and therefore unequal earning abilities second they differ in terms of their preferences about consumption and leisure and as a consequence typically make different labour time choices both kinds of differences generate income inequalities we study how to justify and compute a redistribution income tax in this context redistribution through an income tax usually entails distortions of incentives but the resulting efficiency loss has to be weighed against potential improvements in the fairness of the distribution of resources we address this efficiency equity trade off here by constructing social preferences which obey the standard pareto principle in addition to fairness conditions

joint production quasi fixed factors of production and investment in finished goods inventories inventory investment has long been an important area of inquiry for empirical work in macroeconomics this is due in large measure to the fact that inventory investment is a major source of fluctuations in aggregate output empirical work on inventories however has been dominated by the use of simple univariate flexible accelerators 1 the major objective of this paper is to propose and test a multivariate flexible accelerator model for inventory investment the model is tested with data on finished goods inventories from the manufacturing sector of the u s economy there are two reasons for undertaking such a task first at a theoretical level a univariate flexible accelerator model asserts that investment in say finished goods inventories is proportional to the gap between the desired and actual stocks of finished goods such a model presumes that decisions by firms on finished goods inventories are made independently of decisions on other stocks but theory suggests that when firms make simultaneous decisions on a variety of stocks which includes not only finished goods but also goods in process inventories the size of the work force etc decisions on finished goods will interact with decisions on

is commodity taxation unfair abstract in a model where agents have unequal skills and heterogeneous preferences about consumption goods and leisure this paper studies how to combine commodity taxes and non linear income tax it proposes a particular social welfare function on the basis of fairness principles it then derives a simple criterion for evaluating the social welfare consequences of various tax schedules under the proposed approach the optimal tax should have no commodity tax for some range of consumptions and income redistribution would feature high subsidies to the working poor it is also shown that even when the income tax fails to be optimal commodity taxes may not improve social welfare

investigation of production sales and inventory relationships using multicointegration and non symmetric error correction models the accumulated sum of a stationary series is called integrated if a linear combination of some of the integrated series is stationary it is said to be cointegrated this paper presents empirical results on inventories to consider the possibility of a deeper form of cointegration called multicointegration which is introduced in granger and lee 1989 a vector integrated series is multicointegrated if the accumulated sum of its stationary cointegrated linear combination is again cointegrated with itself inventory which is the accumulated sum of production minus sales is probably cointegrated with production and sales the empirical results generally support the presence of multicointegration of production and sales in many u s industries and industrial aggregates the results also favour the non symmetric error correction model providing evidence that the strength of attraction is different on both sides of the attractor a modified s s rule for inventory control is investigated in the context of a non symmetric error correction model and the results generally do not support the s s rule sufficient evidence is found to conclude that multicointegration is a useful concept in the area of inventory determination

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

sequential rules for house allocation with price restrictions this paper considers a housing market with price restrictions on such markets the existence of a unique minimum rationing equilibrium price vector has been established for each preference profile on a general preference domain that contains almost all preference profiles this vector can be used as a key ingredient in a direct and strategy proof allocation mechanism the main contribution of this paper is to provide two price sequences one with increasing prices and one with decreasing prices that both terminate to a minimal rationing equilibrium price vector in a finite number of steps these sequences are demonstrated to play key roles in an english auction and a dutch auction respectively for the considered housing market with price restrictions less

the resurgence of inventory research what have we learned abstract recent empirical and theoretical research on business inventories is surveyed and critically evaluated while most inventory research has had macroeconomic motivations we focus on its microtheoretic basis and on potential conflicts between theory and evidence the paper asks two principal questions first how can inventories which are allegedly used by firms to stabilize production nonetheless be a destabilizing factor at the macroeconomic level second why if firms are following the production smoothing model is production more variable than sales in many industries we suggest that the so called s s model may help answer both questions

the mis specification of production costs in production smoothing models estimation results obtained with production smoothing models are often imprecise and sensitive to normalisation rules it is argued here that production costs in these models can be better specified in terms of production factor costs the resulting factor demand model with inventories leads to more efficient estimation results and normalisation rules become even redundant furthermore the smoothing role of inventories with respect to production factors is discussed c 1997 elsevier science s a

the economics and politics of the structure of public expenditure the paper derives a complete system ofdemand equations for public consumptionexpenditures as the outcome of rationalbehaviour in a model where governmentmaximizes expected electoral support theallocation of expenditures is found todepend not only on the prices of publicservices and total expenditure and tosatisfy the constraints of demand theory which have been the focus of attention ofprevious empirical studies of theallocation of public expenditures but inaddition on the prices of privateconsumption goods the distribution ofvoter incomes and the expected change invoter support from varying the levels ofpublic provision

pareto principles from inch to ell abstract under mild conditions including the possibility of compensation by monetary transfer this paper shows that all versions of the pareto principle viz the pareto indifference the weak pareto the strong pareto and the full pareto are in fact mutually equivalent

fair allocation of indivisible goods and criteria of justice a set of n objects and an amount m of money is to be distributed among m people example the objects are tasks and the money is compensation from a fixed budget an elementary argument via constrained optimization shows that for m sufficiently large the set of efficient envy free allocations is nonempty and has a nice structure in particular various criteria of justice lead to unique best fair allocations that are well behaved with respect to changes of m this is in sharp contrast to the usual fair division theory with divisible goods

reward patterns of fair solutions abstract the solutions proposed in the literature on fair allocations are sensitive to the preference profiles of the agents as a consequence each of them displays a specific distribution pattern which may be interpreted as rewarding certain kinds of preferences at the expense of others in the basic models with private goods and decreasing returns the equal income competitive equilibrium tends to favor the eccentric preferences whereas most egalitarian equivalent solutions tend to reward the agents who like particular resources the identification of the rewarding pattern of each mechanism sheds light on its ethical content and may help select the adequate solution in concrete applications in this analysis a preference monotonicity property turns out to be satisfied by many solutions

envy freeness and distributive justice the criterion of envy freeness according to which no agent should prefer any of his neighbours allocation to his own has become a central part of the economic theory of distributive justice it essentially corresponds to the need to express an ideal of equality in societies where preferences and endowments are heterogeneous this paper surveys various formulations of the idea of envy freeness starting with the simple distribution model then adding the possibility for agents to have different native talent endowments and finally moving to models with production many classical results are displayed but emphasis is also put on recent developments mainly the ideas of minimizing envy and of absence of domination five major difficulties facing envy freeness are identified and listed as directions of future research copyright 1994 by blackwell publishers ltd

on the adjustment matrix in error correction models abstract this paper explores the determinants of the adjustment matrix in error correction models within two intertemporal models of the firm in a production smoothing model of inventories it is shown that the adjustment matrix contains the speed of adjustment of inventories as conjectured in previous work but this parameter matrix also contains the parameters from the autoregressive polynomials associated with the stochastic unobservable shocks in the model two empirical examples are provided suggesting that these unobservable shocks cannot be assumed to be serially uncorrelated in a flexible wage model of a labor market the impact upon the adjustment matrix of normalizing the cointegrating matrix is studied in contrast to one state variable problems normalization of the cointegrating matrix is arbitrary on economic and statistical grounds in this model and it is shown that even with serially uncorrelated shocks estimating the elements of the adjustment matrix may not provide an estimate of the speed of adjustment under some normalizations of the cointegrating matrix the implication of the analysis is that without guidance from an economic model about the interpretation of elements of the adjustment matrix under alternative normalizations of the cointegrating matrix or when unobservable shocks are serially correlated economic interpretation of estimates of the adjustment matrix will be hazardous

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

state government expenditures in a federal system cost and revenue equalization effects in australia all federal systems entail some degree of fiscal equalization australia has the most comprehensive system in the world its unique feature being cost equalization the effects of this on state government behaviour are not clear the procedures used in australia for cost and revenue equalization are employed to develop a model of state government expenditures the model aims to explain both total expenditure and its allocation across types of government services the empirical results suggest that without revenue equalization state taxes would adjust to maintain current state expenditures some cost equalization effects are also found

the allocative efficiency of government expenditure some comparative tests this paper examines whether observed government expenditures are consistent with optimising behaviour in australia portugal sweden and the u k expenditures are treated as intermediate goods producing desired outputs e g health education security conditional on demographic variables these outputs are arguments in an objective function optimised subject to a budget constraint optimisation then implies testable homogeneity symmetry and negativity restrictions on the derived demand functions these were estimated using the deaton muellbauer aids system on time series data for four categories of expenditure in each country and the restrictions tested with both homogeneity and symmetry being accepted for sweden

monetary policy dynamics in the euro area we investigate identification issues in estimated taylor rules embedding two alternative views about monetary policy inertia versus serially correlated shocks in a single equation we show that using euro data it is impossible to discriminate between these two competing representations

eliciting preferences to assign positions and compensation abstract we describe strategy proof rules for economies where an agent is assigned a position e g a job plus some of a divisible good for the 2 agent 2 position case we derive a robust characterization for the multi agent position case many arbitrary such rules exist so we consider additional requirements by also requiring coalitional strategy proofness or nonbossiness the range of a solution is restricted to the point that such rules are not more complex than those for the shapley scarf housing model no divisible good third we show that essentially only constant solutions are immune to manipulations involving bribes finally we demonstrate a conflict between efficiency and strategy proofness the results extend to models without externalities in which agents share positions journal of economic literature classification numbers c72 d70

production smoothing evidence from physical product data we reconsider the paradox that the variance of production often exceeds the variance of shipments a result that casts doubt on the production smoothing model of inventory behavior most studies of production smoothing have analyzed two digit sic dollar value data from commerce department surveys in contrast this paper examines disaggregated physical product data and finds that production is smoother than shipments in about two thirds of the 38 industry or product groupings considered however doubts about the model persist most notably euler equation estimates of the model s cost parameters are usually imprecise and often do not have the signs postulated by production smoothing models

the cyclical behavior of marginal cost and price the author examines the cyclical behavior of price marginal cost margins for u s manufac turing after 1956 short run marginal cost is markedly procyclical this is primarily due to procyclical overtime payments incurred beca use employment is not perfectly flexible in most industries output price fails to respond to the cyclical movement in marginal cost so price marginal cost margins are markedly countercyclical the res ults contradict business cycle theories that explain low production i n a recession by a high real cost of producing they support theories that explain low production in a recession by the inability of firms to sell their output copyright 1987 by american economic association

market shares in the uk passenger car market marketing expenditure and price effects 1975 80 1984 market shares in the uk passenger car market marketing expenditure and price effects 1975 80 applied economics vol 16 no 4 pp 611 632

strategic divide and choose abstract we consider the classic cake division problem when the cake is a heterogeneous good represented by an interval in the real line we provide a mechanism to implement in an anonymous way an envy free and efficient allocation when agents have private information on their preferences the mechanism is a multi step sequential game form in which each agent at each step receives a morsel of the cake that is the intersection of what she asks for herself and what the other agent concedes to her

the interest rate learning and inventory investment this paper presents a model that provides an explanation based on regime switching in the real interest rate and learning of why tests based on stock adjustment models euler equations or decision rules which emphasize short run fluctuations in inventories and the interest rate are unlikely to uncover a negative relationship between inventories and the real interest rate the model however predicts that inventories will respond to long run movements that is to regime shifts in the real interest rate tests emphasizing cointegration techniques confirm this prediction and show a significant long run relationship between inventories and the real interest rate

investment in finished goods inventories an analysis of adjustment speeds it is well known that fluctuations in inventory investment are a major source of fluctuations in gross national product this has stimulated numerous empirical studies designed to understand the causes of changes in inventory investment these studies include those for example michael lovell that utilize a flexible accelerator model of inventory behavior as well as those for example david belsley that utilize the linear decision rule approach to optimal inventory holding the latter approach however can be interpreted in terms of a flexible accelerator model see j c r rowley and p k trivedi for a survey of the literature recently several authors for example martin feldstein and alan auerbach observed that these studies yield very implausible empirical results the basic difficulty is that the estimates of the speed with which firms close gaps between desired and actual inventory stocks are very low often the estimated speed of adjustment is less than 10 percent per quarter as feldstein and auerbach stress this is extremely implausible when even the largest swings in inventories in a given quarter amount to less than one day s production the purpose of this paper is to undertake an analysis of adjustment speeds for finished goods inventory investment in our empirical work we utilize a modified flexible accelerator model of inventory investment 1 like the conventional flexible accelerator the model permits firms to close a fraction of the gap between desired and actual inventories in any period the relevant fraction is of course the adjustment coefficient and it may vary in principle between zero and unity our model differs from the conventional model in assuming that the desired stock of finished goods inventories depends on the normal levels of exogenous variables that firms must forecast to make decisions on inventory holdings these include not only the normal level or orders or demand which is a standard explanatory variable in the empirical literature but also the normal levels of real factor input prices and real interest rates in addition we permit the normal levels to change relatively slowly in response to changes in past levels of orders real factor input prices and real interest rates our objective is to investigate whether the slow adjustment speeds that have been estimated in the literature are due to the use of models which contain an incomplete menu of exogenous variables to determine desired inventories and pay inadequate attention to lags in the adjustment of normal levels of exogenous variables

rental harmony with roommates abstract we prove existence of envy free allocations in markets with heterogenous indivisible goods and money when a given quantity is supplied from each of the goods and agents have unit demands we depart from most of the previous literature by allowing agents preferences over the goods to depend on the entire vector of prices we then show how our theorem may be applied in two related problems existence of envy free allocations in a version of the cake cutting problem and existence of equilibrium in an exchange economy with indivisible goods and money our proof uses shapley s k k m s theorem and hall s marriage lemma

the combinatorial assignment problem approximate competitive equilibrium from equal incomes this paper proposes a new mechanism for combinatorial assignment for example assigning schedules of courses to students based on an approximation to competitive equilibrium from equal incomes ceei in which incomes are unequal but arbitrarily close together the main technical result is an existence theorem for approximate ceei the mechanism is approximately efficient satisfies two new criteria of outcome fairness and is strategyproof in large markets its performance is explored on real data and it is compared to alternatives from theory and practice all other known mechanisms are either unfair ex post or manipulable even in large markets and most are both manipulable and unfair

term structure evidence on interest rate smoothing and monetary policy inertia abstract numerous studies have used quarterly data to estimate monetary policy rules or reaction functions that appear to exhibit a very slow partial adjustment of the policy interest rate the conventional wisdom asserts that this gradual adjustment reflects a policy inertia or interest rate smoothing behavior by central banks however such quarterly monetary policy inertia would imply a large amount of forecastable variation in interest rates at horizons of more than 3 months which is contradicted by evidence from the term structure of interest rates the illusion of monetary policy inertia evident in the estimated policy rules likely reflects the persistent shocks that central banks face

estimating the linear quadratic inventory model maximum likelihood versus generalized method of moments abstract we compare generalized method of moments gmm and maximum likelihood ml estimators of the parameters of a linear quadratic inventory model using nondurable manufacturing data and monte carlo simulations data based gmm estimates for five normalizations vary widely generally rejecting the model the ml estimate generally supports the model monte carlo experiments reveal that the gmm estimates are often biased apparently due to poor instruments statistically insignificant economically implausible and dynamically unstable the ml estimates are generally unbiased even in misspecified models statistically significant economically plausible and dynamically stable asymptotic standard errors for ml are 3 to 15 times smaller than for gmm

maskin monotonicity in economies with indivisible goods and money abstract we consider the problem of allocating indivisible objects with monetary transfers we show that any maskin monotonic allocation rule exhibits strong asymmetry in treating agents even on finitely restricted preference domains

welfare bounds in the fair division problem to any anonymous division method corresponds a lower and an upper bound function they measure the impact on a given agent s utility of the other agents preferences the highest lower bound is the equal split utility the lowest upper bound is the indirect utility from equal split at a canonical price these two bounds are compatible yet any method with the elqual split lower bound exhibits the growth paradox and any method with the lowest upper bound generates envy we criticize competitive equilibrium from equal split because it puts no finite upper bound on any agent s welfare

a general strategy proof fair allocation mechanism abstract this paper studies a general problem of efficiently and fairly allocating n indivisible objects like jobs or houses with a certain amount of money to n persons with a requirement that each person be assigned with one object the precise preferences of individuals over both the objects and money are unknown and manipulable but assumed to follow some general patterns to ensure the existence of a fair allocation a mechanism is developed that elicits honest preferences over both the objects and money and that assigns the objects with some money to individuals efficiently and fairly

aggregation unit roots and the time series structure of manufacturing real wages the effects of both temporal and cross sectional aggregation on the estimated time series characteristics of manufacturing real wage data are examined the effects especially of temporal aggregation are found to be quite large and in accord with statistical theory the well known results of j altonji and o ashenfelter 1980 that real wages are a random walk and of c r nelson and c i plosser 1982 that real wages are an ima 1 1 process both seem to be entirely artifacts of temporal aggregation with the true models following processes that are much more complex and that display substantial cyclical behavior copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

inventories and strikes this paper analyses a dynamic model of bargaining and strikes in which the reservation wage of union members in each period is private information the model endogenizes the firm s decision to accumulate inventories of finished goods in order to enhance its bargaining position with higher inventories the firm makes a lower wage offer thereby accepting an increased probability of a strike the model can help explain empirical results that have found a positive correlation between wages and inventory accumulation it also shows that unless inventories are controlled for strike incidence will exhibit a spurious negative state dependence

consumer durables evidence on the optimality of usually doing nothing the authors argue that lumpy nonconvex transaction costs are the norm for a wide range of economic decisions which are thus characterized by inertial behavior application of this idea to the consumption of durable goods yields an s s decision rule which when aggregated highlights the different expected behavior of average expenditure per purchase versus the number of purchases the empirical implications of this rule are presented and compared to other theories a battery of empirical tests generally supports the predictions of the model in particular it does a good job of explaining the time pattern of response of spending on durables to a change in income copyright 1992 by ohio state university press

no envy and consistency in economies with indivisible goods we consider the problem of fair allocation in economies with indivisible goods our main objective is to identify appealing subsolutions of the no envy solution we formulate desirable properties of solutions and look for solutions satisfying them given an allocation chosen by a solution for some economy and given a subgroup of the agents consider the problem of fairly distributing among its members the resources that this group has collectively received the solution is consistent if it recommends that the same bundle be attributed to each of these agents as initially we show that there is no proper subsolution of the no envy solution that satisfies consistency however many subsolutions satisfy bilateral consistency or the converse of consistency but again there is no proper subsolution satisfying these two properties together

a characterization of the shapley value in queueing problems a set of agents stand to receive a service no two agents can be served simultaneously a queue has been organized and agents having to wait should receive monetary compensations we characterize the rule assigning positions in the queue and compensations corresponding to the payoffs recommended by the shapley value of the associated cooperative game

sincere and sophisticated players in an equal income market abstract we study the simultaneous direct revelation mechanism associated with each equal income competitive social choice function in the allocation of objects and money among sincere and strategic agents strategic agents take advantage of sincere agents they non cooperatively coordinate on the equal income competitive allocations for the true preferences that are pareto undominated for them within the set of equal income competitive allocations sincere agents are protected to some extent however their welfare is usually above their maximin payoff

more on the speed of adjustment in inventory models when empirical stock adjustment models of manufacturers inventories of finished goods are estimated there appear to be two local minima in the sum of squared residuals functions at one local minimum the estimated adjustment speed is typically quite high at the other it is typically quite low furthermore finding two sets of estimates that fit the data almost equally well does not appear to be a quirk of this particular application rather it stems from a fundamental identification problem that afflicts partial adjustment models of all kinds in the specific context of manufacturers inventories of finished goods the estimation procedure employed by maccini and rossana seems to pick out the solution with rapid adjustment and high serial correlation in the disturbances whereas the solution with slow adjustment and little serial correlation is more often the global minimum this abstract was borrowed from another version of this item

fair marriages an impossibility for marriage markets gale d and shapley l s 1962 college admissions and the stability of marriage american mathematical monthly 69 9 15 so called fair matchings do not always exist we show that restoring fairness by using monetary transfers is not always possible there are marriage markets where no amount of money can guarantee the existence of a fair allocation

the strategy structure of two sided matching markets we study two sided markets in which agents are buyers and sellers or firms and workers or men and women the agents are to form partnerships which provide them with satisfaction and at the same time make monetary transfers e g salaries or dowries the core of this market game is shown to have a particularly nice structure so that precise answers can be given to questions concerning comparative statics and manipulability the idea of using walrasian equilibrium as a mechanism for making allocations with desirable properties of fairness and efficiency has been studied extensively the scheme involves having agents specify their supply and demand functions the competitive equilibria are then calculated and allocations are made accordingly in general this procedure may run into two difficulties first nonuniqueness if there are several equilibria there may be no fair way to decide which one should be implemented and second manipulability if there is only one equilibrium an informed agent may be able to influence it by suitably falsifying his demand data however as we will show here using the walrasian mechanism does work remarkably well for a certain class of important markets these are the matching markets of our title and they include markets for single items like houses where it is assumed that traders do not wish to acquire more than one item they also include labor markets in which it is desired to match workers with jobs at suitable salaries academic markets in which students are to be assigned to educational institutions marriage markets where men and women are matched through negotiating of dowries it turns out that in these markets both the problems of nonuniqueness and manipulability can be resolved in a

inventories layoffs and the short run demand for labor this paper presents a theoretical and empirical analysis of the short run employment layoff and inventory strategies of firms on average more than two thirds of all layoffs in american manufacturing end in a rehire by the employer of origin martin feldstein 1975 david lilien 1980 these temporary layoffs have recently accounted for about half of all ongoing employer initiated spells of unemployment in that sector see table 1 and have led to a revised interpretation both of the involuntary nature of these separations costas azariadis 1975 feldstein 1976 martin baily 1977 and of the durability of employment relationships evidently a significant proportion of unemployed workers know that the conditions that generated their separations are temporary and so they expect to be recalled within some reasonable time the point of departure for this paper is in interpreting these findings as evidence of a privately and socially efficient stock of excess capacity held against contingent future demands that is as an inventory of a productive input this view leads to empirically refutable hypotheses regarding both the role of temporary layoffs and the circumstances under which they will be important in particular both excess capacity idle resources and inventories are devices by which firms may economize on the costs of rapid adjustments when faced with unstable market conditions george stigler 1939 in such an environment the demands for layoffs and for other buffer stocks are jointly determined elements of long run technology the choice among alternative stocks will depend on relative profitabilities and firms may choose to hold stocks of inputs as a substitute for inventory accumulation especially if the costs of varying capacity or of storage are important this reasoning implies that i the structure of short run employment and layoff decisions will vary across firms and industries and ii differences in these structures will be systematically related to the role of inventories in firms dynamic strategies some perspective is warranted at least since charles holt et al 1960 economists have recognized the production smoothing role of inventories and the necessity of predicting future demand in making current decisions david belsley 1969 gerald childs 1967 michael ward 1978 similarly one of the contributions of recent work on implicit labor contracts is in viewing the exchange of labor services as a bilateral and durable commitment both these lines of analysis are concerned with the methods firms use to respond to fluctuating demand yet the underlying interrelated nature of employment and inventory decisions has rarely been recognized roger miller 1968 m ishaq nadiri and sherwin rosen 1973 r g crawford 1979 robert hall 1972 this paper aims to provide a framework for evaluating these decisions and in so doing to explain some interesting features of observed labor markets the notion of substitution between inventories of human and physical capital suggests a more disaggregated look at the data table 2 shows the importance of temporary layoffs in the distribution of unemployment among manufacturing industries it reports layoff and total unemployment rates for twelve representative industries over the period 197376 and average layoff rates and recall frequencies for 1958 76 among all 21 twodigit manufacturing industries the correlation between layoff and rehire rates is 6 and the table illustrates this evidently industries with larger than normal layoff rates also tend to have larger rehire frequencies from firm initiated spells of unemployment this university of chicago i am indebted to gary becker robert cotterman sherwin rosen jose scheinkman michael ward finis welch the managing editor and an anonymous referee for discussions and comments at various stages the usual disclaimer applies

the production smoothing model is alive and well abstract monthly data in physical units for seven industries are used to examine the production smoothing hypothesis the results strongly support this hypothesis significant effects of expected future sales on current production are found for four industries and the estimated decision equations for all seven industries imply production smoothing behavior the previous negative results appear to be due to the use of data biased against the hypothesis the shipments and inventory data of the department of commerce the paper also shows that sensible results can be obtained from estimating approximations to decision equations as opposed to estimating euler equations

on resource monotonicity in the fair division problem in the context of the classical fair division problem we show that efficiency and resource monotonicity are incompatible with the following conditional equal split condition if equal split of the collective endowment is efficient it should be among the recommended allocations

a test of the linear rational expectations equilibrium inventory model in the eec abstract in this paper i test an extension of the familiar holt modigliani muth and simon 1960 inventory model using annual data from the eec countries the two step two stage least squares estimation technique of cumby et al 1983 is used the model is tested using the generalized variance bounds test developed by kollintzas 1988 and the variance bounds test of west 1986 in the majority of the cases the empirical evidence gives support to the traditional inventory model when allowing for stochastic cost shocks and stock out avoidance motives

can the production smoothing model of inventory behavior be saved the production smoothing model of inventory behavior has a long and venerable history and theoretical foundations that seem very strong yet certain overwhelming facts seem not only to defy explanation within the production smoothing framework but actually to argue that the basic idea of production smoothing is all wrong most prominent among these is the fact that the variance of detrended production exceeds the variance of detrended sales this paper first documents the stylized facts then it derives the production smoothing model rigorously and explains how the model can be amended to make it consistent with the facts finally it reviews the theoretical and empirical evidence and tries to draw some tentative conclusions

balancedness of permutation games and envy free allocations in indivisible good economies we present a simple proof of the balancedness of permutation games in the proof we use the existence of envy free allocations in economies with indivisible objects quasi linear utility functions and an amount of money

real interest rates and macroeconomic activity while standard discussions of the transmission mechanism of monetary policy tend to assume a strong and negative link between real interest rates and real macroeconomic activity and this appears to some extent to be borne out by simulation of large scale macroeconometric models the empirical evidence suggests that the link between real interest rates and macroeconomic aggregates such as consumption and investment is in fact somewhat tenuous the weak link between interest rates and aggregate consumption may be explained at a theoretical level while the apparently weak link between interest rates and investment is more puzzling although it may be related to neglect of issues such as uncertainty and the irreversibility of investment in empirical studies similarly evidence on the link between real interest rates and economic growth is mixed and this may be related to non linearities in the relationship the survey highlights the need for further research in this area

aggregation and testing of the production smoothing hypothesis this paper examines the aggregate implications of the production smoothing model the analysis indicates that aggregation can be a source of bias distorting tests of production smoothing based on the relative variance of production and sales it is shown that depending upon the relative variability of different types of market shocks firms face the aggregation bias can be so severe as to render the test of the production smoothing hypothesis invalid copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association