a mixed oligopoly in the presence of foreign private firms in this paper a mixed oligopoly model is considered in which a state owned public firm competes with both domestic and foreign private firms previous articles on mixed oligopoly did not include foreign private firms the effect on the equilibrium involves a lower price and a different allocation of production relative to the case when all private firms are domestically owned in addition issues such as the effects of an open door policy allowing foreign firms to enter and the effects of foreign acquisition of domestic firms are discussed

effects of indirect taxation in a mixed oligopoly abstract in a mixed oligopoly an increase in tax ad valorem or specific does not change total output but increases the output of the public firm and the tax revenue also privatization may increase both tax revenue and welfare

trade policy and mixed enterprises this paper demonstrates that the degree of state ownership affects neither the level of socially optimal activities nor welfare if the government chooses optimal trade policy instruments in the case of rivalry in the home market the optimal import tariff is independent of the degree of state ownership and the optimal production subsidy decreases with state ownership if the optimal tariff is positive for the case of cournot rivalry in a third market the optimal export subsidy increases with state ownership while in the case of bertrand rivalry with differentiated products the optimal export tax increases

strikes free riders and social customs in recent years there has been a growing literature on the role of social customs in the labour market marsden 1986 for example has emphasised the importance of group norms and social custom in various labour market contexts jones 1984 develops an economic model of conformist behaviour in which an individual s work effort is determined partly by tradition and by the behaviour of other workers a central theme of the literature is that a rational economic agent does not inhabit a social vacuum and hence that individual behaviour is influenced to some extent by the actions of others the approach promises the possibility of an escape from the free riders problem which as we shall investigate might have a number of labour market applications such a potential has been suggested by a number of writers in different fields eiser 1978 writing from a socio psychological perspective has stressed the role of social norms in producing cooperative outcomes in the theoretical context of the prisoner s dilemma such an emphasis is consistent with sen s 1977 argument that the concept of commitment might offer a solution to the free rider problems

what explains wage differences between union members and covered nonmembers an individual covered by a collective bargaining agreement but who is not a union member is estimated to earn about 13 lower wages than a union member sectors with relatively few covered nonmembers are associated with a large coverage differential while sectors with high proportions of covered nonmembers are associated with small differentials this suggests freeriders either weaken the bargaining position of the union or weak bargaining positions increase the incentive to freeride only a modest amount of this differential is accounted for by unmeasured ability the probationary period associated with newly hired union workers or union status misclassification

structural estimation of the output gap a bayesian dsge approach i introduction macroeconomic analysis often takes account of the output gap defined as a deviation of actual output from its trend or potential level this is because the output gap is considered to be an important indicator of overall macroeconomic conditions and to play a significant role in the determination of inflation a problem is that potential output is not observable forcing researchers to rely on uncertain estimates in this paper we estimate the output gap based on a dynamic stochastic general equilibrium dsge model using bayesian techniques various methods have been proposed to estimate the potential output one of the easiest ways is to consider a certain univariate moving average of actual output as potential output the hp filter proposed by hodrick and prescott 1997 is widely used the main drawback of such an approach is the lack of economic content another approach often employed is a production function approach in this approach an aggregate production function is estimated and then normal amounts of inputs are substituted in it to calculate the potential output examples are found by clark 1979 and congressional budget office 1995 among others although economic structure is considered the output gap by this definition has only weak links to other economic relationships such as the phillips curve for inflation to incorporate a definition of the output gap into the phillips curve relationship laxton and tetlow 1992 extended the hp filter to a multivariate setting and computed potential output linked to inflation fluctuations also kuttner 1994 considered potential output as an unobserved stochastic trend and applied the kalman filter to extract it given simple output and inflation equations these models exploit reduced form equations and the output gaps obtained from their methods are a nonaccelerating inflation or constant inflation measure in contrast to these previous approaches the output gap that is estimated in this paper is consistent with a fully specified new keynesian dsge model which is derived from optimization problems of households and firms as the macroeconomic dynamics in this model are governed by deep parameters that are not affected by policy changes our approach is designed to overcome the lucas 1976 critique of reduced form models for their lack of microfoundations moreover the output gap in this framework is defined as a deviation of actual output from its flexible price equilibrium level following woodford 2003 and neiss and nelson 2003 as argued by woodford 2003 an optimal monetary policy will replicate the flexible price equilibrium that delivers more efficient allocation therefore from a welfare perspective the corresponding output gap should be a useful indicator for monetary policy another feature of this paper is that the model is estimated using bayesian methods bayesian estimation strategies help to estimate dsge models with cross equation restrictions which cope well with misspecification and identification problems in contrast to estimation of a single equation estimation of the entire model in the full information likelihood based approach implicitly generates an optimal set of instruments for the structural parameters in our approach the potential output is extracted by using a kalman filter algorithm given the posterior distributions of the structural parameters the fully specified dsge model incorporated with data allows us to understand variability of the output gap not only structurally but also historically the output gap we estimate in this paper is conceptually similar to the ones by edge kiley and laforte 2008 for the united states and smets and wouters 2003 for the euro area who estimate larger scale dsge models with bayesian techniques and extract the model based output gaps 1 they define potential output as the flexible price and wage level of output attainable in the absence of the associated shocks

optimal privatization of vertical public utilities we examine restructuring divestiture and deregulation of a vertically integrated public utility e g electricity from a public finance perspective how an optimal restructuring plan for the utility depends on the cost of public funds and on the x efficiency gains from privatization how the optimal degree of competition in the upstream and downstream segments are connected and implications of privatization for consumer prices are examined the higher the cost of public funds the more likely the post privatization price will exceed the regulated public utility price the greater the x efficiency gains from privatization the more likely the post privatization price will fall ce texte examine la restructuration le desaississement et la dereglementation d un service public integre verticalement comme par exemple l industrie de l electricite du point de vue des finances publiques on montre qu un plan optimal de restructuration depend du cout des fonds publics et des gains en efficacite de type x qui emergent de la privatisation ainsi que du degre optimal de concurrence dans les segments en amont et en aval on examine aussi les implications de la privatisation sur les prix aux consommateurs plus les couts des fonds publics sont eleves plus il y a de chance que les prix apres la privatisation vont exceder les prix du service public reglemente plus les gains en efficacite de type x sont importants comme resultat de la privatisation plus il y a de chance que le prix post privatisation tombe

anticipation free rider problems and adaptation to trade unions re examining the curious case of dissatisfied union members this paper documents evidence that rejects the paradox of dissatisfied union members using eleven waves of the bhps it studies the past contemporaneous and future effects of union membership on job satisfaction by separating union free riders from other nonmembers in the fixed effects equations i find significant anticipation effects to unionism for prospective members and covered nonmembers of both genders workers go on to report on average a significant net increase in overall job satisfaction at the year unionization occurs nonetheless adaptation to unionism is complete within the first few years of joining a unionized firm one hypothesis for this is that workers adapt their reported satisfaction over time to support their union bargaining efforts which would be consistent with the explanation given by freeman and medoff 1984 of union s role in fanning the flame of discontent to the management during contract negotiations

testing for indeterminacy an application to u s monetary policy reply this paper considers a prototypical new keynesian model in which the equilibrium is undetermined if monetary policy is passive the likelihood based estimation of dynamic equilibrium models is extended to allow for indeterminacies and sunspot fluctuations we construct posterior weights for the determinacy and indeterminacy region of the parameter space and estimates for the propagation of fundamental and sunspot shocks according to the estimated model u s monetary policy post 1982 is consistent with determinacy whereas the pre volcker policy is not we find that before 1979 indeterminacy substantially altered the propagation of shocks

privatization policy in an international oligopoly this paper studies privatization policy in an international oligopoly the argument that equal treatment of foreign investors will be detrimental to domestic welfare by shifting profits from domestic to foreign firms is shown to be less relevant in privatization auctions than in greenfield fdi models since these profi ts hifts are partly paid for by the foreign firms in the bidding competition effects of local equity requirements trade and investment policies are also studied it is for instance shown that small local equity requirements are likely to be beneficial but large ones are counterproductive by preventing welfare enhancing foreign acquisitions

capital income and profit taxation with foreign ownership of firms abstract this paper establishes optimal rules for capital income and profits taxation in the open economy with or without foreign ownership of domestic firms we show that if there are constraints on the feasibility of profits taxation both saving and investment taxes generally enter the optimal tax package if instead profits can be fully taxed then source based investment taxes vanish if domestic firms are in part owned by foreigners then source based investment taxes can be used to shift income away from these to domestic citizens and they may even be used to finance lump sum transfers to domestic residents

the union membership wage premium for employees covered by collective bargaining agreements using current population survey data for 1983 93 this article analyzes whether there is a union membership wage premium among full time private sector employees covered by union contracts ordinary least squares estimates of the membership wage premium are 12 14 and allowing membership to be endogenous yields larger estimates differences in job tenure unobservable characteristics and measurement error cannot fully explain the estimated premium significant differences in this premium as well as in membership rates conditional upon coverage across various demographic subgroups are also documented in general free riders do not appear to be free riding

habit formation in consumption and its implications for monetary policy models this paper explores a monetary policy model with habit formation for consumers in which consumers utility depends in part on current consumption relative to past consumption the empirical tests developed in the paper show that one can reject the hypothesis of no habit formation with tremendous condence largely because the habit formation model captures the gradual hump shaped response of real spending to various shocks the paper then embeds the habit consumption specication in a monetary policy model and nds that the responses of both spending and inflation to monetary policy actions are signicantly improved by this modication jel d12 e52 e43

union membership and wage bargaining when membership is not compulsory this paper provides a formal model of union wage and membership determination where the union is recognized for bargaining purposes where membership of the union is not compulsory and where the union faces a budget constraint in its organization activities this simultaneous equation model is then used as the basis for estimation of manual wages and union density for the private sector using the 1990 workplace industrial relations survey copyright 1995 by royal economic society

monetary policy under uncertainty in an estimated model with labor market frictions abstract we study the design of monetary policy in an estimated model with sticky prices search and matching frictions and staggered nominal wage bargaining we find that the estimated natural rate of unemployment is consistent with the nber description of the u s business cycle and that the inflation unemployment trade off facing monetary policymakers is quantitatively important we also show that parameter uncertainty has a limited effect on the performance or design of monetary policy while natural rate uncertainty has more sizeable effects nevertheless policy rules that respond to the output or unemployment gaps are more efficient than rules responding to output or unemployment growth rates also in the presence of uncertainty about the natural rates

privatisation and market structure in a transition economy abstract a model is developed in which an industry of n 1 firms is privatised the participation method of privatisation is used whereby firms are sold for cash but the state retains a proportionate share of ownership in each firm the new private owner has the opportunity to make a reorganisational investment before output is produced this investment is unobservable by the state and therefore non contractible there is cournot competition in the product market the welfare maximising retained ownership share for the state is analysed taking into account that potential buyers of firms may have limited access to finance

the union membership wage premium puzzle is there a free rider problem economists have long suggested that labor unions suffer a free rider problem the argument is that since union set wages are available to all workers covered by unions irrespective of their union status and union membership entails costs workers will only join if they are coerced or are offered non wage goods that they value above membership costs yet u s and british empirical research has found a substantial union membership wage premium among private sector union covered workers implying that there is no free rider problem the authors of this study hypothesize that these findings arise due to selectivity problems associated with identifying the union membership effect their analysis which uses rich data from a new linked employer employee survey for britain and exploits the within establishment variation in wages as a function of individual union membership status demonstrates that the apparent wage premium for members is illusory hence a potential free rider problem remains author s abstract free full text download available at http digitalcommons ilr cornell edu ilrreview

estimating potential output as a latent variable this article proposes a new method for estimating potential output in which potential real gross domestic product gdp is modeled as an unobserved stochastic trend and deviations of gdp from potential affect inflation through an aggregate supply relationship the output and inflation equations together form a bivariate unobserved components model which is estimated via maximum likelihood through the use of the kalman filter algorithm the procedure yields a measure of potential output and its standard error and an estimate of the quantitative response of inflation to real growth and the output gap

privatization and foreign competition abstract this paper determines the equilibrium market structure in an international oligopoly where a state enterprise is sold at an auction the paper suggests that high greenfield costs and high trade costs do not necessarily induce foreign acquisitions in privatizations despite the fact that foreign firms would gain considerably from acquiring in such situations the reason is that domestic firms can then prevent foreign firms from becoming strong local competitors and thus their willingness to pay for the state assets is high

firms rents workers bargaining power and the union wage premium this article identifies the wage premium associated with firm level union recognition in france an average premium of 2 is found despite the fact that most workers are already covered by industry level agreements to explore the origin of the premium i construct a simple bargaining model from which i derive three predictions which are tested empirically using matched employer employee data the main prediction is that if intra firm bargaining is behind the union wage premium the latter increases with the amount of quasi rents available in the firms that unions organise this prediction is validated empirically when firms market shares are used as a proxy for their rents

collective bargaining and union membership effects on the wages of male youths the objective of this paper is to demonstrate that the nonunion wage differential consists of two effects the first represents the differential between the wage of a nonunion worker in a collective bargaining unit and the wage paid to a comparable worker not covered by a bargaining agreement this effect arises from the monopoly power of organized labor the second is the wage differential between union and nonunion workers in collective bargaining units this latter effect is attributed to economic benefits that unionism brings to its members empirical evidence is presented in support of both effects

does union membership matter the effect of establishment union density on the union wage differential this paper examines the union s effect on wages using a unique set of variables dummy variables for the density of unionization in the establishment for which the individual works the results suggest that after controlling for establishment union density a union member wage gain is only observed for the lowest level the 1 to 25 density range for the 26 or greater establishment union density ranges the union s effect on wages is for all individuals working in the establishment and not just union members the wage gain is 20 for both the establishment union density ranges of 26 to 50 and 51 to 75 individuals working for an establishment with a greater than 75 establishment unioni density achieve a wage gain of 64 copyright 1996 by mit press

partial privatization in mixed duopoly abstract we investigate a quantity setting duopoly involving a private firm and a privatized firm jointly owned by the public and private sectors the private firm maximizes profits while the privatized firm takes both profits and social welfare into consideration we consider how many shares the government should hold in the privatized firm we find that neither full privatization the government does not hold any shares nor full nationalization the government holds all of the shares is optimal under moderate conditions

educational choice families and young people s earnings this paper presents two optimizing models of educational choice discusses issues of identification estimates earnings equations in the context of these models and presents conditions under which we can test one against the other the estimates indicate that education is endogenous for young people s earnings creating a downward bias in estimated returns from education that assume exogeneity identification and estimation relies on family background information from a special sample from the british household panel study 1991 95 which matches mothers and their young adult children our estimates favor a family model over an individual model and they suggest that parents allocate resources to education to compensate for differences in their children s earnings endowments

union nonunion differentials membership or coverage economists have long suggested that labor unions suffer a free rider problem the argument is that since union set wages are available to all workers covered by unions irrespective of their union status and union membership entails costs workers will

mixed oligopoly privatization and strategic trade policy this paper investigates the effects of privatization in the presence of strategic trade policies within an international mixed oligopoly serving a single market if the government uses a domestic production subsidy then welfare is always increased with privatization while the optimal subsidy falls if the government uses an import tariff privatization increases welfare over much of the parameter space the optimal tariff however may rise or fall in recent years many countries around the world are privatizing their state owned industries at the same time many of these countries are also showing remarkable changes in their economic policies toward international trade on many occasions tariffs are significantly altered and domestic production subsidies are substantially reduced for example russia has privatized its aircraft industry and doubled its tariff on imported aircraft colombia has privatized its stateowned automobile maker colombia automotriz and reduced the import tariffs on foreign made cars in argentina the government is pursuing a policy of selective privatization and subsequent reduction of subsidies in western europe countries such as germany and spain have privatized their major airlines lufthansa and iberia respectively and significantly reduced subsidies what is the connection between privatization and strategic trade policies does privatization require a welfare maximizing government to alter trade barriers the objective of this paper is to answer these questions by investigating the interaction between privatization and strategic trade policies the effects of privatization are typically analyzed in the context of mixed oligopoly models where state owned welfare maximizing public firms interact with profit maximizing private firms 1 we investigate the interaction between privatization and strategic trade policies by incorporating strategic trade instruments in an international mixed oligopoly model specifically we consider two strategic trade instruments an import tariff and a domestic production subsidy the government chooses the optimal level of tariff or subsidy to maximize domestic welfare for each trade instrument we primarily focus on two questions first does privatization increase

imported inputs and privatization in downstream mixed oligopoly with foreign ownership this paper examines welfare implications of privatization in a mixed oligopoly with vertically related markets where an upstream foreign monopolist sells an essential input to public and private firms located downstream in the domestic country the impact on domestic welfare of privatizing the downstream public firm is shown to contain three effects the first is an output distortion effect which negatively affects welfare since privatization decreases the production of final good for consumption the second is an input price lowering effect resulting from a decrease in derived demand for the input when the level of privatization increases a decrease in final good production lowers input demand causing input price to decline and domestic welfare to increase the third is a rent leaking effect associated with foreign ownership in the downstream private firm the rival domestic firm strategically increases its final good production causing profits accrued to foreign investors to increase and domestic welfare to decline without foreign ownership in the downstream private firm the optimal policy toward the public firm is complete privatization as the output distortion effect is dominated by the input price lowering effect with foreign ownership however complete privatization can never be socially optimal due to the additional negative impact on domestic welfare of the rent leaking effect we further discuss implications for domestic welfare under different privatization schemes e g selling the privatization shares to the upstream foreign monopolist or to the rival domestic firm

were there regime switches in u s monetary policy working paper 2004 14 june 2004 abstract a multivariate model identifying monetary policy and allowing for simultaneity and regime switching in coefficients and variances is confronted with u s data since 1959 the best fit is with a model that allows time variation in structural disturbance variances only among models that also allow for changes in equation coefficients the best fit is for a model that allows coefficients to change only in the monetary policy rule that model allows switching among three main regimes and one rarely and briefly occurring regime the three main regimes correspond roughly to periods when most observers believe that monetary policy actually differed and the differences in policy behavior are substantively interesting though statistically ill determined the estimates imply monetary targeting was central in the early 80s but was also important sporadically in the 70s the changes in regime were essential neither to the rise in inflation in the 70s nor to its decline in the 80s jel classification e52 e47 c53 key words counterfactuals lucas critique policy rule monetary targeting simultaneity volatility model comparison i the debate over monetary policy change in an influential paper clarida gali and gertler 2000 cgg presented evidence that us monetary policy changed between the 1970 s and the 1980 s indeed that in the 70 s it was drastically worse they found that the policy rule apparently followed in the 70 s was one that when embedded in most stochastic general equilibrium models would imply non uniqueness of the equilibrium and hence vulnerability of the economy to sunspot fluctuations of arbitrarily large size their estimated policy rule for the later period on the other hand eliminated this indeterminacy these results are a possible explanation of the volatile and rising inflation of the 70 s and of its subsequent decline the cgg analysis has two important weaknesses one is that it fails to account for stochastic volatility us macroeconomic variables and particularly the federal funds rate have gone through periods of tranquility and of agitation with forecast error variances varying greatly from period to period ignoring such variation does not lead to inconsistent estimates of model parameters when the forecasting equations themselves are constant but it strongly biases toward a finding of changed parameters tests of the stability of the forecasting equations the other weakness is that the cgg analysis rests on powerful and implausible identifying assumptions they require that we accept that the response of the monetary authority to expected future inflation and output does not depend on the recent history of inflation money growth or output it is hard to understand why this should be so especially in the 70 s when monetarism was a prominent theme in policy debates congress was requiring reports from the fed of projected time paths of monetary aggregates and financial markets were reacting sensitively to weekly money supply numbers the requirement for existence and uniqueness of equilibrium in dynamic models is that the monetary policy rule show a more than unit response of interest rates to the sum of the logs of all nominal variables that appear on the right hand side of the reaction function if we force a particular measure of expected future inflation to proxy for all the nominal variables that actually appear independently in the reaction function we are bound to get distorted conclusions on the one hand because expected future inflation will be a noisy measure of the full set of nominal influences on policy we might get downward bias in our estimates from the usual errorsin variables effect on the other hand to the extent that expected future inflation like most expected future values shows less variation than current nominal variables we could find a mistaken scaling up of coefficients

the free rider problem and a social custom model of trade union membership the literature on public good provision by groups has traditionally emphasized the free rider problem if it is assumed that a group forms to provide or to lobby for the provision of a good that is collective to potential members then the major conceptual problem to the formation of such a group is that individuals can enjoy the benefits of group action without incurring the costs by doing this they free ride in small groups the free rider problem is not generally considered insurmountable however the larger the number of potential beneficiaries the more difficult it is to overcome the free rider problem due to exclusion and surveillance difficulties and the less likely is optimal collective good provision or any collective good provision in the extreme the free rider hypothesis has a long history in economic thought as early as 1848 the free rider potential of any group of workers was perceived by j s mill however it appears that it was not until 1965 that an attempt was made to explain why large groups providing collective goods manage to exist despite the free rider problem olson 1965 proposed the following explanation if a large group exists it must have formed either because membership is compulsory or because the group provides private goods and services accessible only to its members with ancillary provision of the collective good as a byproduct the literature that developed from olson s work has focused primarily on the suboptimal provision of the collective good the difficulties of getting members to contribute in proportion to the benefits received and preference revelation incentives see for example groves and ledyard 1977 however there are problems with both of the solutions proposed by olson to overcome the free rider problem facing large groups first if coercion is looked at as a solution to the free rider problem the question arises as to how the coercion itself is financed guttman 1978 this is unlikely to be costless the second problem concerns the byproduct solution private good pro

habit formation in consumption a meta analysis abstract we examine 597 estimates of habit formation reported in 81 published studies the mean reported strength of habit formation equals 0 4 but the estimates vary widely both within and across studies we use bayesian and frequentist model averaging to assign a pattern to this variance while taking into account model uncertainty studies employing macro data report consistently larger estimates than micro studies 0 6 vs 0 1 on average the difference remains 0 5 when we control for 30 factors that reflect the context in which researchers obtain their estimates such as data frequency geographical coverage variable definition estimation approach and publication characteristics we also find that evidence for habits strengthens when researchers use lower data frequencies employ log linear approximation of the euler equation and utilize open economy dsge models moreover estimates of habits differ systematically across countries

mixed oligopoly privatization and subsidization abstract this paper demonstrates three effects of domestic production subsidies in a mixed oligopoly industry regarding privatization and efficiency first if subsidies are used before and after privatization welfare is unchanged by privatization second if subsidies are used only before privatization then privatization always lowers welfare regardless of the number of private firms in the industry third the subsidy contributes to overall efficiency in a mixed oligopoly due to cost distribution effects

wage settlements and wage setting results from a multi level model which dimensions of wage setting differ across establishments applying collective contracts and uncovered establishments the empirical analysis reported here utilizes german linked employer employee data for the years 1990 1995 and 2001 and is restricted to workers without supervisory functions in larger manufacturing firms results show that the expected wage of an average worker is higher in firms applying collective contracts while returns to human capital and the gender wage gap are reduced moreover during the 1990s these effects became stronger

open shop unions and product market competition in this paper we analyse the impact of changes in product market competition on wage outcomes in the presence of an open shop union with less than full union membership product market competition is shown to aect not only a unionised rm s pro ts but also its payoin the event of a dispute in contrast to the pre diction of the standard model increases in product market competition may now increase wage levels the model is therefore able to accommodate the mixed empir ical ndings regarding the impact of product market competition on union wages