are higher education subsidies second best an optimal taxation framework is considered in which part of the population can take advantage of investment in higher education it is shown that social welfare can sometimes be increased by supplementing linear income taxes with a subsidy to material investment in higher education but that social welfare can never be increased by supplementing a nonlinear income tax with such a subsidy

involuntary unemployment and implicit contracts this paper provides an explanation of involuntary umemployment arising as a consequence of asymmetric information between firms and workers involuntary unemployment is defined as a situation where ex post gains to trade exist a model of labor contracts is developed where the allocations are not ex post optimal it is shown that inferiority of leisure is a necessary and sufficient condition for the existence of involuntary unemployment

re examination of uniform commodity taxes under a non linear income tax system and its implication for production efficiency abstract this paper shows that the result of uniform commodity tax under nonlinear income taxation by atkinson and stiglitz 1976 no longer holds if the production side of an economy is taken into the consideration in particular imposing a non uniform commodity tax can pareto improve welfare even under nonlinear income taxation in addition the paper shows that if the government uses a nonlinear income tax system for income redistribution then the introduction of distortions in the public sector can pareto improve welfare contrary to the results in diamond and mirrlees 1971

a minimum wage can be welfare improving and employment enhancing abstract we examine whether minimum wages can fulfill a useful role as part of an optimal tax transfer scheme the government cannot observe household abilities only their incomes and is constrained to ensure that those working are at least as well off as those not working a minimum wage combined with the institutional features of typical welfare systems allows the incentive constraint to be severed at the ability level associated with the minimum wage if such a scheme can be enforced the government can increase the amount of redistribution from those working to those not working and possibly lower the number of unemployed

optimal democratic mechanisms for taxation and public good provision abstract we study the interdependence of optimal tax and expenditure policies an optimal policy requires that information on preferences is made available we first study this problem from a general mechanism design perspective and show that efficiency is possible only if the individuals who decide on public good provision face an own incentive scheme that differs from the tax system we then study democratic mechanisms with the property that tax payers vote over public goods under such a mechanism efficiency cannot be reached and welfare from public good provision declines as the inequality between rich and poor individuals increases

dynamic inefficiency in decentralized capital markets abstract we study the efficiency implications of bargaining in frictional capital markets in which firms match bilaterally with dealers in order to buy or sell capital we show how two of the distinguishing characteristics of capital ownership and the intertemporal nature of investment give rise to a dynamic inefficiency firms that anticipate buying capital in the future overinvest because this increases their outside option of no trade in negotiations with dealers in the future thereby lowering the bargained purchase price vice versa firms that anticipate selling capital in the future strategically underinvest because this increases the bargained sale price if the only motive for trade is capital depreciation there is overinvestment with stochastic productivity high productivity firms underinvest and low productivity firms overinvest in equilibrium the inefficiency interacts with the externality from dealer entry and implies that no bargaining power achieves the constrained efficient allocation we propose a regressive tax on capital that can restore efficiency finally we calibrate the model to data on physical capital markets and show that depending on bargaining power the welfare loss from the inefficiency can be large

housing conditions and their structural determinants comparisons within the enlarged eu housing conditions vary widely across the eu and the fact that new member states are lagging behind in this regard has even come onto the european policy agenda this article examines housing conditions as an outcome of complex social developments and highlights specific reasons why housing conditions vary so much within the eu thus the specific impact is observed of factors which have been identified in the literature as characterising distinctive housing models the eastern european housing model the southern european housing model and the distinction between cost renting and homeowning countries further the impact of these factors along with general socioeconomic development is empirically assessed by a linear regression model based on the eqls 2003 dataset the results clearly support the thesis of economic development playing a decisive role with it being the biggest single factor explaining variations in housing conditions across the eu followed by the significant influence of policy choice

optimality of workfare with heterogeneous preferences with the standard non linear income taxation framework with heterogeneity of preferences in this paper the optimality of workfare as a screening tool is examined it is assumed that workfare does not serve as a human capital investment participation is mandatory and administrative costs are negligible imposing alternative cardinalizations on individuals utilities allows for the possibility that the government optimally redistributes income to or from high disutility of labour individuals under either case it is never optimal to impose workfare on these individuals it is also shown that non productive workfare can be an e cient policy tool in contrast to the results found in besley and coate 1995 brett 1998 and beaudry and blackorby 1997 jel classification h21 h23 optimalite du workfare en presence de preferences heterogenes l auteur examine l timalite du workfare en tant qu instrument de tamisage a l aide du cadre conceptuel traditionnel d imposition non lineaire des revenus en presence de preferences heterogenes on postule que le workfare n est pas un processus d investissement en capital humain que la participatioun est obligatoire et que les couts d administration sont negligeables quand on postule aussi des utilites cardinales differentes pour les individus il devient possible pour le gouvernement de redistribuer optimalement les revenus en faveur ou au detriment des individus pour qui le travail a une tres grande desutilite dans l un et l autre cas on montre que le workfare n est jamais une politique optimale on montre aussi que le workfare dans des activites non productives peut etre un instrument de politique publique e cient contrairement a ce qu a rment besley et coate 1995 brett 1998 et beaudry et blackorby 1997

liquidity constraints in a monetary economy this article presents a microfounded model of money with a consumption and an investment market we consider an economy in which only part of the investment returns can be pledged a liquidity constraint arises when the pledgeable part of the returns are not enough to pay for investment costs we show that when the liquidity constraint is binding agents may make a cash downpayment and money can perform two roles as a provider of liquidity services and exchange services the liquidity constraint constitutes a channel though which underinvestment occurs even at low inflation rates

optimal policy and the risk properties of human capital reconsidered abstract this paper considers how optimal education and tax policy depends on the risk properties of human capital a key feature of human capital investments is whether they increase or decrease wage risk in a benchmark model it is shown that this feature alone determines whether a constrained optimal allocation should be characterized by a positive or a negative education premium in the same model a positive intertemporal wedge is optimal the robustness of these results is explored in two generalizations nonobservability of education and nonobservability of consumption finally policies that implement the constrained efficient allocations are considered

on the sign of the optimum marginal income tax this paper studies a central aspect of optimal income taxation as modelled in mirrlees original paper on the topic identical leisure consumption preferences qualitatively homogeneous skills in production namely whether given concave utilitarianism alone the optimal marginal income tax will be non negative a well known positive answer to this question in weak inequality form was given in the said paper which however we show requires additive separability of individual utility in the ordinal and cardinal senses our main result here is to derive the required strict positivity of the marginal tax under weak conditions slightly wider than noninferiority of consumption and leisure with preferences otherwise arbitrary

a contribution to the theory of optimal utilitarian income taxation abstract the paper provides a new formulation of the mirrlees seade theorem on the positivity of the optimal marginal income tax under weaker assumptions and in a more general model the formulation of the theorem is independent of whether the model involves finitely many types or a continuous type distribution the formal argument makes the underlying logic transparent relating the mathematics to the economics and showing precisely how each assumption enters the analysis

from theory to practice canadian economists contributions to public finance we survey canadian economists contributions to the field of public finance from the mid 1980s to 2016 we highlight the development and extension of the models and tools of public economics and the empirical studies that have deepened our understanding of the efficiency and distributional issues over a wide range of public finance issues we also highlight contributions to the development of policies through commissioned reports and the important role that canadian institutions the canadian tax foundation the think tanks and the federal and provincial departments of finance have played in shaping tax and fiscal policies de la theorie a la pratique contributions des economistes canadiens a la finance publique on examine les contributions des economistes canadiens au domaine de la finance publique du milieu des annees 1980 a 2016 on souligne le developpement et l extension des modeles et des outils d economie publique et les etudes empiriques qui ont aide a approfondir notre comprehension des enjeux d efficacite et de distribution dans un vaste eventail de questions de finance publique on souligne aussi les contributions des rapports commandites au developpement de politiques publiques ainsi que le role important d institutions canadiennes l association canadienne d etudes fiscales les groupes d experts ainsi que les ministeres des finances du gouvernement federal et des gouvernements provinciaux dans le design des politiques fiscales

non point source pollution regulation as a multi task principal agent problem this paper considers a multi task principal agent problem where risk averse farmers possessing private information have two tasks pollution control and corn production but only direct incentive for corn production using a highly tractable reformulation of the standard uncertain production model a general method for solving the associated constrained paretian problem is developed and analyzed the optimal solution is shown to obey a generalized inverse elasticity rule and the optimal solution is characterized under a number of assumptions about the underlying technology and the role that pollution emission plays in reducing farmer risk

how optimal nonlinear income taxes change when the distribution of the population changes abstract the impacts of changing the number of individuals of a particular skill level on the solutions to two versions of the finite population optimal nonlinear income tax problem are investigated in one version preferences are quasilinear in leisure for this version it is shown that it is possible to sign the directions of change in everyone s optimal consumptions and optimal marginal tax rates in the other version preferences are quasilinear in consumption for this version it is shown that it is possible to sign the directions of change in everyone s optimal before tax incomes and optimal marginal tax rates moreover the directions of change in the optimal marginal tax rates are the same for the two specifications of preferences

organizational structure redistribution and the endogeneity of cost cooperatives investor owned firms and the cost of procurement abstract as an organizational type cooperatives are in general not the dominant form of enterprise nevertheless cooperatives and cooperative like organizations do play important roles in a number of sectors suggesting that in some circumstances they are more efficient than other business forms this paper explores the importance of membership goals on the relative efficiency of the cooperative form of organization the cooperative cost and hence production efficiency advantage is directly linked to the goal alignment between the cooperative and its members and is influenced by the extent of income redistribution between members and the degree of rent seeking that takes place in the organization when there is no aversion to income inequality the members produce at their first best levels however as aversion to inequality rises the production profile of the members converges to the production profile generated when the members face an iof regarding rent seeking if the more less efficient members are able to get their profits valued more total output is increased decreased as a consequence consumers may benefit from the lobbying that occurs inside a cooperative where the powerful members are the most efficient agents

monopoly provision of product quality and warranties an exploration in the theory of multi dimensional screening we address the monopoly problem of designing and pricing a product line of goods distinguished by different quality and warranty levels consumers vary in their evaluations of these attributes so that the problem is one of screening it is sufficiently complex that the local approach commonly used does not work instead we use new techniques for dealing with incentive constraints between nonadjacent consumer types these techniques allow us to characterize optimal allocations that may not be monotonic in particular although the more eager types of buyer do pay higher prices and yield the monopoly higher profit they may receive lower quality or lower warranty coverage we find preference restrictions that restore monotonicity concave risk tolerance implies that warranty coverage increases in type and constant absolute risk aversion implies that quality increases in type

producer organizations bargaining and asymmetric information as pointed out by sexton a cooperative s pricing rule can be affected by divergent interests of heterogeneous members when such competing interests are present production decisions may depart from the first best optimum and the marginal cost pricing rule cum fee rebate may no longer be implementable in a recent article vercammen fulton and hyde study such departures assuming a con tinuum of producers types and a nondiscri minating management board while their sim ulation analysis indicates that the first best is sometimes attainable in such instances their theoretical analysis seems to suggest it is not this article extends the analysis of the in centive problems faced in producers orga nization by assuming that the different farmer types constitute different groups with differ ent bargaining powers departures from an equal sharing of the oligopolistic gain appear as long as the bargaining power of a group does not correspond to its relative importance in the farm population however when bargaining disparities are small enough the quantities produced will still correspond to first best levels and incentive compatible sharing of the oligopolistic gain can be effected by a mixture of two part pricing and nonlinear cost recovery when the less more cost efficient farmers have sufficiently high bargaining power the redistributive objective conflicts with efficiency and the organization overproduces underproduces compared to the first best level moreover the nonlinear scheme may be implemented by offering two two part schedules one with a unit price equal to the marginal revenue that members of the less powerful group choose and the other with a unit price greater or lower than this level depending on the productivity of the most influential group this abstract was borrowed from another version of this item

competing for order flow in otc markets we develop a model of a two sided asset market in which trades are intermediated by dealers and are bilateral dealers compete to attract order flow by posting the terms at which they execute trades which can include prices quantities and execution times and investors direct their orders toward dealers that offer the most attractive terms of trade equilibrium outcomes have the following properties first investors face a trade off between trading costs and speeds of execution second the asset market is endogenously segmented in the sense that investors with different asset valuations and different asset holdings will trade at different speeds and different costs for example under a leontief technology to match investors and dealers per unit trading costs decrease with the size of the trade in accordance with the evidence from the market for corporate bonds third dealers implicit bargaining powers are endogenous and typically vary across sub markets finally we obtain a rich set of comparative statics both analytically by studying a limiting economy where trading frictions are small and numerically for instance we find that the relationship between trading costs and dealers bargaining power can be hump shaped

optimal income tax in the presence of status effects abstract the existence of distortions from individuals competing to attain social status by using consumption signals justifies some measure of income tax as a counter acting distortion the question posed here is whether it also constitutes a reason for a more progressive income tax schedule the answer is found to be broadly negative if progressiveness is interpreted as a more convex tax schedule unless the rich are more concerned with status seeking than the poor on the other hand status seeking makes the optimal tax schedule steeper so that redistribution is increased essentially the analysis of status seeking based on a signaling approach confirms and strengthens the existing view of an optimal tax schedule and can be incorporated into the diamond american economic review 88 1998 83 95 approach

public goods self selection and optimal income taxation using the self selection approach to tax analysis this paper derives a modified samuelson rule for the provision of public goods when the government deploys an optimal nonlinear income tax this approach gives a straightforward interpretation of the central result in this area generalises it and provides a simple characterisation of optimal policy in a wide range of circumstances the analysis also emphasises and clarifies the significance of the choice of numeraire for the optimality of decentralising public spending decisions it is well known that the famous samuelson rule for the provision of public goods may not be applicable when the tax revenues used to finance the public goods come from distorting taxes the principle was recognized as long ago as pigou 1947 long before the samuelson rule was devised pigou saw that in addition to the resource cost involved in transferring funds from the private to the public sector there was a deadweight loss involved from this insight he suggested that the criterion for providing public goods should be more stringent than the samuelson rule would later suggest in particular one might expect that the inclusion of the deadweight loss of taxes as part of the cost of providing a public good would lead to a reduction in its optimal provision relative to a situation in which lump sum taxes were available the problem was investigated more systematically by atkinson and stern 1974 who considered the case in which a public good is financed by a set of optimal commodity taxes all individuals were assumed to be identical so efficiency alone dictated the objective they found that no prima facie case could be made for the pigou position that the use of distortionary taxes called for a reduction in the supply of the public good their analysis clearly showed that there were two influences at work when the financing of a public good was by distorting taxes on the one hand

a critical analysis of housing finance reform in a super home ownership state the case of armenia communist countries in central and eastern europe commonly lacked market based mortgage finance systems the establishment of such systems is generally regarded as being a crucial part of the transition process across the region even though the emphasis placed on home ownership varies greatly a framework for analysing the adequacy of the housing reform process is applied to armenia as an example of a super home ownership state the housing economic and political context suggests that even if an efficient mortgage finance system were to be established the housing needs of large sections of the population would remain unmet this is because they would still be unable to afford to access finance or because of the nature of their housing need such is the prevalence of housing need and poverty that conventional subsidy programmes no matter how well designed are unlikely to fill the gap instead there is a need to draw on examples from development literature such as micro finance whereby relatively

taxes and employment subsidies in optimal redistribution programs this paper explores how to optimally set taxes and transfers when taxation authorities 1 are uninformed about individuals value of time in both market and non market activities and 2 can observe both market income and time allocated to market employment we show that optimal redistribution in this environment involves distorting market employment upwards for low wage individuals through decreasing wage contingent employment subsidies and distorting employment downwards for high wage individuals through positive and increasing marginal income tax rates in particular we show that whether a person is taxed or subsidized depends primarily on his wage with the optimal program involving a cut off wage whereby workers above the cutoff are taxed as they increase their income while workers earning a wage below the cutoff receive an income supplement as they increase their income finally we show that the optimal program transfers zero income to individuals who choose not to work

the optimal taxation of unskilled labor with job search and social assistance abstract in order to explore the optimal taxation of low skilled labor we extend the standard model of optimal nonlinear income taxation in the presence of quasi linear preferences in leisure by allowing for involuntary unemployment job search and an exogenous welfare benefit in trading off low skilled employment against work effort of higher skilled workers the government balances distortions on the search margin with those on work effort higher welfare benefits typically reduce taxes paid by low skilled workers and raise marginal tax rates throughout the skill distribution

asset prices and liquidity in an exchange economy i develop an asset pricing model in which financial assets are valued for their liquidity the extent to which they are useful in facilitating exchange as well as for being claims to streams of consumption goods the implications for average asset returns the equity premium puzzle and the risk free rate puzzle are explored in a version of the model that nests the work of mehra and prescott 1985

credit frictions and participation in over the counter markets abstract this paper formalizes a nash bargaining game between two players constrained by capacity decisions made prior to entering the negotiation in equilibrium strategic interactions drive capacity choices to zero and shut trade down despite the existence of gains from trade the game is embedded in a general equilibrium model of decentralized asset trade with credit frictions to investigate the interaction between availability of credit and investors participation modeled through their choices of inventory and payment capacity partial access to credit is sufficient to restore trade the strategic interactions between payment capacity and inventory generate endogenous heterogeneity in holdings trade sizes and prices and complementarity between money and credit

holdups and overinvestment in capital markets abstract this paper considers a decentralized capital market characterized by trading frictions in which firms and suppliers need to make investment decisions before meeting with each other and bargaining over the price of capital the resulting holdup problem provides firms with a strategic incentive to overaccumulate capital so as to reduce their marginal productivity and thus the bargained price in equilibrium this strategic incentive can outweigh the usual distortionary effects of holdup problems that on their own would lead to underinvestment thus resulting in the economy to overinvest in a setting with both capital and labor the holdup problem in capital markets interacts with holdup problems in labor markets this presents firms with a trade off that has non trivial equilibrium effects and that depending on the substitutability of capital and labor and the firm s bargaining power in each market can mitigate or exacerbate the overinvestment result

optimal labour contracts under asymmetric information an introduction the review of economic studies has instituted a new series of lectures to be given annually by a younger british economist at the association of university teachers of economics meetings the choice of lecturer is determined by a panel whose members are currently professors hahn mirrlees and nobay this paper is a revised version of the first lecture in the series it was presented at the aute meeting held at the university of surrey in april 1982 and was refereed in the usual way mak

monopoly with incomplete information recent theoretical research on principal agent relationships has emphasized incentive problems that arise when the parties involved are constrained by either asymmetric information or their inability to monitor each other s actions here we concentrate on the former constraint and consider the case of a single principal the monopolist the main contribution is to show that under a separability assumption strong conclusions can be drawn about the nature of optimal incentive schemes although the primary focus is on optimal quantity discounts in a monopolized market the results also shed light on related topics such as optimal income taxation and commodity bundling

optimal marginal and average income taxation under maxi min using the mirrlees optimal income tax model with a maxi min social welfare function we derive conditions for a decreasing marginal tax rate throughout the skill distribution a strictly concave tax function in income and a single peaked average tax schedule with additive preferences and a constant labor supply elasticity marginal tax rates are decreasing below the modal skill level and will also decrease above the mode if aggregate skills are non decreasing with the skill level in this case and with a bounded skill distribution or with a constant hazard rate the tax function is strictly concave in income and the average tax rate single peaked when quasilinear utility functions apply in either consumption or leisure under fairly mild restrictions on the truncated or untruncated distribution function marginal tax rates are decreasing in skill and the average tax profile is single peaked the distribution of skills has the same quantitative influence for either case of quasilinearity these results continue to hold when there is bunching at the bottom due to a binding non negativity constraint we also illustrate how relaxing the assumption of constant elasticity of labor supply generally used in the literature modifies the results

on the optimal marginal rate of income tax abstract the paper shows that in the quasi linear model of income taxation the optimal marginal rate of tax can be calculated without needing to specify the utility of consumption this result is used to investigate the qualitative behavior of the marginal rate it is shown that every possible qualitative outcome may be achieved by appropriate selection of the skill distribution therefore the model does not place any a priori restrictions on the behavior of the marginal rate and the constancy of findings in previous simulation analysis is a consequence of their restricted structures

workfare or welfare abstract social welfare and workfare programs are considered in the context of an optimal income tax model both regressively and progressively weighted utilitarian social welfare functions are considered optimal program design can entail individuals foregoing productive employment opportunities for progressive social welfare functions regressive social welfare functions lead to overemployment

liquidity and asset market dynamics this study analyzes economies with an essential role for liquid assets in the exchange process the model can generate multiple stationary equilibria across which asset prices market participation capitalization output and welfare are positively related it can also generate a variety of nonstationary equilibria even when fundamentals are deterministic and time invariant including periodic chaotic and stochastic sunspot equilibria with recurrent market crashes some equilibria have asset price trajectories that resemble bubbles growing and bursting endogenous private and public liquidity is also introduced sometimes it is efficient to provide enough liquid assets to satiate demand other times it is not

a reduced form optimal nonlinear income tax problem abstract for a finite population with quasilinear preferences it is shown how mirrlees optimal nonlinear income tax problem can be simplified to a reduced form problem involving only the allocation of the consumption good this result is a finite version of a proposition established in the continuum by s lollivier and j c rochet

degreasing the wheels of finance can there be too much trading in financial markets we construct a dynamic general equilibrium model where agents face idiosyncratic liquidity shocks a financial market allows agents to adjust their portfolio of liquid and illiquid assets in response to these shocks the optimal policy is to restrict access to this market because portfolio choices exhibit a pecuniary externality agents do not take into account that by holding more of the liquid asset they not only acquire additional insurance against these liquidity shocks but also marginally increase the value of the liquid asset which improves insurance for other market participants

a note on the marginal tax rate in a finite economy abstract the marginal tax rate is shown to be non negative in guesnerie and seade s model of nonlinear pricing in a finite economy under assumptions that are as mild as those customarily adopted in nonlinear tax models with a one dimensional continuum population

performing housing markets this paper offers an interpretation of how housing markets work which complements more traditional economic approaches building on a wider movement within cultural economy and economic sociology it considers how housing markets are variously performed in the power filled negotiations of buyers sellers and market professionals this is part of a larger undertaking but here the focus is particularly on the role of legal financial and information intermediaries in shaping local cultures of property exchange this is a social rather than economic analysis of housing markets it is a qualitative rather than a quantitative study it is designed to shed light on how markets are made though it might in the end change the way they are modelled

a price discrimination analysis of monetary policy monetary policy is analysed within a model that appeals to legal restrictions on private intermediation to explain the coexistence of currency and interest bearing default free bonds the interaction between such legal restrictions and monetary policy is illustrated in a version of the overlapping generations model the model shows that legal restrictions and the use of both currency and bonds permit the government to levy a nonlinear inflation tax and that such a tax may be better in terms of the pareto criterion than a linear inflation tax

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

a reexamination of the optimal nonlinear income tax abstract this paper investigates mirrlees model of optimal income taxation it provides a concrete example of utility and density functions for which the solution to the usual first order model is not implementable i e and example where the first order approach does not work adding second order conditions leads to an extended model and to implementable solutions if these conditions are binding one gets a kink in the optimal net income schedule and bunching of individuals occurs the properties of an optimal nonlinear income tax are reexamined within the extended model

information and housing search theory and evidence from china market abstractasymmetric market information plays a role in households housing choice to study this role we theoretically and empirically examine the varied behaviours between better informed and less informed households in a housing market the housing search model theoretically predicts that better informed households are more likely to secure a better deal with the data from tianjin in china hedonic models are calibrated to quantify the impacts of asymmetric information on housing search outcomes the results show that the less informed homebuyers need to pay around 1 2 3 more than those better informed homebuyers after controlling the heterogeneity of housing units which are consistent with the theoretical predictions it suggests that policies and institutions to alleviate asymmetric information in housing market could improve the welfare of households

voting over selfishly optimal nonlinear income tax schedules abstract majority voting over selfishly optimal nonlinear income tax schedules proposed by a continuum of individuals who have quasilinear in consumption preferences is considered roell 2012 has shown that individual preferences over these schedules are single peaked in this article a complete characterization of selfishly optimal schedules is provided each selfishly optimal schedule has a bunching region in a neighborhood of the proposer s skill type coincides with the maxi max schedule below this region and coincides with the maxi min schedule above it using techniques introduced by vincent and mason 1967 the bunching region is identified by solving an unconstrained optimization problem information about the optimal schedules is used to provide a relatively simple proof of single peakedness the condorcet winning tax schedule features marginal tax rates that are negative resp positive on the maxi max resp maxi min part of the schedule except at the endpoints of the skill distribution where they are zero

the over the counter theory of the fed funds market a primer we present a dynamic over the counter model of the fed funds market and use it to study the determination of the fed funds rate the volume of loans traded and the intraday evolution of the distribution of reserve balances across banks we also investigate the implications of changes in the market structure as well as the effects of central bank policy instruments such as open market operations the discount window lending rate and the interest rate on bank reserves

globalisation and housing finance systems in advanced and transition economies globalisation is only the most recent manifestation of convergence theory this article shows how distinctive housing finance systems in the advanced economies contribute to distinctive housing systems with important social and economic implications it also suggests that the evidence from the european union confirms what can be derived from a priori reasoning that mobility of finance does not alter the nationally based components of the wider housing finance system hence even huge changes in the nature of intermediaries fail to alter the fundamental nature of the mortgage product combined with lack of any evidence to suggest that government support for home ownership is in general or irreversible retreat it is suggested that the former socialist transition countries have considerably more opportunity to shape their housing finance systems than might be suggested by convergence theory

asset liquidity and indivisibility abstract we study asset liquidity in a search theoretic framework where divisible assets can facilitate exchange for an indivisible consumption good the distinctive characteristics of our theory are that the asset dividend can be either positive or negative and buyers can choose whether or not to carry the asset and trade for the indivisible good buyers participation determines the demand for asset liquidity thus the asset price carries a liquidity premium component which reflects the function of the asset in facilitating trade the economy features multiple equilibria when the asset dividend is negative due to the trade off between the probability of trade and the endogenous cost of holding assets

trade dynamics in the market for federal funds we develop a model of the market for federal funds that explicitly accounts for its two distinctive features banks have to search for a suitable counterparty and once they have met both parties negotiate the size of the loan and the repayment the theory is used to answer a number of positive and normative questions what are the determinants of the fed funds rate how does the market reallocate funds is the market able to achieve an efficient reallocation of funds we also use the model for theoretical and quantitative analyses of policy issues facing modern central banks

staggered updating in an artificial financial market abstract we consider an environment in which traders search for trading opportunities and update their forecast rules at random intervals by ols the staggering of this updating process across traders allows differences in opinion to persist over time generating nontrivial price dynamics the nature of these dynamics is sensitive to the degree of overparameterization of forecast rules relative to market fundamentals

a complete solution to a class of principal agent problems with an application to the control of a self managed firm this paper considers a class of principal agent problems which have the following features 1 there is adverse selection because the principal ignores the value of one parameter of the agent s true characteristics 2 leaving aside the information parameter the principal s welfare as well as the agent s welfare depend on two types of variables observable to both of them the first ones possibly multidimensional are called action variable s and the second one which is one dimensional has in general the meaning of a money transfer 3 the principal is a stackelberg leader of the two person game he can commit himself to decision rules which are admissible on informational grounds he optimizes within the adequate class taking into account besides the agent s reaction one constraint which has generally the meaning of an individual rationality constraint and sometimes of a feasibility constraint the optimization is limited to the class of non stochastic mechanisms 4 the problem can also receive an alternative interpretation the principal faces a continuum of agents of unknown characteristics the distribution being known however stylized principal agent problems of this type have often been considered in the economic literature in particular the reader will later be able to recognize that the standard income tax model a la mirrlees 1971 the quality or quantity choice model of the monopolist a la mussa and rosen 1978 or maskin and riley 1982 and the model of government regulation of the private monopolist of baron and myerson 1982 all belong to

effects of market reform on the trading costs and depths of nasdaq stocks the relative merits of dealer versus auction markets have been a subject of significant and sometimes contentious debate on january 20 1997 the securities and exchange commission began implementing reforms that would permit the public to compete directly with nasdaq dealers by submitting binding limit orders additionally superior quotes placed by nasdaq dealers in private trading venues began to be displayed in the nasdaq market we measure the impact of these new rules on various measures of performance including trading costs and depths our results indicate that quoted and effective spreads fell dramatically without adversely affecting market quality

a state contingent production approach to principal agent problems with an application to point source pollution control two basic representations of principal agent relationships the state space and parameterized distribution formulations have emerged although the state space formulation appears more natural analytical studies using this formulation have had limited success this paper develops a state space formulation of the moral hazard problem using a general representation of production under uncertainty a closed form solution for the agency cost problem is derived comparative static results are deduced next we solve the principal s problem of selecting the optimal output given the agency cost function the analysis is applied to the problem of point source pollution control c 1998 published by elsevier science s a all rights reserved

optimal income taxation and job choice in this paper we study optimal income taxation when different job types exist for workers of different skills each job type has some feasible range of incomes from which workers choose by varying labor supply workers are more productive than others in the jobs that suit them best the model combines features of the classic optimal tax literature with labor variability along the intensive margin with the extensive margin approach where workers make discrete job choices and or participation decisions we find that first best maximin utility can be achieved in the second best and marginal tax rates below the top can be negative or zero

regulating an externality generating public utility a multi dimensional screening approach abstract in this paper i present a monopoly screening model in which a firm holds private information on fixed abatement costs because of the nature of the optimal contracts bunching is never optimal even with n distinct types a characterization of full and limited information solutions is offered and it is shown that the design standards alone determine the value of an information rent the variable charge is completely free of any marginal information costs this allows the variable charge to track marginal damages and thereby ensures that marginal social costs are covered a fixed charge implements the optimal solution

incomplete markets liquidation risk and the term structure of interest rates we analyse the term structure of interest rates in a general equilibrium model with incomplete markets borrowing constraint and positive net supply of government bonds uninsured idiosyncratic shocks generate bond trades while aggregate shocks cause uctuations in the trading price of bonds long bonds command a liquidation risk premium over short bonds because they may have to be liquidated before maturity following a bad idiosyncratic shock precisely when their resale value is low due to the simultaneous occurrence of a bad aggregate shock our framework endogenously generates limited cross sectional wealth heterogeneity among the agents despite the presence of uninsured idiosyncratic shocks which allows us to characterise analytically the shape of the entire yield curve including the yields on bonds of arbitrarily long maturities agents desire to hedge the idiosyncratic risk together with their fear of having to liquidate long bonds at unfavourable terms imply that a greater bond supply raises the level of the yield curve while an increase in the relative supply of long bonds raises its slope

on allocative distortions in problems of self selection this article considers the general structure of self selection models by imposing conditions which permit the ordering of agents by their preferences we provide a characterization of the distortions inherent in the sorting process

the secondary circuit of capital reconsidered globalization and the u s real estate sector1 the author examines the u s real estate sector to show how the state shapes global real estate flows and networks of activity through the creation and control of liquid resources the analysis focuses on the role of state laws and regulations in the expansion of the mortgage backed securities markets and the development of real estate investment trusts reits these institutional developments represent a series of ad hoc state efforts to delocalize residential and commercial property and embed real estate financing within global capital markets rather than viewing globalization as weakening the state the author argues that the u s state s capacity to influence the degree and development of liquidity is a powerful mechanism of globalization

search in asset markets market structure liquidity and welfare this paper investigates how market structure affects efficiency and several dimensions of liquidity in an asset market to this end we generalize the search theoretic model of financial intermediation of darrell duffie et al 2005 to allow for entry of dealers and unrestricted asset holdings

education distributive justice and adverse selection we consider a model of education planning in an economy in which agents differ in their costs of acquiring education the agents cost parameter called talent is not observed the principal is endowed with a fixed sum of money with which two types of transfer can be made in cash and in kind the principal can finance transfers in kind called help by means of schooling expenditures which reduce the agent s education cost the principal seeks to maximize a social welfare function which is a ces index of utility levels we study the optimal allocation of individual education effort schooling expenditures help and cash under self selection and budget constraints assuming first that the set of types is finite and that help and effort are sufficiently substitutable we find that individual education investment levels are an increasing function and help is a decreasing function of talent utility levels cannot be equalized because of self selection constraints more aversion for inequality unequivocally leads to more inequality of educational achievements and to more assistance through redistribution this remains true in the limit under strictly egalitarian preferences of the principal the same qualitative properties hold in the general case of a continuum of types bunching at the lower end of the talent scale is a feature of the solution for sufficiently high degrees of inequality aversion

stop and go agricultural policies the optimal design of farm policy and public investment in agriculture in the presence of asymmetric information between the government and farmers is studied it is shown that a mix of capped deficiency payments and voluntary paid land diversion can implement the optimal policy outcome optimal program design requires large farmers to farm all their land and small farmers may or may not divert acreage decoupled policies are never optimal

the formation of cooperatives a game theoretic approach with implications for cooperative finance decision making and stability this paper departs from the traditional organization oriented approach to cooperative analysis it exploits cooperation s functional similarity to vertical integration to examine individuals incentives to form cooperatives a model of formation of a purchasing cooperative is presented and developed as an n person game with the core as a solution concept core existence is examined for both single and multiple cooperative configurations and cooperative finance methods are examined relative to finding core compatible allocation rules the results provide insight into a cooperative s equilibrium output stability decision making financing methods and choice of open or restricted membership

the impact of changing skill levels on optimal nonlinear income taxes abstract the impact of changing an individual s skill level on the solution to a finite population version of the mirrlees optimal nonlinear income tax problem with quasilinear in leisure preferences is investigated it is shown that it is possible to sign the directions of change in everyone s optimal consumptions and optimal marginal tax rates in response to such a change

optimal non linear income taxation for reduction of envy abstract this paper examines the optimal non linear income taxation problem based on equitability an allocation is equitable if no agent envies a proportion of the bundle of any other agent we examine the properties of pareto undominated allocations for various equitability requirements when there is one output the marginal income tax rate can increase only if leisure is a luxury in a multi commodity model with commodity taxes the goods preferred by the low skilled agent and or those with high hicksian elasticities are taxed more heavily when preferences exhibit quasi linearity we can show that the introduction of the equitability constraint increases the marginal income tax rates of the entire population

a theory of value with non linear prices equilibrium analysis beyond vector lattices this paper presents a new theory of value with a personalized pricing system that naturally induces a family of non linear prices this affords a coordinate free theory of value in which the analysis is without any lattice theoretic considerations when commodity bundles are perfectly decomposable the generalized prices become linear and the analysis specializes to the walrasian model this happens for instance whenever the commodity space is a vector lattice and consumption sets coincide with the positive cone our approach affords theorems on the existence of equilibrium and provides a value based characterization of pareto optimality and edgeworth equilibrium where the walrasian linear price based characterization fails the analysis has applications in the finite as well as the infinite dimensional setting journal of economic literature classification numbers c62 c71 d46 d51 d61

price discriminating monetary policy a nonuniform pricing approach abstract this paper establishes that a version of the bryant and wallace 1984 price discrimination analysis of monetary policy can be viewed as a special case of the spence 1977 nonuniform pricing model to this end a general equilibrium model is constructed with heterogeneous agents and a government that faces an informational restriction the government must finance an exogenously determined stationary deficit by issuing bonds or currency with quantity dependent prices in addition to generalizing the bryant and wallace model the analysis accomplishes the following i the informational restriction helps justify the ruling out of lumpsum taxation a crucial assumption of the bryant and wallace model and ii the analysis provides insight into nonuniform pricing in a simple general equilibrium model with heterogeneous agents

non uniform pricing output and welfare under monopoly which the price varies with the quantity purchased than by charging a uniform price in general the profit maximizing non uniform price schedule and the welfare maximizing schedule do not coincide thus there may be scope for improving market performance through regulation the paper considers a regulator who has limited information and authority the issues addressed centre around the question of whether the level of total market output can be taken as a measure of market performance conditions under which welfare is a monotonic function of the level of total output are derived

liquidity a new monetarist perspective this essay surveys the new monetarist approach to liquidity work in this literature strives for empirical and policy relevance plus rigorous foundations questions include what is liquidity is money essential in achieving desirable outcomes which objects can or should serve in this capacity when can asset prices differ from fundamentals what are the functions of commitment and collateral in credit markets how does money interact with credit and intermediation what can and should monetary policy do the research summarized emphasizes the micro structure of frictional transactions and studies how institutions like monetary exchange credit arrangements or intermediation facilitate the exchange process

concentrated objective functions for nonlinear taxation models abstract weymark s reduction of the optimal tax problem is robust to changes in the assumptions about the social welfare function and individual preferences concentrations of the objective function exist for additively separable preferences and a social welfare assumption satisfying guesnerie and seade s strong redistributive assumption the ability to concentrate the objective function is symmetric in income and consumption

political competition and mirrleesian income taxation a first pass we study downsian competition in a mirrleesian model of income taxation the competing politicians may dier in competence if politicians engage in vote share maximization the less competent politician s policy proposals are attractive to the minority of rich agents whereas those of the competent politician are attractive to the majority of poor agents the less competent politician wins with positive probability which gives rise to a political failure in the sense of besley and coate 1998 political failures are avoided if politicians maximize winning probabilities nevertheless the two equilibria cannot be pareto ranked the minority may be better o under vote share maximization

an analysis of the principal agent problem most analyses of the principal agent problem assume that the principal chooses an incentive scheme to maximize expected utility subject to the agent s utility being at a stationary point an important paper of mirrlees has shown that this approach is generally invalid we present an alternative procedure if the agent s preferences over income lotteries are independent of action we show that the optimal way of implementing an action by the agent can be found by solving a convex programming problem we use this to characterize the optimal incentive scheme and to analyze the determinants of the seriousness of an incentive problem

liquidity provision interest rates and unemployment abstract the effective liquidity supply of the economy the weighted sum of all assets that serve as media of exchange matters for interest rates and unemployment we formalize this idea by adding an over the counter market with collateralized trades to the mortensen pissarides model an increase in public liquidity through a higher supply of real government bonds raises the real interest rate crowding out private liquidity and increasing unemployment if unemployment is inefficiently high keeping liquidity scarce can be socially optimal a liquidity crisis affecting the acceptability of private assets as collateral widens the rate of return difference between private and public liquidity also increasing unemployment

public good provision and the comparative statics of optimal nonlinear income taxation comparative static properties of the solution to an optimal nonlinear income tax problem are provided for a model in which the government both designs an income tax schedule for redistributive purposes and provides a public good optimally there are two types of individuals distinguished by their skill levels who have the same quasilinear preferences for labor supply and the consumption of a private and a public good comparative statics are obtained for the weights in a weighted utilitarian social welfare function the prices of the two goods a taste parameter that measures the onerousness of working and the skill levels

self selection and pareto efficient taxation abstract this paper analyses the set of pareto efficient tax structures the formulation of the problem as one of self selection not only shows more clearly the similarity between this problem and a number of other problems such as the optimal pricing of a monopolist which have recently been the subject of extensive research but also allows the derivation of a number of new results we establish i under fairly weak conditions randomization of tax structures is desirable ii if different individuals are not perfect substitutes for one another in production then the general equilibrium effects until now largely ignored in the literature of changes in the tax structure may be dominant in determining the optimal tax structure in particular if the relative wage of high ability and low ability individuals depends on the relative supplies of labor the optimal tax structure entails a negative marginal tax rate on the high ability individuals and a positive marginal tax rate on the low ability individuals the marnitude of which depends on the elasticity of substitution iii if individuals differ in their preferences pareto efficient taxation may entail negative marginal tax rates for high incomes while iv if wage income is stochastic the marginal tax rate at the upper end may be 100 our analysis thus makes clear that the main qualitative properties of the optimal tax structure to which earlier studies called attention are not robust to these attempts to make the theory more realistic