the phillips curve macroeconomic policy and the welfare of canadians a review of the two competing paradigms explaining inflation and unemployment fluctuations singles out the keynesian phillips curve as the clear empirical winner over its classic competitors reestimation of the canadian phillips curve for 1957 90 identifies a sharp structural shift toward a high degree of unemployment hysteresis after 1972 the recent attempt of macropolicy to flatten the aggregate demand curve and limit supply side shock accommodation which aims at lower and more stable inflation is then shown to make unemployment higher and more unstable on average to an extent that is an increasing function of the degree of hysteresis understanding and reducing hysteresis and developing a consensus based incomes policy that has a chance of alleviating the dismal trade off should therefore to top research and policy priorities

international direct real estate investment a review of the literature this paper provides a critical review of research on international direct real estate investment issues to date no review article has explored the various findings of studies completed on the benefits of international real estate diversification in the past 10 years the quantity and variety of work have increased dramatically the paper is organised by how investing in a real estate asset is analysed in a mixed asset portfolio context or a real estate only portfolio context a fourth section focuses on research that has explored currency risk one of the prevailing risks associated with international investing the last section provides conclusions about the research and offers ideas for future research in this growing area of real estate investment

the hidden persuaders institutions and individuals in economic theory in his classic book the hidden persuaders vance packard claimed that large corporations manipulated consumers using advertising techniques john kenneth galbraith and others have repeated a similar view against this gary becker and george stigler have claimed that advertising is essentially informative rather than manipulative in contrast it is argued here that both of these opposed accounts of human agency neglect the more subtle and undesigned processes by which institutions bear upon and mould individuals this paper proposes a concept of reconstitutive downward causation in which institutions act upon individual habits and dispositions the mechanisms involved do not fall foul of past critiques of holism or methodological collectivism this argument involves a rehabilitation of the concept of habit in social science with far reaching implications

comovements in national stock market returns evidence of predictability but not cointegration abstract this paper is a response to the literature that tests for cointegration between national stock market indices it argues that apparent findings of cointegration in other studies may often be due to the use of asymptotic rather than small sample critical values in fact economic theory suggests that cointegration is unlikely to be observed in efficient markets however this paper finds evidence for the predictability of relative returns and the existence of a winner loser effect across 16 national equity markets a conclusion is that national stock market indices include a common world component and two country specific components one permanent and one transitory

learning theory and the logic of critical mass the oliver marwell theory of critical mass is a prominent solution to the free rider problem that plagues collective action in large groups i reformulate the theory as a stochastic learning model in which cooperative responses are shaped by the social sanctions and cues generated by the responses of others this relaxes four assumptions in the original formulation that the actors are rational decisions are isolated events outcomes are deterministic and public goods have pure jointness of supply and collective profit computer simulations then show how adaptive actors become trapped in a suboptimal equilibrium and how they escape through attainment of critical mass start up problems arise from accommodation to social costs and not from low returns to early contributors as previously believed simulations also identify a new dilemma of group size and show why solidarity tends to emerge in response to crisis finally normative solidarity appears to be a consequence rather than cause of critical mass but may promote recovery from random deviance

the contribution of nonhomothetic preferences to trade abstract this paper estimates the economic significance of preference nonhomotheticity in international trade tastes are assumed to be identical but budget shares depend on per capita income a linear expenditure system is estimated for 34 countries over 11 commodity aggregates a counterfactual exercise is conducted to estimate the volume of trade caused by deviations from homotheticity the results indicate that nonhomothetic preferences may account for as much as one quarter of interindustry trade flows

who wants to globalize consumer tastes and labor markets in a theory of trade policy beliefs although the allure of consumption is the engine of globalization political economists have tended to ignore varying consumer tastes as a potential source of beliefs about trade policy this article develops a theory of trade policy preferences that adds the notion of varying consumer tastes to the standard labor market application of the heckscher ohlin trade model the theory which can explain trade preferences both across individuals and countries is supported by an empirical analysis of survey data from 41 nations heavy consumers of exportables are found to be more protectionist than heavy consumers of imports and import competing goods moreover citizens in countries with expensive tradable goods see trade liberalization as a remedy to the rents they pay for protectionism other findings also support the more conventional labor market side of the heckscher ohlin model

trade policy in a ricardian model with a continuum of goods under nonhomothetic preferences abstract we study the effects of trade liberalization in a ricardian trade model with a continuum of goods and nonhomothetic preferences goods are ordered according to priority and higher ranked goods are consumed only by richer households south north has a comparative advantage in the lower higher ranked goods south s terms of trade unambiguously deteriorate as a result of unilaterally reducing its tariffs north by contrast may experience a terms of trade gain when liberalizing its trade it appears that the redistribution of tariff revenue from rich to poor households within each country increases the burden of trade liberalization for poor households

world product and income international comparisons of real gross product the volume reports on the third phase of the united nations international comparison project icp the main results provide comparisons of real gross domestic product gdp per capita for thirty four countries in 1975 quantity and price comparisons are given also for personal consumption capital formation and public consumption and further subdivisions of final expenditures on gdp are estimated

concordance in global office market cycles stevenson s akimov a hutson e and krystalogianni a concordance in global office market cycles regional studies a large proportion of international real estate investment is concentrated in the office markets of the world s largest cities however many of these global cities are also key financial services centres highlighting the possibility of reduced economic diversification from an investor s perspective this paper assesses the degree of synchronization in cycles across twenty of the world s largest office markets finding evidence of significant concordance across a large number of markets the results highlight the problems associated with commonalities in the underlying economic bases of the markets the concentration of investment also raises the possibility of common flow of funds effects that may further reduce diversification opportunities

classifying local retail property markets on the basis of rental growth rates diversification strategies for the property element of portfolios have traditionally been undertaken on a sectoral regional basis primarily due to data restrictions however the standard regions in the uk are defined for administrative purposes and are likely therefore to be composed of heterogeneous property markets the development of an alternative classification based on local property markets is investigated this is based on annual retail rental growth rates and is developed using cluster analysis a number of issues emerge throughout the various stages of development and tests for temporal stability the local markets group according to broad underlying rental drivers however more tightly defined clusters are unstable over time as a consequence of rental volatility at the local level it is clear that markets do not form groups conforming to the geographical regions that are widely analysed and that traditionally form the basis for diversification

rational behavior and economic theory abstract nowadays it seems almost universally presumed that the fundamental characteristic of homo oeconomicus is his rationality we analyze the role played by the concept of rationality in economic theory and demonstrate that it is necessarily constrained to be an essentially contentless notion we show that the main body of economic theory is firmly grounded and that some contrasting approaches to rationality although leading to heated debates and vivid confusion have no fundamental significance for economics with a refereshed view on the essence of economics we argue that the principles of economic theory form an essential methodological guide for the emergent line of research based on the use of so called evolutive models

positive feedback trading and diffusion of asset price changes evidence from housing transactions the positive feedback hypothesis states that good news bad news engenders positive negative attitudes that accentuate the impact of the news on asset prices it is a special case of the representativeness heuristic which states that there is a general tendency to overemphasize the most recent evidence this paper tests a form of the positive feedback hypothesis where recent rates of change in asset prices become important information used by decision makers if this is the case housing price changes will tend to diffuse throughout a metropolitan area evidence from hartford connecticut supports this hypothesis and the evidence is inconsistent with alternative explanations

failure of stock prices to discipline managers in a rational expectations economy in this paper we show that even a strongly efficient stock market is by itself insufficient to discipline managers who may hold incorrect beliefs about investors behavior and their decision rules instead of disciplining the managers the stock market may generate prices that reinforce these incorrect beliefs when this happens the disciplining of managers must be accomplished through other mechanisms such as through markets for managerial labor mergers and takeovers the financial press and education these alternative mechanisms may produce slower disciplinary reactions than the stock market several important classes of accounting phenomena seem consistent with a failure of the stock market to discipline managers promptly we present in detail how the apparent failure of managers to make cashflow maximizing lifo fifo choices in a timely fashion is consistent with this theory our approach is also applicable to other financial reporting conundrums in which adverse managerial and stock market reactions were predicted in response to financial accounting standard no 2 accounting for research and development outlays standard no

a formalization of the biological model of trade in similar products abstract the present paper uses a variant of the characteristics framework to develop a world demand structure based on broadly defined international taste differences moreover firms face short run adjustments costs when changing product specifications this constellation of assumptions traces very closely the biological model of trade in similar products the usual problem of the pattern of trade indeterminacy that emerges in models of intra industry trade is resolved even in the case with zero transport costs finally the paper analyzes the efects of taste induced intra industry trade on prices and product specifications

do institutions promote rationality an experimental study of the three door anomaly the three door problem is an example of a systematic violation of a key rationality postulate that has attracted much attention in this seemingly simple individual decision task most people initially fail to apply correctly bayes law and to make the payoff maximizing choice previous experimental studies have shown that individual learning reduces the incidence of irrational choices somewhat but is far from eliminating it we experimentally study the roles of communication and competition as institutions to mitigate the choice anomaly we show that the three door anomaly can be entirely eliminated by these institutions

how product innovation in the north may immiserize the south a new look at the ricardian model with a continuum of goods abstract the paper proposes a theoretical model investigating the welfare consequences of technological shocks in a ricardian framework a la dornbush fisher and samuelson 1977 contrary to the existing literature the model incorporates a nonhomothetic demand function whose price and income elasticities are endogenously determined by technology nonhomothetic preferences are modeled as the result of the hierarchical consumption of luxury and necessity goods the nature of technical progress determines the consumption pattern and notably the magnitude of the substitution effect between necessities and luxuries the model is applied to the case of trade between two economies with different development levels it is shown in particular that the developing country can suffer a fall in utility as a result of technical progress in the developed country biased towards luxury goods this configuration depends on the size of the development gap and reflects the fact that southern goods are less attractive the higher the range of goods consumed this result suggests that there is an optimal level of development gap to avoid ldcs being harmed by technical progress in the north

the near optimality of mark up pricing mark up pricing policies result in a loss of profits compared to marginal pricing behavior these losses however are often very small even for large changes in the money supply but by adopting a simple pricing rule the firm does not have to forecast the future and avoids the informational and computational costs required to determine the profit maximizing price each period thus even if these costs are small mark up pricing policies may be optimal or approximately so at least for some firms in a macro model this is likely to imply large monetary non neutralities

explaining import quality the role of the income distribution abstract we examine a generalized version of flam and helpman flam h helpman e 1987 vertical product differentiation and north south trade american economic review 77 810 822 in which consumption prices for quality differentiated goods are rising in household income we provide propositions for aggregating this relationship across heterogenous households to map cross country differences in income distributions to cross country differences in import price distributions the theoretical predictions are examined and confirmed using disaggregated data on prices of traded goods and micro data on household income from the luxemburg income study country pairs with more similar income distributions have more similar import price distributions whether similarity is measured by 1st 4th moment statistics population and consumption shares within world income and product price quantiles or income and price dis similarity indices

ownership occupation and risk a view of the city of london office market office returns in the city of london are more volatile than in other uk markets this volatility may reflect fluctuations in capital flows associated with changing patterns of ownership and the growing linkage between real estate and financial markets in the city using current and historical data patterns of ownership in the city are investigated they reveal that overseas ownership has grown markedly since 1985 that owners are predominantly fire sector firms and that there are strong links between ownership and occupation this raises concerns about future volatility and systemic risk in a market strongly influenced by the cyclical behaviour and shocks of the international financial system

a rule of one a rule ofone one rational person is enough to make a market one irrational person is enough to break a game let me explain the power of the market as an exchange institution rests in its ability to move resources from lowto highvalued uses the market works if one person is rational enough to look for arbitrage opportunities among the other irrational players he buys low and sells high the market collects and disseminates this information such that others

inequality and trade we incorporate demand side considerations in trade in a systematic but straightforward way we do so by focusing on the role of inequality in the determination of trade flows and patterns with nonhomothetic preferences when countries are similar in all respects but asset inequality we find that trade is driven by specialization in consumption n ot production these assumptions allow us to generate some interesting international spillover effects of redistributive policies we also look at the effects of combining inequality and endowment differences on trade flows and see that this has implications for the mystery of the missing trade we then study a model of monopolistic competition and find a novel vshaped relationship between the ratio of inter industry to intra industry trade and a country s inequality finally we look at how international differences in factor endowments affect this relationship between the ratio of inter to intra industry trade and inequality our theory formalizes as well as modifies linder s conjecture about the relationship between intraindustry trade and the extent of similarity between trading partners

findings biased but efficient an investigation of coordination facilitated by asymmetric dominance in several marketing contexts strategic complementarity between the actions of individual players demands that players coordinate their decisions to reach efficient outcomes yet coordination failure is a common occurrence we show that the well established psychological phenomenon of asymmetric dominance can facilitate coordination in two experiments thus we demonstrate a counterintuitive result a common bias in individual decision making can help players to coordinate their decisions to obtain efficient outcomes further limited steps of thinking alone cannot account for the observed asymmetric dominance effect the effect appears to be due to increased psychological attractiveness of the dominating strategy with our estimates of the incremental attractiveness ranging from 3 6 a learning analysis further clarifies that asymmetric dominance and adaptive learning can guide players to an efficient outcome

commercial policy and imperfect discrimination by a foreign monopolist this paper examines the effects of commercial policy and the qualit y of imports that are supplied by a multiproduct foreign monopolist th e author finds that a specific quota on some imported products leads to upgrading of the quality of imports and enhances national welfare a specific tariff which does not lead to a decrease in the varieties of imported products does not affect the quality of imports and result s in enhanced national welfare in contrast an ad valorem tariff leads to lower qualities of imported goods and lowers consumer surplus a general quota is undesirable since it results in a lower quality of imports and lower national warfare copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

comments on arrow and on lucas such a number of interesting and provocative things are put forward in lucas and in arrow in this issue that i would like to be able to dissect them in detail for example lucas states that the problem of controlling inflation has been successfully solved in a scientific sense p s405 i am tempted to explore the limits of the set of problems that might be said to be scientifically solved in the lucas sense but i fear that this would take up a good deal of space arrow deplores the use of homogeneity assumptions as a device for adding content to otherwise inconclusive economic theories but presumably he does not believe that the sonnenschien mantel debreu theorem is the ultimate conclusion regarding the useful content of the propositions of general equilibrium theory some restrictions of intermediate strength are presumably called for and i would like to make the case that strong empirical generalizations about the nature of human actors such as those describing the biological requirements for survival are available and relevant in this connection this too would take some space to develop in detail though not as much as the first subject given the constraints i must choose a focus i will focus on what i take to be the main message that lucas has put forward regarding the relationship between adaptive behavior and the rationality assumptions employed in standard economic theory this message is recognizable as the intellectual descendant of similar discussions by friedman and machlup in the 1940s and 1950s and the ideas involved remain extremely influential in the discipline today i will present and comment on my own statement of this position which i following blaug 1980 will call the classic defense of the rationality as

dissecting the cycle a methodological investigation following burns and mitchell we define the cycle as a pattern in the level of aggregate economic activity an algorithm to locate turning points is developed as is a new measure of pro cyclicality a link between turning points and the moments of the series is established thereby providing the statistical foundation that burns and mitchell s work lacked using these tools we are able to dissect cycles in terms of the contributions made by trend growth volatility serial correlation and non linear effects we dissect several models and find little evidence that certain non linear effects are important to the nature of business cycles

stochastic equilibria with incomplete financial markets abstract we demonstrate the existence of equilibria with incomplete financial markets for stochastic economies whose information structure is given by an event tree restricting attention to purely financial securities those paying in units of account e g dollars financial markets may be incomplete some consumption streams may be impossible to obtain by any trading strategy securities may be individually precluded from trade at arbitrary states and dates sufficient conditions for the existence of stochastic equilibria are continuous convex strictly monotonic preferences and strictly positive aggregate endowments these conditions are weakened a corollary states that any regime of security prices precluding arbitrage can be embedded in an equilibrium

financial globalization and real regionalization over the period 1972 1986 the correlations of gdp employment and investment between the united states and an aggregate of europe canada and japan were respectively 0 76 0 66 and 0 63 for the period 1986 to 2000 the same correlations were much lower 0 26 0 03 and 0 07 real regionalization at the same time u s international asset trade has significantly increased for example between 1972 and 1999 united states gross fdi and equity assets in the same group of countries rose from 4 to 23 percent of the u s capital stock financial globalization we argue that these two trends are intimately related we document that the correlation of real shocks between the u s and the rest of the world has declined we then present a model in which international financial market integration occurs endogenously in response to less correlated shocks financial integration further reduces the international correlations in gdp and factor supplies we find that both less correlated shocks and endogenous financial market development are needed to account for all the changes in the international business cycle

the standard error of regressions statistical significance as used in economics has weak theoretical justification in particular it merges statistical and substantive significance the 182 papers using regression analysis in the american economic review in the 1980s were tested against 19 criteria for the accepted use of statistical significance most some three quarters of the papers did poorly likewise textbooks in econometrics do not distinguish statistical and economic significance statistical significance should not be the focus of empirical economics

equilibrium in economies with incomplete financial markets abstract this paper analyses an exchange economy in the absence of arrow debreu complete markets it is assumed that trading takes place in the sequence of spot markets and futures markets for securities payable in units of account unlimited short selling in securities is allowed a general equilibrium in such an economy is a set of current and future prices contingent on uncertain events and a set of individual plans such that all markets are cleared the existence of such an equilibrium is proved under usual assumptions this is in contrast to the case of futures markets for contingent futures commodities where an equilibrium may not exist the optimality of equilibrium allocations is also discussed

moral behaviour altruism and environmental policy free riding is often associated with self interested behaviour however if there is a global pollutant free riding will arise if individuals calculate that their emissions are negligible relative to the total so total emissions and hence any damage that they and others suffer will be unaffected by whatever consumption choice they make in this context consumer behaviour and the optimal environmental tax are independent of the degree of altruism for behaviour to change individuals need to make their decisions in a different way we propose a new theory of moral behaviour whereby individuals recognise that they will be worse off by not acting in their own self interest and balance this cost off against the hypothetical moral value of adopting a kantian form of behaviour that is by calculating the consequences of their action by asking what would happen if everyone else acted in the same way as they did we show that a if individuals behave this way then altruism matters and the greater the degree of altruism the more individuals cut back their consumption of a dirty good b nevertheless the optimal environmental tax is exactly the same as that emerging from classical analysis where individuals act in self interested fashion

finance business property and urban and regional development halbert l henneberry j and mouzakis f finance business property and urban and regional development regional studies compared with other factors of production the supply of business property and its role in urban and regional development has received comparatively little attention traditional analyses assume that the supply of such property responds to demand in a relatively unproblematic way however there is evidence that institutional structures and processes in the property and capital markets have produced regional imbalances in the quantity quality and price of business accommodation benefiting some places and handicapping others such imbalances are present to different degrees internationally and their characteristics and causes are similarly varied the special issue addresses this gap in knowledge

building cities on financial assets the financialisation of property markets and its implications for city governments in the paris city region the 2008 global financial meltdown has redirected attention to the entwinement of financial markets and the urban built environment against that background recent works in urban political economy have focused on how city governments support the rent maximisation strategies of landowners thereby reinforcing the increasing tendency to treat land as a financial asset harvey 1982 2006 however this perspective paradoxically understates the importance of market finance actors neglecting to demonstrate how in practice such financial investors who have been shown to adopt selective investment practices shape urban redevelopment projects in this article the role of financial investors is analysed through a case study of a large scale redevelopment project on the outskirts of the paris city region city of saint ouen the analysis of negotiations over urban design and economic development issues raised by property developers seeking to fashion commercial properties as investment assets reveals the unevenness of a local authority s ability to implement an agenda that potentially diverges from the expectations of financial investors accordingly given the growing importance of investors in the ownership of the built environment the article considers urban redevelopment as the outcome of power relations that originate in the circulation of investors expectations these expectations are met through translating market finance categories risk return and liquidity into elements of the urban fabric this bears substantial consequences for policy making given the current context of austerity as municipal authorities are increasingly constrained to rely on property markets urban redevelopment projects are thereby increasingly shaped to provide investment assets for financial investors

property cycles in a global economy property cycles are varied in terms of their amplitude their periodicity and the impact they exert on the wider economy in periods of domestic macroeconomic stability property cycles tend to be

rationality of self and others in an economic system in this paper i want to disentangle some of the senses in which the hypothesis of rationality is used in economic theory in particular i want to stress that rationality is not a property of the individual alone although it is usually presented that way rather it gathers not only its force but also its very meaning from the social context in which it is embedded it is most plausible under very ideal conditions when these conditions cease to hold the rationality assumptions become strained and possibly even self contradictory they certainly imply an ability at information processing and calculation that is far beyond the feasible and that cannot well be justified as the result of learning and adaptation let me dismiss a point of view that is perhaps not always articulated but seems implicit in many writings it seems to be asserted that a theory of the economy must be based on rationality as a matter of principle otherwise there can be no theory this position has even been maintained by some who accept that economic behavior is not completely rational john stuart mill 1909 bk 2 ch 4 argued that custom not competition governs much of the economic world but he adds that the only possible theory is that standard economic doctrine makes assumptions of rationality that have very strong implications for the complexity of individuals decision processes the most complete assumptions of competitive general equilibrium theory require that all future and contingent prices exist and be known in fact of course not all these markets exist the incompleteness of markets has several side consequences for rationality for one thing each decision maker has to have a model that predicts the future spot prices this is an informational burden of an entirely different magnitude than simply optimizing at known prices it involves all the complexity of rational analysis of data and contradicts the much praised informational economy of the price system it is also the case that equilibria become much less well defined similar problems occur with imperfect competition this research was supported by the office of naval research grant onr n00014 79 c 0685 at the center for research in organizational efficiency institute for mathematical studies in the social sciences stanford university stanford california

bilateral trade flows the linder hypothesis and exchange risk bilateral trade flows are used to examine the linder hypothesis and the effect of exchange rate variability in a gra vity type trade model derived from an underlying demand and supply mo del a behavioral model is used to justify examining these issues joi ntly the model performs well empirically using a sample of seventeen countries for the period 1974 82 the authors find overwhelming supp ort for the linder hypothesis and this version of the gravity model moreover they find strong support for the hypothesis that increased exchange rate variability affects bilateral trade flows copyright 1987 by mit press

low probability rational spillovers abstract we find evidence of rationality spillovers in low probability high severity risks people adjust their valuation of high probability events and preferences as they reduce preference reversals we find insensitivity to scope for food safety illnesses with the lowest probabilities

inequality and the us import demand function in this paper we build a model of trade in vertically differentiated products and find that income inequality can affect the demand for imports even in the presence of homothetic preferences the empirical importance of changes in inequality on the demand for imports is then assessed by examining panel data for 36 developing and developed countries for the 1980 1997 period we find significant evidence supporting our prediction that inequality has a large influence on the demand for imports moreover we find that in line with the predictions of our theoretical model this influence is positive for high income countries countries that produce the high quality variety of the vertically differentiated product and negative for low income countries countries that produce the low quality variety of the vertically differentiated product

inequality nonhomothetic preferences and trade a gravity approach we construct the first direct classification of goods as luxuries or necessities that is compatible with international trade data we then use it to test an idea that has not been tested directly in the literature countries income distributions are important determinants of their import demand and in particular of the difference in their import demands of luxuries versus necessities we interpret this result with the aid of a model in which preferences are nonhomothetic thus relaxing a long held and standard but empirically dubious assumption in the theory of international trade our model is strongly borne out by the results imports of luxuries increase with the importing country s inequality and imports of necessities decrease with it our calculations imply that if income distribution in the united states became as equal as in canada the united states would import about 9 13 fewer luxury goods and 13 19 more necessities

pricing to market price discrimination or product differentiation we employ a vertical differentiation model to examine the potential bias in pricing to market results when using export unit values aggregating differentiated products our results show that i false evidence of pricing to market is always found when using unit values whether the law of one price holds or not and ii the size of the bias increases with the level of product differentiation our simulation results support those conceptual findings thus some of the positive pricing to market results in the literature could be an artifact of the product heterogeneity embodied in unit values rather than evidence of imperfect competition

the spatial dimensions of the investment performance of uk commercial property in this paper cluster analytical techniques are used to examine dimensions of diversification in uk commercial property markets a variety of techniques are used on a dataset which contains property returns for 156 property markets 67 retail locations 64 office locations and 25 industrial locations the results strongly suggest that property type is the most important dimension in determining different market behaviour there is also evidence of a geographical factor but one which does not conform to the conventional 11 region administrative classification but rather suggests a london factor

stochastic technology production organization and costs abstract using a model including patients physicians insurers and uncertain diagnostic technology the optimal cesarean rate is derived from preferences technology and the incidence rate when the choice of insured patients is constrained only by technology uncertain diagnosis produces unnecessary cesareans and unsafe vaginal births technical progress can lead to more cesareans and higher costs joint production of goods and bads and collective payments require incentive compatible pricing schemes different from rbrvs equilibrium outcomes of hmos and fee for service organizations are identical however implementable incentive schemes involve additional costs efficiency requires insurers and not providers to be liable for malpractice claims

the approach of institutional economics this paper assesses the old institutional economics it emphasizes the importance of key old institutionalist themes concerning the necessity of habits and rules and the role of institutions a problem in the alternative theoretical program of the new institutionalism is the untenability of its assumption of an original institution free market or state of nature even optimizing behavior requires the prior existence of habits and rules although it still lacks a complete and systematic theory the evolutionary approach of the old institutionalists tackles the problem of the interactive relationship of actor to structure without analytical reduction to one or the other

aggregate demand shifts income distribution and the linder hypothesis the intraindustry trade literature emphasizes nonhomothetic preferences and incomes as important determinants of aggregate demand and trade patterns the authors provide evidence for such preferences particularly that the structure of income driven demand shifts is related to indices of linder type product characteristics and that income distribution is a significant factor in determining aggregate expenditures these results imply that as general income levels rise the relative volume of trade in manufactured consumer goods should rise and the total volume of trade should rise independent of changes in the intercountry difference between income levels copyright 1996 by mit press

consumer inertia choice dependence and learning from experience in a repeated decision problem abstract understanding when and how individuals think about real life problems is a central question in economics this paper studies the role of inertia inattention state dependence and learning the empirical setting is a tariff experiment when optional measured tariffs for local telephone calls were introduced unanticipatedly we find that consumers tend to align their choices of tariff and telephone use levels correctly despite low potential savings mistakes are not permanent as individuals actively engage in tariff switching in order to reduce the monthly cost of telephone service ignoring unobservable heterogeneity and the endogeneity of past choices would have reversed these results

lending jobs to global cities skilled international labour migration investment banking and the city of london the agglomeration of skilled international migrants in global cities financial communities has parallelled the globalisation of financial capital international markets and deregulation international workers have clustered in global cities as a response to their geo economic functions and in particular those labour market demands created within transnational corporate headquarters within this context this paper will provide a discussion of the significance of skilled international labour migration within a global city the city of london s transnational investment banking community

labor immobility and the transmission mechanism of monetary policy in a monetary union abstract it is believed that a common monetary policy in a monetary union will have identical effects on different countries as long as these countries have identical fundamentals we show that when there is specialization in production the terms of trade react to the shock the transmission mechanism of a monetary shock has in this case an additional channel the terms of trade this is the case even if state contingent assets can be traded across countries for a reasonable parametrization the differential on the transmission across countries is quantitatively significant when compared with the effect on the union s aggregates monetary shocks create cycles with higher volatility in poor countries than in richer ones

can neoclassical economics underpin the reform of centrally planned economies te here s a curious symmetry between the arguments propounded over the last century in advocacy of socialism and the present popular discussion of the reform of centrally planned economies in those old discussions the vision of socialism was utopian which was contrasted with the dickensian realities of capitalism now the disasters of central planning are contrasted with the benefits flowing from perfectly functioning markets in the conventional wisdom of reform the vision of markets is utopian and that of central planning concentrates on the awful reality what is largely missing in the conventional wisdom is a satisfactory attempt to come to grips with the central question that should be answered in formulating reform plans how does one explain the differences in performance of market capitalist and centrally planned economies of course capitalism has outperformed central planning the developed west is therefore an obvious source of ideas for reforms but the institutions of capitalism come in many varieties and cannot be put in place instantaneously there are many alternative reform paths depending upon the importance attributed to each of these institutions thus there remains the problem of tracing the source of the superiority of capitalist economies to specific characteristics this point was made clear to me on hearing a vietnamese official justify single party rule by noting the economic success of taiwan and singapore reformers need a filter that interprets the experience of capitalist and socialist systems this is exactly where economic theory plays a vital role

a ricardian model with a continuum of goods under nonhomothetic preferences demand complementarities income distribution and north south trade this paper develops a ricardian model of trade in which goods are indexed according to priority and higher indexed goods are consumed only by richer households south north has a comparative advantage in lower higher indexed goods and hence specializes in goods with lower higher income elasticities of demand product cycles and a southern terms of trade deterioration result from faster population growth and uniform productivity growth in south and a global productivity improvement south s domestic income redistribution policy can improve its terms of trade so much that every household in south may be better off at the expense of north

anomalies the winner s curse abstract next time that you find yourself a little short of cash for lunch try the following experiment in your class take a jar and fill it with coins noting the total value of the coins now a

the financialization of business property and what it means for cities and regions halbert l henneberry j and mouzakis f the financialization of business property and what it means for cities and regions regional studies the papers in the special issue examine the strategies and practices of investors and their relations with other actors involved in the production of business property although the globalization of these activities has occurred largely in the last 10 20 years it has prompted marked changes in the geography of commercial property investment international capital has flowed to a limited number of favoured locations but because of the spatial fixity of real property local actors and institutions remain an important influence on investment decisions this poses challenges for urban development and regeneration policies that depend on private investment capital

growth volatility and financial liberalization we examine the effects of both equity market liberalization and capital account openness on real consumption growth variability we show that financial liberalization is mostly associated with lower consumption growth volatility our results are robust surviving controls for business cycle effects economic and financial development the quality of institutions and other variables countries that have more open capital accounts experience a greater reduction in consumption growth volatility after equity market openings we also find that financial liberalizations are associated with declines in the ratio of consumption growth volatility to gdp growth volatility suggesting improved risk sharing our results are weaker for liberalizing emerging markets but we never observe a significant increase in real volatility moreover we demonstrate significant differences in the volatility response depending on the size of the banking and government sectors and certain institutional factors

bounded rationality and the emergence of simplicity amidst complexity abstract the purpose of this essay is to explore the relationship between the simple and the complex in economics by anchoring our analysis on bounded rationality much of the conventional literature focuses on un bounded rationality of the rationality as consistency variety theorizing of bounded rationality tends to assume that the problem to be solved is independent of the nature of bounded rationality following the insights from the works of herbert simon and contributions from outside economics both bounded rationality and the environment are inextricably linked the boundaries between bounded rationality and its environment can shift the form in which bounded rationality is found depends on the complexity of the environment furthermore if local interactions between bounded rational agents result in the formation of hierarchies the complexity of the collective system will change whether this will occur depends on the nature of bounded rationality at the individual level

rationality computability and complexity abstract rationality in economic theory is almost without exception defined in terms of choice functions and underlying preference relations the nature of the computability of choice functions and their algorithmic complexity predicated upon church s thesis seem never to have been investigated an attempt is made in this paper to study these aspects and to demystify the excessive demands upon predictability in rational economic behavior

the origin of predictable dynamic behavior abstract nonlinear dynamic theory implies optimal decisions often behave like random chaos such random target motion is impossible for imperfect agents to follow without error however they can still gradually approach the optimal target if and only if they partially adjust toward its perceived location so as to induce their behavior to converge to an equilibrium reducing dynamic errors through partial adjustment thereby induces a stable regularity in behavior that otherwise may never evolve this result agrees with the stability properties observed in experimental markets including cobweb auction and asset markets whose dynamics before reaching equilibrium exhibit adaptive rather than rational expectations