history dependence in concave economies abstract this paper investigates concave intertemporal optimization problems and derives two mechanisms either growth or control state interactions e g due to endogenous preferences that allow for multiple steady states including an unstable one therefore history dependence is possible in a perfectly governed economy subject to the law of diminishing returns if one of these two mechanisms is present this result complements a large amount of literature that attributes history dependence to convexities as a consequence lock ins into undesired evolutions are possible beyond the familiar case of increasing returns

nonmonetary effects of the financial crisis in propagation of the great depression this paper examines the effects of the financial crisis of the 1930s onthe path of aggregate output during that period our approach is complementary to that of friedman and schwartz who emphasized the monetary impact of the bank failures we focus on non monetary primarily credit related aspects of the financial sector output link and consider the problems of debtors as well as those of the banking system we argue that the financial disruptions of 1930 33 reduced the efficiency of the credit allocation process and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand evidence suggests that effects of this type can help explain the unusual length and depth of the great depression this abstract was borrowed from another version of this item

market integration and price convergence in the european union abstract the implementation of international treaties in the european union was expected to promote integration of consumer markets using economist intelligence unit worldwide cost of living survey data i analyze the convergence of prices for a range of traded goods and find that large price differences remain across europe using high income non euro european countries as a control group i test the effect of the euro and the single european act on the convergence of prices within the european union using a difference in difference estimation strategy i find that the single european act rather than the euro reduced price differences and promoted market integration distinguishing between the two stages of the euro implementation shows increasing price divergence as a result of the common currency

the environment and emerging development issues development economics for the most part has failed to recognize renewable environmental resources as economic goods yet the lives of the poor in developing countries are intimately tied to the fate of their local common property resources soil fuel wood water and so on ignoring the loss of common property renewable resources via degradation centralization or privatization in calculations of net national product can mask the destruction of resources available to a country s poor behind the false appearance of a growing national economy this paper describes the difference between the problem of managing local common property resources in developing countries and the problem of protecting the global commons such as the atmosphere and oceans it outlines the calculations that would include the local commons in the national income accounting of capital assets and argues that the interests of those most dependent on the increasingly scarce local commons will be best served by placing control in their hands while the central government provides infrastructure and educational support to control the pollution of the global commons on the other hand the paper sketches a plan in which most countries would have a high incentive to participate a global allocation of limited tradable permits to discharge defined pollutants

is the entropy law relevant to the economics of natural resource scarcity abstract nicholas georgescu roegen and herman daly have argued that the entropy law imposes an absolute resource scarcity which cannot be overcome with technological change exploration or substitution on the contrary this paper argues that their critique is fundamentally flawed the pessimistic scenario requires a concept of materials entropy which is highly problematic materials entropy cannot be defined independently of technology and it is impossible to aggregate over different types of materials to meaningfully talk about available versus unavailable matter in the aggregate failing a concept of materials entropy the critique fails since the earth is not closed with respect to energy

eco thermodynamics economics and the second law the laws of physics especially the first and second laws of thermodynamics have significant implications for economic theory the major implications of the first law conservation of mass energy are straightforward and have been discussed at length elsewhere in brief raw material inputs to economic processes are not consumed having been extracted from the environment in the first place they eventually return to the environment as wastes the economic implications of the second law entropy law are far more subtle there is considerable literature initiated by the work of georgescu roegen on the supposed constraints on economic growth imposed by the fact that economic processes utilize low entropy raw materials fossil fuels and high grade metal ores and discard high entropy wastes however as a practical matter the flux of available low entropy energy exergy from the sun is extremely large and certainly adequate to sustain economic activity in the solar system indefinitely even though fossil fuel and metal ore stocks may eventually be exhausted it is argued in this paper that the real economic significance of the second law lies in the fact that exergy is i not conserved and ii is a useful common measure of resource quality as well as quantity applicable to both materials and energy thus exergy can be used to measure and compare resource inputs and outputs including wastes and losses this is potentially important in itself moreover since exergy is not conserved it is truly consumed i e used up in economic processes hence exergy is no less a factor of production than labor or capital this fact has strong implications for economic growth theory especially with regard to assessing the role of technical progress

the development of nominal wage rigidity in the late 19th century wage price and output indexes suitable for comparing cyclical movements across decades show a decrease in nominal wage flexibility the change in wage inflation associated with output fluctuations after the 1880s following an increase in strike frequency linked to the spread of large scale manufacturing cross sectional data show that firms in industries experiencing more strikes in the 1880s were less likely to cut nominal wages in the depression of 1893 this and other evidence suggests that the nineteenth century decrease in wage flexibility was caused by an increase in workers bargaining power in the absence of binding wage contracts copyright 1993 by american economic association

entropy and economic processes physics perspectives this paper is a contribution to the discussion on the relation between thermodynamics and economic theory with respect to thermodynamic constraints on the economy there are two diametrically opposite positions in this discussion one claims that the constraints are insignificant of no immediate practical importance for modelling and in the intermediate run do not limit economic activity and therefore need not be incorporated in the economic theory the other holds that thermodynamics tells us that there are practical limits to materials recycling which already puts bounds on the economy and therefore must be included in the economic models using the thermodynamic concept of entropy we show here that there are fundamental problems with both positions even in the long run entropy production associated with material dissipation need not be a limiting factor for economic development abundant energy resources from solar radiation may be used to recover dissipated elements with simple quantitative analysis we show that the rate of entropy production caused by human economic activities is very small compared to the continuous natural entropy production in the atmosphere and on the earth s surface further the societal entropy production is well within the range of natural variation it is possible to replace part of the natural entropy production with societal entropy production by making use of solar energy society consumes resources otherwise available for coming generations however future generations need not have less resources available to them than the present generation human industrial activities could be transformed into a sustainable system where the more abundant elements are industrially used and recycled using solar energy as the driving resource an economic theory fit to guide industrial society in that development must not disregard thermodynamics nor must it overstate the consequences of the laws of thermodynamics 2001 elsevier science b v all rights reserved

when not all conflict is bad manufacturing marketing conflict and strategic incentive design researchers and managers broadly agree that coordination and harmony between manufacturing and marketing improve firm performance by eliminating suboptimal practices within the firm in this paper we present a contrasting view of the manufacturing marketing interface we model a duopoly in which the firms compete on price and quality dimensions the manufacturing and marketing managers within each firm are presented with conflicting incentives focused on cost minimization and revenue maximization respectively these managers bargain with each other before arriving at compromise decisions regarding price and quality while frequently encountered in practice this conflicting objectives puzzle is surprising because one expects that centralized coordination by the owners of the firm towards profit maximization would lead to higher profits in this paper we resolve the conflicting objectives puzzle and demonstrate that surprisingly the firm s resulting profits in this setting of conflict can be higher than those obtained when the decisions of the managers are perfectly coordinated we also analyze the equilibrium in incentive plans when the owners can choose between compromise and perfect coordination our results offer a new interpretation of manufacturing marketing conflict as a strategic tool that can enhance firm profits

the inada conditions for material resource inputs reconsidered it is shown that the thermodynamic law of conservation of mass the so called materials balance principle implies that the marginal product as well as the average product of a material resource input are bounded from above this means that the inada conditions one of the standard assumptions of economic growth theory when applied to material resource inputs are inconsistent with a basic law of nature the analysis is based on a model of multi level production where intermediate goods are produced from elementary resources and an all purpose final commodity is produced from these intermediates

a model of u k emigration 1870 1913 this paper develops a simple time series model of emigration and applies it to data for emigration from the united kingdom 1870 1913 the model is derived from a macroeconomic analysis of the migration decision and provides a specific functional form and dynamic structure it encompasses and explains many of the empirical findings of earlier research on the determinants of emigration over this historical period the results support the model strongly in most respects both wage rates and employment rates in the sending and in the receiving countries influenced fluctuations in emigration the short run fluctuations were driven largely by variations in employment rates while the long run level of emigration was determined largely by the relative wage

quantitative versus qualitative growth with recyclable resource we reassess the issue of limits to growth in an endogenous growth model of a decentralized economy where final productions require a recyclable essential material input the model follows a material balance approach and relies on technological assumptions consistent with the material balance principle and on explicit distinction between the material content and the quality of produced goods growth follows from research activities that allow firms to improve the quality of their output and to reduce the material resource intensiveness of their production process even though recycling is assumed perfect we show that 1 the material balance constraint affect the whole transitory dynamics of the growth process 2 quantitative growth i e positive growth of material output can only be a transitory phenomenon long term economic growth taking exclusively the form of perpetual improvements in the quality of final goods a long term growth path is characterized by constant values of material variables or in a less favorable scenario by a constant negative growth rate of those variables we establish the existence conditions of a growth path based on quality improvements and constant material variables it may fail to exist in a decentralized framework even though it is quite feasible from a purely physical point of view

living and dying with hard pegs the rise and fall of argentina s currency board the rise and fall of argentina s currency board shows the extent to which the advantages of hard pegs have been overstated the currency board did provide nominal stability and boosted financial intermediation at the cost of endogenous financial dollarization but did not foster monetary or fiscal discipline the failure to adequately address the currency growth debt trap into which argentina fell at the end of the 1990s precipitated a run on the currency and the banks followed by the abandonment of the currency board and a sovereign debt default the crisis can be best interpreted as a bad outcome of a high stakes strategy to overcome a weak currency problem to increase the credibility of the hard peg the government raised its exit costs which deepened the crisis once exit could no longer be avoided but some alternative exit strategies would have been less destructive than the one adopted

mixed forests and finance methodological approaches abstract mixed forest ecosystems show effects of risk compensation similar to diversified portfolios of stocks other than portfolios of stocks the composition of long lived forests cannot be adjusted at short notice to current market developments thus the financial robustness of tree species portfolios is very important however it is still an open question which financial approaches are appropriate to evaluate the financial robustness of mixed forests compared to single species forests this paper analysed various possibilities to assess portfolios of tree species namely the mean variance mv approach applied for the selection of optimal portfolios the second order stochastic dominance ssd criterion and the information gap approach for the numerical analysis existing financial data on norway spruce picea abies l karst and european beech fagus sylvatica l were used which were generated by monte carlo simulations mcs under risk regardless of the analysed approach in all cases pure forests did not outperform mixed forests the mv approach was restricted by the assumption of normally distributed financial returns it had the tendency to favour larger proportions of the high risk species norway spruce ssd was only able to distinguish between the efficient and the inefficient portfolios it showed that forests with less than 20 financial returns generated by mcs or less than 30 normally distributed financial returns of norway spruce were inefficient under information gap modelling the advantages of risk compensation in mixed forests became clearest under the given assumptions the financial robustness of a mixed forest 50 european beech and 50 norway spruce was between 4 and 18 times greater than that of pure norway spruce modern information gap modelling is very similar to the well known safety first rules and as such it is not that novel to financial optimisation as it seems at the first glance although the information gap theory resulted in the same rankings as the minimisation of the estimated probability of failure it nevertheless proved to be useful as a supplement to the other methods against the background of severe uncertainty inherent in long term decision making in forestry information gap modelling is based on appropriate assumptions it favours a decision which promises the greatest tolerance to possible errors in the available information while still guaranteeing a minimal acceptable financial result in principle classical safety first rules do the same however the information gap model is able to quantify the immunity of a decision against errors in the estimated financial data from a theoretical point of view this approach provides a supplementary and methodologically sound opportunity to incorporate severe uncertainty in decision making

entropy limits to growth and the prospects for weak sustainability in this paper we analyze the consequences of mass and energy conservation and the second law of thermodynamics for economic activity in contrast to former studies we deduce our results formally from a general model of production and consumption we show that in a static setting for economies containing irreversible processes a non zero resource input as well as non zero emissions are necessary to sustain a positive level of consumption we generalize this result to a dynamic setting and apply it to the growth discussion and the sustainability discourse thereby we show that limits to growth of production and consumption are likely to exist and that the concept of weak sustainability is either morally unattractive or physically infeasible d 2005 elsevier b v all rights reserved

spillover effects of germany s final demand on southern europe we use data from the world input output database to fit a closed multiregional input output model in order to estimate the size of spillover effects of germany s final demand on gdp employment and the trade balance in southern european countries we find that spillover effects are rather small germany alone will hardly make a significant contribution to the external adjustment process in the european south

quasi option value some misconceptions dispelled abstract we discuss a couple of important issues in the recent literature on quasi option value we show that the assertion that quasi option value can be negative in a model with independent learning is based on confusion between quasi option value which is always positive and the net benefit of preservation of a natural environment subject to development which is not we also explore the significance of different assumptions about the nature of learning and show that the result that quasi option value is positive is surprisingly robust

equilibrium growth of the hierarchical firm shareholder employee cooperative game approach in recent years an implication of a classic paper by wassily leontief 1946 that is the possible inefficiency of the profit maximization principle within a certain bargaining framework has attracted the attention of economists faced with the increased possibility of such inefficiency due to the emergence of firm specific employment structures in large enterprises explorations into the possible modes of efficient and or equilibrium bargains over wage employment constellations have become a topic of recent research by economists most notably robert hall and david lilien 1979 and ian mcdonald and robert solow 1981 among others this paper investigates a similar and related problem supposing that the firm internalizes its own employment structure organized on the seniority principle is the value maximization rule for investment decision making efficient if it is not can we determine the proper rule for striking a balance between the time preference of the shareholder body and that of the employee body this problem will be dealt with in the framework of the cooperative game model of the firm as developed in my 1980 paper it will be shown that lower investment rationing of new jobs and higher pay rates are the consequences of a shift in the power balance within the firm in favor of the incumbent employees vis a vis the shareholder body this analysis will attempt to provide an integrated micro explanation of a widely observed macro phenomena in the 1970 s that is the negative relationship between the real wage and capital accumulation or between the real wage and employment see for example edmond malinvaud pentti kouri and jeffrey sachs the plan of the paper is as follows section i describes the model of the corporate firm internalizing employment structure hierarchically ordered upon the seniority principle section ii derives the coalitional equilibrium values of the endogenous variables of the model as a cooperative game solution it is shown that in the determination of the equilibrium growth rate of the firm gains from growth of the firm accruable to employees in the form of possible promotions must be taken into account to a degree determined by the power balance between the shareholders and the incumbent employees but under what types of institutional mechanisms can the time preference of employees be incorporated into the corporate policymaking section iii describes three highly stylized institutional models of shareholderemployee manager relationships with a view to their efficiency implications the appendix gives some technical results

when credit bites back using data on 14 advanced countries between 1870 and 2008 we document two key facts of the modern business cycle relative to typical recessions financial crisis recessions are costlier and more credit intensive expansions tend to be followed by deeper recessions in financial crises or otherwise and slower recoveries we use local projection methods to condition on a broad set of macro economic controls to study how past credit accumulation impacts key macro economic variables such as output investment lending interest rates and inflation the facts that we uncover lend support to the idea that financial factors play an important role in the modern business cycle

a reexamination of the role of thermodynamics for environmental economics abstract as the discussion about the role of thermodynamics in environmental economics has not led to a conclusion yet a more fundamental approach seems to be necessary which also takes into consideration the relationship between economics and the natural sciences in general to this end value theory is chosen as a starting point because it is the centerpiece of every economic theory it is shown that neoclassical environmental economics suffers from serious deficiencies because of its value concept heedlessly copied from classical mechanics thermodynamics can be expected to be helpful to redress these defects because the economy can be thought of as a dissipative structure dependent on its environment the obvious way to integrate thermodynamics consists in the formulation of thermodynamic constraints to complement neoclassical environmental economics but this approach remains unsatisfactory because the neoclassical mechanical hardcore is incompatible with the entropy law and its implications evidently the neoclassical paradigm and its value concept have to be given up but the alternative of the energy theory of value must be rejected because its determinism cannot be reconciled with the richness of human behaviour as thermodynamic analogies offer no solution either there is a dilemma between the necessity and the apparent impossibility of adequately integrating thermodynamic concepts it turns out that a normative inconsistency is responsible which is due to the demand for intergenerational justice therefore the integration of thermodynamics into environmental economics hinges on a meta economic value decision if sustainability is adopted as the guiding principle the insights of thermodynamics call for a macro economic environmental policy setting absolute limits to the economy but this macro policy is incompatible with neoclassical economics so that a social reconstruction of economics based on a social theory of value becomes necessary in sum thermodynamics is important for environmental economics besides fulfilling a general heuristic function it also fulfils a decisive conceptual and an analytical function insofar as it helps to justify sustainability and to operationalize macro economic environmental policy

economics and sustainability balancing trade offs and imperatives the concept of sustainability has been increasingly invoked in scholarly and public policy debates discussion has been hampered however by uncertainty and lack of uniformity in the meaning of sustainability this paper seeks to identify some common ground among economists ecologists and environmen tal ethicists two issues seem salient require ments for intergenerational and the defi nition of social capital to be provided to future generations a concept of safe minimum standard which has received at least some recognition in the ecology philosophy and eco nomics literatures may provide the beginnings of a common ground for debate about sus tainability jel q2

intergenerational transfers and the social discount rate this paper investigates the relationship between intergenerational asset transfers and the choice of the discount rate for use in cost benefit analysis in a model of a competitive overlapping generations economy constrained by a socially managed exhaustible resource provided that there are no distortions in capital markets and that all agents hold perfect foresight cost benefit techniques will result in a pareto efficient resource allocation if the discount rate is set equal to the market rate of interest but since the path of the interest rate depends on the level of intergenerational transfers cost benefit techniques do not ensure a socially desirable distribution of welfare between generations a social optimum will result only if intergenerational transfers are properly chosen and enforced decentralized private altruism may result in intergenerational transfers that both present and future individuals would agree are too small if members of the present generation attach positive weight to the general welfare of future generations not simply their personal descendants in a world where intergenerational transfers are non optimal second best policy making may imply a constrained optimum that is inefficient together these findings suggest that cost benefit analysis is at best a partial criterion to policy formulation that should be used only in conjunction with ethical principles that define the proper distribution of welfare between present and future generations

great expectations and the end of the depression what ended the great depression in the united states this paper suggests that the recovery was driven by a shift in expectations this shift was triggered by president franklin delano roosevelt s fdr policy actions on the monetary policy side roosevelt abolished the gold standard and announced an explicit policy objective of inflating the price level to pre depression levels on the fiscal policy side roosevelt expanded real and deficit spending which helped make his policy objective credible the key to the recovery was the successful management of expecta tions about future policy roosevelt s rise to power is modeled as a policy regime change as in thomas sargent 1983 and peter temin and barry wigmore 1990 this paper formalizes temin and wigmore s argu ment in a repeated game setting using a dynamic stochastic general equilibrium dsge model and argues that the regime change can account for the recovery in the model a regime change means the elimination of certain policy dogmas that constrain the actions of the government the regime change generates an endogenous shift in expectations due to a coordination of mon etary and fiscal policy this coordination ended the great depression by engineering a shift in expectations from contractionary i e the private sector expected future economic contrac tion and deflation to expansionary i e the public expected future economic expansion and inflation the expectation of higher future inflation lowered real interest rates thus stimulating demand while the expectation of higher future income stimulated demand by raising permanent income

from great depression to great credit crisis similarities differences and lessons the great depression of the 1930s and the great credit crisis of the 2000s had similar causes but elicited strikingly different policy responses while it remains too early to assess the effectiveness of current policy it is possible to analyse monetary and fiscal responses in the 1930s as a natural experiment or counterfactual capable of shedding light on the impact of current policies we employ vector autoregressions instrumental variables and qualitative evidence for 27 countries in the period 1925 39 the results suggest that monetary and fiscal stimulus was effective that where it did not make a difference it was not tried they shed light on the debate over fiscal multipliers in episodes of financial crisis they are consistent with multipliers at the higher end of those estimated in the recent literature and with the argument that the impact of fiscal stimulus will be greater when banking systems are dysfunctional and monetary policy is constrained by the zero bound miguel almunia agustin benetrix barry eichengreen kevin h o rourke and gisela rua

is the entropy law relevant to the economics of natural resource scarcity comment abstract jeffrey t young s critique of the work of nicholas georgescu roegen and herman e daly questions the relevance of the entropy law for economic analysis and provides a concise faithful summary of the positions of georgescu roegen and daly along the way however young produces an alternative model of natural resource depletion that is based upon questionable interpretations of the laws of thermodynamics in particular young s claim that natural resource economics can be divided into conservation law orientations and entropy law orientations and his claim that the entropy law pertains to energy but not to matter seem unsupportable from a scientific view

on the intergenerational allocation of natural resources it is known hartwick and others that under standard assumptions a society that invests in reproducible capital the competitive rents on its current extraction of exhaustible resources will enjoy a consumption stream constant in time it is shown here that this result can be interpreted as saying that an appropriately defined stock of capital including the initial endowment of resources is being maintained intact and that consumption can be interpreted as the interest on that patrimony this seems like a useful rule of thumb for policy

the extraction of natural resources the role of thermodynamic efficiency abstract the modelling of production in microeconomics has been the subject of heated debate the controversial issues include the substitutability between production inputs the role of time and the economic consequences of irreversibility in the production process a case in point is the use of cobb douglas type production functions which completely ignore the physical process underlying the production of a good we examine these issues in the context of the production of a basic commodity such as copper or aluminium we model the extraction and the refinement of a valuable substance which is mixed with waste material in a way which is fully consistent with the physical constraints of the process the resulting analytical description of production unambiguously reveals that perfect substitutability between production inputs fails if a corrected thermodynamic approach is used we analyze the equilibrium pricing of a commodity extracted in an irreversible way we force consumers to purchase goods using energy as the means of payment and force the firm to account in terms of energy the resulting market provides the firm with a form of reversibility of its use of energy under an energy numeraire energy resources will naturally be used in a more parsimonious way

indicators of sustainable development some lessons from capital theory abstract interest in sustainable development has prompted a search for suitable indicators that might complement or supplant the traditional measures of economic success although there is no agreement about the precise meaning of sustainable development one idea which is increasingly in good currency is that sustainable development requires that the stock of capital that one generation passes on to the next be maintained or enhanced further this stock of capital is seen by some to comprise two elements manufactured capital and natural capital the extent to which these are believed to be substitutes or complements is one factor which separates the neoclassical school from some of its critics a premise of this paper is that if capital theory is relevant to sustainable development then it should also be helpful in developing indicators however even within the normal confines of economics capital theory is not a homogeneous body of analysis therefore an exploration of capital theory and its relevance to sustainable development can be expected to generate various perspectives on those measures most useful for gauging the sustainability of economic activity it is these linkages between capital theory in various schools of thought and possible indicators of sustainable development that are the subject of this paper

wage adjustment under low inflation evidence from u s history data from recent years indicate that employers are especially unlikely to cut the nominal wage rate paid for a job adjustments to real or relative wages that require absolute cuts in money wages are very rare relative to the frequency one might expect to observe based on distributions of wage changes that do not require money wage cuts erica l groshen and mark e schweitzer 1995 1997 david e lebow et al 1999 a worker who remains with the same employer from one year to the next is accordingly unlikely to report an absolute reduction in the nominal wage he receives david card and dean hyslop 1997 shulamit kahn 1997 joseph g altonji and paul j devereux 1999 the existence and causes of downward nominal wage rigidity have implications for macroeconomic outcomes and for practical issues in monetary policy presumably efficient operation of labor markets requires many downward adjustments of relative wages and occasional decreases in the overall wage level relative to product prices if the average rate of wage inflation were close to zero some of these relative or real wage adjustments would be blocked by a floor under current levels of nominal wage rates george a akerlof et al 1996 assert that downward nominal wage rigidity reflects fundamental preferences of workers and argue that it implies a central bank should target a rate of price inflation greater than zero because a target of zero inflation will impose permanent real costs on the economy p 2 the notion that downward nominal wage rigidity is a fundamental constraint so that inflation serves to grease the wheels of the labor market is controversial even among those who accept the possibility of nominal rigidities in general it has been argued that downward nominal wage rigidity as distinct from such phenomena as menu costs which would discourage adjustment of a wage in either direction david romer 1993 may be an artifact of an inflationary monetary regime and would disappear in the absence of persistent inflation nominal wage reductions would no longer be seen as unusual if the average nominal wage was not growing workers would not see them as unfair and firms would not shy away from imposing them robert j gordon 1996 p 62 see also n gregory mankiw 1996 william poole 1998 william b english 2000 to see whether downward nominal wage rigidity would exist in a noninflationary regime it may be useful to examine data from times and places where there was no persistent wage inflation for the united states at least that excludes data from years since the second world war throughout the postwar period price inflation or real wage growth has been sufficient to keep average wage inflation above zero before the second world war on the other hand long run trend rates of price inflation were often close to zero or negative robert b barsky 1987 if wage inflation was correspondingly low u s historical data may offer tests of the proposition that downward nominal wage rigidity exists even in noninflationary

research frontiers in the economics of climate change academic and policy debates over climate change risks and policies have stimulated economic research in a variety of fields in this article i briefly discuss eight overlapping areas of current research in which further effort is particularly warranted these areas include decision criteria for policy risk assessment and adaptation uncertainty and learning abatement cost and the innovation and diffusion of technology and the credibility of policies and international agreements further analysis in these areas not only will advance academic understanding but also will provide insights of considerable importance to policymakers

entropy and natural resource scarcity a reply to the critics abstract the paper reaffirms the author s view that entropy is not relevant to the economics of natural resource scarcity once system boundaries are carefully defined entropic considerations are either already incorporated into relative price information or represent such a long run constraint as to be irrelevant to foreseeable human welfare while matter and energy both undergo entropic dissipation it is argued there is an asymmetry in that energy can be imported to recycle matter but the converse importing matter to recycle energy is pure science fiction therefore an open system such as the earth can maintain any level of organization

stability without a pact lessons from the european gold standard 1880 1914 stability pacts european lessons from the gold standard the gold standard was a system of fixed exchange rates that offered little opportunity for carrying out monetary policies short of suspending gold convertibility trade integration and capital mobility were very high it is worthwhile asking whether there are useful lessons to draw for emu from european experience during that period one clear lesson is that debts matter another basic finding is that the stability of the european gold standard depended on the underlying price trend deflation prior to 1895 resulted in rising public debt burdens which forced some countries to leave the system once gold was discovered and deflation gave way to inflation real interest service fell debts grew more slowly and a high degree of convergence allowed most countries to return to gold for emu this result implies that stability will hinge on the ecb s policy not being too restrictive other lessons concern the fragility of institutions in the face of deep public finance difficulties the risks for the single market of leaving out countries that have not fully converged and the existence of a virtuous cycle including low real interest rates fast growth and debt reduction marc flandreau jacques le cacheux and frederic zumer

is sustainability optimal examining the differences between economists and environmentalists abstract this paper examines a number of possible explanations for the apparent differences between economists and environmentalists concerning economic growth and sustainable development some of the differences are well known and relate to issues such as resource scarcity intergenerational equity and the composition of social capital however our analysis finds that while economic notions of optimal growth and the techniques of benefit cost analysis have important advantages for evaluating complex tradeoffs because they are quantifiable they may have potentially serious drawbacks as well the paper focuses on two potential sources of bias in the use of welfare economics for social choice first there is a conservative reinforcement in benefit cost analysis which is likely to produce biases against policy interventions to protect a degraded environment second and perhaps more importantly the aggregation of individual willingness to pay as a measure of social benefits is shown to be invalid in the case of positional goods where the demand for the good reflects the desire of individuals to raise their own relative standing this error may cause the economic calculus to be biased against non positional goods including non rival goods such as environmental resources these biases further complicate the already strained assumptions in utilitarian based welfare economics that by relying on revealed preference and consumer sovereignty are unable to distinguish between or apply different weights to the satisfaction of different categories of preferences furthermore because the dynamic consequences of even small biases in judging social optimality may give rise to large social costs or advance an unsustainable path there is a danger in relying solely on a potentially biased measure of welfare as a basis for guiding social choice the paper concludes by suggesting that efforts to correct these drawbacks of economic analysis are likely to result in approaches to sustainable development that narrow the apparent differences between economists and environmentalists

rawlsian intergenerational justice as a markov perfect equilibrium in a resource technology the rawlsian maximin criterion is combined with nonpaternalistic altruistic preferences in a nonrenewable resource technology the maximin programme is shown to be time inconsistent for a subset of initial conditions a solution to this intergenerational conflict is found under a given assumption as a generically unique subgame perfect equilibrium

intergenerational competitive equilibria under technological uncertainty and an exhaustible resource constraint abstract this paper presents a model of competitive intertemporal equilibrium in a finite horizon overlapping generations economy facing technological uncertainty and an exhaustible resource constraint individuals form rational expectations regarding future prices and economic conditions and income is redistributed from one generation to the next through government mandated lump sum transfers under uncertainty the relationship between resource price appreciation and the interest rate is mediated by consumers risk aversion with respect to consumption in alternative states of nature the intuitively appealing proposition that the expected resource price rises at the expected rate of interest holds only as a special case if future generations are taken to be state contingent in the sense that their composition depends on the states of nature prevailing when they are born then equilibria are generally pareto efficient but if future generations are state independent so that the set of individuals born at a given date is independent of the prevailing state of nature then equilibria may be inefficient because markets do not exist where successive generations may equilibrate their marginal rates of substitution across consumption in alternative contingent states such inefficiencies may be remedied through the implementation of appropriate intergenerational transfers an optimal intergenerational welfare distribution may be supported as a competitive equilibrium if the income transfer regime is properly selected and enforced the social optima that result for a simple version of the model under the maximin welfare criterion indicate that greater sacrifices are required on the part of the present generation when future generations are taken to be state contingent than when they are regarded as state independent this finding provides a possible explanation for the extreme risk aversion of conservationists with respect to the welfare of future generations

conservation of mass and instability in a dynamic economy environment system abstract this paper considers a variant of the neumann leontief sraffa general equilibrium models in the context of a jointly determined economy environment system subject to a conversation of mass condition it shows that the conservation of mass contradicts the free disposal free gifts and non innovation assumptions of such models that an expanding economy will be associated with continuous disequilibrating change in the material transformations of both economy and environment and that this change is uncontrollable through the price system

choices without prices without apologies valuing is usually regarded as a process of compressing information about attributes into a single metric armed with this reduced form of compact information the consumer can consider a particular object with a particular price attached or implied and make an informed decision but the process of valuing is less straightforward than we ordinarily suppose when environmental goods and services become the object of information compaction it is possible that important information is lost we comment on the choice problem germane to environmental goods and services and challenge the presumption that environmental choices made without explicit pricing are inferior to those in which hypothetical valuation studies are undertaken

net national product as an indicator of sustainability net national product nnp can potentially serve several objectives among others to measure value added and to be an indicator of welfare in the aftermath of the world commission on environment and development however it also seems important to investigate whether the concept of nnp can serve as an indicator of sustainability my point of departure following hicks 1946 ch 14 is therefore to require that nnp should measure what can be consumed in the present period without reducing future consumption possibilities and in line with this to argue that the nnp should equal the maximum per capita consumption level that can be sustained if sufficiently many facilitating assumptions are made then a concept of nnp that serves as an exact indicator of sustainability can easily be constructed for instance for a closed economy with a constant population a stationary technology and with only one capital good it follows that the present does not reduce future consumption possibilities if and only if it does not decrease the stock of the single capital good hence under the assumption that the one capital good k is identical to the one consumption good x nnp defined as y x k measures the maximal sustainable consumption at time t because then x y is equivalent to k the purpose of this note is to establish that with multiple capital goods it is not in general possible to construct an exact indicator of sustainability on the

business cycles in international historical perspective business cycle models seek to answer the question of why economies go through cycles of recession and recovery or boom and bust any theory of the business cycle makes two sorts of claims what shocks are most important in disturbing the economy and what economic structure is necessary for propagating these shocks for example one common explanation of business cycles begins with monetary shocks and then seeks to explain why monetary shocks are not purely neutral as neoclassical theory would have it and instead have real effects at least in the short term early models in this vein were often implicitly or explicitly based on the proposition that markets do not clear continuously early equilibrium real business cycle theories instead emphasized the importance of real shocks especially to technology which may cause socially efficient fluctuations even when markets are always in equilibrium more recent models have attempted to marry the equilibrium approach to macroeconomics with the substantive keynesian ideas that money is not neutral and that economic fluctuations are costly new keynesian theories of the business cycle admit the possibility of a number of economic shocks including monetary and technology shocks but then focus on explaining how nominal price rigidities within the economy can turn these shocks into recessions or booms other models show that business cycles driven by keynesian animal spirits are consistent with rigorous microfoundations and rational expectations seeking empirical evidence for and against these various approaches we turn business cycle theories loose on perhaps the greatest macroeconomic laboratory

optimizing the shares of native tree species in forest plantations with biased financial parameters abstract addressing uncertainty is a key requirement to follow the principle of precaution in sustainable ecosystem management the maximization of worst case outcomes according to the maximin decision rule based on the two parameters mean and variance of a financial indicator is a prominent approach to integrate uncertainty in decision making in forestry the problem of selecting the optimum tree species combination for a forest plantation investment can be seen as a problem of optimal portfolio selection to be solved according to the maximin decision rule yet it is well known that portfolios computed from expected means and variances are highly sensitive to changes in the estimated parameters the financial results may be poor if we rely too much on the historical data this paper tests an extended worst case model that considers a lower bound for the expected mean net present value npv of a tree species portfolio and an upper bound for its variance biased expected mean npvs variances and correlations for the tree species picea abies l karst spruce and fagus sylvatica l beech were used to test the variability of the resulting tree species portfolios 27 scenarios a comprehensive simulated data set which was adopted from an existing study and defined as the independent reference served to evaluate the financial performance of the tree species portfolios obtained from optimization with the biased data compared with the results of classical worst case optimization instances it was feasible to reduce the variability of tree species shares effectively when the optimization was carried out with the extended worst case approach furthermore the financial performance of this approach was better when tested with the independent data the worst case forest npvs achieved with the extended approach were on average 10 statistical confidence 0 95 or 147 statistical confidence 0 99 greater in comparison to the results of the classical approach the influence of the uncertainty parameter selection was tested and the results were discussed against the controversial viewpoints on the usefulness of the information gap decision theory finally the significance of our results for sustainable ecosystem management is pointed out

georgescu roegen s flow fund theory of production in retrospect abstract this paper provides a synthetic account of georgescu roegen s flow fund theory as a contribution to the history of ecological economics it reconstitutes georgescu roegen s perspective on production and its relationships with other frameworks such as the neoclassical production function and input output tables the overall purpose is to clearly establish the foundations of the flow fund theory and to introduce the research perspectives it opens for ecological economics the paper puts particular emphasis on the relationships between the flow fund framework and two other aspects of georgescu roegen s thought first his methodological perspective on economics and the role of mathematical models allows for a better understanding of the foundations of the flow fund theory second this framework incorporates georgescu roegen s interest in the physical dimension of the economic process and the implications of the laws of thermodynamics overall the paper concludes that the flow fund theory has solid foundations and thus represents a credible alternative to standard theories of production however in order to show how this framework can shed light on contemporary issues in ecological economics more applications are needed especially at the theoretical level the main challenge for future research is to develop such applications while trying to be faithful to the foundations of the flow fund theory

economics for sustainable rural systems abstract critics often reproach the discipline of economics for supporting developments that result in environmental and social degradation this article identifies where such censure is valid but proceeds to argue that the rationale underlying economic techniques is at fault rather than the techniques themselves within the rural context we suggest that economics can make a valuable contribution to the design and achievement of sustainable ways of living valid criticism of economics focuses on its assumptions about value since this has led to emphasis of favourable effects of markets and laissez faire policies exposing rural areas to more rigorously competitive market conditions encourage their transformation by increasing mechanisation industrialisation and a less sustainable use of resources new approaches and policies are required if different outcomes are to be achieved an initial step is to identify desirable outcomes a matter of social choice however society makes multiple demands on rural resources and such issues cannot be adequately captured within a neo classical welfare model an alternative hierarchical framework in the tradition of systems thinking capable of analysing the complex relations associated with rural resource use provides appropriate emphasis to the economic links between goals at different levels within the system and appears to have some heuristic value an empirical counterpart of the hierarchical framework input output analysis generates information to support social choices and can also contribute to the understanding of economic systems and their interaction with the wider social cultural ethical and environmental universe the article concludes with some revised economic policy prescriptions to promote rural sustainability

behavior of participatory firms in yugoslavia lessons for transforming economies this paper develops a multiparty model of enterprise behavior with the management workers and government authorities being the decisionmakers the model captures the behavior of yugoslav enterprises in the 1970s and 1980s enterprises in transitional economies and public sector bargaining in western countries estimating the model on yugoslav firm level data from the 1970s and 1980s indicates that the perverse behavior predicted by the ward domar vanek model of labor managed firms is not supported by the data as firms place emphasis on both wages and employment a direct test shows that the employment response to output price changes is insignificant coauthors are jan svejnar dubravko mihaljek and vesna prasnikar copyright 1994 by mit press

towards an ecological economics of sustainability abstract persistent disagreement both as to the interpretation to be given to sustainability and as to the relation between ecological and economic sustainability has hindered the development of an ecological economics of sustainable resource use this paper identifies the main concepts of sustainability deriving from the two disciplines in order to explore the difference implied by an ecological approach to the problem it is argued that present economic and ecological approaches are largely disjoint and that they address basically different phenomena by combining the efficiency requirements of what is usually thought of as economic sustainability with the stability requirements of an ecological approach it is shown that an intertemporally efficient allocation of resources that satisfies the conditions for constant levels of consumption is not necessary to assure ecological sustainability ecological sustainability requires that the allocation of economic resources should not result in the instability of the economy environment system as a whole

the conditions for achieving environmentally sustainable development this paper is interested in the narrower interpretation the relationship between environmental quality and sustainable economic activity the latter is interpreted as that level of economic activity which leaves the environmental quality level intact with the policy objective corresponding to this notion being the maximization of net benefits of economic development subject to maintaining the services and quality of natural resources over time 3

governing uncertain and unknown effects of genetically modified crops this paper analyzes the capabilities of three different governance regimes for adequately handling uncertain and unknown effects of genetically modified gm crops adequate handling requires the development of sound procedures for identification of uncertainty and ignorance ui gm crops are produced by private firms and the government decides whether the crops should be marketed gr2 and gm crops are produced and the government decides whether the crops should be marketed gr3 the effect of bringing the civil society into the decision making process is also analyzed gr3 will be stronger in cooperative adaptation and communicative rationality than gr2 public research organizations have fewer conflicts of interest with the government than private firms and academic norms are important difficulties in proving harm and identifying the responsible firm will make gr1 weak in cooperative adaptation and communicative rationality

stuck on gold real exchange rate volatility and the rise and fall of the gold standard 1875 1939 abstract did the gold standard diminish macroeconomic volatility supporters thought so critics thought not and theory offers ambiguous messages hard regimes like the gold standard limit monetary shocks by tying policymakers hands but exchange rate inflexibility compromises shock absorption in a world of real disturbances and nominal stickiness a model shows how lack of flexibility affects the transmission of terms of trade shocks evidence from the late nineteenth and early twentieth century exposes a dramatic change the classical gold standard did absorb shocks but the interwar gold standard did not supporting the view that the interwar gold standard was a poor regime choice

entitlements missing markets and environmental uncertainty reply abstract at one level dore and ward seem intent on immunizing received doctrine they say that i did not prove that rights violated nozick s principles of justice and that i did not prove that missing markets were the problem more telling they allege i did not prove that my story was better than the particular story favored by dore and ward that is they argue that there is an alternative approach based on the theory of public economics which is indeed operational 3 they then use the bulk of their comment to explain and defend this alternative model they hope to convince the reader that the model of public economics survives intact in the face of my alternative model to the extent that their model allows one to define the problem away it is not difficult to see why they find it so compelling more seriously dore and ward fail to make a coherent argument about the concept of rights and duties and the logic of a particular rights structure that happens to prevail they seem concerned that my article was tampering with some sacred social construct the status quo rights structure and that my article threatened the received wisdom of both public economics and paretian walrasian bliss indeed theirs seems to be a genuine fear that if economists release their grip on the certitude of received orthodoxy the floodgates will be open to all manner of bumbling regulators seeking to shift rights and wealth positions across generations my article is apparently threatening because it seems to suggest that the received wisdom may at times be misleading

internal bargaining labor contracts and a marshallian theory of the firm the theme of this paper is due to alfred marshall who states that nearly the whole income of a business may be regarded as a composite quasi rent divisible among different persons in the business by bargaining supplemented by custom and by notion of fairness and the division of quasi rents entails de facto some sort of profit loss sharing between almost every business and its employees principles of economics 8th ed book vi ch viii sec 10 pp 520 21 marshall emphasizes that a significant portion of composite quasi rent is derived from the organization of business and would be lost if employer employee connections were dissolved in this view bargaining can even be tacit insofar as there is an organizational basis which ensures agreement among the concerned parties consequently internal bargaining models of the firm may be applicable to the analysis of european style codetermination and japanese style labor management also as the relative bargaining strength between labor and management changes such a view of the firm admits as its extrema the organization of a labor managed firm lmf and the textbook case of a profit maximizing firm pmf masahiko aoki 1980 1982 and jan svejnar 1982 have recently explored models of an internal bargaining firm their analyses however consider the firm s long run behavior only under restricted circumstances without market uncertainty the relevance of the internal bargaining approach to profit sharing and labor management would be enhanced if we integrated the firm s short run wage employment policies with its long run plans for the rate of growth and capital labor substitutions this i do by underscoring the firm s organizational basis which is essentially a long term contractual association between workers and management i combine costas azariadis 1975 and martin baily s 1974 apparatus of labor contracting with efficient bargaining to investigate the effect of varying degrees of labor s bargaining power upon the firm s shortand long run policies under uncertainty these results are then contrasted with the empirical findings of collective bargaining for example richard freeman and james medoff 1981 conventional results of lmf models jaroslav vanek 1970 benjamin ward 1958 and the recent macroeconomic approaches to wage employment adjustments ian mcdonald and robert solow 1981

environmental constraints and sigmoid utility implications for value risk sensitivity and social status abstract friedman and savage journal of political economy 4 1948 279 proposed sigmoid utility theory to model the relationship between social class and risk sensitivity their proposal has not been explicitly modeled to allow for full testing of the concept we argue that sigmoid utility arises naturally from boundary conditions imposed by finite environmental resources that engender competition we also present a sigmoid formulation and examine its empirical warrant by considering economic data from anthropological historical and sociological cases studies standard risk sensitivity measures such as arrow pratt and downside risk aversion provide expectations for which individuals are most risk prone insights from prospect theory indicate under what conditions sigmoid utility may be most useful we consider the implications of environmental constraint in the context of the sigmoid model as an explanation for the nature of political turmoil during the collapse of maya civilization ca ad 850 we consider the role lack of constraint played in the american revolution and we explore how sigmoid utility can enrich our understanding of contemporary american voting behavior

nominal wage stickiness and aggregate supply in the great depression building on earlier work by eichengreen and sachs we use data for 22 countries to study the role of wage stickiness in propagating the great depression recent research suggests that monetary shocks transmitted internationally by the gold standard were a major cause of the depression accordingly we use money supplies and other aggregate demand shifters as instruments to identify aggregate supply relationships we find that nominal wages adjusted quite slowly to falling prices and that the resulting increases in real wages depressed output these findings leave open the question of why wages were so inertial in the face of extreme labor market conditions

production consumption and general equilibrium with physical constraints abstract this paper analyzes the consequences of integrating the conservation laws of mass and energy into the microeconomic models of production consumption and general equilibrium we show that abstract models and especially general equilibrium theory are consistent with these physical constraints but most applied and environmental economic models are not we analyze the consequences of physical conservation laws for substitution possibilities and show that these constraints limit the number of independent substitution processes but not the value of the substitution elasticities finally we propose a method for integrating physical constraints into static microeconomic models with a minimum of changes

when individual preferences defy sustainability can merit good arguments close the gap in this paper we discuss how merit good arguments may contribute to discussions about sustainability to this end we clarify how merit good arguments deviate from individual preferences and relate the justification for deviations from individual preferences to two conceptions of well being an informed preference satisfaction and a perfectionist conception building on this framework we analyze how merit good arguments can be helpful for discussing sustainability as justice what challenges merit good arguments pose to future generations and whether they can serve as a normative justification for green nudges the analysis yields two main insights first a reflection on the concept of merit goods is helpful in sorting out the different justifications that sustainability interventions may rely on in particular it allows separating the challenges of redistribution internalization of externalities and increasing individual consumption of particular merit goods such as health care or education more clearly second the precise notion of merit goods by itself however only offers a limited contribution and does not represent a blank check to justify deviations from individual preferences

models of modern sector labor market institutions in developing countries abstract the paper argues that policy conclusions derived from existing theories of economic development may be seriously flawed because the theories do not model correctly the modern sector labor market the paper first presents evidence that trade unions and governments frequently exert positive influence not only on firms wages but also on their employment levels it then presents models that capture this phenomenon and permit one to determine whether the observed levels of employment are insufficient optimal or excessive from the private and social standpoints the paper concludes with a discussion of how the analysis could be implemented in empirical studies and in practical policy work

the concept of weak sustainability abstract this paper surveys the links between growth theory with exhaustible resources and the concept of weak sustainability it examines the underlying assumptions behind this concept and questions the usefulness of the weak sustainability index as an indicator of sustainable development

revocability and reversibility in societal decision making abstract reversibility and irreversibility are poorly defined in the decision making literature defining reversibility as the ability to maintain and to restore the functional performance of a system is consistent with thermodynamics specification of its crucial terms is case dependent reversibility is coming in degrees from flexibility over rigidity to preclusion with irreversibility as an absolute end further substantiating reversibility considers three variables duration of impacts revoking costs and substitutability substitutability depends on weights assigned to the strict identity or to the functional performance of something valued for given degrees of substitutability revocability of an action is measurable in time dependent revoking costs together with future time and doubt reversibility sets a three dimensional context for societal decision making revealing domes of expanding complexity cost benefit analysis is a useful decision tool at lower complexity but falters at high complexity because there prevail non monetary trade offs a revival and proper use of the concept reversibility are recommended for improved dialog on major societal issues with climate change outstanding as the case where reversibility could turn into absolute irreversibility also shown is the correspondence between reversibility and ecological concepts like resilience lock in tipping points and others

implementing the new fiscal policy activism to many observers the current recession provides compelling circumstances for renewed fiscal policy activism but the strong support for fiscal policy intervention reflects a renewed belief in policy activism that had already appeared before the present crisis however the recent debate about possible fiscal policy interventions suggests that we are still relying on the approaches to discretionary policy used in past periods of policy activism it is not surprising that there have been few advances in discretionary policy design given the lack of favor such policy suffered over many years but if we are going to practice fiscal discretionary policy on a large scale then more attention to policy design is sorely needed this abstract was borrowed from another version of this item

trade and empire we employ a new database of over 21 000 bilateral trade observations from 1870 1913 to assess the contemporaneous effects of empire on trade our analysis shows that belonging to an empire roughly doubled trade relative to those countries that were not part of an empire the use of a common language the establishment of currency unions the monetisation of recently acquired colonies and the establishment of preferential trade agreements and customs unions help to account for the observed increase in trade associated with empire

optimal membership employment and income distribution in unionized and labor managed firms this article presents a static and dynamic intertemporal analysis of employment and income distribution in unionized and labor managed firms motivated by theoretical considerations and institutional features of western trade unions and labor managed firms we examine firms in which worker members share the risk of layoffs by acting as if compensating laid off members in the static framework we show that although the firms do not behave perversely their behavior depends crucially on the initial membership since the issue of optimal initial membership has been virtually ignored in the literature we analyze it next within a dynamic framework

fetters of gold and paper we describe in this essay why the gold standard and the euro are extreme forms of fixed exchange rates and how these policies had their most potent effects in the worst peaceful economic periods in modern times while we are lucky to have avoided another catastrophe like the great depression in 2008 9 mainly by virtue of policy makers aggressive use of monetary and fiscal stimuli the world economy is still experiencing many difficulties as in the great depression this second round of problems stems from the prevalence of fixed exchange rates fixed exchange rates facilitate business and communication in good times but intensify problems when times are bad

a regulatory framework for a policy of sustainability lessons from the neo liberal school abstract in this paper targets institutions and policy measures for describing and implementing sustainable development are evaluated in terms of their conformity with the economic framework of a market system from the viewpoint of neo liberal economic thinking as conceived by the german freiburg school of economists a general set of criteria is developed it includes issues of operationalization and legitimation of goals as well as institutional and instrumental issues on this basis general rules for designing an ecological framework guaranteeing the greatest possible degree of conformity with a market system are derived the concrete application of these rules leads to recommendations for a policy of sustainability with respect to the setting of goals the establishment of institutions as well as the use of appropriate instruments

internal or external devaluation what does the ec consumer survey tell us about macroeconomic adjustment in the euro area this paper explores the dynamics of national inflation expectations within the euro area during the recent crisis using the european commission s consumer survey we find that the strong anchoring of area wide inflation expectations which is typically found in the literature does not extend to individual member states we also measure the effect of the crisis on national inflation expectations using sovereign bond spreads and find that increases in sovereign risk have a significant negative effect on inflation expectations this suggests that consumers expect their country to adjust through a process of internal devaluation in contrast we find no evidence that tensions in the sovereign bond markets increase national inflation expectations as one would be expect under an exit or breakup scenario

georgescu roegen versus solow stiglitz daly is right to be concerned about our society s use of resources environmental degradation and the wasteful use of natural resources or any resources for that matter are of concern daly s tirade concerning our work seems motivated by two concerns a lack of consistency with basic laws of physics and the alleged implication that growth can continue unabated without eventually facing constraints imposed by the limited supply of natural resources part of the problem arises from a lack of understanding of the role of the kind of analytic models that we and others have formulated they are intended to help us answer questions like for the intermediate run for the next 50 60 years is it possible that growth can be sustained what does this possibility entail we write down models as if they extend out to infinity but no one takes these limits seriously for one thing an exponential increase in the population presents almost unimaginable problems of congestion on our limited planet in this intermediate run capital can substitute for natural resources and this is true even though capital itself uses resources more precise machines made out of resources that are relatively abundant can reduce wastage of resources that are relatively scarce technical change some of which is the result of investments in rd and increased efficiency in production may imply less wastage of bauxite and less coal or oil to produce the energy used to make a pound of aluminum or consider the resources that were required to run a regression only a half century ago pounds and pounds of heavy calculating machines replaced by mere ounces of a modern calculator changes in technology also allow us to recycle resources more efficiently so that the amount that is not recaptured for future production may be reduced perhaps the most important question is where does all of this lead us resources are scarce and markets when they function well reflect that scarcity economizing on the use of resources there are important instances especially where the environment and natural resources are concerned where markets do not work well there are for instance the classic problems posed by pollution externalities when markets do not

harvesting and conserving a species when numbers are low population viability and gambler s ruin in bioeconomic models abstract in bioeconomic models of renewable resources population viability is either ignored entirely or the minimum viable population mvp is considered a crisp threshold below which a species is driven to extinction neither is consistent with ecological science the purpose in this paper is firstly to enhance ecological realism in economic models by incorporating insights regarding population viability from conservation biology we consider the effects of chance on optimal management and briefly discuss key results regarding population viability as derived by biologists second as a means to balance interests and morality we suggest a fuzzy compromise between the economist s and the biologist s preferred stock sizes

catching up with the economy in his presidential address five years ago zvi griliches 1994 called attention to the severe difficulties that beset current attempts to measure the growth of labor productivity in the american economy because of these difficulties it is likely that the true rate of economic growth is substantially underestimated the root of the problem is the difficulty in measuring output in the service sector which now represents two thirds of the economy in such sectors as health care and information services the contribution to gross domestic product gdp is measured by inputs rather than outputs a procedure that makes it impossible to gauge accurately improvements in the quality of output thus in the case of computers which are transforming american society economists have been unable so far to find a measurable contribution of computers to the rise in labor productivity an astonishing paradox i want to follow up on this problem of mismeasurements my thesis is that the profession

managerialism revisited in the light of bargaining game theory abstract this lecture proposes to view the modern firm as a coalition of shareholders employees and business partners rather than to identify it with a single maximizer such as an entrepreneur this view may be thought of as a revival of the original thought of managerialism but tries to go further by analyzing implications of the interactions of those agents on the behavior of the firm in a bargaining game theoretic framework the lecture reviews the literature on game theoretic approaches to the theory of the firm and discusses a few important theoretical and institutional issues

sovereign risk credibility and the gold standard 1870 1913 versus 1925 31 author s obstfeld maurice taylor alan m abstract what determines sovereign risk we study the london bond market from the 1870s to the 1930s our findings support conventional wisdom concerning the low credibility of the interwar gold standard before 1914 gold standard adherence effectively signalled credibility and shaved up to 30 basis points from country borrowing spreads in the 1920s however simply resuming prewar gold parities was insufficient to secure benefits countries that devalued before resumption were treated more favorably and markets scrutinized other signals public debt and british empire membership were important determinants of spreads after world war one but not before

gaucho banking redux argentina s economic crisis has strong similarities with previous crises stretching back to the nineteenth century a common thread runs through all these crises the interaction of a weak undisciplined or corruptible banking sector and some other group of conspirators from the public or private sector that hasten its collapse this pampean propensity for crony finance was dubbed gaucho banking more than one hundred years ago what happens when such a rotten structure interacts with a convertibility plan we compare the 1929 and 2001 crises the two instances where rigid convertibility plans failed and reach two main conclusions first a seemingly robust currency board can be devastated by an ill conceived approach to the problems of internal and external convertibility or to rephrase gresham bad inside money drives out good outside money second when modern economic orthodoxy collides with caudillo style institutional backwardness a desperate regime with its hands tied in both monetary and fiscal domains will be sorely tempted by a capital levy on the financial sector for as willie sutton said when asked why he robbed banks because that s where the money is

irreversibility and uncertainty cause an intergenerational equity efficiency trade off abstract two important policy goals in intergenerational problems are pareto efficiency and sustainability i e intergenerational equity we demonstrate that the pursuit of these goals is subject to an intergenerational equity efficiency trade off our analysis highlights two salient characteristics of intergenerational problems and policy i temporal irreversibility i e the inability to revise one s past actions and ii uncertainty of future consequences of present actions in human environment systems we employ a two non overlapping generations model that combines an intragenerational production decision on the use of circulating capital and a non renewable resource with a negative intergenerational externality as an unforeseen contingency if initially unknown problems become apparent and policy is enacted after irreversible actions were taken policy making faces a fundamental trade off between ex post pareto efficiency and sustainability that is one can achieve either one of these two goals but not both

intergenerational resource rights efficiency and social optimality the discipline of economics is generally defined as the science of the allocation of scarce resources between competing social objectives given an initial distribution of resources between economic agents how would they behave so as to improve their welfare according to the pareto criterion the agents would exchange commodities until the opportunities for fruitful exchange were fully exhausted and no agent could be made better off without rendering at least one other agent worse off pareto efficiency is a powerful concept in microeconomic analysis provided that the initial distribution of property rights is equitable allocative efficiency gives rise to the best of all possible worlds acknowledging that the assumptions of perfect competition are often violated firms are monopolistic information is incomplete and externalities exist economists have argued for the modification of institutions so that economic reality will conform more closely to the assumptions of the model that yields such gratifying results but microeconomic theory has always maintained that allocative efficiency is in itself insufficient to maximize social welfare bator 1957 a social welfare function is required to discriminate a social optimum among the array of efficient allocations that correspond to alternative assignments of property rights though economists have posited alternative functional forms for the sake of pursuing conceptual arguments welfare functions have remained elusive constructs for well known theoretical and practical reasons consequently a sharp line of demarcation has been drawn between questions of efficiency the province of economics and equity the principal focus of ethical and political discourse in resource economics however the line demarcating efficiency and equity is often crossed the term optimal depletion appears regularly where only efficient depletion is meant while political debates about resource exploitation over time are laden with questions of the proper distribution of our natural patrimony between generations resource economists have predominantly espoused particular use rules that guarantee efficiency but overlook potential improvements in social welfare achievable through the reassignment of property rights across generations we document the evolution and current status of the misuse of the term optimal depletion in section ii we develop a simple two generation three period general equilibrium model in section iii to illustrate how alternative distributions of resource rights between generations relate to alternative pareto efficient solutions in section iv we demonstrate how different social welfare functions affect the optimal solution and associated assignment of resource rights between generations

environmental economics and ecological economics where they can converge abstract environmental economics and ecological economics share the common objective of understanding the human economy environment interaction in order to redirect the economies towards sustainability in pursuing this objective these two perspectives utilise different types of analytical framework and are opposed to each other on many of the fundamental theoretical and methodological issues while the environmental economics has progressed within a narrowly but sharply focused neoclassical analytical approach the ecological economics has expanded by adopting a diversified approach which led to widen the gap between the two this article makes an attempt to highlight the divergence between these two perspectives on different issues and identifies certain research avenues that would potentially bring convergence between these two perspectives

cross of euros the eurozone currently confronts severe short run macroeconomic adjustment problems and a deficient institutional architecture that has to be reformed in the longer run europe s efforts at economic and monetary union are historically unprecedented however the gold standard provides lessons regarding what will and won t work macroeconomically and politically in the short run while us history provides long run lessons regarding appropriate institutional structures the latter also suggests that institutional reform only happens at times of great crisis and that it cannot be taken for granted the eurozone s leaders may therefore ultimately have to take heed of the lessons of history regarding currency union breakups