how does advertising depend on competition evidence from u s brewing the relationship between market structure and advertising has been extensively studied but has generated sharply opposing theoretical predictions as well as inconclusive empirical findings likely because of severe endogeneity concerns we exploit the 2008 merger of miller and coors in the u s brewing industry to examine how changes in local concentration affect firms advertising behavior well established regional preferences over beer brands and the sharp increase in concentration from the merger make this an excellent setting to analyze this question we find a significant positive effect of local market concentration on advertising expenditures a 100 point increase in the herfindahl hirschmann index measure of concentration increases advertising per capita by about 5 our findings shed light on how and when firms choose to deploy advertising the online appendix is available at https doi org 10 1287 mnsc 2017 2889 this paper was accepted by eric anderson marketing

how should control theory be used to calculate a time consistent government policy we study different solutions to a simple one dimensional linear quadratic game with a large number of private agents and a government a time consistent solution is defined as a solution to the hamilton jacobi bellman equation i e as a policy for which the government has noprecommitment capability this solution is compared to a policy where the government has an instantaneous pre commitment i e an equilibrium in which the government has a period by period leadership in both cases we show how control theory should be applied to calculate the equilibrium and how to relate these equilibria to the differential game literature

is there a tragedy of a common central bank a dynamic analysis a great deal of uncertainty exists about the degree to which a european central bank ecb can be exploited as common property by undisciplined governments in a dynamic game between symmetric national governments and a single monetary authority open loop strategies in the national setting coincide with strategies in the international setting compared to the open loop outcome feed back strategies slow down debt stabilization moreover debt adjustment is quicker with a common ecb than with individual central banks while inflation as well as fiscal deficits are lower these results conflict sharply with the notion of the ecb as common property

a re examination of the relationship between industry structure and economic performance the objective of this study is to develop a simultaneous equations model of profitability concentration advertising expenditures and research and development outlays the data used in the estimation are subjected to regression diagnostics in an effort to determine the importance to the estimation results of a subset of the data that can have a disproportionate influence the estimation results especially for the advertising expenditures relationship and the research and development outlays equation do change when a truncated data sample based on the omission of the outliers is used this serves partly to explain why there is some disagreement in the literature on market structure and economic performance with regard to the impact of several economic factors

rules and discretion with noncoordinated monetary and fiscal policies the time inconsistency of optimal monetary policy is due to the effects of tax distortions thus the issue of how to improve upon the time consistent suboptimal monetary policy is related to that of the coordination of monetary and fiscal policy we present a model with three players the central bark the fiscal authority and wage setters in which distortionary taxes are explicitly modelled we show that binding commitments to monetary rules are not necessarily welfare improving if monetary and fiscal policy are not coordinated we also examine the effects of different degrees of independence of the central bank

the known unknowns and unknown unknowns of european monetary union abstract the early literature on economic and monetary union emu in europe provided insights into the difficulties involved in forming a monetary union among diverse economies several of the problems that emerged in the euro crisis were correctly diagnosed beforehand the fact that they were not addressed is not attributable to the shortcomings of research but to a complacent reading of the literature by the policy community the possibility of balance of payments crises within monetary union and the degree of correlation between the default risks of banks and sovereigns were however underestimated or even ignored in the literature an analytical reassessment of emu helps define options for policy reform

a simultaneous equation analysis of advertising concentration and profitability nearly two decades of econometric research have been completed in testing relationships between industrial market structure and performance recently a number of authors have reexamined these studies and cautioned on a number of conceptual difficulties which subject the results and interpretation of previous empirical work to question one primary criticism of previous research has been the failure to account for the simultaneous nature of the interrelation among elements of industry structure conduct and performance 2 4 5 11 22 25 30 while the determinants of variables such as profits advertising and concentration have been examined separately within the context of single equation models the underlying theory suggests that these variables are more properly considered as jointly determined within a system of simultaneous equations estimation of single equation models when a simultaneous system is appropriate leads to parameter estimates that are both biased and inconsistent previous empirical studies of the structure performance relationship have also suffered due to the omission of certain critical variables first the role of international trade as an element of market structure has yet to be generally incorporated into empirical studies in spite of recent theoretical work that has demonstrated its potential importance 3 20 21 second interindustry differentials in the price elasticity of demand have been neglected even though theoretical analysis clearly underscores the necessity of explicity accounting for

specifying the dynamics of industry concentration previous studies generally explain changes in concentration by its initial determinants or by changes in its determinants little attention is paid to the dynamic structure of the model this study provides a framework to sort out adjustment effects in a systematic manner the empirical model distinguishes long term from short term effects and estimates the rate of adjustment when concentration deviates from its long term equilibrium level considerable attention has focused on industry concentration as a key element of market structure while earlier empirical studies examined determinants of the level of industry concentration a more recent literature focuses on changes in concentration these more recent papers typically explain intertemporal changes in concentration by the past levels of industry growth concentration advertising intensity and minimum efficient plant size however the dynamic relationship between changes in concentration and the levels of the independent variables has not been explicitly specified caves and porter 1980 have argued that explaining changes in concentration by past levels of market structure variables is tantamount to assuming that the sampled industries are in the process of adjusting to a disequilibrium situation as an alternative they adopt a long term equilibrium approach whereby changes in concentration are explained by lagged changes in the relevant market conditions they find that this approach as a whole was unsuccessful exhibiting low levels of significance and a lack of robustness when the cross section regressions were shifted to different time periods

a model of currency depreciation and the debt inflation spiral abstract this paper shows how a government that cannot make credible policy commitments might manage its exchange rate and fiscal stance in a world of rational expectations the dynamic game model developed here potentially can generate diverse patterns of macroeconomic behavior patterns that differ as a result of assumed differences in government objectives under some types of government the ongoing strategic interaction between the public and private sectors leads to a disinflationary outcome other governments may push the economy into a spiral of rising debt and inflation

central bank independence and public debt policy the various proposals for the institutional design of the european monetary union have drawn fresh attention to the link between monetary and public debt policies this paper explores the strategic interaction between fiscal authorities setting public debt and the central bank controlling monetary policy in the absence of political distortions an optimally designed conservative independent central bank is sufficient to establish the second best in the presence of political distortions or with coordination of monetary and fiscal policy however also a debt target is needed

an investigation of the determinants of profitability in new zealand manufacturing industries in 1986 87 the empirical investigation of the structure condust performance relationship has had to grapple with the problem that higher than usual profitability might arise from superior production efficiency or alternatively from markets subject to lower competitive pressures as such the nature of investigation has evolved over time to include the market power efficiency debate and the new industrial organisation emphasis on the joint determination of profitability and market structure the purpose of this paper is to present some new zealand evidence with a unique feature being to include a measure of firm level efficiency in a disaggregated model estimated using firm level data the results suggest both market power and efficiency play a role in determining profitability although efficiency dominates

can reputation resolve the monetary policy credibility problem abstract this paper addresses three problems with reputational equilibria in the barro gordon monetary policy game the multiplicity of equilibria the coordination problem and a chisel prone credibility problem a chisel proof credibility condition ensures that in response to a small deviation from the low inflation rate by the central bank it never pays for the private sector to acquiesce if the private sector can coordinate then a low but nonzero inflation outcome can be supported as a subgameperfect and chisel proof credible noncooperative equilibrium for an atomistic private sector the result can still hold in a game between successive monetary administrations

profitability and product differentiation in greek food industries this paper explains the increasing difference between the profit margins of differentiated and undifferentiated greek food manufacturing industries between 1988 and 1994 using panel data the 2sls results for the fixed effects model show important differences across the high medium and low differentiated industry groups the increasing difference between the margins of the highly differentiated group which includes the most profitable industries and the other groups can be mainly attributed to the greater sensitivity of margins in differentiated industries to advertising and demand changes

on the specification of structure performance relationships this paper argues that most estimated structure profitability equations in industrial economics have not been derived from a single coherent view of the behaviour of firms the independent variables in such equations have often been derived on the basis of a literature search and by appeal to conflicting approaches e g constrained and unconstrained profit maximisation the use of a coherent approach indicates that structure performance equations are likely to be highly non linear and that simultaneous equation estimation is neither required nor appropriate in some cases single equation estimation is adequate and in other cases reduced form equations are needed

euro area government bonds fragmentation and contagion during the sovereign debt crisis abstract the paper analyzes the integration of euro area sovereign bond markets during the european sovereign debt crisis it tests for contagion i e an intensification in the transmission of shocks across countries fragmentation a reduction in spillovers and flight to quality patterns exploiting the heteroskedasticity of intraday changes in bond yields for identification the paper finds that euro area government bond markets were well integrated prior to the crisis but saw a substantial fragmentation from 2010 onward flight to quality was present at the height of the crisis but has largely dissipated after the european central bank s ecb s announcement of its outright monetary transactions omt program in 2012 at the same time italy and spain became more interdependent after the omt announcement providing our only evidence of contagion this suggests that countries have been effectively ring fenced and italy and spain benefited from the joint reduction in yields following the omt announcement

measuring research benefits in an imperfect market in this paper an imperfect market model is developed for evaluating agricultural research benefits the main finding is that the increases in societal gain and the producer s share of this gain are larger with a monopoly than with a competitive market the paper argues that if the market for an agricultural input or for a commodity is not competitive then use of a competitive model for assessing research benefits could lead to understatements of both producer and total benefits

a macroeconomic model with a financial sector this paper studies a macroeconomic model in which financial experts borrow from less productive agents we pursue four sets of results i the economy is prone to instability and occasionally enters volatile episodes as volatility spikes agents precautionary motive increases depressing prices even further log linear approximations fail to capture these non linear effects that can cause economies to be significantly depressed for long periods of time ii endogenous risk during volatile episodes increases asset price correlations iii financial experts impose a negative externality on each other and on the labor sector by not maintaining adequate capital cushion and funding structure iv while risk sharing within the financial sector through securitization and derivatives contracts reduces many inefficiencies it can also amlify systemic risks

inflation forecast targeting implementing and monitoring inflation targets abstract inflation targeting is shown to imply inflation forecast targeting the central bank s inflation forecast becomes an explicit intermediate target inflation forecast targeting simplifies both implementation and monitoring of monetary policy the weight on output stabilization determines how quickly the inflation forecast is adjusted towards the inflation target money growth or exchange rate targeting is generally inferior than inflation targeting and leads to higher inflation variability commitment to target rules may be better than commitment to instrument rules

measuring research benefits in an imperfect market second comment this note generalizes a finding about the necessary and sufficient conditions for research to generate greater benefits in the presence of distortions and highlights a significant source of bias in conventional cost benefit calculations

the profitability concentration relation market power or efficiency industrial economists have been studying the relationship between profitability and concentration using cross industry samples for many years now however as sometimes happens once it appeared that some consensus had been achieved with few exceptions market concentration and industry profitability are positively correlated peltzman i977 p 229 people began to question the interpretation of those results in particular demsetz e g i973 i974 and others suggested that rather than concentration market power leading to higher prices and profits the causal direction in fact ran from greater efficiency to both higher profits and incidentally to higher concentration our purpose here is to subject these conflicting hypotheses to cross industry empirical test using u k data in order to do this we first develop a model which is sufficiently general to allow for both alternative explanations of a positive concentration profitability correlation in the light of this model we then examine the implications for the within industry relation between market share and firm level profitability more specifically we explore demsetz s claim that the empirical form of this relationship should signal which of the alternative hypotheses is consistent with the between industry profitability concentration correlation our model suggests that in certain special circumstances this claim is partly justified in that it should be possible to assess the relative strengths of the market power and efficiency effects from the within industry relation more generally however factors such as product differentiation and scale economies may seriously impair the information content of the relation with at least a strong suspicion that the estimates will tend to exaggerate the evidence in favour of the efficiency hypothesis in the event our results tend to confirm that for most industries the within industry data offer little conclusive support for either hypothesis but for a not insignificant minority of industries the evidence suggests some support for the view that both efficiency and market power are at work simultaneously our model is detailed in section ii and estimated on u k data in section iii after which we offer a few comments in section iv first however we drovide a backcloth to the later analysis

the welfare economics of cooperative and noncooperative fiscal policy abstract in the absence of ricardian equivalence lump sum transfers between households within a country can alter the pattern of national saving and consumption allowing the government to exploit the country s size in world trade and in international borrowing and lending redistribution across generations through unfunded social security retirement schemes or public sector deficit finance with lump sum taxes and transfers enables a national planner to affect both the static and intertemporal terms of trade when trade restrictions or discriminatory taxation of asset income are unavailable due to international agreements the case for cooperative fiscal policy formation by governments of interdependent economies is examined in an overlapping generations economy with internationally perfectly mobile capital and a single relative price the world interest rate the optimum unfunded social security scheme when no distortionary tax instruments are allowed is derived for a government with nationalistic social preferences this policy targets both intergenerational distribution objectives and interest rate objectives the absence of distortionary taxes implies that no overall loss in world surplus need result from the strategic use of lump sum transfers so that coordination of intergenerational transfers is unnecessary for pareto optimality when internationally enjoyed public goods are introduced allocational efficiency requires cooperative selection of national exhaustive public spending programs but it does not demand that the financing of public expenditures be coordinated

reputation and time consistency recent work has shown that reputational arguments based on trigger strategies can sometimes be used to deal with the problem of time inconsistency in government policy this idea was exploited by robert barro and david gordon 1983 in a model of inflation and by v v chari and patrick kehoe 1988 in a model of capital taxation here it is shown that reputational arguments of this sort are widely applicable 2 a general policy model is developed based on an economy that is stationary over time contains identical households and has no endogenous state variables it is shown in general that the infinite horizon version of this model has equilibria in trigger strategies that yield outcomes strictly better than those attainable as equilibria in the one period model

measuring research benefits in an imperfect market voon 1994 recently analyzed the benefits of research in an imperfectly competitive market for an agricultural input studies of this type are important because the agricultural industries are becoming more concentrated and agricultural economists have begun to focus more attention on the implications of imperfect competition in the food and fiber sector the magnitude and distribution of research benefits under alternative market structures are important from both the perspective of agents incentives to undertake investments in research and allocating public monies to support research voon specifically compared the welfare benefit from a cost reducing innovation for an agricultural input under conditions of monopoly to perfect competition in the supply of the input the analysis was based on a framework of linear farm demand for the input and linear and rising marginal cost of supplying the input the key result based on simulations of the market equilibrium under alternative demand and cost elasticity configurations was that research benefits were greater under monopoly than under perfect competition this result is wrong specifically for

structure conduct and performance a simultaneous equations investigation for the brazilian manufacturing industry the article investigated structure conduct performance scp relationships in the context of the brazilian manufacturing industry in 1996 for that purpose it considered a system with four equations pertaining concentration advertising r d and profitability that was estimated with simultaneous equation models in addition to the usual explanatory variables proxying barriers to entry and demand conditions the article considered organizational practices and incentive schemes variables the evidence indicated an important role for variables related to barriers to entry in affecting market structure an important and nonlinear effect of concentration on advertising a relevant impact of firm size on the propensity to exert r d effort and finally a significant positive impact of concentration on profitability and were similar to the previous evidence for developed countries additionally no important roles were detected for organizational practices and incentive schemes on the scp relationships

technological progress and change in market concentration in the u s 1963 77 what effect does r d induced technological progress have on market structure do the concentration ratios the most used indices of market structure increase or decrease in an industry that is faced with a high level of technological opportunity and exploits it through a high rate of r d this paper focusses on a model by nelson and winter as a theoretical starting point to deal with this question in the nelson and winter model concentration increases as a result of dynamic competition in the technologically progressive industries but their model does not allow entry and the effect on concentration may be reversed if the possibility of entry is considered empirically this paper shows that concentration ratios in the high r d industries have decreased in the united states during 1963 77

permanent budget deficits and inflation abstract the issue of whether permanent primary budget deficits have to be monetized is re examined in a simple monetary model hybrid of the sidrauski and overlapping generations frameworks in which intergenerational effects are generated by the arrival of new infinitely lived cohorts the presence of intergenerational effects enlarges for a given fiscal policy the set of admissible monetary policies and weakens the need to monetize the deficit comparisons between the growth and interest rates are in general insufficient to predict whether increased deficit must be monetized because of the existence of both bond and money seigniorage laffer curves

measuring research benefits in an imperfect market second reply in a recent comment on voon 1994 holloway 1999 has made the following conclusions under conditions that are almost identical to ones considered by voon 1994 and by sexton and sexton 1996 pivotal shifts in marginal costs generate strictly greater benefits under monopoly this paper reconsiders the above conclusion a simple geometric approach similar to alston et al 1988 and voon and edwards 1991 is used for the reassessment the analysis shows that a pivotal shift in the marginal costs generates greater benefits under perfect competition than it does under monopoly this is opposite to holloway s finding the model is depicted in fig 1 instead of a parallel shift in the mc curve as in voon 1994 a pivotal shift above the origin is assumed this implies that the supply price elasticity is greater than unity e 1 see voon and edwards 1991 under monopoly

buyer market structure and r d effort a simultaneous equations model the theoretical and empirical investigations of the relationship between market structure and the firm s incentive to invent and innovate have concentrated on the effects of the structure of the supply side of the market this focus on the supply side originated in schumpeter s controversial hypothesis that current market power provided the necessary conditions and future market power provided the incentive for technical change schumpeter 1950 this hypothesis stimulated a vast number of theoretical refinements and empirical tests of relations between research and development activity r d and supply side characteristics such as concentration firm size and diversification this literature has been well summarized by kamien and schwartz 1975 and scherer 1980 the analysis of the effects of the buyer market structure on the selling industry conduct and performance has been limited both theoretically and empirically stigler 1964 modeled the effects of the size distribution of buyers on price competition in oligopoly telser 1964 devel oped a theory of advertising messages in which he suggested that advertising would increase when buyers were many and small lustgarten 1975 tested the effects of buyer market structure on price cost margins and advertising and found the relations suggested by stigler and telser invention and innovation are forms of competition which like price and advertising will be affected by both buyer market structure and seller market structure however unlike price and advertising competition there have not been explicit attempts to establish theoretical and empirical relations between buyer market structure and inventive and innovative activity the effects of buyer market structure on the selling industry s incentive to invent and innovate is relevant to interpreting the effects of seller market structure on this effort a number of previous studies of the effects of seller market structure on technical change have found that seller concentration may have a slight positive impact on inventive and innovative effort kamien and schwartz 1975 p 20 even this weak relation may be due to not controlling for buyer market structure if galbraith s 1952 countervailing power hypothesis is correct lustgarten 1975 p 128 concentration in the buyer and seller markets may be positively correlated if buyer market concentration is positively related to inventive and innovative effort in the selling industry the empirical estimate of the partial effect of seller concentration will be biased upward this paper investigates the effect of buyer market structure on r d effort section ii draws together the literature that is relevant to the issue of the relation between buyer market structure and seller inventive and innovative activity section iii develops a simultaneous equation model of r d activity where r d advertising and concentration are endogenous variables section iv uses data on scientific and engineering inputs to test this model section v summarizes these results

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

simultaneous equations models of the structure performance paradigm abstract this paper is concerned with determining the dimension of the simultaneous equations model surrounding the basic profits concentration relationship a very general model is considered and then simplified using a simple test for exogeneity and it is concluded that the model is nonlinear in concentration and that simultaneous interaction occurs between profits and foreign competition variables

market structure and research intensity in high technological opportunity industries where the cost and uncertainty of r d are high and conditions favor speedy imitation by competitors concentration has a statistically significant and substantial positive impact on research intensity but its impact is clearly negative when r d cost and uncertainty are low and where high barriers to imitation exist a sample of 160 business unit observations for 1978 was drawn from the pims data base all the sample business units industries recently experienced major technological changes research intensity was measured by non government financed r d expenditures as a percentage of sales

cooperative monetary and fiscal policies in the euro area this article discusses the interaction of fiscal and monetary policy in the euro area though many observers suggest a fiscal union as the next step of euro area constitutional reform a federal fiscal union does not appear politically feasible in the short run we suggest moving forward with cooperative monetary and fiscal institutions and policies that allow for decentralized fiscal decisions while taking federal stabilization policies into account this approach will increase the probability of survival of the euro area compared with the current fiscal arrangements using a dynamic macro model counterfactual simulation paths of our cooperative solution are contrasted with time series data for the euro area

time consistency of fiscal and monetary policy the problem of time inconsistency arises from two different sources first as shown by guillermo a calvo 1978 the re is an incentive for each government to engage in an initial unanti cipated inflation second as discussed by robert e lucas and nancy l stokey 1983 there is an incentive for each government to deviat e from the path of taxes announced by the preceding government in th is paper it is shown that these two sources of time inconsistency ca n be removed by a particular method of debt management involving bot h nominal and indexed government bonds of various maturities copyright 1987 by the econometric society

strategic interactions of fiscal policies in europe a global var perspective abstract the paper analyses the strategic interactions of fiscal policies in the european union context by modelling the interdependencies arising between public and private sectors saving investment balances in a global vector autoregressive framework we use two empirical specifications to reflect some important differences in the sequencing of the policy decision making process in this setting we draw policy implications with respect to fiscal policy coordination and fiscal policy discretion we highlight the importance of several factors such as global capital flows uncertainty with respect to policy actions and nature of the shocks as key elements defining the dimension of the prevailing policy tradeoffs

using nonlinear model predictive control for dynamic decision problems in economics abstract this paper presents a new approach to solve dynamic decision models in economics the proposed procedure called nonlinear model predictive control nmpc relies on the iterative solution of optimal control problems on finite time horizons and is well established in engineering applications for stabilization and tracking problems only quite recently extensions to more general optimal control problems including those appearing in economic applications have been investigated like dynamic programming dp nmpc does not rely on linearization techniques but uses the full nonlinear model and in this sense provides a global solution to the problem however unlike dp nmpc only computes one optimal trajectory at a time thus avoids to grid the state space and for this reason the computational demand grows much more moderately with the space dimension than for dp in this paper we explain the basic idea of nmpc give a proof concerning the accuracy of nmpc for discounted optimal control problems present implementational details and demonstrate the ability of nmpc to solve dynamic decision problems in economics by solving low and high dimensional examples including models with multiple equilibria tracking and stochastic problems

fiscal and monetary policy co ordination a differential game approach in this paper the interaction between the treasury and the central bank is examined in the case of both cooperative and non cooperative behaviour differential games are used in the framework of a continuous time econometric model of the italian economy the nash and the stackelberg non cooperative equilibrium solutions are computed and the case for cooperation is analysed by considering the nash and the kalai smorodinsky bargaining models it is shown that in the italian case the government has a stronger bargaining position than the central bank a comparison is then made between the different solutions to show that the drawbacks that emerge from non cooperation are not simply those depending on the players payoffs other features are in fact considered which constitute a further argument for policy co ordination

debt deflation financial market stress and regime change evidence from europe using mrvar the economic meltdown since 2008 9 has created disinflation and even deflation in some countries in the euro area in a period with large debt overhang creating the condition for a continuing financial market stress in the euro area as disinflation and deflation push up the real interest rate while growth and income declines the leveraging problem becomes more severe and the economy risks shifting into a regime with high insolvency risk high financial stress rising credit spreads possibly accompanied by strong adverse macroeconomic feedback loops investigating the consequences of those magnifying feedback loops given the debt deflation we demonstrate the possibility of unstable dynamics and downward spirals in the presence of regime dependent macro feedback loops using a theoretical model with decentralized matching mechanisms on both labor and financial markets to explore the amplifying linkages between deflation output labor and financial markets we employ a new solution procedure called nmpc to solve our models variants for out of steady state dynamics we empirically explore deflationary trends in europe and employ a global var gvar model for a large euro area macro data set to estimate the impact of deflation on output moreover we use a four variable multi regime var mrvar model with regime dependent irs to study deflationary as well as well as the financial risk drivers in a mrvar setting new measures for financial risk drivers are employed and multi regime irs for output inflation rates interest rates and financial stress are explored we also study regime changes in central macro relationships such as regime change in the credit output link the phillips curve and in okun s law

the potential benefits and costs of an increase in us gasoline tax abstract this paper examines the impact that an increase in the tax on gasoline would have on the us economy that is in the context of a general equilibrium model the effect that a 15 gallon increase in the tax on gasoline would have on producing sectors consuming sectors households and the government is estimated the results suggest that there will be a reduction in output by all producing sectors by about 9 4 billion there will be a fall in the consumption of goods and services by about 9 6 billion and there will be a decline in aggregate social welfare measured as utility by about 15 0 billion the government will realize an increase in revenue of about 8 0 billion

fiscal policy coordination and emu a dynamic game approach abstract this paper examines the case for fiscal policy coordination in a european economic and monetary union emu a two bloc model with two market structures is examined emu producing a single homogeneous good in both blocs emu1 and a two good emu emu2 where each bloc produces a single home good the european central bank sets monetary policy so as to achieve credibly low inflation rates we find that for emu2 as relative prices can change countries have an incentive to improve their terms of trade leading to an inefficient noncooperative outcome which can be avoided by cooperation

market distortions and benefits from research the benefits from cost reducing research and their distribution under a range of price policies are compared with those that would arise in the absence of the policies while any price policy affects the distribution of research benefits the net national or world benefits may be reduced lef unchanged or increased depending on the nature of the policy and the significance of the country in the world market for the commodity some implications for decisions on price policies and for distortions in incentives for the allocation of resources to research are raised

monetary union without fiscal coordination may discipline policymakers abstract with benevolent policymakers and fiscal leadership monetary unification reduces inflation taxes and public spending these disciplining effects of a monetary union which become stronger if the number of participants in the union increases are likely to raise welfare two types of arrangements are considered for the union s common central bank ccb making the ccb more conservative and imposing an inflation target on the ccb in contrast to the results of svensson 1997 svensson l e o 1997 optimal inflation targets conservative central banks and linear inflation contracts american economic review 87 98 114 an optimally designed conservative ccb may outperform inflation targeting finally we find that fiscal coordination offsets the disciplining effects of monetary unification hence subsidiarity in fiscal policymaking may enhance welfare

cooperative and non cooperative fiscal stabilization policies in the emu in this paper we analyze the interaction of fiscal stabilization policies in the economic and monetary union emu the excessive deficits procedure of the maastricht treaty and its elaborations in the recent stability and growth pact introduce a set of fiscal stringency requirements on national fiscal policies situations might arise where the need for fiscal flexibility and the fiscal stringency requirements will create a conflict and suboptimal macroeconomic policies are implemented we analyze macroeconomic adjustment under non cooperative and cooperative fiscal policy design in the emu using a dynamic games approach in particular we consider how fiscal stringency requirements like the stability and growth pact affect fiscal policy design under emu and study the consequences of the introduction of a fiscal transfer mechanism between countries

measuring research benefits in an imperfect market reply to holloway voon s original claim voon 1994 was that the benefits of generating through research a parallel shift in a monopolist s marginal cost curve exceeded the benefits from generating the same shift if the curve represented the market supply curve for a competitive industry as we noted in a subsequent comment this result was wrong with voon s error being due to the use of incmrect normalization procedures in his simu lation analysis we further articulated the general principle that welfare from an innovation in a mono poly industry would be greater than in a structurally equivalent competitive industry if and only if the deadweight loss due to monopoly decreased as a consequence of that innovation finally we opined that this condition will normally not be met in mono poly or other imperfectly competitive structures because in seeking to capture benefits from the inno vation a monopoly or oligopoly industry will generate less output expansion than would occur under perfect competition thereby causing the deadweight loss to increase

sources of concentration related profits the relationship between industry structure and market performance plays a central role in the development and implementation of antitrust laws the overwhelming majority of economic studies reveal a positive though generally weak correlation between concentration a structure index and profitability a performance index however two radically different interpretations as to the causality of this relationship have resulted in diametrically opposite recommendations for antitrust policy the structural view asserts that the positive concentration profits correlation is evidence of collusive behavior by firms in oligopolistic industries it also maintains that larger firms do not have a substantial efficiency advantage over their smaller rivals for example in an exhaustive but limited sample study f m scherer et al 7 found that concentration across industries is considerably greater than required by scale economies 2 such findings have led structuralists to suggest that an antitrust policy which deconcentrates industries will not create a serious loss of productive efficiency the structural view is challenged by a group of economists led by harold demsetz who are skeptical that monopoly power can be sustained without government sanctions demsetz 3 argues that the positive relationship between industry concentration and profitability reflects the superior performance in a welfare sense of large firms a firm captures a large market share and earns above average profits by establishing a cost advantage over its rivals the cost advantage can be due to scale economies and or a downward shift of a positively sloped marginal cost curve consequently economists agreeing with demsetz believe a deconcentration policy will produce more inefficiency than it eliminates resulting in a net welfare loss to society there have been two basic methodologies employed to test the efficiency based explanations of the profits concentration relationship peltzman 4 has found a negative significant correlation between changes in concentration and unit cost changes for 165

catalytic finance when does it work in a model of debt crisis caused partly by creditor coordination failure we show that bailouts that reduce ex post inefficiency will sometimes enhance the incentives for governments to take costly adjustment effort this model helps us understand a debate about the role of the imf in catalyzing lending to developing countries

the workweek of capital and its cyclical implications abstract the neoclassical growth model studied in the kydland and prescott time to build paper is modified to permit the capital utilization rate to vary the effect of this modification is to increase the amplitude of the aggregate fluctuations predicted by theory as the equilibrium response to technological shocks if following solow the changes in output not accounted for by changes in the labor and tangible capital inputs are interpreted as being the technology shocks the statistical properties of the fluctuations in the postwar united states economy are close in magnitude and nature to those predicted by theory

does an endogenous relationship exist between environmental and economic performance a resource based view on the horticultural sector the aim of this paper is to analyse the relationship between environmental and economic performance from the resource based theory within firms of the fresh fruit and vegetables sector this study considers that the adoption of environment friendly practices has a greater influence on firms opportunities and abilities in the agricultural sector than in manufacturing sectors and leads to closer links between performance variables the reference for this empirical analysis is a panel data of horticultural farming marketing firms in spain the voluntary environmental programmes and the heterogeneity of their application lead us to regard acquiring a competitive advantage as a relevant driver to improve environmental performance in this sector a simultaneous equations model is suggested reflecting the differential environmental effect and the assumption of endogeneity among variables the results show a positive impact of environmental differentiation on profitability and market share also suggesting that the perception of this positive experience implies greater environmental performance

debt stabilization games in the presence of risk premia as a result of the recent financial crisis and the ensuing economic recession fiscal deficits have soared in many oecd countries as a consequence government debt has been on the rise again after a period of stable or declining government debt in this paper we analyze debt stabilization in a country that features endogenous risk premia imposed by financial markets that evaluate the probability of debt default by governments endogenous risk premia arise by assuming e g simple linear relations between risk premia and the level of debt as a result the real interest rate on government debt can be written as a constant measuring the risk free real interest rate corrected for real output growth plus an endogenous risk premium that depends on the debt level we bring such an endogenous risk premium into tabellini 1986 model and analyze the impact of it this gives rise to a non linear differential game we solve this game for both a cooperative setting and a non cooperative setting the non cooperative game is solved under an open loop information structure we present a bifurcation analysis w r t the risk premium parameter