pushing the boundaries of climate economics critical issues to consider in climate policy analysis abstract climate policy choices are influenced by the economics literature which analyses the costs and benefits of alternative strategies for climate action this literature in turn rests on a series of choices about the values and assumptions underlying the economic analysis the methodologies for treating dynamics technological change risk and uncertainty and the assumed interactions between economic systems society and the environment including institutional constraints on climate policy we identify and discuss such critical issues pushing at the boundaries of current climate economics research new thinking in this area is gathering pace in response to the limitations of traditional economic approaches and their assumptions on economic behaviour ecological properties and socio technical responses we place a particular emphasis on the role of induced technological change and institutional setups in shaping cost effective climate action that also promotes economic development and the alleviation of poverty

public health spending old age productivity and economic growth chaotic cycles under perfect foresight abstract this paper analyses the dynamics of a double cobb douglas economy with overlapping generations and public health investments that affect the supply of efficient labour of the old aged it is shown that the positive steady state of the economy is unique moreover we provide necessary and sufficient conditions for the emergence of endogenous deterministic complex cycles when individuals are perfectly foresighted interestingly i the equilibrium dynamics shows rather complicated phenomena such as a multiplicity of bubblings depending on the size of the public health system and ii the higher the degree of thriftiness the likelier an economy is exposed to endogenous fluctuations because the need to save when young to support consumption when old is reduced

the inverted pyramid a neo ricardian view on the economy environment relationship abstract in ecological economics natural resources which may contribute only a small amount to gdp are viewed as fundamental to the functioning of the economy they are sometimes pictured as sitting at the base of an inverted pyramid with the rest of the economy balanced on top of them in this paper we show that when prices are set by markup a standard heterodox assumption then the inverted pyramid picture of the economy emerges naturally in a neo ricardian model we demonstrate the use of the model with brief applications to biophysical economics the paper is one of a growing number that use heterodox macroeconomics to address questions in ecological economics

a characterization of erratic dynamics in the overlapping generations model abstract in this paper we characterize and give examples o wide classes of utility functions which generate erratic dynamics in the standard deterministic overlapping generations model erratic dynamics refers to feasible trajectories which are bounded but which do not converge to stationary points or periodic orbits we show that such trajectories are pareto efficient we introduce credit into the model and show how a constant credit expansion rate can result in erratic trajectories in prices and the real value of credit finally we briefly discuss certain technical aspects of the mathematics used and the statistical nature of the dynamics that can arise from deterministic dynamical systems

economics of farmer early retirement policy we estimate the structural effects costs and potential efficiency gains that might arise from the introduction of an early retirement scheme for farmers in northern ireland using data from the farm business survey and a separate survey of 350 farmers aged between 50 and 65 modelling results suggest that farm scale is a significant determinant of profit per hectare but that the age of the operator is not the economic gains from releasing land through a scheme were conditional on transfers bringing about significant farm expansion and changes in land use when these conditions were satisfied pensions payments of only about one third the statutory maximum could be justified survey responses indicated that participation in the scheme would bring forward farmers retirement age by an average of 4 years moreover deadweight payments would equate to about 23 of potential total expenditure overall the economic case for the introduction of an early retirement scheme to northern ireland is judged to be weak

bank risk within and across equilibria abstract the global financial crisis highlighted that the financial system can be most vulnerable when it seems most stable this paper models non linear dynamics in banking small shocks can lead from an equilibrium with few bank defaults straight to a full freeze the mechanism is based on amplification between adverse selection on banks funding market and moral hazard in bank monitoring our results imply trade offs between regulators microprudential desire to shield individual weak banks and the macroprudential consequences of doing so moreover limiting bank reliance on wholesale funding always reduces systemic risk but limiting the correlation between bank portfolios does not

promoting structural adjustment in agriculture the economics of new entrant schemes for farmers we examine the efficacy of incentives for new entrants to farming as an alternative to early retirement schemes for farmers we briefly review previous studies on the effectiveness of farmer early retirement schemes in promoting structural adjustment in agriculture and conclude that the economic case for these schemes seems weak we then employ a dynamic farm optimisation model incorporating a realistic specification of farmer decision making on an original northern irish dataset to analyse ex ante the possible impacts of new entrant schemes we find a more positive potential impact from these schemes particularly the option of an interest rate subsidy on farm development loans this is attributed to the dynamic effects of the farm investments associated with such schemes a likely reflection of the long term effects of differences in age related lifecycle goals younger farmers have a longer planning horizon and tend to invest more heavily in business growth than comparable older age groups

new microfoundations for the aggregate matching function empirical studies of the aggregate labor market matching function have favored a cobb douglas functional form for which there are no microfoundations in the existing literature i present a new model for the matching process based on a telephone line poisson queuing process which unlike other microeconomic approaches can be integrated directly into standard theoretical search models this implies a ces matching function approximately cobb douglas when search costs are approximately linear the model allows empirical estimates of matching function parameters to be interpreted in terms of the costs and benefits of search

why farmers quit a county level analysis we identify the effects of alternative explanatory variables on the propensity of u s farmers to cease farming with a particular emphasis on understanding the roles of off farm employment and federal farm program payments conventional ordinary least squares analysis using all counties suggests that off farm employment has no statistical effect on the net number of farmers quitting between 1987 and 1997 ceteris paribus a more refined analysis which separates counties losing farmers from those that gained farmers reveals subtle and less clear cut effects of off farm employment and federal program payments on farm exits copyright 2001 oxford university press

political economy of public policies insights from distortions to agricultural and food markets the agricultural and food sector is an ideal case for investigating the political economy of public policies many of the policy developments in this sector since the 1950s have been sudden and transformational while others have been gradual but persistent this paper reviews and synthesizes the literature on trends and fluctuations in market distortions and the political economy explanations that have been advanced based on a rich global data set covering a half century of evidence on commodities countries and policy instruments the paper identifies hypotheses that have been explored in the literature on the extent of market distortions and the conditions under which reform may be feasible

neoclassical labour market dynamics chaos and the real wage phillips curve abstract the relationship between wage inflation and unemployment has been extensively investigated since the early work of phillips phillips a w 1958 the relation between unemployment and the rate of change of money wage rates in the u k 1861 1957 economica 25 283 299 and lipsey lipsey r g 1960 the relation between unemployment and the rate of change of money wage rates in the u k 1861 1957 a further analysis economica 27 1 31 and it is still a matter of debate in this paper we study the dynamics of a standard neoclassical labour market under the simplest walrasian adjustment rule we show that when consumption and leisure are sufficiently low substitutes the unique walrasian equilibrium of the economy can be destabilised and regular or even chaotic fluctuations of wages and employment appear this leads to an interesting resurrection of a real wage phillips curve as a long term phenomenon

the eu budget battle assessing the trade and welfare impacts of cap budgetary reform abstract there is a paucity of quantitative impact assessments of the sectorial and macroeconomic impacts of cap budget reform for eu member states to fill this gap the current study employs a sophisticated agricultural variant of the gtap model to evaluate the recently agreed cap spending limits for the financial period 2014 2020 as well as a more radical 50 cut to the cap budget proposed by the uk government the study incorporates methodological innovation in terms of the modelling of cap budgetary mechanisms furthermore official eu auditing statistics are employed to i greatly improve the existing representation of agricultural support payments in the gtap benchmark data and ii implement a detailed contemporary cap baseline for member states to capture both the decoupled coupled split of support payments and the distribution of support across both pillars in general cap expenditure cuts have muted impacts on eu and world agricultural markets whereas changes in net transfer payments have implications for real income and macro trade balances in eu member states this observation is particularly pertinent when assessing conciliatory reductions in the uk rebate in exchange for deeper cap budget cuts

estimation of multipliers for the activity of hotels and restaurants abstract the purpose of this paper is to model and estimate the multipliers for hotels and restaurants the most characteristic of the industries that make up the tourism business this multiplier can be used for estimating the economic impact of tourism demand likewise a tool for planners and policy makers is provided the data source is the set of input output tables gathered by the oecd which in its last edition has collected a sufficiently representative number of countries with an equally suitable disaggregation level two models are elaborated for the estimation of the rasmussen backwards multiplier and of the imports multiplier respectively some explanatory variables previously used in the literature are confirmed while others are proposed as alternative ones

political institutions and sorting in a tiebout model we construct a computational model of tiebout competition and show that political institutions differ in their ability to sort citizens effectively in particular we find that certain types of institutions those that become more politically unstable as citizen heterogeneity increases perform relatively poorly given a single jurisdiction yet these same institutions perform relatively well when there are multiple jurisdictions we provide an explanation for this phenomenon which draws upon simulated annealing a discrete nonlinear search algorithm jel

cycles and chaos in a socialist economy abstract this paper deals with the dynamics of a continuous piecewise linear model of a socialist economy the model has hicksian type nonlinearities it is a linear model with ceilings and floors although the model is quite simple it produces a variety of different new phenomena in addition to stable cycles appearing in simonovits 1991b we demonstrate chaotic and quasi periodic behavior we investigate how the dynamics of the model depends on the control parameters and encounter border crossing bifurcations a rather new type of local bifurcation

energy return on energy invested eroi oil prices and energy transitions very little work has been done so far to model test and understand the relationship between oil prices and eroi over time this paper investigates whether a declining eroi is associated with an increasing oil price and speculates on the implications of these results on oil policy a model of the relationship between eroi and oil market prices was developed using basic economic and physical assumptions and non linear least squares regression models to correlate oil production price with eroi using available data from 1954 1996 the model accurately reflects historical oil prices 1954 1996 and it correlates well with historical oil prices 1997 2010 if a linear extrapolation of eroi decline is assumed as eroi declines below 10 highly non linear oil price movements are observed increasing physical oil scarcity is already providing market signals that would stimulate a transition away from oil toward alternative energy sources but price signals of physical oil scarcity are not sufficient to guarantee smooth transitions to alternative fuel sources especially when there is insufficient oil extraction technology development a declining mark up ratio a non linear eroi cost of production relationship and a non linear eroi price relationship

mortgage debt consumption and illiquid housing markets in the great recession using a model with housing search endogenous credit constraints and mortgage default this paper accounts for the housing crash from 2006 to 2011 and its implications for aggregate and cross sectional consumption during the great recession left tail shocks to labor market uncertainty and tighter down payment requirements emerge as the key drivers an endogenous decline in housing liquidity amplifies the recession by increasing foreclosures contracting credit and depressing consumption balance sheets act as a transmission mechanism from housing to consumption that depends on gross portfolio positions and the leverage distribution low interest rate policies accelerate the recovery in housing and consumption

open access harvesting of wildlife the poaching pit and conservation of endangered species abstract we extend the traditional g s model of open access by defining a non concave harvesting function we demonstrate the possible existence of multiple equilibria and perverse comparative statics and show that small changes in the underlying economic parameters may trigger large jumps in species abundance finally we briefly discuss implications for management

chaos significance mechanism and economic applications imagine a bargaining model say involving diplomats negotiating tariff levels or a disarmament treaty in which each party has been instructed by higher headquarters to respond to each new offer by her opposite number with a counteroffer that is to be calculated from a simple reaction function provided in advance both negotiating parties are prohibited from revealing their own reaction functions to the other if the perfectly deterministic sequence of offers and counteroffers that must emerge from these simple rules were to begin to oscillate wildly and apparently at random the negotiations could easily break down as each party not understanding the source of the problem came to suspect the other side of duplicity and sabotage yet all that may be involved as we will see is the phenomenon referred to as chaos a case that is emphatically not pathological but in which a dynamic mechanism that is very simple and deterministic yields a time path so complicated that it will pass most standard tests of randomness chaos has become a subject of great interest to specialists and nonspecialists alike besides economics it has entered the literature of geometry physics ecology and meteorology it has been written about at length in the new york times magazine and scientific american as well as technical publications this article seeks to describe what it is how it works and what it means for economics

from simplistic to complex systems in economics the applicability of complex systems theory in economics is evaluated and compared with standard approaches to economic theorising based upon constrained optimisation a complex system is defined in the economic context and differentiated from complex systems in physio chemical and biological settings it is explained why it is necessary to approach economic analysis from a network rather than a production and utility function perspective when we are dealing with complex systems it is argued that much of heterodox thought particularly in neo schumpeterian and neo austrian evolutionary economics can be placed within a complex systems perspective upon the economy the challenge is to replace prevailing simplistic theories based in constrained optimisation with simple theories derived from network representations in which value is created through the establishment of new connections between elements

do people play nash equilibrium lessons from evolutionary game theory evolutionary game theory provides an answer to two of the central questions in economic modeling when is it reasonable to assume that people are rational and when is it reasonable to assume that behavior is part of a nash equilibrium and if it is reasonable which equilibrium the traditional answers are not compelling and much of evolutionary modeling is motivated by the need for a better answer evolutionary game theory suggests that in a range of settings agents do eventually play a nash equilibrium moreover evolutionary modeling has shed light on the relative plausibility of different nash equilibria

stabilizing chaos in a dynamic macroeconomic model abstract within a macroeconomic disequilibrium model it turns out that stationary and simple adaptive policies are not capable of stabilizing efficient steady states and lead to periodic or irregular fluctuations for large sets of policy parameters the application of recent control methods for chaotic dynamical systems shows that the government can in principle stabilize an unstable walrasian equilibrium in a short time by varying income tax rates or government expenditures different stabilizing policies are analyzed and compared with regard to their efficiency

on the complexities of complex economic dynamics complex economic nonlinear dynamics endogenously do not converge to a point a limit cycle or an explosion their study developed out of earlier studies of cybernetic catastrophic and chaotic systems complexity analysis stresses interactions among dispersed agents without a global controller tangled hierarchies adaptive learning evolution and novelty and out of equilibrium dynamics complexity methods include interacting particle systems self organized criticality and evolutionary game theory to simulate artificial stock markets and other phenomena theoretically bounded rationality replaces rational expectations complexity theory influences empirical methods and restructures policy debates

short and long run credit constraints in french agriculture a directional distance function framework using expenditure constrained profit functions this empirical application investigates the eventual presence of credit constraints using a panel of french farmers the credit constrained profit maximization model proposed by fare grosskopf and lee is extended in three ways first we rephrase the model in terms of directional distance functions to allow duality with the profit function second we model credit constraints in the short run and investment constraints in the long run using short and long run profit functions third we lag the expenditure constraint one year to account for the separation between planning and production we find empirical evidence of credit and investment constraints financially unconstrained farmers are larger perform better and seem to benefit from a virtuous circle where access to financial markets allows better productive choices

disequilibrium dynamics with inventories and anticipatory price setting this paper studies the sequence of short run quantity constrained equilibria of a model with a single storable output labor and money the durability of output gives rise to inventory fluctuations which influence the course of the equilibria attained one special feature of interest is the assumption that prices are not at the level which would equilibrate all markets if there were no stochastic shocks to the economy with prices frozen at this level the nature of the realized shocks determines the type of disequilibrium realized and the unintended component of inventory change the analysis concentrates on two questions what is the statistical nature of the process governing the real wage output employment and inventories and is it possible to test this model against the alternative hypothesis that prices are continually flexible even after the shocks have disturbed the system we find that although these theories are similar in their qualitative structure tests can be developed we also show how the frequencies of different types of quantity constrained equilibria vary with the stochastic specification this may shed some insight on why it is commonly believed that some types of disequilibrium phenomena have not been observed this abstract was borrowed from another version of this item

the effects of changes in capital gains taxes on land sales empirical evidence from finland we estimate the landowner response to and fiscal effects of a temporary reduction in capital gains taxes imposed on land sales the underlying normative decision rules are first derived and solved numerically using stochastic dynamic programming the landowner preferences and willingness to sell land are then estimated in the reduced form using survey data from finland the results suggest that the timing of land sales and land sales quantities respond significantly to tax incentives certain temporary tax waiver programs could maintain the current tax revenues with fewer trade distorting effects on the land market

inventory fluctuations in a disequilibrium macro model as fig i shows this pattern continues to hold with remarkable fidelity over the postwar period as well notice that stock levels tend to peak during recessions shaded areas and to trough shortly after recessions while the stock sales ratio tends to peak during the latter part of recessions and to trough during expansions given the huge role played by stocks in business fluctuations 1 it is surprising that so little theoretical attention is directed toward improving our understanding of the timing of stock and stock sales ratio movements 2 the purpose of this paper is to offer a theoretical model which is consistent with the observed cyclical behaviour of stocks and the stock sales ratio the present model has firms forming sales expectations and then producing enough output if possible to cover the expected sales and to maintain a given stock expected sales ratio trade takes place out of equilibrium and inaccurate sales expectations or capacity constraints give rise to involuntary stock changes we find that stock holding may or may not be destabilising if stocks are not destabilising the familiar keynesian multiplier will obtain though the path of output after a shock will differ from the keynesian path if stocks are destabilising the system is found to enter a cycle with stocks and output ultimately rising and falling in a pattern much like that observed in actual cycles

on endogenous competitive business cycles the belief that the long run equilibrium of a competitive monetary economy that does not experience any exogeneous shocks whether originating from the external environment or from policy should be modelled as a state that is stationary or perhaps growing at a constant rate seems to be deeply rooted in the mind of some economists

beyond microfoundations towards a not too rational macroeconomics at ucla we are establishing a center for computable economics i have been very much involved in this effort this may surprise you that a non mathematical macro monetary economist should become an enthusiast for this project is one of those things that do not compute but then as i will explain we take a special interest in things that do not compute one may come to computable economics by many intellectual routes i will trace my own not because it makes a particularly edifying story but because it will tell you what kind of problems i hope we can make progress on by developing the field of computable economics but before we get to that i had better explain what i mean by computable economics

emergence and complexity in austrian economics abstract emergence is often argued to be a deep property of complex systems with such systems exhibiting wholes that are in some way greater than the sum of their parts these ideas have played an important part in discussions of spontaneous order within austrian economics particularly by hayek drawing on arguments dating from mill and menger although with other traditions such as that of bohm bawerk not relying on such ideas philosophical discussions of these terms are considered that raise questions about the relationship between the emergent whole and the lower level parts that comprise it a major issue is the role of these ideas and processes within evolution with hayek in particular moving strongly towards identifying their linkage something advocated by many non austrian economists and non economists as well

chaotic price dynamics increasing returns and the phillips curve abstract chaotic behavior of prices can emerge as a robust result from a very simple and standard price adjustment process consider the dynamics of prices adjusting according to supply and demand in economies with increasing returns to scale increasing returns in production implies the existence of a globally attracting set of prices containing a stable disequilibrium price within which the motion of the system is chaotic this property holds for any step size in the price adjustment process when consumption and leisure are complementary we prove that long run statistical properties of the system s behavior in this set are described by an ergodic measure price dynamics drive the system into the globally attracting region and then chaotic motion takes over on average according to this measure there is excess supply we suggest possible empirical implications of our analysis particularly with respect to the relationship between wages changes and the demand for labor the phillips curve

common agricultural policy effects on dynamic labour use in agriculture abstract the aim of this study is to investigate the effects of direct payments and rural development measures of the eu s common agricultural policy cap on employment in agriculture we work with a dynamic labour demand equation augmented by the full set of policy instruments of the cap which is estimated on a panel dataset of 69 east german regions we present results for four estimators which differ in how they eliminate the fixed effects and how they address the endogeneity of the lagged dependent variable the results suggest that there were few desirable effects on job maintenance in agriculture while there is some indication that investment subsidies have halted labour shedding on farms a rise in the general wage level reduced labour use in agriculture changes in direct payments had no employment effects generally labour adjustment exhibits a strong path dependency

schelling s spatial proximity model of segregation revisited schelling schelling t c 1969 models of segregation american economic review papers and proceedings 59 488 493 schelling t c 1971a dynamic models of segregation journal of mathematical sociology 1 2 143 186 schelling t c 1971b on the ecology of micromotives the public interest 25 61 98 schelling t c 1978 micromotives and macrobehavior new york norton presented a microeconomic model showing how an integrated city could unravel to a rather segregated city notwithstanding relatively mild assumptions concerning the individual agents preferences i e no agent preferring the resulting segregation we examine the robustness of schelling s model focusing in particular on its driving force the individual preferences we show that even if all individual agents have a strict preference for perfect integration best response dynamics may lead to segregation this raises some doubts on the ability of public policies to generate integration through the promotion of openness and tolerance with respect to diversity we also argue that the one dimensional and two dimensional versions of schelling s spatial proximity model are in fact two qualitatively very different models of segregation

jobs and agricultural policy impact of the common agricultural policy on eu agricultural employment abstract this paper investigates the relationship between eu agricultural subsidies and the outflow of labor from agriculture we use more representative subsidy indicators and a wider coverage panel data from 210 eu regions over the period 2004 2014 than has been used before the data allow to better correct for sample selection bias than previous empirical studies we find that on average cap subsidies reduce the outflow of labor from agriculture but the effect is almost entirely due to decoupled pillar i payments coupled pillar i payments have no impact on reducing labor outflow from agriculture i e on preserving jobs in agriculture the impact of pillar ii is mixed our estimates predict that an increase of 10 percent of the cap budget would prevent an extra 16 000 people from leaving the eu agriculture sector each year a 10 percent decoupling would save 13 000 agricultural jobs each year however the budgetary costs are large the estimated cost is more than 300 000 per year or more than 25 000 per month per job saved in agriculture

rural population decline in the 1980s impacts of farm structure and federal farm programs federal farm program benefits accrue disproportionately to large scale farm operators and continue largely because of the political influence of their beneficiaries some writers argue that these payments stem the movement of labor out of agriculture ultimately reducing the pace of rural depopulation here a theoretical model linking farm program payments to population loss is presented and empirically estimated for the years 1980 90 larger farm program payments as a share of total cash marketing receipts were associated with greater population losses from rural counties this result holds after controlling for other economic variables affecting population migration from rural areas

exchange rate theory and practice this volume grew out of a national bureau of economic research conference on exchange rates held in bellagio italy in 1982 in it the world s most respected international monetary economists discuss three significant new views on the economics of exchange rates rudiger dornbusch s overshooting model jacob frenkel s and michael mussa s asset market variants and pentti kouri s current account portfolio approach their papers test these views with evidence from empirical studies and analyze a number of exchange rate policies in use today including those of the european monetary system

model unvertainty political learning and institutions a broader view on mancur olson s theory of institutional sclerosis in his rise and decline of nations mancur olson argues that politically stable countries suffer from declining growth rates caused by the growing influence of distributional coalitions that accumulate over time the empirical literature supports the notion of a negative relationship between a country s duration of political stability and its growth rates but finds only weak support for a negative influence of distributional coalitions on growth this paper sketches a simple model of party competition under model uncertainty which may explain this mixed empirical picture it shows that politically stable democracies are less well equipped to adjust to shifts in their economic environment than democracies with a shorter history of political stability in a further step the paper relates the major theme of this theory and olson s theory to the more recent literature on institutions and growth directions for further research are discussed

stability and complex dynamics in a discrete tâtonnement model abstract in this paper we study the dynamics of discrete price adjustment processes we show that gross substitutability leads to a kind of stability of the process it guarantees that all prices converge to some bounded region that contains the unique equilibrium price the dynamics inside this region is by no means trivial we demonstrate that as the speed of adjustment increases the process undergoes several bifurcations and the dynamics may become quite complex our approach differs from other literature on t tonnement processes in that our systems are not necessarily one dimensional

adaptive expectations and perfect foresight in a nonlinear metzlerian model of the inventory cycle it has long been known that the motions of aggregate inventory investment are an important facet of the business cycle see e g blinder and maccini 1991 some elementary insights into the dynamic feedback effects between inventories production and sales were provided by metzler 1941 in a small theoretical model the present note adopts his framework but seeks to overcome the limitation of its linear specifications our basic idea corresponds to the concept of a flexible inventory accelerator while metzler postulated that desired inventory investment in discrete time is equal to the gap between desired and actual stocks of inventories some later studies have introduced a constant proportionality factor for the adjustment of inventories here we go one step further and hypothesize a variable stock adjustment speed as it turns out fast adjustments in a vicinity of the stationary equilibrium cause local instability but if for

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

the market for preferences learning processes are widely held to be the mechanism by which boundedly rational agents adapt to environmental changes we argue that this same outcome might also be achieved by a different mechanism namely specialisation and the division of knowledge which we here extend to the consumer side of the economy we distinguish between high level preferences and low level preferences as nested systems of rules used to solve particular choice problems we argue that agents while sovereign in high level preferences may often find it expedient to acquire in a pseudo market the low level preferences in order to make good choices when purchasing complex commodities about which they have little or no experience a market for preferences arises when environmental complexity overwhelms learning possibilities and leads agents to make use of other people s specialised knowledge and decision rules

sustainability guided promotion of renewable electricity generation in recent years the threat of global climate change high fuel import dependence and rapidly rising electricity demand levels have intensified the quest for more sustainable energy systems this in turn has increased the need for policy makers to promote electricity generation from renewable energy sources guaranteed prices coupled with a buy back obligation for electricity fed into the grid is a popular renewables promotion instrument especially in europe more recently driven mainly by electricity market liberalisation efforts quota targets for the share of renewables in combination with tradable green certificates tgc have received considerable attention tgc offer a greater theoretical potential for economic efficiency gains due to price competition and the greater flexibility assigned to the obliged parties while guaranteed prices and tgc schemes support the operation of renewable energy technology systems bidding schemes for renewable energy generation capacity are used to raise economic efficiency on the plant construction side all of these policy instruments suffer from the shortcoming that they do not explicitly account for the often widely varying environmental social and economic impacts of the technologies concerned in this paper we propose a methodology for the design of renewable energy policy instruments that is based on integrated assessment in particular we argue that using participatory multicriteria evaluation as part of the design of renewable energy promotion policies would make it possible 1 to differentiate the level of promotion in a systematic and transparent manner according to their socio ecological economic impact and 2 to explicitly account for the preferences of stakeholders a further problem of existing tgc and bidding schemes is that diversity of supply could be severely diminished if few low cost technologies were allowed to dominate the renewable energy market to ensure a certain diversity of technologies our scheme suggests the use of different technology bands for technologies that are relatively homogeneous with respect to their maturity

on the intersectoral migration of agricultural labor labor is the single most important factor in determining national income as economies grow agricultural labor declines as a share of total labor and converges to a level of 2 or 3 percent off farm migration facilitates the development of nonagriculture but historically the process spans decades the authors argue that the pace of the process is a fundamental outcome of a dynamic equilibrium based on expectations of lifetime earnings and the cost of migration the authors present an empirical model of the determinants of intersectoral migration one fundamental determinant is income differences across sectors as such migration should stop when income differences reach a certain level the authors provide a method of measuring the level at which intersectoral migration will cease while there are credible reasons for a permanent difference to exist between sectoral incomes the authors find no empirical evidence of a permanent wedge

statistical dynamics and economics abstract it is shown in this paper how complex economic dynamics can be characterized using the statistical or distributional theory of dynamical systems the basic concepts of the latter are summarized then applications to supply and demand adjustments in competitive markets aggregate business fluctuations and economic growth in the very long run are briefly reviewed

stabilization policy can lead to chaos stabilization policy can lead to chaos nonlinearities in economies as elsewhere can generate chaotic equilibria the presence of pareto inferior chaotic equilibria might seem reason enough to use stabilization policy to select preferable equilibria however i show that a stabilization policy with feedback can itself lead to chaotic dynamics thus the existence of nonlinearities in the economy does not by itself justify monetary or fiscal policies aimed at reducing economic instability current evidence cannot distinguish whether monetary policy stabilizes a nonlinear economy creates nonlinear dynamics in the economy or both i introduction in recent years the claim has been made that nonlinearities and self fulfilling expectations in the private economy generate economic instability that can and should be offset by government policies this instability shows up as a positive variance in the steady state of an economy that otherwise would have a steady state with zero variance and higher utility for households on the basis of such models grandmont and malgrange 1986 9 conclude that we should expect a free market economy to perform rather badly under laissez faire in addition there is a possible role for deterministic stabilization policies that would if understood and believed eliminate forecasting mistakes and the corresponding efficiency losses and would guarantee the ultimate disappearance of endogenous fluctuations the purpose of this note is to provide a simple example of stabilization policy leading to chaotic time series behavior this example is an elaboration of friedman s 1953 classic argument that with uncertain knowledge about the economy stabilization policy can increase the variance of the goal variable nonlinearities can make as much a case against stabilization policy as for it the example is ad hoc in some respects but it is based on common ingredients of many models ii a simple example interesting aspects of an economy can be summarized by the quantity equation 1 mv y assume that real income y is constant which implies that changes in nominal income are proportional to changes in the price level in one respect using the quantity equation means that the example below does not have the same force as a tight general equilibrium model of the economy without the underlying detail equation 1 is ad hoc in another respect the example below has more force an equation such as 1 commonly characterizes the general equilibrium models in which money has a significant effect on the economy hence one interpretation is that the example has some generality assume that the monetary authority targets nominal income and knows 1 that the quantity theory characterizes the long run equilibrium of the economy and 2 the level of velocity that is consistent with zero inflation v in these circumstances there is one obvious equilibrium consistent with the goal the money stock is constant and the public expects a constant money supply and zero inflation in this equilibrium nominal income can be stabilized at the target level of nominal income y the monetary authority just need set the money supply to m v 1y if the monetary authority is uncertain about the public s response to its actions one strategy is to adopt a cautious stabilization policy to support the economy s approach to the long run deterministic equilibrium one commonly proposed set of feedback rules is the proportional policies introduced by phillips 1954 in the levels such a rule for the money supply is 2 m m alpha y y sub 1 where y sub 1 is last period s nominal income and alpha is the adjustment parameter assume that private agents believe that the monetary authority eventually will accomplish its goal of setting y equal to y

transition and agricultural labor reforms have strongly affected agricultural employment in transition countries but in remarkably different ways we present a theoretical model and an empirical analysis to explain differences in labor adjustment during transition we show that the differences are due to a combination of variations in initial conditions and differences in reform policies and effects the removal of price distortions and subsidies caused wage and price adjustments during transition and a reduction in labor demand in agriculture surplus labor outflow from agriculture was further stimulated by the privatization of the farm assets as they improve incentives and remove constraints for optimal factor allocation and structural adjustment the shift to individual farms which was especially strong in labor intensive production systems with low labor productivity in agriculture has reduced the outflow of labor from agriculture by improving farm governance and labor efficiency although this effect was mitigated by losses in scale economies due to disruptions and market imperfections in transition in general labor outflow was considerably lower on individual farms than on corporate farms due to a combination of factors related to human capital access to finance and physical capital in the last section of the article we present a general framework for understanding labor adjustments in transition countries specifically we show that there are several patterns of labor transition in one pattern followed by e g the czech republic and hungary there is initially a strong survival of the restructured large scale corporate farms that have laid off many workers in the second phase of transition gradually the importance of individual farms increases in other countries such as romania the opposite has happened in these countries there is an immediate strong shift to individual farms while labor use increases on average in agriculture after this initial phase the shift to individual farms continues albeit more slowly and labor use in agriculture starts to decline finally our analysis shows that in countries such as russia and ukraine much of the surplus labor is still employed by little reformed former collective and state farms major adjustments await more progress in agricultural and general reforms

why has house price dispersion gone up we calibrate a dynamic general equilibrium island model to investigate the 30 year increase in the level of house prices and their dispersion across u s metropolitan areas the model is based on two main assumptions households o w in and out metropolitan areas in response to local productivity shocks and the housing supply cannot adjust instantly because of technological and regulatory constraints the calibration reveals that the observed tightening of housing supply regulation cannot quantitatively account for the rise in the level and dispersion of house prices in equilibrium workers o w out of tightly regulated towards less regulated metropolitan areas undoing most of the price impact of local supply restrictions in contrast the observed increase in wage dispersion across metropolitan areas does create the observed increase in the level and dispersion of house prices workers o w towards exceptionally productive metropolitan areas and drive house prices up the calibration also suggests that the welfare eects of housing supply regulation are large when wages become more dispersed

growth of milk production in german dairy farms an empirical study based on event history analysis this article investigates determinants of growth of milk production in german dairy farms with the use of event history analysis this methodology enables the analysts to consider time as a proxy for not measurable effects on growth the likelihood of a farm s moving from a nongrowth episode into a growth episode is estimated and the impact of various covariates on that likelihood is assessed the analysis is based upon a balanced panel of annual farm accounts from 616 specialized dairy farms in germany covering the financial years 1995 1996 2008 2009 the results from event history analyses are presented for low and high growth rates for both groups it was found that the probability of entering a growth episode defined as the event to be analyzed increases over time e g as a consequence of an increasing need to improve competitiveness moreover several covariates such as the share of subsidies in returns farmer s age and milk price had a significant impact on growth in a farm s milk production the analysis revealed however that the effect direction of some explanatory variables differed between the two groups

land market imperfections and agricultural policy impacts in the new eu member states a partial equilibrium analysis this article analyses how transaction costs and imperfect competition in the land market affect the welfare effects of agricultural subsidies in the new eastern member states of the european union benefits of land subsidies end up with landowners in new eastern member states also with imperfections in the new eastern member states land markets with unequal access to subsidies small tenant farmers may even lose out from the subsidies decoupling of payments shifts policy rents to farmers but constrains productivity enhancing restructuring using reserve entitlements to mitigate this effect reduces the intended benefits on distortions and target efficiency

segmented housing search we study housing markets with multiple segments searched by heterogeneous clienteles in the san francisco bay area search activity and inventory covary negatively across cities but positively across market segments within cities a quantitative search model shows how the endogenous flow of broad searchers to high inventory segments within their search ranges induces a positive relationship between inventory and search activity across segments with a large common clientele the prevalence of broad searchers shapes the response of housing markets to localized supply and demand shocks broad searchers help spread shocks across many segments and reduce their effect on local market activity

ethics politics and nonsatiation in consumption a synthesis in contrast with the production of goods and services by firms where the production costs are minimized under appropriate behavioral assumptions consumer producers in neoclassical theory maximize consumption expenditure i e production costs of their outputs according to kenneth boulding were the impact upon the limited resources available on planet earth taken into account consumption expenditure should be minimized we propose that we keep consumer theory as a reasonable description of reality however we should evaluate the long run consequences of such postulated behavior in a larger context which as a consequence of larger population with increasing per capita consumption comprises the overburdening of natural resources by decomposing the time horizon of cultural evolution into shorter periods of adjustment we may then distinguish several types of institutional determination of how societies take decisions as a group and individually the consumer theory simply reflects the predominant ethical values of which ideologies political platforms and demand patterns are shorter run adjustments

trading frictions and house price dynamics we model liquidity in housing markets the model provides a simple characterization for the joint process of prices sales and inventory we compare the implications of the model to certain properties of housing markets the model can generate the large price changes and the positive correlation between prices and sales that we see in the data unlike the data prices are negatively autocorrelated and high inventory predicts price appreciation we investigate several amendments to the model informational frictions show promise

does an unstable keynesian unemployment equilibrium in a non walrasian dynamic macroeconomic model imply chaos simonovits 1982 introduced a non walrasian dynamic macromodel which is based on the disequilibrium model with inventory dynamics due to honkapohja and ito 1980 this model describes transactions on two markets one market for labor and one market for goods and contains five parameters obviously there is an equilibrium which is the so called keynesian unemployment equilibrium point for suitable choices of the parameters this equilibrium point is locally stable and according to simonovits 1982 the keynesian unemployment equilibrium point is also globally stable i e the trajectories of all initial values converge to the equilibrium point for many parameter values the equilibrium point is unstable this is in fact the case when the product of the two eigenvalues at the equilibrium point is greater than 1 simonovits 1982 conjecture says if the keynesian unemployment equilibrium point is unstable then there is chaos first we recall some definitions of chaos we restrict our attention to systems whose trajectories are bounded a first definition is the following a system is chaotic if there exist infinitely many periodic points with different period and if there is an uncountable set of aperiodic points this kind of chaos is nowadays called li yorke chaos see li and yorke 1975 and diamond 1976 before turning to a second definition we need the notion of sensitive dependence on initial values a system may be said to have sensitive dependence on initial values if we can find with probability p where 0 p 1 a point x such that for every open neighborhood u of x there is a point y in u such that the trajectories of x and y will not be close

the anatomy of emergence with a focus upon capital formation abstract emergence is a unifying theme of both evolutionary economics and complex systems theory in spite of this centrality emergence in economics has not been subject to an extensive critical analysis this paper remedies this deficit we identify several conditions that economic patterns i e rule systems structures must satisfy to qualify as emergent 1 material realization emergent patterns are realized in physical structures and processes 2 coherence pattern is not a mere aggregate but a systemic whole 3 non distributivity pattern possesses global properties absent from its parts 4 structure dependence systemic properties depend upon connective structure these four core features are common to all forms of emergence in economics evolutionary economic systems also exhibit extra strength versions of emergence which require that patterns possess one or more additional features 5 genuine novelty 6 unpredictability in principle and 7 irreducibility we introduce three basic forms of emergence that occur in economic systems minimal diachronic and synchronic emergence and apply these ideas to capital formation at all levels of economic order the economy wide capital structure exhibits strongly emergent properties both diachronic and synchronic that depend on its structural and functional organization it is not a mere aggregate of capital goods within the realm of capital phenomena we also compare the distinguishing characteristics of emergent and spontaneous self organizing orders we provide a case study of the iphone as an emergent capital pattern to illustrate conditions 1 7 above and the different types of emergence

sins of the sons of samuelson vision pedagogy and the zig zag windings of complex dynamics abstract the standard economics text is centered on a vision of a naturally self regulated dynamically stable system with a unique global attractor this paper discusses how we got there and how recent developments in the study of dynamical systems allow us to go beyond that it traces the evolution of the teaching of economics from alfred marshall who built his supply and demand framework within a complexity vision of the economy it suggests that that complexity vision was lost as economists formalized the supply demand framework and extended it to the entire economy this paper argues that the current textbook presentation of economics should not and cannot serve as the only intellectual frame we provide to our students

the determinants of the migration of labor out of agriculture in the united states 1940 85 the flow of labor out of production agriculture is analyzed using a two sector model of occupational choice a migration equation is specified and tested empirically using aggregate data for the united states the economic determinants of the migration of all farm workers and farm operators are established farm labor is found to be responsive to changes in the returns to agricultural labor relative to nonfarm labor returns given this responsiveness policies intended to increase farm income will affect the level of agricultural employment

short waves in hungary 1923 and 1946 persistence chaos and lack of control abstract monetary policies follow a complex and chaotic process one that is enhanced when monetary growth is taken to the extreme as in hyperinflation while we have a basic understanding of the complex dynamics of hyperinflation a less explored phenomenon accompanying hyperinflationary episodes is the effect that they have on institutional development building on recent advances in economic history examining monetary policy and institutions this analysis uses more explicit recourse to complexity theory and in particular complex adaptive systems to examine two separate hyperinflationary episodes in hungary 1923 and 1946 delving into the institutional and cultural roots of the inflationary policies of the hungarian government and detailing the institutional effects which succeeded hyperinflation this paper shows that the twin experiences of hungary were both chaotic and created a chaotic and complex aftermath the results of which are still being felt indeed hungary s 1923 and especially its 1946 hyperinflation shows that some economic chaos cannot be restrained by political institutions and in fact the institutions themselves were changed when staring into the abyss hungary also found that the abyss stared back

credit market imperfections and the distribution of policy rents this article shows that credit market imperfections have important implications for the distribution of policy rents in a model with land as fixed factor and credit market imperfections when an area payment is given land rents go up by more than the subsidy on aggregate farms may lose from the subsidy the results depend on the extent to which subsidies have direct and indirect effects on the credit constraints on whether farms rent or own land and on farm heterogeneity

a model of experimentation with information externalities abstract this paper presents a simple model of experimentation and information externality specifically we analyze an experimentation game in which the consequences of the actions of each agent can be costlessly observed by other agents our analysis provides a complete characterization of the noncooperative equilibrium in stationary strategies in particular it shows that such an equilibrium is not efficient because players stop experimenting when the social value of experimentation is still positive we also prove however a folk type result according to which a socially efficient outcome can be sustained as an equilibrium when the players have memory of previous actions and are sufficiently patient finally we indicate a large class of economic problems which provides motivation for our model and to which our approach might be applied

market liquidity hedging and crashes in the absence of significant news hedging strategies were blamed for the stock market crash of october 1987 but traditional models cannot explain how a relatively small amount of selling could cause so large a price drop the authors develop a rational expectations model in which prices play an important role in shaping expectations markets are much less liquid in their model than in traditional models discontinuities or crashes can occur even with relatively little hedging the model is consistent with theories as disparate as keynes beauty contest insights and thom s catastrophe analysis and suggests means to reduce volatility copyright 1990 by american economic association

imperfect foresight and chaos an example of a self fulfilling mistake abstract we consider an overlapping generations economy with a single production sector and a government first we assume that the households have imperfect foresight in the sense that they cannot distinguish between the trajectories of a deterministic chaotic system and a stochastic process it is shown that mistaking a deterministic chaotic system for a stochastic one is a self fulfilling mistake because the possibility of making this mistake arises only when it is made the unique perfect foresight equilibrium is proved to exhibit simple dynamics for most parameter values finally we show that when agents apply simple econometric models to build their expectations the resulting dynamics resemble the chaotic dynamics of the imperfect foresight equilibrium under certain parameter constellations while they are close to the simple dynamics of the perfect foresight equilibrium for other parameter values

market instability and nonlinear dynamics the potential role of nonlinear dynamics in generating market instability is investigated using a simple market equilibrium model of the u s dairy industry the supply function reflects the nonlinear dynamics of the dairy herd as estimated by chavas and klemme it is shown that in the absence of any uncertainty an inelastic demand contributes to market instability and chaos

inventories in a dynamic macro model with flexible prices this paper presents a disequilibrium macro model with inventories rational expectations and flexible prices it is found that less than full employment equilibria are possible even highly likely in the intermediate term and that wage reductions will cause employment to drop increasing aggregate demand will raise employment only if it is done gradually on a technical level we have multiple switching lines disconnected regimes and a connected equilibrium set which borders on a switching iline and otherwise lies in a single region

buffer stocks and naive expectations in a non walrasian dynamic macromodel stability cyclicity and chaos in their pioneering work honkapohja ito 1980 constructed a non walrasian macromodel with inventory dynamics some of their assumptions are modified in this paper e g the expected demand for goods is defined by previous rather than actual demand the modified model yields results which are both similar and dissimilar to those of honkapohja and ito for example the keynesian unemployment equilibrium remains invariant but the corresponding stability condition becomes milder the chaotic behavior of the unstable systems is also analyzed