the adoption of reduced tillage the role of human capital and other variables this paper presents a model of adoption behavior and explains differences econometrically in farmers decisions to adopt reduced tillage practices and in the efficiency of farmers adoption decisions the empirical results obtained from microdata show that the probability of adopting reduced tillage in corn enterprises differs widely across farms and depends on soil characteristics cropping systems and size of farming operation the results also show that farmers schooling enhances the efficiency of the adoption decision

banking in computable general equilibrium economies abstract in this paper we develop a computable general equilibrium economy that models the banking sector explicitly banks intermediate between households and between the household sector and the government sector households borrow from banks to finance their purchases of houses and they lend to banks to save for retirement banks pool households savings and they purchase interest bearing government debt and non interest bearing reserves we use this structure to answer two sets of questions one normative in nature that evaluates the welfare costs of alternative monetary and tax policies and one positive in nature that studies the real effects of following a procyclical interest rate policy rule

financial intermediary coalitions abstract in this article an environment in which the investment opportunities of agents are private information is studied and it is shown that financial intermediaries arise endogenously within that environment it is established that financial intermediaries are part of an efficient arrangement in the sense that they are needed to support the authors private information core allocations these intermediaries which are coalitions of agents exhibit the following characteristics in equilibrium they borrow from and lend to large groups of agents they produce information about investment projects and they issue claims that have different state contingent payoffs than claims issued by ultimate borrowers

inserting gm products into the food chain the market and welfare effects of different labeling and regulatory regimes the purpose of this article is to examine the system wide effects of the introduction of genetically modified gm products with and without labeling and to compare these two regimes to a third regime where gm products are not present either because they have not yet been developed or because they have been banned for each regime the decisions and welfare of consumers producers and life science companies are examined the article explicitly incorporates the consumer response to the introduction of gm technology and considers different market structures of the life science sector

integrating technology traits and producer heterogeneity a mixed multinomial model of genetically modified corn adoption this article proposes a model of technology adoption that integrates demand for individual traits of new technologies with the potential for heterogeneity based on farm and farmer characteristics the model is applied to recent genetically modified corn adoption data from minnesota and wisconsin farmers using a mixed multinomial logit mmnl model to estimate the effects of traits and farm and farmer characteristics on adoption outcomes this approach allows explicit recovery of estimates of farmers shadow prices for individual technology traits results show the importance of producer and regional heterogeneity in preferences for seed traits

sales practice and market evolution the case of virtual reality abstract this paper analyses how sales practices of industry pioneers influence the evolution of a new market with particular reference to the case of virtual reality vr in the underlying diffusion process the probability of a new user adopting this technology depends on the quality of experience enjoyed by existing users good sales practice is expensive but leads to a high proportion of satisfied users which is good for subsequent diffusion while suppliers may be tempted to hype up the technology to obtain additional sales in the short term those customers persuaded by hype are often dissatisfied with their experiences and that is bad for diffusion in the longer term the paper draws on a detailed study of the selling process in vr to develop a simulation model which is used to explore how sales practice influences adoption decisions customer satisfaction and the ultimate evolution of the market

adjustment to labor productivity an application to the economics of discrimination although issues of uncertainty and insurance often have been applied to the labor market few researchers have employed these approaches to the economics of discrimination the discrimination literature is essentially concerned with quantification of wage or employment differences that can be ascribed to either employer or employee distaste for minority or female workers generally wage or employment differences are dichotomized so as to represent respectively productivity and discrimination components following mincer 21 studies usually estimate personal and labor force determined hedonic earnings functions in order to apply chow tests to the separate sets of black white or malefemale coefficients significant differences in the coefficients are a priori evidence of discrimination

an analytical model of farmers demand for replacement seed the purchase of new seed of a variety that a farmer is already growing varietal replacement in general and varietal choice during periods of rapid technological change are examples of seed replacement choices a seed replacement choice differs from decisions about other inputs such as fertilizer or labor in that seeds can be repro duced for the next crop season benefits from the purchase of new seed can continue for sev eral years and purchased seed is a self sustain ing input although it is subject to depreciation replacement seed is therefore in some ways analogous to a capital item rather than a variable input agricultural economists in general have considered only the analysis of varietal choice with rapid technological change theoretical nowshirvani and empirical herath har daker and anderson gafsi and roe studies of varietal choice tend to model the farmer s de cision as a single period portfolio allocation of land between modern and traditional varieties thus the attributes of interest are yield mo ments of the yield distribution and occasionally other varietal characteristics other approaches to analyzing farmers choice of seed technology emphasize how a related input fertilizer tube wells affects the level and riskiness of return feder 1980 1982 prices risk the lumpiness of the associated inputs and possible credit con straints determine the portfolio choice over time in these models in none of these approaches is the more general case of demand for replace ment seed explicitly recognized this paper proposes an analytical model of the demand for replacement seed the model describes the factors that induce a farmer to re place seed and the optimal frequency of new seed purchase given myopic and infinite time hori zons the model is applied to wheat seed de mand in pakistan conclusions limitations and possible extensions of the model are also con sidered

interest rates and currency prices in a two country world abstract this paper is a theoretical study of the determination of prices interest rates and currency exchange rates set in an infinitely lived two country world which is subject both to stochastic endowment shocks and to monetary instability formulas are obtained for pricing all equity claims nominally denominated bonds and currencies and these formulas are related to earlier closely related results in the theories of money finance international trade

specialization the terms of trade and the international transmission of monetary policies the ricardian model with a continuum of goods is extended to a cash in advance environment with variable labor supply which allows domestic monetary policy to influence real activity through an inflation tax channel and to be internationally transmitted to real activity abroad the continuum of goods feature of the model allows for the international transmission of monetary policies to occur at both intensive and extensive margins at the intensive margin monetary policy is internationally transmitted via its impact on relative employment levels at home and abroad this in turn alters the terms of trade thereby affecting the range of commodities in which the home country has a comparative advantage monetary policies are thus transmitted at the extensive margin by influencing international patterns of trade and specialization

an exploration in the theory of exchange rate regimes three exchange rate regimes a float a one sided peg and a cooperative peg are evaluated and compared in terms of efficiency and welfare levels the framework of analysis embodies country specific monies with the money of each country being used to transact in its commodity markets and its currency denominated bonds welfare levels depend only on consumption levels in the presence of perfect foresight all equilibrium allocations are pareto efficient in a floating exchange rate regime the perfect foresight equilibrium allocation coincides with an equilibrium of a costless barter economy the same result holds in a one sided peg if the pegging country s exchange rate stabilizing authority breaks even over time in a cooperative peg regime there is a different equilibrium allocation for each combination of exchange rate levels and monetary policies problems of policy coordination and conflicts in desired monetary policies are discussed

innovation and imitation adoption of cocoa by indonesian smallholders abstract this paper presents evidence on the role of copying in the diffusion of a new crop the evidence is based on rural surveys carried out by the first author in regions in indonesia where in the 1980s a new crop cocoa had been introduced quantitative estimates of the role of copying are obtained which are then used to simulate the effect of copying on the timing of adoption of the crop

the roles of risk and ambiguity in technology adoption we study the impacts of risk and ambiguity aversion on the adoption of new technologies specifically genetically modified gm corn and soy seeds we conduct experiments measuring risk and ambiguity aversion with midwestern grain farmers risk aversion has only a small impact on the timing of adoption of gm soy while ambiguity aversion has a large impact speeding up farmer adoption of gm corn we hypothesize that this unusual finding is due to the fact that gm corn often contains an insect resistance trait which reduces the ambiguity of pest damages for adopters gm soy never contains this insect resistance trait this highlights the importance of distinguishing between risk and ambiguity when studying the effects of aversion to uncertainty on adoption of new technologies

on information and innovation diffusion a bayesian approach learning and information accumulation are hypothesized to play a major role in innovation diffusion for instance hiebert argues that the probability distributions of new and unfamiliar technological parameters as perceived by farmers will shift over time due to learning and experience probabilities will be redistributed from lower to higher payoffs this induces farmers to increase their use of the innovation which was new seed varieties in the hiebert model the model presented by kislev and shchoribachrach introduces in the new technology production function an efficiency factor which is positively related to learning it is approximated by the cumulative over time output produced with the innovative technology as learning increases the innovation becomes advantageous for more and more producers who then adopt it in a similar vein feder and o mara construct a diffusion process where uncertainty about an innovation high yielding varieties hyv depends on cumulative area allocated to hyv this represents experience with the accumulation of experience uncertainty declines and the innovation is adopted by an increasing proportion of producers these models produce sensible and empirically valid hypotheses about the dynamics of innovation diffusion however the accumulation of information which is the basic driving element in these models is not treated explicitly thus the use of cumulative output or a cumulative input as an index of learning while plausible still requires formal justification one possibility is a bayesian learning process indeed the work by o mara 1971 1981 and more recently by lindner fischer and pardey have utilized bayes theorem to characterize an individual farmer s adoption behavior

adoption of a politicized technology bst and wisconsin dairy farmers technologies that are the focus of extensive public debate prior to commercialization may have diffusion paths which are distinct from the classic sigmoid shape often used by economists descriptive and econometric analysis of ex ante and ex post data on bovine somatotropin use by wisconsin dairy farmers reveal that this controversial technology has a relatively low adoption rate and little prospect for adoption growth in the near future further research on potential adoption outcomes for technologies that are politicized prior to commercialization could improve economists predictive capacities

international financial intermediation and aggregate fluctuations under alternative exchange rate regimes this paper presents a two country overlapping generations model in which financial intermediation arises endogenously as an incentive compatible means of economizing on monitoring costs because of the existence of transactions costs money markets in the two countries are segmented and investors have differential access to international credit markets the model is used to generate predictions about the role of international intermediation in determining the nature of business cycle phenomena across alternative exchange rate regimes disturbances are propagated by a credit allocation mechanism which also lends a novel flavor to the model s long run properties

market structure uncertainty and intrafirm diffusion the case of optical scanners in grocery stores this study uses monthly data on the adoption of optical scanners by sixty three grocery chains in thirty two large u s cities to identify the determinants of the rate of intrafirm diffusion the methodology involves a two stage approach that relates market environment characteristics to the estimated rate of intrafirm diffusion the results indicate that firms with larger market shares adopt a new innovation scanners more quickly initially but diffuse the innovation through their stores more slowly than firms with smaller market shares in addition firms that lag competitors in the initial adoption of scanners tend to diffuse the innovation more quickly copyright 1992 by mit press

costly monitoring financial intermediation and equilibrium credit rationing abstract this paper establishes a link between equilibrium credit rationing and financial intermediation in a model with asymmetrically informed lenders and borrowers costly monitoring and investment project indivisibilities intermediation is shown to dominate borrowing and lending between individuals and these financial intermediaries exhibit several of the important features of intermediaries as we know them equilibrium interest rates and the aggregate quantity of loans respond quite differently to changes in taste and technology parameters depending on whether or not there is rationing in equilibrium

modeling multiattribute utility risk and belief dynamics for new consumer durable brand choice this paper proposes a brand choice model to aid in the prelaunch management of a new consumer durable entry in an existing category the model contributes to theory by integrating the critical phenomena of multiattribute preference risk and dynamics in an individual level expected utility framework the integration is based on established theoretical constructs in utility bayesian decision analysis and discrete choice theory measurement and estimation procedures are presented an application is described and the managerial relevance of this work as a planning and forecasting tool is examined

north south lending and endogenous domestic capital market inefficiencies abstract we develop an open economy model of intertemporal trade under asymmetric information capital market imperfections are endogenous and depend on a country s stage of economic development relative to the perfect information benchmark north south capital flows are dampened and possibly reversed and world interest rates are lower whereas riskless rates are equalized across borders the domestic loan rate is higher in poorer countries the model can be applied to a number of policy issues including the debt overhang problem the indexation of foreign public debts and the effect of income distribution on growth

the demand for information and the diffusion of a new product abstract the paper examines the implications of the ability of a consumer to learn about the characteristics of a new product on the diffusion of the product over time the demand for information by the consumer is shown to generate a sigmoid diffusion curve for total sales of the product further it is shown that over time the elasticity of demand along the diffusion curve increases

the effects of expectations on technology adoption some empirical evidence n rosenberg 1976 argues that in many markets prospective buyers for an innovation are strongly influenced by expectations concerning the timing and significance of future improvements the primary objectives of this article are to provide a model of the innovation decision process of user firms that expect improvements in current best technology and to offer an empirical study that tests the model s predictions among other results the author finds empirical support for rosenberg s argument and demonstrates theoretically that compared to models without technological expectations and learning the optimal decision process is nonmonotonic copyright 1994 by blackwell publishing ltd

endogenous market participation and the general equilibrium value of money we study the monetary theory implications of fixed costs associated with trade in private assets we show that with heterogeneous endowment profiles it is possible for an endogenous subset of agents to hold currency even when it is dominated in return by a competing asset with respect to positive issues in monetary theory the model implies that changes in the steady state growth rate of the money supply have a negative effect on real interest rates because of endogenous market participation measures on the normative side we show that there may be an equity efficiency trade off from monetary deflation

selection criteria for models with non uniqueness abstract three objections are considered to the use of mccallum s rules for picking the minimal state set solution in rational expectations models with multiple equilibria it is shown that these difficulties can be resolved using the concept of expectational stability as a selection criterion

complementarities in organizational design and the diffusion of information technologies an empirical analysis we use a specially designed survey on french firms located in haute savoie to provide empirical evidence suggesting that information and communication technologies adoption is not only influenced by the traditional factors of technology diffusion but also by complementarity effects between strategies organization and information technologies the data collected permitted several advances firstly we could study authentic ict while the recent literature has mainly focused on computer capital stocks or automation tools secondly we constructed measures of the determinants put forward by the models of technology diffusion thirdly we studied three kinds of practices organizational and strategic practices technological choices

technology adoption and agricultural price policy market interventions such as price supports or fertilizer subsidies can lead to gains from speeding up adoption of new technologies but the policies distort resource allocation a framework is developed for optimizing policies in light of the adoption allocation trade off based on adoption coefficients and production parameters from third world agriculture levels and duration of policies are estimated sensitivity analyses are performed gains are small at best and may be zero or negative in view of farmer costs of adjustment and deadweight losses from taxes profit technology adoption if new technologies are desirable why not use price supports or input subsidies to encourage faster technology adoption while frequently raised in policy deliberations this question has received little serious analysis particularly neglected has been the conflict or trade off between a gains in output as producers switch from old to new technologies and b the losses from resource use distortions brought about by price policies when output prices are raised or prices of inputs such as fertilizer are lowered the

adoption of agricultural innovations in developing countries a survey this paper reviews various studies which have provided a description and possible explanation to patterns of innovation adoption in the agricultural sector the survey points out that the tendency of many studies to consider innovation adoption in dichotomous terms adoption nonadoption may not be appropriate in many cases where the actual decisions are defined over a more continuous range more attention needs to be given to the socio cultural and institutional environment in area studies so that their interrelation with economic factors affecting adoption can be inferred the presence of several interrelated innovations is another aspect that needs to be considered more carefully in future research since a number of simultaneous decisions may be involved furthermore the possibility of regular sequential patterns in adopting components of a new technological package should be specifically addressed in future studies finally the impact of differential adoption rates on land holding distribution merits attention in future research

innovations and the economics of new technology spreading within and across users gaps and way forward r d subsidies are often considered the main policy tool to stimulate the competitiveness and the innovativeness of firms this is especially true for innovations designed to produce greener products or cleaner and more energy efficient technologies however a consistent literature has now shown that even when a clean or a cost reducing technology is ready available in the market its spreading within intra or across inter households or firms takes several years and in some cases decades therefore it is not only important to generate innovations via investments in r d but it is also important that such innovations are adopted and used by firms this paper briefly illustrates the main theoretical approaches to the analysis of the factors leading to inter firm diffusion and emphasise the existing gap led by the paucity of literature on intra firm diffusion a final section briefly discusses some methodological issues surrounding the diffusion of consumer non durable technologies within and across households and how ad hoc models can be used to test the validity of environmental policies

optimal adoption of complementary technologies when a production process requires two extremely complementary inputs conventional wisdom holds that a firm would always upgrade them simultaneously we show however that if upgrading each input involves a fixed cost the firm may upgrade them at different dates asynchronously this insight helps us understand why productivity rises with the age of a plant why investment in structures is more spiked than equipment investment and why plants have spare capacity the bigger point of the paper is that complementarity does not necessarily imply comovementnot even for a single decision maker jel e22 031 p11

strategic intrafirm innovation adoption and diffusion 1 introduction this paper addresses two empirical observations that are common in the extensive literature on innovation diffusion first a firm usually adopts an innovation over time not instantaneously that is there are intrafirm diffusions mansfield 1968 nasbeth and ray 1974 romeo 1975 stoneman 1981 1983 second the time path of an intrafirm diffusion has a predictable shape diffusion curves plot the extent of adoption against time and are generally s shaped that is they are initially convex reach an inflection point and then are concave thereafter often they are also skewed in that they are initially convex for less than half of the length of the diffusion this skewing can be so severe that the diffusion curve is essentially concave davies 1979 stoneman 1983 given the voluminous literature on innovation diffusion it is surprising that intrafirm diffusions have not received more attention with few exceptions noted below the theoretical literature assumes adoption is a discrete choice variable and so occurs instantaneously moreover empirical studies typically assume adoption occurs at the date of first use of the innovation by the firm to the extent intrafirm diffusions occur these studies clearly overestimate the speed at which the innovation is put into use and thus the speed at which its benefits accrue to the firm and society intrafirm diffusions are especially common in the case of capital embodied new process innovations because adoption involves adjustment costs as well as acquisition costs in a seminal study mansfield 1968 found that the time interval between 10 and 90 usage of diesel locomotives ranged from three to more than 14 years for firms in the u s railroad industry more recent examples abound most readers have undoubtedly experienced at least once the adoption of new computer equipment in their workplace from my own experience not all users are upgraded to the new equipment within a day a week or even a month hence in this paper i analyze the intrafirm diffusion of a new process innovation in a differential game model of an oligopoly the model s predictions are consistent with the empirical regularities noted above first an intrafirm diffusion occurs in equilibrium because the marginal cost of adoption is increasing in the rate of adoption it is not optimal to adopt instantaneously just as it is not optimal to adjust to the desired level of a stock instantaneously when adjustment costs are increasing at the margin second the equilibrium intrafirm diffusion curve is either s shaped or concave moreover this diffusion curve is more likely to be sshaped the more competitive the industry the larger the marginal cost of adoption or the preinnovation unit cost of production or the smaller the demand the analysis also shows a firm s diffusion is longer and so the extent of its adoption at any date is lower the more competitive the industry the larger the marginal cost of adoption or the pre innovation unit cost of production or the smaller the demand that is a diffusion is longer the smaller the incentive to adopt whether due to lower flow profit or higher adoption flow cost one surprising result is that an increase in the unit cost reduction from the innovation has an ambiguous effect on the intrafirm diffusion the reason is that there are two conflicting effects first as is obvious a larger cost reduction allows each firm to earn a larger flow profit at every date from the same rate of adoption however a more subtle effect is that it also allows the firm to earn the same flow of profit with a slower rate of adoption and so lower adoption costs that is the firms also have an incentive to spread out the diffusion over a longer period of time to save on adoption costs these results are important for two reasons first they show that diffusion curves are more likely to have an s shape for longer diffusions

downstream labeling and upstream price competition this paper analyses the economic consequences of labeling in a setting with two vertically related markets labeling on the downstream market affects upstream price competition through two effects a differentiation effect and a ranking effect the magnitude of these two effects determines who in the supply chain will receive the benefits and who will bear the burden of labeling for instance whenever the ranking effect dominates the differentiation effect the low quality upstream firm loses from labeling while all downstream actors are individually better off by decreasing the low quality input price the label acts as a subsidy and leads to an increase of the downstream market welfare this analysis furthers our understanding of the economic consequences of labeling in cases like those of gmos or restaurants

the effect of piracy on the market penetration of subscription software software piracy is not necessarily harmful to a software firm seeking to launch a new product when strategically managed through the use of price and protection measures piracy establishes the initial adopters of the software who in turn influence other users to buy the product we examine the role of piracy in affecting the adoption of subscription software products we present an individual level model in an adaptive population setting intended to determine the price protection mix that maximizes the discounted profit stream over the life of the software an extension for nonsubscription software is also discussed

modeling consumer demand for variety consumers are often observed to purchase more than one variety of a product on a given shopping trip the simultaneous demand for varieties is observed not only for packaged goods such as yogurt or soft drinks but in many other product categories such as movies music compact disks and apparel multinomial mn choice models cannot be applied to data exhibiting the simultaneous choice of more than one variety the random utility interpretation of either the mn logit or probit model uses a linear utility specification that cannot accommodate interior solutions with more than one variety alternative chosen to analyze data with multiple varieties chosen requires a nonstandard utility specification standard demand models in the economics literature exhibit only interior solutions we propose a demand model based on a translated additive utility structure the model nests the linear utility structure while allowing for the possibility of a mixture of corner and interior solutions where more than one but not all varieties are selected we use a random utility specification in which the unobservable portion of marginal utility follows a log normal distribution the distribution of quantity demanded the basis of the likelihood function is derived from these log normal random utility errors the likelihood function for this class of models with mixtures of corner and interior solutions is a mixed distribution with both a continuous density portion and probability mass points for the corners the probability mass points must be calculated by integrals of the log normal errors over rectangular regions we evaluate these high dimensional integrals using the ghk approximation we employ a bayesian hierarchical model allowing household specific utility parameters our utility specification related to the approach of wales and woodland 1983 who employ a translated quadratic utility function wales and woodland were only able to study at the most three varieties because there was no practical way to evaluate the utility function at that time in addition the quadratic utility specification is not a globally valid utility function making welfare computations and policy experiments questionable hendel 1999 and dube 1999 present an alternative approach in the utility function which is constructed by summing up over unobservable consumption occasions while only one variety is consumed on each occasion the marginal utilities of varieties change over the consumption occasions giving rise to a simultaneous purchase of multiple varieties our bayesian inference approach allows us to obtain individual household estimates of utility parameters household utility estimates are used to compute the value of each variety we compute a compensating value for the removal of each flavor that is we compute the monetary equivalent of the household s loss in utility from removal of a flavor these calculations show that households highly value popular flavors and would incur substantial utility losses from removal of these flavors from the yogurt assortment next we consider the implications of our model for retailer assortment and pricing policies given limited shelf space only a subset of the possible varieties can be displayed for purchase at any one time if consumers value variety then a retailer with lower variety must compensate the consumers in some way such as a lower price level we see this trade off between price and variety across different retailing formats discount or warehouse format retailers often have both lower variety and lower prices to measure this trade off we explore the utility loss from reduction in variety and find the reductions in price that will compensate for this utility loss these price reduction calculations must be based on a valid utility structure heterogeneity in tastes is critical in these utility computations and policy experiments we find that a relatively small fraction of households with extreme preferences dominate the compensating value computations that is some households are observed to purchase mostly or exclusively one variety these households must be heavily compensated for the removal of this variety from the assortment in some retailing contexts customization of the assortment is possible at the customer level we show that such customization virtually eliminates any utility loss from reduction in variety

inside money and the open economy abstract this paper presents a theoretical model of a world economy with international capital mobility non substitutable national currencies and flexible exchange rates an essential feature of the model is that individuals face a non trivial choice between real assets intermediated through banks inside money and unbacked currency outside money real shocks affect the relative demand for inside as opposed to outside money the money multiplier and are transmitted internationally through capital markets thereby affecting money stocks price levels and output abroad the analysis provides a possible explanation for the pattern of comovements in money supplies inflation rates and output levels across countries

technology adoption under price uncertainty abstract the paper examines the impact of changes in the variance of output prices on the bias and intrafirm diffusion rate of technological change the results indicate that a reduction in the variance of output prices will increase the rate of adoption and the intrafirm diffusion speed of yield increasing technologies the opposite is true for cost reducing technologies

financial intermediation business failures and real business cycles in this paper a general equilibrium business cycle model is construct ed that when subjected to real disturbances mimics observed qualita tive comovements among real output money business failures risk pr emia intermediary loans and prices in contrast monetary disturban ces generate cycles that have several inconsistencies with empirical evidence thus providing support for real business cycle theory at th e expense of monetary theories of the business cycle financial inter mediation arises endogenously in the model and intermediation matters for business cycle behavior a credit supply mechanism acts in tande m with an intertemporal substitution effect in propagating stochastic disturbances copyright 1987 by university of chicago press

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

risk learning and technology adoption this article explores how decision makers learn and use information with an application to the adoption of biotechnology in agriculture the empirical analysis relies on experimental and survey data measuring risk preferences learning processes and the adoption of genetically modified gm seeds among u s grain farmers while controlling for risk aversion we link individual learning rules with the cognitive abilities of each decision maker and their actual gm adoption decisions we find evidence that very few individuals are bayesian learners and that the population of farmers is quite heterogeneous in terms of learning rules this suggests that bayesian learning as commonly assumed in the analysis of agricultural technology adoption is not an appropriate characterization in addition we do not find a strong relationship between observed learning styles and the timing of gm seed adoption to the extent that learning is a key part of the process of technology adoption this suggests the presence of much unobserved heterogeneity in learning among farmers

measuring market power in the ready to eat cereal industry the ready to eat cereal industry is characterized by high concentration high price cost margins large advertising to sales ratios and numerous introductions of new products previous researchers have concluded that the ready to eat cereal industry is a classic example of an industry with nearly collusive pricing behavior and intense nonprice competition this paper empirically examines this conclusion in particular i estimate price cost margins but more importantly i am able empirically to separate these margins into three sources i that which is due to product differentiation ii that which is due to multi product firm pricing and iii that due to potential price collusion the results suggest that given the demand for different brands of cereal the first two effects explain most of the observed price cost margins i conclude that prices in the industry are consistent with noncollusive pricing behavior despite the high price cost margins leading firms are able to maintain a portfolio of differentiated products and influence the perceived product quality it is these two factors that lead to high price cost margins

the intra firm diffusion of new process technologies the study of intra firm diffusion has largely been neglected and the limited extant literature overwhelmingly relies upon uncertainty reduction via information spreading or epidemic learning as the main driver in this paper an alternative approach is taken whereby the intra firm diffusion of new process technologies reflects the profitability of new technology adoption as proxied by firm characteristics the approach is tested using data relating to the diffusion of computer numerically controlled machine tools within firms in the uk engineering and metalworking sectors the empirical analysis does not reject the hypothesis that profitability considerations are important with a number of firm characteristics being isolated as of special relevance including firm size and the use of complementary technologies and managerial techniques however there is little support for the traditional epidemic effect

effects of inflation on the pattern of international trade this paper integrates a transactions based model of money with a real trade model and examines how steady state inflation affects the direction and size of international trade the effects of inflation work through changes in supplies of labour and capital which are chosen jointly with production and consumption by utility maximizing households if production exhibits constant returns to scale in domestically mobile factors then it is unlikely that the economy will produce both of the two traded goods for certain rates of inflation small changes can have dramatic effects on the direction of trade for other rates of inflation the volume of trade is affected when money is held for transactions purposes and factor supplies are endogenous changes in inflation can cause changes in the pattern of trade that do not reflect real underlying changes in comparative advantage

boom and bust patterns in the adoption of financial innovations we develop a dynamic model of the adoption of financial innovations each period firms decide whether or not to adopt an innovation of uncertain value and the profitability of each period s adoptions reveals information about the innovation s value we show that characteristics of financial innovation waves cited by critics as evidence of irrational excess are in fact consistent with fully rational behavior we also show that social welfare is enhanced when more firms adopt innovations of questionable value and that financial intermediaries base an incentive to encourage such adoption article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

on the indeterminacy of equilibrium exchange rates in this paper we consider a particular international economic policy regime the laissez faire regime the distinguishing features of which are unrestricted portfolio choice and floating exchange rates and as we show this regime although favored by many economists is not economically feasible it does not have a determinate equilibrium that is an implication of an overlapping generations model more basically it is an implication of the notion that money is wanted only in order to accomplish trades

he came he saw and he waited an empirical analysis of inertia in technology adoption the innovation adoption literature has focused primarily on a producer s decision of whether and how much to adopt an equally pertinent question is when to adopt because in the case of new techno

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

the willingness to adopt agro ecological innovations application of choice modelling to caribbean banana planters this paper proposes an ex ante evaluation of the willingness to adopt agro ecological innovations aimed at reducing pesticide use for banana production in the french west indies four innovative systems including intercropping improved fallow and new pest tolerant varieties are proposed to a sample of 607 planters with innovation and policy attributes calibrated from a bio economic farm model the model interacts technological and economic innovation attributes with farmer individual factors and allows for a dual source of unobserved heterogeneity we estimate a system of random coefficient logit models to obtain marginal values of innovation traits that can be useful for targeting farm types with appropriate innovations and designing policies for securing agricultural revenue

least squares learning and the stability of equilibria with externalities this paper studies the stability of competitive equilibria in a model of aggregate employment when the representative agent uses a least squares forecasting procedure it is shown that the pareto inferior low employment steady state is always unstable under least squares learning even if it is stable under perfect foresight the high employment steady state is stable under learning if and only if it is saddle point stable under perfect foresight this weakens multiple equilibrium theories of coordination failure that purport to explain persistently high unemployment the pareto superior high employment steady state will be the focal point of individual forecasting

dynamics of variety change on wheat farms in pakistan a duration analysis abstract decades after the green revolution sustaining wheat productivity remains an important policy goal for the government of pakistan understanding the speed of diffusion of new wheat varieties can contribute to this goal we apply duration analysis to identify the factors that shorten the time until a farmer replaces one modern variety by another and test hypotheses concerning two recurring themes of the green revolution farm size differences and the role of information sources in seed diffusion we find that time to adoption averages only 4 years but is shorter on larger farms factors that speed variety change also differ by farm size extension and media sources of information significantly influence adoption among larger farmers relative to information gained through social relationships but this is not the case for marginal farmers traits related to consumption quality speed adoption on smaller wheat farms where families both sell and consume their wheat higher yields drive adoption for the most subsistence oriented marginal group

infringement of intellectual property rights causes and consequences parallel revolutions in molecular biology and the legal framework that assigns intellectual property rights iprs to plant genetic resources have resultedin the emergence of agricultural biotechnology andthe introd uction of genetically modified gm products into the foodsystem iprs create economic incentives for research andd evelopment by making the innovator the residual claimant of the benefits associatedwith the new technology whereas iprs purport to protect intellectual property full appropriation of the benefits from the innovation is not a given when infringement of iprs i e piracy is profitable rational economic agents compliance with ipr provisions is by no means assured costly monitoring and enforcement are requiredto d eter unauthorized illegal use of the new technology experience from various countries aroundthe worldind icates that ipr enforcement is far from being perfect andmany successful innovations are

a further exploration in the theory of exchange rate regimes in an interesting paper in this journal elhanan helpman 1981 develops a simple two country model to compare the welfare levels that are achieved under different exchange rate regimes in a world characterized by perfect foresight his basic finding is that equilibrium consumption allocations and hence welfare levels are identical under a floating exchange rate system and a one sided peg fixed exchange rate regime this result is due to helpman s assumption that output is determined exogenously which allows a separation of the real and monetary sides of the economy the purpose of this paper is to extend helpman s model by making two alterations in his setup 1 to allow production to be endogenously determined as a function of labor force participation and 2 to allow welfare levels to be dependent on labor service as well as on consumption the main conclusion then obtained is that a country may achieve a higher welfare level under a flexible exchange rate regime than under a fixed exchange rate regime since it is able to choose an optimal rate of inflation or currency depreciation

the dynamics of agricultural biotechnology adoption lessons from series rbst use in wisconsin 1994 2001 this article exploits panel data from wisconsin dairy farmers to examine the dynamics of recombinant bovine somatotropin rbst adoption and to identify the characteristics that distinguish among nonadopters disadopters and early and late adopters panel methods are used to control for omitted variables and endogenous regressors that call into question coefficient estimates derived from cross section adoption models the results however confirm previous findings that larger farms with complementary feeding technologies are more likely to adopt rbst nonadopters appear quite unlikely to become adopters and rbst adoption will remain at rather moderate levels in wisconsin

liquidity and market participation abstract a model of market participation in competitive asset markets is constructed there are two assets a liquid asset traded without cost and an illiquid asset traded subject to fixed transactions costs agents have random needs for liquidity but they are precluded from trading claims contingent on their type and from diversifying between assets depending on parameter values both assets or only one asset may be traded in equilibrium there exists a participation externality in that agents do not take account of the effect of their participation decisions on asset prices there tends to be an underprovision of liquidity in equilibrium

does the law of supply hold under uncertainty a widely held conjecture of economists is that the quantity supplied by pricetaking producers increases with an increase in output price law of supply this cornerstone of economics has been proven repeatedly with many techniques under many different sets of assumptions and is found in all textbooks on principles of economics most of these proofs assume full certainty of production relationships single product technology and or risk neutrality in a world of uncertainty one of the most crucial aspects of economic behaviour is risk aversion with risk aversion diversification is a basic response to economic uncertainty thus models of producer behaviour under uncertainty need to consider multioutput technology where diversification is a possibility this paper points out that the widely held law of supply may fail when these generalities risky multioutput production with risk aversion are introduced simultaneously where diversification is also affected by a capacity constraint in production conditions are developed under which the law fails holds the peculiar result occurs because increasing price can increase profit risk more than proportionally while expected profit increases proportionally this relative increase in risk causes a tendency to shift production capacity into an alternative activity the first section introduces a model of production under uncertainty the second section analyses the behaviour of supply in the special case of additive production risk without price risk the third section shows that similar problems can be encountered with other cases as well empirical examples which demonstrate relevance of the results are also given

international co movements of real and financial economic variables this study presents a first attempt at investigating whether the international co movements of real economic activity conform to the same international co movements of financial activity this study tests the international co movements of real economic activity on the one hand and financial variables such as stock returns interest rates inflation rates and risk premiums on the other hand we employ a dynamic correlation model on data from oecd countries for the period 1980 2010 our findings demonstrate that international stock markets co react in accordance with the underlying international economic forces we also document three other results first the correlation among countries with respect to real economic activity is statistically positive but the level of this correlation is lower than that of financial variables second there is a significant increase over time in the international correlation level with respect to the financial variables finally the creation of the euro monetary union

factors influencing the diffusion of electric arc furnace steelmaking technology in this paper the adoption of electric arc furnace steelmaking technology is examined within a growth model of technological diffusion the results indicate that the trend rate of adoption of electric are furnace technology is well represented by the s shaped growth curve further results indicate that the trend rate of adoption is for the most part stable with respect to locally changing factors to production such as input prices and activity levels it appears that inertial aspects have an overwhelming influence on the diffusion process

business cycle co movements between south africa and the bric countries this article examines the relationships between south african economy and the economies of the bric brazil russia india and china in particular it identifies the nature and key features of the co movement of south african business cycles with cycles of the bric countries it uses the dynamic factor model to a set of 307 macroeconomic series during the period 1995q2 to 2009q4 we found significant evidence of synchronization between south africa and the bric countries over the business cycle although the magnitude of co movement differs with each country india portrays strong ties with south africa over time moreover brazil china and russia lead south africa in the long run while india is contemporaneous further the findings imply that the first two factors are brics factors while the third one is a us factor

monetary policy liquidity and foreign exchange markets an exploration abstract this paper explores empirically the fluctuations of money demand arising from financial markets fluctuations in financial markets liquidity are reflected in interest rates and asset returns the paper uses daily data on the swiss franc and other currencies from january 1 1980 until december 31 1987 and is based on a priori knowledge on the timing of liquidity shocks in the empirical analysis i ask whether at the time liquidity shocks occur abnormal rates of return can be observed in the foreign exchange markets

are there spatial spillovers in the adoption of clean technology the case of organic dairy farming this paper examines spatial spillovers associated with the adoption of organic dairy farming we hypothesize that neighboring farmers can help to reduce the uncertainty of organic conversion by lowering the fixed costs of learning about the organic system a spatially explicit 10 year panel dataset of more than 1 900 dairy farms in southwestern wisconsin is used as input into a reduced form econometric model of the decision to convert to organic production using an identification strategy that exploits the panel aspect of the micro dataset we find evidence that the presence of neighboring organic dairy farms affects the conversion decision

revealed preference analysis of characteristics models characteristics models have been found to be useful in many areas of economics however their empirical implementation tends to rely heavily on functional form assumptions in this paper we develop a revealed preference approach to characteristics models we derive the necessary and su cient empirical conditions under which data on the market behaviour of heterogeneous price taking consumers are nonparametrically consistent with the consumer characteristics model where these conditions hold we show how information may be recovered on individual consumer s marginal valuations of product attributes in some cases marginal valuations are point identi ed and in other cases we can only recover bounds where the conditions fail we highlight the role which the introduction of unobserved product attributes can play in rationalising the data we implement these ideas using consumer panel data on the danish milk market

coordination of fiscal policies in a world economy abstract this paper provides a simple counterexample to the standard belief that in a world economy in which all countries are small strategic interactions between policymarkers are trivial and thus cooperative and non cooperative government policies coincide it is well known that this holds for tariff policies however this paper demonstrates the result does not apply to fiscal policy in addition the paper analyzes how optimally coordinated fiscal policies differ from non cooperative policies it finds that relative to optimally coordinated levels non cooperative government spending can be too high or too low depending on the sign of a transmission effect which captures the overall effect countries actions have on each other

heterogeneous demand for drought tolerant rice evidence from bihar india summary efforts to develop rice cultivars with drought tolerance dt traits have resulted in several varieties that demonstrate significant resilience to drought stresses we employ discrete choice experiments to examine farmers preferences for dt traits and explore heterogeneity in these preferences using primary data from bihar india results suggest that farmers value reductions in yield variability offered by dt paddy but are willing to pay even more for seeds that offer yield advantages under normal conditions we demonstrate that risk aversion and loss aversion not only significantly influence choice probabilities but also affect the way farmers value different seed attributes

social network effects on the extent of innovation diffusion a computer simulation of innovation diffusion no longer focus exclusively on explaining the rate at which innovations diffuse or the sequence in which they are adopted they also focus on explaining why certain innovations diffuse extensively be coming de facto standards whereas others do so partially or not at all many of these theories specify a bandwagon process a positive feedback loop in which increases in the number of adopters create stronger bandwagon pressures and stronger bandwagon pressures in turn cause increases in the number of adopters factors affecting if and how many times this feedback loop cycles explain if and how many potential adopters jump on a bandwagon we argue that one important factor has not yet been incorporated into theories explaining bandwagons extent the structure of social net works through which potential adopters of innovations find out information about these innovations which can cause them to adopt these innovations we advance a theory of how the structure of social networks affects bandwagons extent we propose that both the number of network links as well as small seemingly insignificant idiosyncracies of their structures can have very large effects on the extent of an innovation s diffusion among members of a social network

models of technology diffusion abstract the literature on new technology diffusion is vast and it spills over many conventional disciplinary boundaries this paper surveys the literature by focusing on alternative explanations of the dominant stylized fact that the usage of new technologies over time typically follows an s curve the most commonly found model which is used to account for this model is the so called epidemic model which builds on the premise that what limits the speed of usage is the lack of information available about the new technology how to use it and what it does the leading alternate model is often called the probit model which follows from the premise that different firms with different goals and abilities are likely to want to adopt the new technology at different times in this model diffusion occurs as firms of different types gradually adopt it there are actually many ways to generate an s curve and the third class of models which we examine are models of density dependence popularized by population ecologists in these models the twin forces of legitimation and competition help to establish new technologies and then ultimately limit their take up finally we look at models in which the initial choice between different variants of the new technology affect the subsequent diffusion speed of the chosen technology such models often rely on information cascades which drive herd like adoption behaviour when a particular variant is finally selected

adoption of high yielding rice varieties in bangladesh an econometric analysis abstract in this paper we build two logistic type econometric models to explain hyrv diffusion rate in bangladesh long run potentials ceiling diffusion rates and the effects of other economic variables on the adoption path are determined simultaneously within the model results from our final model indicate that the diffusion rate is not constant over time furthermore rate and level of adoption are found to be influenced by flood damage jute rice price ratio and hyrv local rice variety price ratio an important outcome of our analysis is that the ceiling adoption level for bangladesh has nearly been reached unless new hyrvs are developed with wider adaptability especially for drought and flood prone areas little scope exists for production increases through hyrv acreage expansion this conclusion has significant policy implications for agricultural planners and development agents in bangladesh

the economic dynamics of technologies development abstract there is little doubt about the fact that specific major technologies shape the long waves in economic activity the trouble is that we don t understand very well what exactly is meant economically by the term specific technologies synthetic materials microelectronics and alike the purpose of this paper is to set up a conceptual framework to fit this requirement and thus to understand the economic dynamics of the development process involved schumpeter did study the innovation s economics dynamics still he did not elaborate a consistent story and the internal forces of a given technology as for ourselves following schmookler by theorizing the behaviour of the small innovation instead of the major one and rosenberg by taking into consideration the technical heuristic as such we suggest a framework for the dynamics of technologies development we use an evolutionary approach a la nelson and winter and gradually define the different components of this special dynamics a specific technology would appear to be a theoretical unit which gives structure to elementary small innovations according to a particular cumulative path

a dynamic equilibrium model of inflation and unemployment a stochastic general equilibrium model is constructed which is capable of examining the covariance properties between inflation and unemployment both conditioned and unconditioned upon the state o

inter and intra firm effects in the diffusion of new process technology using primarily the example of computerised numerically controlled machine tools cnc in the uk metalworking and engineering industry it is shown that even many years after the date of first use of a new technology although the larger proportion of firms may be using that technology because the extent of intra firm diffusion is limited the proportion of total industry output produced on that technology may be quite small using backward projection techniques it is further shown that intra firm diffusion tends to lag behind inter firm diffusion over the whole of the diffusion process and inter firm diffusion patterns and extent may thus be poor indicators of overall diffusion although intra firm diffusion is therefore crucial to the understanding of overall diffusion patterns the existing literature relating to it has severe limitations and there are no associated policy results it is argued that much greater emphasis should be placed on intra firm issues in future diffusion research it is also suggested that discussions of intra firm policy could usefully proceed within the context of already established general diffusion policy principles

intrafirm diffusion of new technologies an empirical application research on the diffusion of new technologies has centred on the study of the interfirm rate of diffusion paying much less attention to intrafirm aspects this paper attempts to overcome this gap in the literature by analysing the factors that influence the speed with which a new technology the atm is fully adopted the data over which the hypotheses are tested belongs to the spanish savings banks market the results show that the rate of intrafirm diffusion is explained by innovation firm and market characteristics in testing our hypotheses we make use of both traditional methods and survival analysis techniques

the economic determinants of technology shocks in a real business cycle model abstract creative destruction due to new technologies causes both long run growth and short run business fluctuations new technologies push the economy on a higher productivity level but also imply partial obsolescence of old production units obsolescence induces an adjustment period during which growth rates gradually fall at some endogenously determined point research for the next technology starts once the new technology is discovered a technology shock occurs and the next cycle starts this is shown in a continuous time rbc model with risk averse agents where savings can be used for financing deterministic capital accumulation and stochastic r d for new technologies

increasing returns and the foundations of unemployment theory current approaches to macroeconomic theory divide roughly into two basic schools of thought one approach typically associated with rational expectations views the economy as basically at or near walrasian market clearing equilibrium in which case it becomes very difficult to explain away convincingly the undeniable persistence at times of involuntary unemployment another approach views the underemployed economy as being in a state of temporary fixed price disequilibrium in which case aside from having to repress suspicions that the essence of effective demand failure might not have to do with prices fixed at wrong values there is a lot of rationalising to be done about why profitable adjustments are so slow this paper argues that something like an internally consistent theory of steady state involuntary unemployment is possible and even plausible the cornerstone of this third approach is increasing returns to scale which blocks unemployed agents from breaking out of a low level equilibrium trap unless there is overall coordination or stimulation a simple model is presented which contains the basic ideas

self defeating regional concentration most policy debates on regional policies implicitly assume that there is too much concentration in our two region model of migration desirable concentration fails to occur under some conditions and undesirable concentration occurs in others in the latter case even though the individuals collectively prefer to be distributed evenly across the two regions they end up concentrating into one region in their pursuit of a better life hence the freedom to move can be self defeating we characterize the conditions for such self defeating concentration to occur the coordination failures between the entry decision of service firms and the migration decision of individuals are caused by the incompleteness of markets due to the endogeneity of the range of services available which deprive the agents of the opportunity to signal demand and supply for potential services the argument does not rely on price distortions the nonconvexities implied by increasing returns and nontradedness congestion externalities nor myopia in migration decisions

e business usage across and within firms in the uk profitability externalities and policy using data from the third uk community innovation survey we model the usage of e business across and within firms in the uk in the year 2000 as a single observation upon an integrated process of inter and intra firm diffusion the intra firm dimension is a significant extension to standard analysis the model estimates indicate that the pattern of e business usage reflects the heterogeneity of firms in terms of size other innovative activity and labour force skills generating differences in the payoffs to use as well as market and non market intermediated externalities the policy implications of the findings are discussed c 2008 elsevier b v all rights reserved

a neglected problem in the analysis of the diffusion process since griliches first studied the adoption of hybrid corn in the united states increasing attention has been given to the effect of the diffusion of products and processes in the literature on technological change diffusion modelling has in large part been confined to long standing innovations this paper is concerned with problems that arise when a recently marketed innovation is analysed in a context in which the potential user population is unknown and is variable during the diffusion period these circumstances require modifications to the usual analyses of diffusion we indicate several modifications to the widely used statistical techniques which enable these issues to be analysed some empirical results on the diffusion of the new drug cimetidine are reported

expectational stability and the multiple equilibria problem in linear rational expectations models linear models involving expectations of future endogenous variables generally have multiple rational expectations equilibria this paper investigates the stability of solutions in the disequilibrium sense of whether given a small deviation of expectations functions from some rational expectations equilibrium the system returns to that solution under a natural revision rule weak and strong local stability are distinguished stability conditions are calculated for a simple general linear model and applied to two macroeconomic examples in some cases there is a unique stable equilibrium in other cases a continuum of equilibria forms a weakly but not strongly stable class

the expectational stability of underemployment equilibria i introduction one of the most important recent developments in macroeconomic theory has been the demonstration of how external economies of scale may generate multiple perfect foresight equilibria a positive externality such as that studied by diamond 1982 may generate two saddle path equilibria one converging to a high employment steady state and the other converging to an inferior low employment steady state for given initial conditions there are therefore two equilibrium choices of employment in howitt and mcafee s 1988 model which has both a positive and a negative externality any one of a continuum of employment choices will satisfy optimality conditions and converge to the low employment steady state thus the literature on externalities demonstrates that there may exist a stable or saddle path stable pareto inferior low employment equilibrium in a perfect foresight model with market clearing and flexible prices 1 an intriguing feature of these models is the possibility that economic fluctuations might be driven by waves of optimism or pessimism that move the economy from one equilibrium to another along with the possibility of multiple equilibria there is however a problem of indeterminacy how do we say which equilibrium will be chosen the idea that waves of optimism or pessimism move the economy is provocative and intuitively appealing but a more explicit account of how individuals come to focus on a particular equilibrium a selection criterion is needed one criterion that has been used successfully to limit the multiplicity of equilibria in rational expectations and perfect foresight models is the stability of an adaptive learning procedure 2 under adaptive learning the agents in the model learn about the economy in much the same way as an econometrician they have a perfect foresight equilibrium model of the economy and they use the available macroeconomic data to infer the value of that model s parameters their parameter estimates determine their forecasts and these forecasts determine their choice of labor inputs if a given steady state equilibrium is unstable under a broad class of plausible learning rules it is unlikely that the economy will converge to that equilibrium even if it is stable under perfect foresight if a steady state is stable under learning then we are more confident that it may be observed in an actual economy in this paper i apply the concept of expectational stability to howitt and mcafee s 1988 model of aggregate employment in the presence of externalities 3 expectational stability is a simple and therefore highly tractable iterative learning scheme that has been used by evans 1985 and by bray 1982 proposition 4 to study the convergence of learning to rational expectations in addition to being tractable the procedure is general indeed the local stability conditions of the procedure used in this paper are the same as the conditions for local stability of least squares learning as derived by marcet and sargent 1989a 1989b these same conditions are necessary for the stability of a broad class of learning algorithms including least squares estimation kalman filtering and iterative gauss newton procedures as is shown in ljung and soderstrum 1983 i study learning in howitt and mcafee s 1988 model because it is also highly general it incorporates both thick market positive and congestion negative externalities it allows for multiple perfect foresight steady states that are alternately stable and saddle path stable 4 further i show that the widely cited model of diamond 1981 1982 is a special case of the howitt and mcafee model in this paper i show that the learning rule eliminates the problem of indeterminacy it will however also rule out those steady states that are unambiguously pareto inferior stable low employment steady states may exist but they cannot be ranked