operating flexibility global manufacturing and the option value of a multinational network the multinational corporation is a network of activities located in different countries the value of this network derives from the opportunity to benefit from uncertainty through the coordination of subsidiaries which are geographically dispersed we model this coordination as the operating flexibility to shift production between two manufacturing plants located in different countries a stochastic dynamic programming model treats explicitly this flexibility as equivalent to owning an option the value of which is dependent upon the real exchange rate the model is extended to analyze hysteresis effects and within country growth options we show that the management of across border coordination has led to changes in the heuristic rules used for performance evaluation and transfer pricing

agriculture production versus biodiversity protection the impact of north south unconditional transfers the purpose of this paper is to explore whether international income transfers can improve or worsen the global level of biodiversity and global social welfare by changing the relative contributions to biodiversity protection and to agricultural production because of the public good nature of biodiversity warr s neutrality theorem suggests that such transfers may have no effects at all warr 1983 a model is developed based on the simplifying assumption that northern countries have little biodiversity whereas southern countries are endowed with natural capital in the form of generally unspoilt biodiversity rich land southern countries allocate optimally land and capital to two competing productive activities agriculture and eco tourism when transfers are organized from the north to the south we show that warr s neutrality theorem collapses transfers can either reduce or increase the natural capital in the south depending on some empirically verifiable hypotheses concerning the characteristics of the eco tourism and agricultural production functions in addition we demonstrate that welfare improvements can be obtained even with reductions in the level of biodiversity research highlights could international income transfers improve the levels of biodiversity and welfare a model is developed with a biodiversity poor north and an ecosystem rich south we show that north south transfers can either reduce or increase the natural capital and that welfare improvements can be obtained even with reductions in biodiversity

product market imperfections and loan commitments i show in a model of competitive banks that the characteristics of loan contracts are affected by product market imperfections in the borrower s industry a bank loan commitment increases the value of a borrower firm operating in an imperfectly competitive industry and thus dominates a simple loan even in the absence of risk sharing considerations and informational asymmetries between the borrower and the bank while it is individually rational for a firm to obtain a loan commitment all the firms in that industry taken together are made worse off by the existence of loan commitments a loan commitment is a contract guaranteeing future availability of credit to a borrower at a prespecified fixed or stochastic interest rate although bank loan commitments are an important financial instrument and there exists an extensive literature analyzing them the rationale for their existence is still a matter of research this paper provides an explanation for the existence of bank loan commitments to borrowers from industries in which there is imperfect competition in the product market it is shown that in such industries the option to acquire financing at predetermined rates enhances the borrower s strategic power and thus creates value for the individual borrower consider an industry with imperfect competition where firms face the problem of noncooperatively exploiting a product market opportunity the optimal product market strategy of a firm depends on the output of its rivals a firm with access to resources at a lower marginal cost than its competitors has a strategic advantage that it can exploit to gain a larger market share and profits it is shown here that a firm that does not have such a strategic advantage can create it by purchasing for a fixed initial fee an option to acquire a factor of production such as financing at favorable terms specifically by initially negotiating a bank loan commitment the firm can finance an expansion of output to meet a strategic contingency at more favorable terms than would be possible if the expansion had to be financed in the spot market the ability to exercise the commitment enables the firm to threaten its rivals strategically and moves the industry to an equilibrium more favorable to that firm thus creating value for the borrower it is shown below that it is optimal for all firms to acquire bank loan commitments altering the industry equilibrium in the process

comparative statics by adaptive dynamics and the correspondence principle the intuition behind comparative statics results is usually dynamic in nature the economic explanation for why differences in endogenous variables result from variations in exogenous variables often takes the form of some sequential adjustment process for example consider the account by milgrom qian and roberts 1991 of technological and organizational changes in modern manufacturing the falling costs of high speed data communication data processing and flexible multitask equipment lead to increases in the directly affected activities which through a web of complementarities then lead to increases in a set of related activities as well despite the prevalence of dynamic economic explanations the formal analysis is static in games of strategic complementarities gsc topkis 1979 vives 1990 parameterized by a variable that is complementary to the choice variables the existing results on monotone comparative statics of equilibria are summarized by a theorem of milgrom and roberts 1990 mr hereafter the largest and smallest equilibria in a parameterized gsc

anticipated policy and endogenous growth in a small open monetary economy abstract this paper analyzes the effects of a preannounced change in the growth rate of credit in a small open economy the model based on an endogenous growth model introduces the adjustment costs for investment and the role of money in the production function and highlights the dynamic behavior of an open economy we show that an increase in the rate of anticipated credit growth lowers the steady growth rate of capital real money balances and real output we also find that the rate of depreciation of the domestic currency will rise steadily toward its stationary level the anticipated domestic credit growth hence exhibits monetary nonsuperneutrality in both the rate and the level of output in the intermediate and the long run

fiscal policy in a simple two country dynamic model abstract this paper analyzes the national and international effects of labor and capital income taxes in a two country infinite horizon perfect foresight neoclassical model with endogenous labor supply and capital accumulation two polar regimes of capital income taxation are considered the source based and the residence based the qualitative effects of labor income taxes are shown to be independent of the taxation regime whereas the effects of capital income taxes are not

flexible and risk sharing supply contracts under price uncertainty we study supply contracts for deterministic demand but in an environment of uncertain prices we develop valuation methodologies for different types of supply contracts a time inflexible contract requires the firm to specify not only how many units it will purchase but also the timing of the purchase a time flexible contract allows the firm to specify the purchase amount over a given period of time without specifying the exact time of purchase other than time flexibility the suppliers may offer quantity flexibility to the firm as well i e purchase quantities could be within a prespecified quantity window finally risk sharing features can be incorporated in the contract in terms of the purchase price that the firm eventually pays to a supplier within a prespecified price window the firm pays the realized price but outside of it the firm shares in an agreed way added costs or benefits given the structure of a supply contract we study the firm s decision when to purchase and how many units in each purchase such that the expected net present value of the purchase cost plus inventory holding cost is minimized we discuss optimal purchasing strategies for both time flexible and time inflexible contracts with risk sharing features other interesting results include the analysis of two supplier sourcing environments and the exploitation of quantity flexibility in such contracts our discussion illustrates how time flexibility quantity flexibility supplier selection and risk sharing when carefully exercised can effectively reduce the sourcing cost in environments of price uncertainty

dyke maintenance and other stories some neglected types of public goods the orthodox summation model of a pure nonexcludable public good assumes that each individual consumes a quantity of public good defined as the sum of all individuals contributions to that good recently hirshleifer 1983 1985 has analyzed models that do not fall within this class at one extreme is the weakestlink in which the total quantity available to each consumer equals the smallest individual contribution at the other is the best shot in which the total quantity available equals the largest individual contribution hirshleifer s example of the weakest link case concerns a circular region of which each citizen owns a pie shaped slice the perimeter is marked by a dyke floods may penetrate the weakest point of the dyke and cause damage equally throughout the region each citizen decides the height and state of repair of that section of the dyke adjoining his piece of land its maintenance constituting his contribution to the public good thus the level of protection enjoyed by all is determined by the least well maintained section of the dyke an example of the best shot case concerns a number of antimissile batteries ringing a city firing at an incoming icbm all that matters is the accuracy of the best shot bliss and nalebuff 1984 discuss dragon slaying as another example of a best shot situation section ii of this paper introduces a class of functions of which the summation weakest link and best shot are examples section iii analyzes the properties of equilibrium when consumers have identical tastes and incomes section iv analyzes the implications of income redistribution in the summation case the equilibrium is unaffected by the initial redistribution over a range and outside that range transfers help the recipient and hurt the donor within the broader class of models however the invariance property does not generally hold and there may be opportunities for paretoimproving income redistribution i give an example similar to the weakest link case in which a pareto improving redistribution is

business cycles with distorting taxes and disaggregated capital markets abstract this paper studies a neoclassical growth model to examine the linkages between distorting corporate and personal taxes and cyclical movements of aggregates such as investments in equipment and structures suppose tax variables vary stochastically and annually we solve quarterly individual and aggregate decision rules by recursive methods and quantify the dynamic impacts on aggregates from unit changes in tax structures and individual and joint tax specifications the findings suggest that corporate income tax is the major factor leading to substantial tax effects on business cycles moreover the impact of investment tax credit for equipment on disaggregated investments is equally significant

government spending and private consumption this paper investigates the macroeconomic effects of anticipations about future fiscal expenditures within a simple perfect foresight general equilibrium model this paper extends s djajic 1987 by investigating an anticipated permanent increase in government spending an anticipated permanent increase may temporarily stimulate capital accumulation the questions of whether anticipated or unanticipated changes in government spending have a larger effect on capital accumulation and output is related to the questions of whether government spending is initially above or below the optimal level

fiscal adjustments and their effects during the transition to the emu the transition phase to emu hasbeen accompanied by considerable monetaryand fiscal consolidation efforts in the eu this paper analyses this consolidationprocess and its effects on economicactivity in the eu it is tested to what extent fiscal retrenchment efforts havedepressed or stimulated private spending inthe case of the latter non keynesian effectsdominate the traditional keynesianexpenditure effects of government spending taxation and transfer payments

tax adjusted q model with intangible assets theory and evidence from temporary investment tax incentives we propose a tax adjusted q model with physical and intangible assets and estimate the effect of bonus depreciation in the united states in the early 2000s we find that investment responds moderately to tax incentives but allowing for heterogeneity reveals that intangible intensive firms respond more than physical intensive firms and that this difference is accentuated among large firms accounting for intangible assets increases the estimated total investment response from 3 7 to 14 3 of aggregate investment in 2000 among the largest 500 firms our results suggest that understanding the behavior of large and intangible intensive firms matters for investment policy

the value of early order commitment in a two level supply chain abstract one approach to supply chain coordination is early order commitment whereby a retailer commits to purchase a fixed order quantity at a fixed delivery time before demand uncertainty is resolved in this paper we develop an analytical model to quantify the cost savings of an early order commitment in a two level supply chain where demand is serially correlated a decision rule is derived to determine whether early order commitment will benefit the supply chain and accordingly to determine the optimal timing for early commitment our results indicate that the supply chain would experience greater savings from early order commitment when a the inventory item receives less value added activities at the retailer site b the manufacturing lead time is short c demand correlation over time is positive but weak or d the delivery lead time is long if a condition exists we also propose a rebate scheme for the supply chain partners to share the gains of practicing early order commitment

time inconsistent preferences investment and asset pricing in this paper we present a production based asset pricing model in which agents have time inconsistent preferences we find that the time inconsistent preferences lead to under investment over consumption and higher interest rate these variables are distorted more in the economy with naive agent than the economy with sophisticated agent in particular the sophisticated agent invests more and consumes less than the naive agent but invests less and consumes more than the time consistent agent the interest rate in the sophisticated agent economy is lower than that in the naive agent economy but higher than that in the time consistent agent economy

reducing the cost of demand uncertainty through accurate response to early sales traditionally fashion products have incurred high losses due to stockouts and inventory obsolence because long lead times coupled with a concentrated selling season force all or at least most production to be committed before demand information is available under a quick response system lead times are shortened sufficiently to allow a greater portion of production to be scheduled in response to initial demand we model and analyze the decisions required under quick response and give a method for estimating the demand probability distributions needed in our model we applied these procedures with a major fashion skiwear firm and found that cost relative to the current informal response system was reduced by enough to increase profits by 60 relative to the cost that would have been incurred if no response were used optimized response reduces cost by enough to roughly quadruple profits

government spending and the optimal rates of consumption and capital accumulation this paper investigates the effects of a temporary change in government expendit ure on private consumption and investment the model employed is one of a closed economy populated by infinitely lived utility maximizing individuals the analysis focuses on the implications of alternative assumptions concerning the relationship between public and private c onsumption in the household s utility function a temporary increase in government expenditure is found to reduce investment if public and private goods are edgeworth complements or independent however if they are substitutes there exists the possibility of an increase in investment

government spending endogenous labor and capital accumulation following turnovsky and fisher 1995 journal of economic dynamics and control 19 747 786 we reexamine the dynamic responses of the capital stock to an unanticipated temporary increase in government consumption and infrastructure expenditures the key factors determining capital accumulation are endogenous labor the duration of policy expansion and the relationship between private decisions and the composition of public expenditure given that private decisions and public consumption are edgeworth independent if employment is variable investment increases with the duration of fiscal expansion following a temporary public infrastructure expansion there always exists the possibility of a decrease in investment before the fiscal reversion under fixed employment however a temporary public infrastructure expansion under variable employment leads to a likely increase in investment before the fiscal reversion

a bottleneck capital model of development abstract a simple augmentation of the ramsey cass koopmans growth model allows it to match observed transitions by initially poor economies a high convexity installation cost directly dampens investment demand for a first capital input the resulting scarcity acts as a bottleneck strongly dampening demand for investment in a complementary capital input as well the match to observed transitions holds both for narrow and broad interpretations of capital in either case the bottleneck capital s share of factor income need not be large

factor reallocation in eastern germany after reunification fifteen years after reunification the economy of the former east germany is on the mend industrial production excluding construction has expanded by more than 60 percent since 1995 and by 28 percent since 2000 compared with only about 4 percent in west germany for the latter period real gdp has grown 3 5 percent per year since 1991 and 8 2 percent annually in the manufacturing industry alone more than half of the measured labor productivity gap and more than a third of the gdp per capita gap between east and west have been closed in considerably less time than predicted by robert j barro 1991 as table 1 shows convergence has been impressive on a wide array of indicators although it has slowed in recent years and remains most difficult in the labor market despite this positive news net migration continues from east to west about 70 000 or 0 5 percent of the population per annum since 2000 especially concentrated among 18to 25year olds at the same time new physical capital continues to flow into the east 80 to 90 billion euros or about 20 percent of gdp each year the reallocation of production factors is one of the most impressive aspects of german unification since 1991 more than 1 2 trillion euros of new investment in 1995 prices was spent in the east yet the workforce of east germany shrank by roughly 1 2 million or 15 percent over the same period employment rose in the west by 4 1 percent as figure 1 shows the intensity of factor movement was not constant but rather high at first and declining into the 1990s migration was greatest in the early 1990s falling until mid decade rising again until 2001 and declining since in addition a large fraction two thirds of the cumulated investment flow in eastern germany was dedicated to residential and business structures compared with about one third in business equipment the large runup in investment spending on structures is often blamed on distorted investment incentives with possible longer run consequences for the structure of output and factor demands hans werner sinn and gerlinde sinn 1992 this intensive movement of production factors in opposite directions is difficult to explain as a reaction to disturbances in technology preferences or demand to use horst siebert s 1992 terminology germany was hit by a massive integration shock i offer the following definition of economic integration the achievement of the efficient production pattern by two or more geographic regions made possible by their union measured at world market prices the german integration episode presents a unique opportunity to study this form of economic integration and the roles of the relative importance of adjustment costs in determin discussants hans werner sinn ces ifo and university of munich nicola fuchs schundeln harvard university claudia buch university of tubingen

timing and eco nomic efficiency of climate friendly investments in supply chains abstract emission trading schemes such as the european union emissions trading system euets attempt to reconcile economic efficiency with ecological efficiency by creating financial incentives for companies to invest in climate friendly innovations using real options methodology we demonstrate that under uncertainty economic and ecological efficiency continue to be mutually exclusive this problem is even worse if a climate friendly project depends on investing in of a whole supply chain we model a sequential bargaining game in a supply chain where the parties negotiate over implementation of a carbon dioxide co2 saving investment project we show that the outcome of their bargaining is not economically efficient and even less ecologically efficient furthermore we show that a supply chain becomes less economically efficient and less ecologically efficient with every additional chain link finally we make recommendations for how managers or politicians can improve the situation and thereby increase economic as well as ecological efficiency and thus also the eco efficiency of supply chains

deterioration of the terms of trade and capital accumulation a reexamination of the laursen metzler effect abstract this paper analyzes the effect of both a permanent and a temporary deterioration in the terms of trade on a small open economy the model based on intertemporal optimization emphasizes the labor leisure choice and the role of capital accumulation the transitional dynamics is shown to depend upon the long run response of the capital stock to the terms of trade shock this consists of a negative substitution effect together with a positive income effect whether or not the laursen metzler effect holds depends upon whether the income effect dominates the substitution effect

information distortion in a supply chain the bullwhip effect this article originally appeared in management science april 1997 volume 43 number 4 pp 546 558 published by the institute of management sciences consider a series of companies in a supply chain each of whom orders from its immediate upstream member in this setting inbound orders from a downstream member serve as a valuable informational input to upstream production and inventory decisions this paper claims that the information transferred in the form of orders tends to be distorted and can misguide upstream members in their inventory and production decisions in particular the variance of orders may be larger than that of sales and distortion tends to increase as one moves upstream a phenomenon termed bullwhip effect this paper analyzes four sources of the bullwhip effect demand signal processing rationing game order batching and price variations actions that can be taken to mitigate the detrimental impact of this distortion are also discussed

constructing and estimating a realistic optimizing model of monetary policy abstract a dynamic stochastic general equilibrium dsge model with real and nominal both price and wage rigidities succeeds in capturing some key nominal features of u s business cycles additive technology shocks as well as multiplicative shocks are introduced and shown to be crucial monetary policy is specified as an interest rate targeting rule following developments in the structural vector autoregression var literature the interaction between real and nominal rigidities is essential to reproduce the liquidity effect of monetary policy the model is estimated by maximum likelihood on u s data and its fit is comparable to that of an unrestricted first order var besides producing reasonable impulse responses and second moments this model replicates a feature of u s business cycles never captured by previous research with dsge models that an increase in interest rates predicts a decrease in output two to six quarters in the future

wage or price based inflation alternative targets in optimal monetary policy rules abstract in this paper the optimality of a specific variant of monetary policy rules a la taylor is tested within a general equilibrium monetary model with both nominal and real rigidities the traditional taylor rule is amended by the inclusion of the growth rate of nominal wage or wage inflation nominal rigidities are inserted via quadratic adjustment costs for both prices and wages a la rotemberg 1982 sticky prices in the united states journal of political economy 90 1187 1211 and kim 2000 constructing and estimating a realistic optimizing model of monetary policy journal of monetary economics 45 329 359 cost of capital adjustment together with a positive steady state inflation rate allow the model to match the main empirical facts about us economy the model is solved by using a second order approximation around the non stochastic steady state as in kim et al 2008 calculating and using second order accurate solutions of discrete time dynamic equilibrium models journal of economic dynamics and control 32 11 3397 3414 the welfare metric is offered by the second order expansion of the utility function conditional to the non stochastic steady state the results show that wage inflation targeting is welfare improving when coupled with inflation targeting moreover optimal monetary rules include also a positive coefficient for output targeting as the need to smooth out quantity adjustments induced by real and nominal rigidities similar results occurs when both targets are in expected value one period ahead the model shows good in sample and out of sample properties

tax incidence in a model with perfect foresight of agents and rationing in markets abstract this paper examines the incidence of several taxes in a macroeconomic model producers and consumers optimize with perfect foresight price inertia leads to rationing in the market for goods and for labour in the long run the system tends towards walrasian equilibrium meanwhile there may be keynesian unemployment classical unemployment or repressed inflation with possible switches of regimes balanced budget policies are analysed by working through numerical examples

regulation and investment use newly assembled data on regulation in several sectors of many oecd countries to provide evidence that regulatory reform of product markets is associated with an increase in investment a component of reform that plays a very important role is entry liberalization but privatization also has a substantial effect on investment sensitivity analysis suggests that our results are robust jel e22 l5

pre commitment and flexibility abstract this paper considers several related strategic duopoly settings in which uncertainty creates an option value from retaining flexibility by delaying investment or output decisions until after uncertainty is resolved this value of flexibility must be weighed against the strategic value of pre commitment yielding a trade off between flexibility and pre commitment we obtain a simple characterization of the timing of output decisions as a consequence of the degree of uncertainty particular attention is paid to the implications for entry deterrence by an incumbent firm and to the possible flexibility enhancing effects of investment in capital

the dynamics of a small open economy in response to monetary fiscal and productivity shocks abstract this paper evaluates empirically the relative importance of monetary and fiscal versus technology shocks in an open economy characterized by perfect international capital mobility the variance covariance matrix of these shocks is estimated a stochastic model is used to perform numerical simulations the results show that persistent shocks to productivity can reproduce several empirical regularities including the puzzling high correlation between national saving and investment remarkably well and that monetary and fiscal shocks play a minor role

channel coordination when retailers compete this paper explores channel coordination by a manufacturer that sells through competing retailers and that treats these retailers equally as required by the robinson patman act the authors show that in general there exists no single two part tariff with a constant per unit charge that will duplicate the behavioral results i e prices quantities and channel profits that are obtained by a vertically integrated system that is the channel cannot be coordinated except in the trivial cases of identical or noncompeting retailers however an appropriately specified quantity discount schedule will enable the channel to earn the same profits generated by a vertically integrated system conditions are derived under which a manufacturer will prefer to offer various two part tariffs with constant per unit charges instead of the channel coordinating quantity discount schedule the authors also establish the existence of a menu of two part tariffs that mimics all results of a vertically integrated system however only under stringent conditions will retailers select the appropriate tariff from the menu when these conditions are not satisfied the channel is worse off than in the case of a single second best tariff it is also demonstrated that under a wide range of parametric values the manufacturer will prefer to offer the second best two part tariff rather than a menu of two part tariffs that could maximize channel profits

anticipated inflation in a monetary economy with endogenous growth this paper makes a new attempt to investigate the role of anticipatedmonetary growth in economic growth combining the barro 1990 rebelo 1991 type endogenous growth model with sidrauski s 1967 framework we show that the pre announcement of money supply behaviour may have significant effects on the rate of growth during the transition process the key factor indetermining adjustment patterns of the economy to anticipated monetary changes is the degree of relative risk aversion however changes in the rate of monetary growth do not affect the rate of long run growth regardless of the degree of relative risk aversion

competition and investment in flexible technologies this paper examines the implications of market structure on investment in flexible manufacturing systems fms we analyze a two stage game in which firms choose between a flexible and a less flexible technology in the first stage then choose production quantities in the second stage in equilibrium a large proportion of fms firms is associated with more concentrated markets our model predicts that a larger market and or a more differentiated product results in a higher proportion of fms firms being sustained these predictions are empirically supported using cross section industry level data from both the us and japan

two trees with heterogeneous beliefs spillover effect of disagreement in a model where investors disagree about the fundamentals of two stocks the state price density depends on investor disagreements for both stocks especially the larger stock this implies that disagreement among investors in a large firm has a spillover effect on the pricing of other stocks owned by these investors the pricing effects of investor disagreements crucially depend on the average belief biases empirical findings support the novel model prediction of a disagreement spillover effect and help reconcile some mixed evidence in the literature

capacity allocation using past sales when to turn and earn consider a supplier selling to multiple retailers demand varies across periods but the supplier s capacity and wholesale price are fixed if demand is high the retailers needs exceed capacity and the supplier must implement an allocation mechanism to dole out production we examine how the choice of mechanism impacts retailer actions and supply chain performance in particular we analyze turn and earn allocation a method commonly used in the automobile industry this scheme bases current allocations on past sales and thus enables retailers to influence their future allocations they compete for scarce capacity even if they do not compete for customers we show that turn and earn induces the retailers to increase their sales when demand is low and the supplier s capacity is otherwise underutilized supplier profits thus increase the impact on the supply chain depends on how restrictive capacity is with mildly tight capacity the retailers higher sales rate does not significantly lower their profits but does reduce the cost of idle capacity supply chain performance improves with extremely tight capacity the retailers intense competition dissipates more profits than the supplier gains and supply chain performance suffers consequently turn and earn does not generally coordinate the system it is best characterized as a means for the supplier to increase her profits at the expense of the retailers and potentially even the supply chain furthermore these results hold even if the retailers can hold inventory in anticipation of scarce capacity

impure public goods and transfers in a three agent model abstract this paper extends previous models of non cooperative private funding of pure public goods by allowing for impure public goods the analysis is developed in the context of international public goods under certain conditions the consequences of transfers on utility are paradoxical if the preferences are divergent a country may gain by giving a transfer the receiver may lose and these two phenomena may appear at the same time

optimal fiscal policy and different degrees of access to international capital markets abstract empirically the cyclical pattern of fiscal policy differs between developed and developing countries with in particular much greater pro cyclicality and volatility of public investment in developing countries in this paper i provide a theoretical explanation for the observed differences by analyzing optimal fiscal policy under different degrees of access to world capital markets if the supply of foreign capital is elastic as in a developed country then it is optimal to adjust to an adverse external shock by borrowing from abroad to finance public expenditure and cutting taxes to smooth private consumption if the supply of foreign capital is inelastic however as in a developing country the optimal adjustment policy is to reduce public investment by much more than public consumption and to raise consumption taxes

current account effects of a devaluation in an optimizing model with capital accumulation abstract this article explores the consequences of a devaluation in the context of a real optimizing model of a small open economy what provides for real effects of the devaluation is the existence of nominal wage stickiness during a contract period we show that if this contract period is relatively short the devaluation is bound to improve the current account on impact whereas this will deteriorate in the case of a long contract period and the more so the smaller are adjustment costs in investment in addition we study the consequences for the terms of trade and for the stocks of foreign assets and of capital

fiscal policy in the new neoclassical synthesis we analytically derive the cyclical effects of fiscal policy shocks in a new neoclassical synthesis model price stickiness has the consequence that a rise in government demand affects labor demand while at the same time the usual wealth effect boosts labor supply the strength of the demand effect depends on the response of the real interest rate governed by the monetary policy regime when the central bank controls money growth fiscal expansions are deflationary and might even be contractionary whereas output wages and inflation can increase when the rise in the real interest rate is dampened by an interest rate rule however price stickiness alone is not sufficient to explain a rise in consumption as predicted by keynesian theory

strategic commitment versus postponement in a two tier supply chain abstract in this paper the trade off between strategic commitment and operational flexibility is examined as it arises in a supply chain when a supplier offers competing buyers opportunities to make early purchase commitments for a product with a short life cycle traditionally the use of incentives for early purchase commitments for short life cycle products has been justified on the basis of a supplier s production lead times or capacity constraints an alternative explanation has been proposed by offering early purchasing opportunities a supplier can influence the form of competition in the downstream market using a single period model it has been shown that below a threshold level of demand uncertainty the supplier can benefit from providing adequate pricing incentives to entice downstream buyers to commit to purchase quantities before demand information is revealed moreover such early purchasing opportunities can benefit the supplier as well as the buyers even in the absence of production lead times or capacity constraints

international oil price uncertainty and corporate investment evidence from china s emerging and transition economy we develop and estimate a dynamic model of investment to investigate the impact of international oil price uncertainty on corporate investment expenditures in china s emerging and transition economy we further examine whether state ownership affects the relationship between oil price uncertainty and corporate investment consistent with the model s prediction the main finding is that oil price uncertainty exerts a negative impact on corporate investment expenditures in addition compared with state owned listed companies the negative influence of oil price uncertainty on corporate investment is more significant for non state owned listed companies our further analysis using the market oriented reform of refined oil pricing in 2008 as a quasi natural event shows the variation between the low degree marketization period and the high degree one in terms of the relationship between international oil price uncertainty state ownership and corporate investment expenditures

the effects of taxes and dividend policy on capital accumulation and macroeconomic behavior abstract this paper analyzes the macrodynamic effects of changes in various tax rates in an intertemporal optimizing framework two aspects emphasized include the role of dividend policy and the behavior of the stock market both permanent and temporary tax changes are considered with the transitional adjustment paths being characterized in detail the contrast between the short run and long run effects is highlighted in particular an increase in any of the tax rates will cause short run employment to fall and with the capital stock fixed instantaneously the capital labor ratio immediately rises over time as the capital stock declines the capital labor ratio falls

coordinated decisions for substitutable products in a common retailer supply chain abstract this paper studies coordination mechanisms in a supply chain which consists of two suppliers with capacity uncertainties selling differential yet substitutable products through a common retailer who faces price sensitive random demand of these two products we develop in a noncompetitive setting three coordination models revenue sharing return policy and combination of revenue sharing and return policy and contrast them with a basic and uncoordinated model we are able to establish the ordinal relationship among the retailer s ordering and pricing decisions and analytically compare the performances between certain models when two suppliers are identical we find that the retailer s ordering and pricing decisions in the model with return policy in the case of identical suppliers are independent of demand or supply uncertainty our numerical results reveal that the performances of coordination models in the case of nonidentical suppliers resemble those in the case of identical suppliers we find that the retailer will place a larger order quantity in models where her average cost per unit sold is smaller we also find that product substitutability and uncertainties have different effects on chain performances

capital reallocation and growth heterogeneity is ubiquitous in firm level and sectoral data equilibrium models how ever typically assume a representative firm as in andrew b abel and olivier j blanchard 1983 the representative firm paradigm leaves no role for the distribution of capital we model capital reallocation in a general equilibrium model with two sectors capital adjustment costs capture illiquidity in our model similar to hirofumi uzawa s 1969 capital installation technology we follow fumio hayashi 1982 in assuming that the production technology is linearly homogeneous which allows us to focus on the sectoral distribution of capital separately from the level of total capital the two sectors may have different levels of productivity and we show that the distribution of capital between the two sectors is the single state variable gov erning investment growth and valuation in the economy we analytically characterize prices and quan tities including investment growth the interest rate and the price of capital tobin s

optimal operating policies in the presence of exchange rate variability we study the structure of the optimal policies for a firm operating plants in different countries the relative costs of production between the plants are assumed to vary over time due to economic and political factors such as exchange rates inflation taxes and tariffs based on the costs the firm can alter the quantity produced in each plant we determine the structure of the optimal policies for deciding when and by how much to alter the production quantities when the switch over costs are linear or step functions regardless of whether the variable production costs are concave or piece wise linear convex and regardless of whether the firm is supplying one or more markets the optimal policy is always a barrier policy the optimal barriers can be determined by using linear programming techniques and the optimal costs can be computed by solving a system of linear equations when the number of optimal barriers is two the optimal expected costs and the condition that determines the optimal barriers are explicitly derived

interest rate rules and transitional dynamics in an endogenously growing open economy abstract this paper sets up an endogenous growth model of an open economy in which the monetary authority implements a gradualist interest rate rule with targets for both inflation and economic growth we show that under a passive rule a monetary equilibrium exists and is unique moreover the equilibrium is locally determinate by contrast an active rule implies either two equilibria one high growth and one low growth or none in the case of two equilibria the high growth equilibrium is locally determinate while the low growth equilibrium is a source besides the stabilization and growth effects of alternative target policies are also explored in this study moreover in departing from the existing literature we turn to focus on the analysis of transition with a particular emphasis on the case of imperfect credibility

the quantity flexibility contract and supplier customer incentives consider a supply chain consisting of two independent agents a supplier e g a manufacturer and its customer e g a retailer the latter in turn serving an uncertain market demand to reconcile manufacturing procurement time lags with a need for timely response to the market such supply chains often must commit resources to production quantities based on forecasted rather than realized demand the customer typically provides a planning forecast of its intended purchase which does not entail commitment benefiting from overproduction while not bearing the immediate costs the customer has incentive to initially overforecast before eventually purchasing a lesser quantity the supplier must in turn anticipate such behavior in its production quantity decision this individually rational behavior results in an inefficient supply chain this paper models the incentives of the two parties identifying causes of inefficiency and suggesting remedies particular attention is given to the quantity flexibility qf contract which couples the customer s commitment to purchase no less than a certain percentage below the forecast with the supplier s guarantee to deliver up to a certain percentage above under certain conditions this method can allocate the costs of market demand uncertainty so as to lead the individually motivated supplier and customer to the systemwide optimal outcome we characterize the implications of qf contracts for the behavior and performance of both parties and the supply chain as a whole

the baby boom and the stock market boom this paper addresses two issues the first is whether demographic change was plausibly responsible for the run up in stock prices over the last decade and whether an attempt by the baby boom cohort to cash out of its investments in the period 2010 2030 might lead to an asset meltdown the second issue is whether the rise in dependency that will accompany the retirement of the baby boom cohort calls for an increase in national saving we analyze these issues using a forward looking macro demographic model and show that they are related via the existence of installation costs for capital if such costs are sufficiently large then demographics do have the power to affect stock prices but saving for america s old age is less optimal however conventional estimates of capital installation costs are not large enough to explain large stock price movements in response to actual demographic change

short run and long run in trade models a note abstract this paper aims to capture key features of the ricardo viner rv and heckscher ohlin ho theories in a single dynamic general equilibrium framework we use a simple 2 sector 2 factor model with adjustment costs associated with the movement of capital across sectors we analyze the economy s response to exogenous changes in factor endowments and output prices our model reproduces the predictions of the rv theory in the short run moment immediately after a parameter change and the predictions of the ho model in the long run steady state implied by a new set of parameters numerical examples of transition paths are also provided

pricing patterns as outcomes of product positions prior empirical work shows that different markets are characterized by different pricing patterns such as bertrand nash pricing or stackelberg leader follower pricing the author considers a duopolistic market where ex ante identical firms sequentially position their products prior to competing on prices in a single or multiperiod setting and show that the unique equilibrium outcome involves 1 firms choosing stackelberg pricing over bertrand nash pricing and 2 the positioning first mover acting as the price leader an attractive property of this model is that the ex post larger firm acts as the price leader which is consistent with prior empirical evidence copyright 1999 by university of chicago press

the composition of government expenditure and its consequences for macroeconomic performance abstract this paper employs the intertemporal optimizing market clearing framework to compare the effects of government consumption expenditure and government infrastructure expenditure on macroeconomic adjustment and performance particular attention is focused on the time path of the capital stock and its adjustment to both permanent and temporary changes in government expenditure are considered we show how the effects of both forms of government expenditure on economic welfare can be broken down into 1 i a direct crowding out effect and 2 ii a second component which describes the intertemporal tradeoffs between the short run rate of capital accumulation and the resulting change in the capital stock

a note on price discount based on early order commitment in a single manufacturer multiple retailer supply chain abstract early order commitment eoc is a strategy for supply chain coordination wherein the retailer commits to purchasing from a manufacturer a fixed order quantity a few periods in advance of the regular delivery lead time in this paper we formulate and analyze the eoc strategy for a decentralized two level supply chain consisting of a single manufacturer and multiple retailers who face external demands that follow an autocorrelated ar 1 process over time we characterize the special structure of the optimal solutions for the retailers eoc periods to minimize the total supply chain cost and discuss the impact of demand parameters and cost parameters we then develop and compare three solution approaches to solving the optimal solution using this optimal cost as the benchmark we investigate the effectiveness of using the wholesale price discount scheme for the manufacturer to coordinate this decentralized system we give numerical examples to show the benefits of eoc to the whole supply chain examine the efficiency of the discount scheme in general situation and provide the special conditions when the full coordination is achieved

an intertemporal model of saving and investment this paper characterizes a market economy with infinitely long lived consumers and value maximizing firms which face costs of adjustment for capital the temporary equilibrium of this economy is similar to the short run equilibrium of standard macroeconomic models consumption is a function of wealth investment is related to the value of firms equilibrium between aggregate demand and aggregate supply is achieved by the endogenous adjustment of the sequence of current and future interest rates the dynamic behavior of output consumption and investment in this economy is the same as in an optimal growth model with adjustment costs the paper shows this equivalence and then uses it together with the equivalence of taxes to technological shocks to study the dynamic effects of fiscal policy

competition and cooperation in marketing channel choice theory and application this paper discusses the problem of choosing a vertical marketing channel in a product differentiated duopolistic market firms choose product price and the form of the marketing channel to maximize profits it is shown that integration of the marketing function results in greater price competition and lower prices than does the use of independent marketing middlemen the profitability of reducing price competition by using such middlemen is investigated two hypotheses that integration is negatively associated with the products substitutability and that symmetric channel structures are stable are tested in a preliminary way and supported with survey data from the international semiconductor industry

factor augmentation factor elimination and economic growth economic growth theory distinguishes between reproducible and nonreproducible factors of production in traditional growth models based on factor augmenting technical change perpetual economic growth requires that each essential nonreproducible factor such as labor be augmented by a reproducible factor such as human capital recent models of factor eliminating technical change deliver perpetual growth by eliminating the nonreproducible factors heretofore the literature has kept factor augmentation and factor elimination separate we analyze a model with both the model generalizes the traditional factor augmentation approach by relaxing the usual restriction that factor elimination is absent we obtain the striking result that factor augmenting technical change is a misspecification when factor eliminating technical change is present the result raises several questions about technical change and endogenous growth jel o41 o31 o33

in praise of inequality public good provision and income distribution abstract it is shown that if all individuals contribute towards the provision of a public good their utilities are equalised even if the income distribution is unequal it may seem that there is then no role for redistributive policy but it is proved that social welfare can be raised by creating sufficient income inequality that only the rich provide public goods