intertemporal cost dependence in the presence of managerial impatience abstract a multi period agency problem arising in the presence of intertemporal cost dependence is investigated the principal delegates production decisions to a manager who is impatient the manager has private information on the nature of cost dependence that takes the form of an experience effect since the impatient manager would not invest enough to gain experience the principal designs a second best scheme to motivate the manager to increase intertemporal profit for the firm the second best scheme is obtained as a direct revelation mechanism that specifies outputs prices as well as the manager s compensation a significant result is that unlike the first best case impatience is not necessarily a disadvantage with asymmetric information impatience can be exploited to reduce the manager s information rent resulting in preferred outcomes for the principal

macroeconomic equilibrium and reform in a transitional economy we build a general equilibrium macro model of a transitional economy to reflect four stylized facts among these are that central planning has left a legacy of highly concentrated industry and a residue of price controls and rationing an almost classical dichotomy obtains in the model monetary expansion leaves output and employment unchanged despite the existence of unemployment though leisure time declines however the economy displays a high degree of complementarity between the state controlled and private sectors giving rise to keynesian multiplier effects we also analyse the effects of price liberalization and privatization on the properties of the economy

activity based pricing in a monopoly in this article i study the interaction between cost accounting systems and pricing decisions in a setting where a monopolist sells a base product and related support services to customers whose preference for support services is known only to them i consider two pricing mechanisms activity based pricing abp and traditional pricing and two cost accounting systems activity based costing abc and traditional costing for support services under traditional pricing only the base product is priced whereas support services are provided free because detailed cost driver volume information on the consumption of support services by each customer is unavailable under abp customers pay based on the quantities consumed of both the base product and the support services because detailed cost driver volume information is available for each customer likewise under traditional costing for support services the firm makes pricing decisions on cost signals that are noisier than they are under abc i compare the equilibrium quantities of the base product and support services sold the information rent paid to the customers and the expected profits of the monopolist under all four combinations of cost driver volume and cost driver rate information i show that abp helps reduce control problems such as moral hazard and adverse selection problems for the supplier and increases the supplier s ability to engage in price discrimination i show that firms are more likely to adopt abp when their customer base is more diverse their customer support costs are more uncertain their costing system has lower measurement error and the variable costs of providing customer support are higher firms adopt abc when their cost driver rates for support services under traditional costing are noisier measures of actual costs relative to their cost driver rates under abc and when the actual costs of support services are inherently uncertain i also show that cost driver rate information and cost driver volume information for support services are complements although the prior literature views abc and activity based management abm as facilitating better decision making i show that abc and abp a form of abm are useful tools for addressing control problems in supply chains

macroeconomic policy in a large unionised economy this paper models an economy with many sectors in each sector a monopoly union sets the nominal wage and then firms choose output the economy is large in that all agents treat the general price level as fixed the paper focusses on policy effects on employment an increase in government expenditure in one sector will increase decrease total employment as sectoral employment is above below average a general increase in government expenditure in fixed proportions will have a positive employment multiplier below unity policy which increases employment will lead to higher welfare

informational asymmetries strategic behavior and industrial organization one of the most active and exciting areas of economic research over the last several years has been the use of noncooperative games of incomplete information to model industrial competition this work has yielded not only a remarkable number of papers but also several new insights on and explanations of fundamentally important issues the purpose of this paper is to attempt an appreciation and evaluation of this work because most of our individual and joint work since about 1979 has been in this mode it will come as no surprise that we are proponents of this line of research however there are several questions and potential problems that we see as arising in connection with this methodology and we will attempt to address these first a disclaimer we are not attempting a survey of the applications of asymmetric information games aig to industrial organization although we will refer in a highly selective fashion to a number of prominent strands in this literature in particular where any references are provided at all they are typically only to the earliest contributions to a subject even more we do not deal with work in which informational asymmetries are important but the analysis is not game theoretic for example search and price dispersion or the early work on the lemons problem and on moral hazard and adverse selection in insurance markets or with game theoretic treatments that assume complete information i aig methods and applications

savings and stabilization policy in a pre post socialist economy a simple macroeconomic model of a reforming socialist economy is presented with queuing in period one but market clearing prices in period two if queues grow longer each household chooses to save more not because it is forced but to economize on queuing effort for the benchmark case perfect foresight immediate price liberalization is the government s optimal policy it raises welfare the more so the greater is the monetary overhang and in terms of full prices it is deflationary at least eventually the model then is modified to allow for indexation a resale market adaptive expectations and limited credibility copyright 1995 by ohio state university press

progressive screening long term contracting with a privately known stochastic process we examine a model of long term contracting in which the buyer is privately informed about the stochastic process by which her value for a good evolves in addition the realized values are also private information we characterize a class of environments in which the profit maximizing long term contract offered by a monopolist takes an especially simple structure we derive sufficient conditions on primitives under which the optimal contract consists of a menu of deterministic sequences of static contracts within each sequence higher realized values lead to greater quantity provision however an increasing proportion of buyer types are excluded over time eventually leading to inefficiently early termination of the relationship moreover the menu choices differ by future generosity with more costly up front plans guaranteeing greater quantity provision in the future thus the seller screens process information in the initial period and then progressively screens across realized values so as to reduce the information rents paid in future periods copyright oxford university press

macroeconomic effects of price controls the role of market structure the impetus for the current study comes from an attempt to understand the results of israel s stabilisation programme of july i985 the programme consisted of a sharp reduction in aggregate spending via an increase in net taxes and a moderate reduction in government spending a devaluation followed by a fixed exchange rate and price and wage controls the results of the programme are reported in table i in the first quarter that followed the implementation of the programme i e the third quarter of i985 aggregate spending declined exports increased imports declined the real wage rate declined and employment declined these results can be explained by a conventional competitive macroeconomic model as i will show in section ii during the next six months all the variables reversed their course this would be easy to explain with a conventional competitive model if the price controls had been removed however they were not and it is difficult to reconcile the comovement of the reported variables in their presence especially intriguing is the simultaneous increase in the real wage rate and employment this is so because in a competitive model price controls lead to excess demand in this case increased spending has no price or employment effects while a wage increase reduces employment the difficulty is further aggravated by the fact that contrary to the model s prediction almost no shortages have been observed in addition as shown in section ii partial relaxation of price controls is also incapable of explaining the data with this type of model this led me to study a macroeconomic model with oligopolistic markets i have chosen to work with a particular form of imperfect competition which proves to be useful for the purpose at hand it is however possible to think about alternatives which are also of interest clearly it is pointless to cover all these

a recursive formulation for repeated agency with history dependence abstract we present general recursive methods to handle environments where privately observed variables are linked over time we show that incentive compatible contracts are implemented recursively with a threat keeping constraint in addition to the usual temporary incentive compatibility and promise keeping conditions journal of economic literature classification numbers d30 d31 d80 d82

the influence of black markets on a queue rationed centrally planned economy abstract in centrally planned economies in which prices are fixed and the rationing mechanism is waiting line queues we show that an equilibrium of waiting times exists we then introduce a black market in which individuals can trade commodities that they have acquired through the official economy an equilibrium of black market prices and waiting times is shown to exist further the economy with a black market is queue efficient however the introduction of black markets is not necessarily a pareto improvement over an economy without black markets even when we allow winners to compensate losers

managerial turnover in a changing world we develop a dynamic theory of managerial turnover in a world in which the quality of the match between a firm and its managers changes stochastically over time shocks to managerial productivity are anticipated at the time of contracting but privately observed by the managers our key positive result shows that the firm s optimal retention decisions become more permissive with time our key normative result shows that compared to what is efficient the firm s contract induces either excessive retention at all tenure levels or excessive firing at the early stages of the relationship followed by excessive retention after sufficiently long tenure

multi period contracts between principal and agent with adverse selection abstract multi period contracts with adverse selection at the time of contracting are studied with risk neutrality and independent private information all inefficiency arises in the first period only with positive serial correlation inefficiency is more pervasive but declines over time

simultaneous and sequential price competition in heterogeneous duopoly markets experimental evidence abstract we investigate simultaneous and sequential price competition in duoply markets with differentiated products and random matching of symmetric firms we find that second movers gain from the sequential structure in comparison to simultaneous move markets whereas first movers do not as predicted by the theory there is a significant first mover disadvantage in the sequential game finally we report the results of control treatments varying the matching scheme and the mode of eliciting choices strategy method vs standard sequential play

models and estimation of disequilibrium for centrally planned economies the planned level of output is an important variable in modelling centrally planned economies and the present paper discusses several disequilibrium models in which the plan level is an endogenous variable a key relationship in such a model is the plan adjustment equation which is the counterpart of the usual priceadjustment equation employed in models of free economies seemingly minor differences in assumptions lead to markedly different econometric models the coherency properties of these are studied and several likelihood functions are derived the most complex of the models includes both endogenous plan levels and endogenous prices

first mover disadvantages with private information we consider a leader follower game with output quantities as strategies so as to demonstrate the reduced advantages of the stackleberg leader in a stochastic environment with private information at the equilibrium the strategy of the leader reveals to the follower information about the demand in an attempt to signal low demand the leader contracts his output nevertheless unless the leader s information is infinitely noisy the follower can always correctly infer his signal we find a wide range of parameter values over which the follower is better off compared to the leader

price distortion and shortage deformation or what happened to the soap the model of this paper generalizes the classical theory of consumer behavior to the more general case of prices that are not necessarily market clearing suppose that in addition to the money cost some sort of search waiting or other quasi fixed effort cost is needed to obtain goods the presence of this quasi fixed cost element will trigger an inventory policy a shortage equilibrium occurs when effort costs are such that in the corresponding inventory policy the flow of desired consumption does not exceed the available supply flow stock hoarding a critical phenomenon in the economics of shortage emerges as a natural component of this model a complete characterization of a stationary shortage equilibrium is given comparative statics and welfare analysis are performed the dynamic transition between steady states is analyzed to give insight into the mechanics of how shortages develop copyright 1991 by american economic association

contract based motivation for keeping records of a manager s reporting and budgeting history this paper analyzes the role of the agent s bankruptcy constraints in multiperiod principal agent models with asymmetric information conditions are provided under which commitment to a long term contract involving n rounds of investment improves upon repetition of n identical single period contracts further when the agent s reservation wage is sufficiently low the optimal contract is always long term keeping records of a manager s history of reporting activity facilitates contracting since optimal contracts may require a link between past reports and future investments over a duration of two or more periods

fiscal policy monetary targets and the price level in a centrally planned economy an application to the case of china this paper presents a planned economy monetary model of china a money supply equation links changes in broad money to government transactions evaluated at official prices the demand for real money balances by consumers equals the nominal demand for money deflated by an unobserved true price index the model explains money demand as the divergence between the then official and true price indices changes in the money supply are explained by government transactions while money demand is explained by real income and the anticipated true rate of inflation the true rate of inflation is 2 5 times the official rate copyright 1987 by ohio state university press

backward bends quantity constraints and soviet labor supply evidence from the soviet interview project this study makes two contributions to the quantity constraint literature first it investigates the effects of consumer market shortage on labor supply second it considers the effects on hours of work of eliminating quantity constraints in a planned socialist economy the estimated model of soviet labor suppl y shows that the uncompensated wage elasticities of soviet workers are negative and that workers facing quantity constraints react more strongly to wage increases than workers who do not face quantity constraints the elimination of quantity constraints would therefore be expected to raise aggregate hours worked in the soviet economy copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the technology of decontrol some macroeconomic issues by the time east europe was being pressed into stalin s authoritarian mould as soviet troops took over the region at the end of the second world war there was little more to be said in western theorising about the subordination of markets to a central plan from barone s i908 ministry of production in a collectivist state to lerner s i944 economics of control the issue was the allocative efficiency of the state in maximising a social preference function by the late i 940s a communist party determined to assume that role was in power in nine european and three asian countries each having a long term objective to overtake and surpass the performance of capitalism but more immediately to use central planning as the economic expression of a political monopoly in i990 the east european parties have forfeited that monopoly and have patently failed in the competition with capitalism as successor governments turn to the market it is the economics of decontrol that must be formulated throughout the industrialised capitalist world during the i98os the state has been rolled back in favour of the market deregulation and privatisation took place within a well established environment of market clearing prices and profit seeking transactions not so in the ussr and eastern europe for four decades stretching to six for the soviet union administrative direction has eliminated or marginalised the market which now must be rebuilt virtually from scratch the history of the two countries which broke with stalin s form of control is of no help yugoslavia had too little of a central plan and hungary had too little of a market 1 when mikhail gorbachev launched perestroika in i985 hungary and china had begun to re establish market relations and to allow some private enterprise to compete with a dominant state there and elsewhere the process was impeded by the hold of the communist party2 on political and economic activity those countries in which by i990 that hold had been relaxed started the process of decontrol and the establishment of equilibria within which a normal market can operate section i of this paper describes the preconditions for dismantling the soviettype economy section ii sets out the institutional and structural characteristics of the economy which must be unmade the required changes are considered

stagflationary effect of government bond financing in the transforming chinese economy a general equilibrium analysis abstract this paper studies how the method of government debt financing affects the macroeconomic performance of the transforming chinese economy the investigation is conducted within the context of an endogenous growth model that incorporates the major institutional features of the chinese economy using this framework we evaluate the effects on the growth rate of output and inflation if the chinese government relies more on bonds and less on money creation for budget deficit and debt repayment financing it is shown that although this policy change can reduce the growth rate of the money supply it can generate a stagflationary effect reducing the rate of output growth while raising the rate of inflation if the initial fraction of government deficit and debt repayment financed by bonds is sufficiently small and the tax rate on labor income is sufficiently low

financial control in the transition from classical socialism to a market economy the transition from socialism to capitalism poses severe problems of financial management that have yet to be resolved in principle let alone in practice one unfortunate consequence is continual financial turmoil as socialist economies of the soviet union and eastern europe attempt reform inflation either open or repressed first accompanies and then undermines attempts to decentralize decision making to dampen inflation and prevent economic chaos even reform governments may be provoked to reintervene by seizing the financial assets of enterprises reinstituting price controls or commandeering outputs through state orders and similar devices but why should the transition from central planning to a market economy be inflationary understanding the system of financial control in the preexisting regime of classical socialism is the key to understanding what might go wrong in the transition under classical socialism all the means of production industrial and agricultural are state owned output targets input levels wages and prices are all set by a stalinist system of central planning accordingly i shall first identify 1 how domestic fiscal and monetary processes interact with and complement central planning in the classical socialist economy and then discuss 2 why this mechanism for securing domestic financial control and avoiding inflation under classical socialism tends to break down when decentralization begins and central planning is weakened the discussion will then turn to 3 how in a more deliberate transition domestic tax and monetary arrangements might be managed to keep the average price level stable as the market prices of individual goods and services become free to fluctuate after sufficient domestic financial control is secured

russian voting and the initial economic shock of hyperinflation this paper addresses the issue of economicvoting in transitional democracies using data from the russianfederal elections it argues that the shock of inflation thatfollowed the fundamental economic reform has a lastinginfluence on voters specifically it shows that in russia where inflationary policy led to hyperinflation and thewidespread loss of personal savings the magnitude of savingslost at that time continues to explain a significant portionof the variation in the regional support for the communistparty in parliamentary and presidential elections

optimal multiperiod contracts and the gain from enduring relationships under private information informational asymmetries can play a key role in explaining the existence and nature of multiperiod contracts in an illustrative risk sharing model even relatively short two period contracts can be mutually beneficial if there is private information though one period contracts suffice otherwise further contracts which are pareto optimal relative to the environment and the information structure are defined and partially characterized an example illustrates how otherwise inefficient intertemporal tie ins can be used optimally to mitigate incentive problems the obvious borrowing lending schemes are not private information pareto optimal in these period by period actions are not sufficiently constrained discounting affects the form of the optimal contract but none of these qualitative conclusions

features of experimentally observed bounded rationality abstract on the basis of experimental evidence reported in the literature the paper draws conclusions about the bounded rationality exhibited by human economic behaviour among the topics discussed are presentation effects caused by superficial analysis strategic reasoning and strategy construction based on reciprocity and fairness avoidance of circular concepts in step by step strategic reasoning ex post rationality and learning direction theory presence of both adaptive and analytic approaches to repeated decision tasks and the absence of quantitative expectations and optimization in typical repeated game strategies

information sharing and tacit collusion in laboratory duopoly markets i introduction economists have long believed that enhanced information about demand conditions or rival actions can play an important role in facilitating collusion for example because it simplifies detection of chiselers stigler 1964 an extensive theoretical literature examines the incentives for non cooperative firms to share information through a trade association about some uncertain parameter see sakai 1990 1991 for a survey firms in these models may cooperate by sharing information in the trade association even though most authors assume that the firms choose non cooperative strategies in the product market under these conditions vives 1984 shows that with demand uncertainty substitute goods and quantity competition each firm s dominant strategy is to conceal information from its rivals therefore under these conditions non cooperative firms will not find it in their interests to form an information sharing arrangement such as a trade association because non cooperative firms should not wish to share information clarke 1983 392 concludes that information pooling mechanisms like trade associations can be considered prima facie evidence that firms are illegally cooperating to restrict output however kirby 1988 shows that non cooperative firms will want to share information if cost functions are sufficiently quadratic moreover hviid 1989 demonstrates that non cooperative firms will prefer to share information if they are sufficiently risk averse these models typically assume that firms interact once and identify the static subgame perfect nash equilibrium ne of the two stage information sharing game this is sensible when the goal is to focus on a narrow set of non cooperative equilibria because the set of non cooperative equilibria becomes very large in these models in the more complex repeated game however repeated interaction between competing firms seems more relevant for empirical applications especially for providing policy insight for trade associations that permit long term interactions among firms unfortunately empirical work in this area based on field data is challenging because the information different decision makers possess and the corresponding residual uncertainty they face are typically difficult to identify this paper uses a different empirical approach we use a series of laboratory duopoly markets to examine the impact of demand uncertainty on sellers output choices specifically we examine the importance of information sharing in facilitating tacit collusion under conditions of demand uncertainty 1 our experiment employs repeated interaction between fixed pairs of subjects trading the ability to directly test the static models for a more realistic policy relevant study of outcomes in the repeated game 2 our results indicate the extent to which results from static theory carry over to the repeated environment and can help guide future theory for dynamic oligopoly models of information sharing the experiment includes four distinct treatment conditions in the primary treatment sellers face uncertain demand but can eliminate uncertainty through voluntary mutual information sharing three control treatments identify the reasons for voluntary information sharing and determine if it leads to more collusive outcomes the first two control treatments eliminate sellers information sharing opportunities in the first control treatment sellers always remain uncertain about demand when choosing output while in the second control treatment sellers always have perfect demand information we refer to these control treatments respectively as forced no sharing and forced sharing throughout the paper the third control treatment sharply reduces collusion incentives by truncating demand while still allowing voluntary information transmission we refer to this control treatment as the truncated demand treatment the results briefly stated are as follows

dynamic mechanism design dynamic arrivals and changing values abstract we study the optimal mechanism in a dynamic sales relationship where the buyer s arrival date is uncertain and where his value changes stochastically over time the buyer s arrival date is the first date at which contracting is feasible and is his private information to induce immediate participation the buyer is granted positive expected rents even if his value at arrival is the lowest possible the buyer is punished for arriving late i e he expects to earn less of the surplus optimal allocations for a late arriver are also further distorted below first best levels conditions are provided under which allocations converge to the efficient ones long enough after contracting and this convergence occurs irrespective of the time the contract is initially agreed put differently the so called principle of vanishing distortions introduced by battaglini 2005 continues to apply irrespective of the buyer s arrival date

goods diversion and repressed inflation notes on the political economy of price liberalization most analyses of parallel markets in centrally planned systems focus on queue rationing as the mechanism whereby state sector goods become available for second economy resale this article takes into account employee diversion of goods as a second channel through which merchandise can move to private markets diversion of goods tends to temper the adverse distributional consequences of price liberalization as repressed inflation increases more goods are diverted out of the state sector and the likelihood that an individual will be made worse off by a transition of free prices is diminished

queues rations and market comparisons of outcomes for the poor and the rich this paper presents a positive comparison of the outcomes of several alternative allocation systems the queue system convertible and nonconvertible rations and the unhindered market to distribute the limited quantity of a deficit good among heterogeneous individuals the authors show that for the poor the ranking of systems from better to worse is convertible rations nonconvertible rations the queue system and nonintervention the rich are found to be better off under nonintervention than under other systems these and other results are notably robust not only to many parameters of the economy but also to certain types of commodity taxes and administrative costs copyright 1987 by american economic association

duopoly information equilibrium cournot and bertrand abstract in a duopoly model where firms have private information about an uncertain linear demand it is shown that if the goods are substitutes not to share information is a dominant strategy for each firm in bertrand cournot competition if the goods are complements the result is reversed furthermore the following welfare results are obtained 1 i with substitutes in cournot competition the market outcome is never optimal with respect to information sharing but it may be optimal in bertrand competition if the products are good substitutes with complements the market outcome is always optimal 2 ii bertrand competition is more efficient than cournot competition 3 iii the private value of information to the firms is always positive but the social value of information is positive in cournot and negative in bertrand competition

limited liability contracts between principal and agent abstract the optimal strategy of the principal is examined in an environment where there are ex post limitations on the maximum penalty that can be imposed on a riskneutral agent contrary to the case in which such limitations are not imposed it is in the principal s interest to deliberately forego the opportunity to induce socially efficient behavior and to instead design a contract that induces the agent to realize an efficient outcome only in the most productive state of nature and perhaps in certain very unproductive states the properties of the contract are examined in detail

measurement of repressed inflation in china abstract we estimate a measure of the repression of the chinese price level by developing a simple analytical model which derives a true rate of inflation on the basis of the different rates of change of the stock of money in circulation and the nominal value of retail sales this true rate of inflation is then used to explain changes in quasi money balances we estimate this model for the period 1979 1988 using quarterly data the results strongly support the hypothesis of repressed inflation the annual rate of inflation of the true price index is approximately 12 4 percent higher than that of the official price index over the 10 year period

dynamic managerial compensation a variational approach abstract we study the optimal dynamics of incentives for a manager whose ability to generate cash flows changes stochastically with time and is his private information we show that distortions aka wedges under optimal contracts may either increase or decrease over time in particular when the manager s risk aversion and ability persistence are small distortions decrease on average over time for sufficiently high degrees of risk aversion and ability persistence instead distortions increase on average with tenure our results follow from a novel variational approach that permits us to tackle directly the full program thus bypassing some of the difficulties of the first order approach encountered in the dynamic mechanism design literature

burgernomics the economics of the big mac standard abstract in the course of ppp research much of the debate over the validity has been over the choice of an appropriate basket for making purchasing power comparisons the different compositions of goods and services in these baskets across countries have resulted in arguments against their usefulness for ppp purposes this problem is augmented by the existence of productivity differentials in traded and non traded goods across countries therefore we consider the use of the big mac as the international monetary standard as being a more palatable alternative it is produced locally in over 80 countries around the world with only minor changes in recipe and thus has the flavour of the perfect universal commodity our results indicate that the big mac index is surprisingly accurate in tracking exchange rates over the long term which is consistent with previous ppp research findings we subsequently enhance our ppp comparisons by taking into account the productivity differentials between countries and excluding non traded goods from the big mac index to derive the no frills index

monopolistic competition and the effects of aggregate demand how important is monopolistic competition to an understanding of the effects of aggregate demand on output we ask the question at three levels can monopolistic competition by itself explain why aggregate demand movements affect output can it together with other imperfections generate effects of aggregate demand in a way that perfect competition cannot if so can it give an accurate account of the response of the economy to aggregate demand movements the answers are no yes and yes

optimal forestry contracts under asymmetry of information in this paper i analyze optimal royalty contracts in forestry when the harvesting firm has private information on the cost of harvesting this infinite horizon forest rotation model with asymmetry of information on the cost parameter results in a dynamic incentive problem depending on whether the costs are correlated over time or not the firm either receives rent or receives no rent associated with the continuation part of the rotation choice i characterize the optimal contract explicitly in both cases i also examine the loss in expected welfare surplus resulting from the use of a linear contract instead of the more general non linear contract

competitive pricing in markets with different overhead costs concealment or leakage of cost information this paper experimentally investigates how leaders and followers in a duopoly set prices for two product markets that have different overhead costs in a fully crossed two by two design we manipulate the participants private cost report quality as either low or high representing the extent to which these reports reveal that product markets have different overhead costs we show that when only the leader is given a high quality cost report private cost information of higher quality is better incorporated into market prices that are observable to participants both the leader and follower improve in profits and their prices better reflect the differences in overhead costs because the follower infers information from the leader s prices information leakage in contrast when only the follower receives a high quality cost report the leader s profits and prices do not improve this occurs because the follower conceals cost information when the leader has a low quality cost report

penalizing success in dynamic incentive contracts no good deed goes unpunished we examine optimal dynamic incentive contracts when adverse selection and moral hazard problems are present we find that early success is optimally penalized in the sense that the agent who succeeds early subsequently faces a lower powered incentive contract penalizing success in this manner serves to limit the agent s initial incentive to understate his ability

hungary s transition to the market the case against a big bang hungary paul hare and tamas revesz among eastern european countries hungary s great advantage is that it began economic reforms in 1968 and slowly introduced the institutions of a market economy during the 1980s these measures laid the foundation for a gradual transition to the market without the need for any sharp break with the past policy mistakes were of course made the most serious extending over several years was the 1970s investment boom funded by foreign capital which contributed to hungary s large debt burden despite this the government accounts are not now in substantial deficit and the balance of payments on current account is in modest surplus nevertheless managing the external debt is now the most difficult of hungary s problems it is important that hungarian joint ventures and privatization are now attracting significant quantities of foreign capital given the quite rapid pace of liberalization since the late 1980s the government s commitment to further changes and a reasonably satisfactory macroeconomic balance though inflation is worrying there is no case for a big bang approach in hungary such a shock could only disrupt established market relationships and expectations with little benefit the most valuable forms of aid for hungary would be debt relief and unrestricted access for hungary s products to ec markets

economic crisis in a shortage economy it is not unusual for reforming socialist economies to relax wage controls without hardening budget constraints on enterprises or freeing consumer goods prices this policy can be dangerously destabilizing while higher wages permit workers to purchase more of some goods they also tend to exacerbate shortages and to breed waste and corruption beyond a certain level economywide wage hikes will worsen worker welfare this is true regardless of whether deficit goods are strictly rationed are sold randomly at official prices to queuing workers or are offered to workers by insiders only at black market prices however the form of allocation does influence the levels of output and welfare

rationing queues and black markets several types of rationing and queue mechanisms are compared in a framework of general equilibrium type models under gross substitutability and normality assumptions about consumers walrasian demand during transition from rationing and queues to a market system a group of low income people loses the transition involves larger losses for this group if black markets prevail under rationing or queues while a group of high income consumers gains some other comparative statics results are developed for a queue model with black markets copyright 1993 by the econometric society

the saving collapse during the transition in eastern europe almost all of the transition economies in eastern europe and the former soviet union experienced a severe decline in their national saving rates the saving collapse could be explained by the elimination of involuntary saving a feature of central planning or by a change in equilibrium saving reflecting the new economic circumstances following the end of socialism the predicted saving rates of market economies with the same fundamentals as the transition economies before the transition are computed to test for the presence of involuntary saving the results provide some support for the hypothesis of consumption smoothing also considered is whether differences m the extent of liberalization affected saving rates in the cross section of transition economies this is found to be the case greater liberalization is association with lower saving with a one year lag to the extent that liberalization is associated with future growth this finding is consistent with smoothing m the face of output evolving along j curve

cooperation as a result of learning with aspiration levels abstract it is shown that a win stay lose shift behavior rule with endogenous aspiration levels yields cooperation in a certain class of games interaction takes place in many groups markets or locations simultaneously and the aspiration level in each round equals the current population average the class of games includes the prisoner s dilemma and cournot oligopoly and thus yields an explanation for cooperation and collusion

a model of imperfect competition with keynesian features the recent literature on the reappraisal of keynes has viewed keynesian equilibria as arising when prices are fixed and effective demands and supplies are equilibrated through the adjustment of quantities one problem with this approach is that it lacks a theory of price determination in particular of why prices are fixed in the present paper we show that a number of keynesian features arise in a model in which prices are fully flexible but where agents have some monopoly power one advantage of this approach is that it provides a theory of the determination of both prices and quantities

the ecological fallacy revisited aggregate versus individual level findings on economics and elections and sociotropic voting several aggregate level studies have found a relationship between macroeconomic conditions and election outcomes operating in intuitively plausible directions more recent survey based studies however have been unable to detect any comparable relationship operating at the individual voter level this persistent discrepancy is puzzling one recently proposed explanation for it is that voters actually behave in an altruistic or sociotropic fashion responding to economic events only as they affect the general welfare rather than in terms of self interested pocketbook considerations it is argued here that the discrepancies between the macro and micro level studies are a statistical artifact arising from the fact that observable changes in individual welfare actually consist of two unobservable components a government induced and politically relevant component and an exogenous component caused by life cycle and other politically irrelevant factors it is shown that because of this individual level cross sectional estimates of the effects of welfare changes on voting are badly biased and are essentially unrelated to the true values of the behavioral parameters of interest they will generally be considerable underestimates and may even be of the wrong sign an aggregate level time series analysis on the other hand will often yield reasonably good if somewhat attenuated estimates of the underlying individual level effects of interest thus in this case individual behavior is best investigated with aggregate rather than individual level data it is also shown that the evidence for sociotropic voting is artifactual in the sense that the various findings and evidence which ostensibly show sociotropic behavior are all perfectly compatible with the null hypothesis of self interested pocketbook voting

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

subject response to loss in an experimental tournament abstract we present tests for the influence of losing on subsequent behavior in a nongame tournament experiment the results are uniformly insignificant suggesting non convex incentives such as tournaments or quotas do not cause suboptimal behavior among losers as has been asserted

information leakage forces cooperation abstract this paper considers a two person repeated game in which there is a small probability of espionage i e that one or both of the players will be informed of the other s supergame strategy and have a chance to revise his strategy on the basis of this information before the game begins it is shown that in such a game any subgame perfect equilibrium pair of payoffs is pareto efficient provided that the probability of espionage is sufficiently small different from preceding studies the present paper assumes neither collective deviation nor bounded rationality in deriving the result

savings commodity market rationing and the real rate of interest in china abstract the theoretical nature of risk premiums in foreign currency futures markets is derived and studied empirically estimation problems encountered in using futures data are discussed since forward rates and futures prices have been found to be approximately equal and because risk in daily risk premiums in the futures market unbiasedness of daily futures prices as predictors of the following day s futures price is rejected for all currencies reconciliation of daily and monthyl data requires positive serial correlation in daily risk premiums

regulating a monopolist with unknown costs we consider the problem of how to regulate a monopolistic firm whose costs are unknown to the regulator the regulator s objective is to maximize a linear social welfare function of the consumers surplus and the firm s profit in the optimal regulatory policy prices and subsidies are designed as functions of the firm s cost report so that expected social welfare is maximized subject to the constraints that the firm has nonnegative profit and has no incentive to misrepresent its costs we explicitly derive the optimal policy and analyze its properties in their classic papers dupuit 2 and hotelling 5 considered pricing policies for a bridge that had a fixed cost of construction and zero marginal cost they demonstrated that the pricing policy that maximizes consumer well being is to set price equal to marginal cost and to provide a subsidy to the supplier equal to the fixed cost so that a firm would be willing to provide the bridge this first best solution is based on a number of informational assumptions first the demand function is assumed to be known to both the regulator and to the firm while the assumption of complete information may be too strong the assumption that information about demand is as available to the regulator as it is to the firm does not seem unnatural a second informational assumption is that the regulator has complete information about the cost of the firm or at least has the same information about cost as does the firm this assumption is unlikely to be met in reality since the firm would be expected to have better information about costs than would the regulator as weitzman has stated an essential feature of the regulatory environment i am trying to describe is uncertainty about the exact specification of each firm s cost function in most cases even the managers and engineers most closely associated with production will be unable to precisely specify beforehand the cheapest way to generate various hypothetical output levels because they are yet removed from the production process the regulators are likely to be vaguer still about a firm s cost function 12 p 684 as this observation suggests it is natural to expect that a firm would have better information regarding its costs than would a regulator the purpose of this paper is to develop an optimal regulatory policy for the case in which the regulator does not know the costs of the firm one strategy that a regulator could use in the absence of full information about costs is to give the firm the title to the total social surplus and to delegate the pricing decision to the firm in pursuing its own interests which would then be to maximize the total social surplus the firm would adopt the same marginal cost pricing strategy that the regulator would have imposed if the regulator had

when higher incomes reduce welfare queues labor supply and macro equilibrium in socialist economies starting from a micro model of consumer behavior under rationing by queuing that utilizes gary becker s allocation of time framework we develop a simple macroeconomic model of a socialist economy the length of the queue is the key endogenous variable that equilibrates aggregate supply and aggregate demand comparative statics analysis shows that an increase in wages over money prices brings about longer queues that reduce labor supply output and welfare when shortages grow beyond a certain critical level queues fail to sustain aggregate equilibrium in the economy