life cycle saving and dissaving in retirement abstract in a life cycle saving model with no bequest motive it is shown that aged persons may continue to accumulate wealth during the early years of retirement the key features of the model are the lack of borrowing opportunities and the recognition of empirically based mortality probabilities

the economic effects of social security toward a reconciliation of theory and measurement abstract in this paper we argue that actuarial valuation of social security benefit streams is theoretically inconsistent with the assumption of pure life cycle motives instead we show that the simple discounted value of future benefits ignoring the possibility of death is often a good approximation to the relevant concept of value this observation motivates a re examination of existing empirical evidence concerning the economic effects of social security we focus our attention on studies of distributional equity and personal saving behavior in both cases we argue that the use of simple rather than actuarial discounting of survival contingent income streams produces results that differ dramatically from previous findings specifically estimates based on actuarial valuation may overstate the importance of redistribution between and within generations and may understate the depressive effect of social security on personal wealth accumulation by a factor of three or more

is the firm an individual this paper shows how three new institutionalist theories try but ultimately fail to support the firm as individual thesis first marx hart s idea of property rights and coase williamson s notion of transaction costs are insufficient to substantiate the market firm dichotomy second hayek s constructionist view presents the firm as opposed to the market as a designed order no different from artifacts such as tables and cars third vanberg s constitutionalist theory also fails to support the firm as individual thesis the paper suggests that the consented goal notion is a fruitful ground upon which to build the firm as individual thesis

a model of imperfect competition with keynesian features the recent literature on the reappraisal of keynes has viewed keynesian equilibria as arising when prices are fixed and effective demands and supplies are equilibrated through the adjustment of quantities one problem with this approach is that it lacks a theory of price determination in particular of why prices are fixed in the present paper we show that a number of keynesian features arise in a model in which prices are fully flexible but where agents have some monopoly power one advantage of this approach is that it provides a theory of the determination of both prices and quantities

behind methodological individualism methodological individualism has become a more fashionable slogan for economistsin recent years in specific terms we are being urged to accept a doctrine within whichall explanations of social phenomena have to be couched in terms of statements aboutindividuals however the term has a wide and sometimes ambiguous usage and is beingemployed as a packaging for all kinds of methodological and theoretical prescriptions forexample it has been regarded as a commandment that thou shalt where possible placemacroeconomic statements on firm microeconomic foundations e g blaug 1980 or aninjunction against reckless aggregation particularly in regard to welfare criteria orsocial welfare functions e g kirzner 1980 littlechild 1978 or as an inspiration forrecent theoretical developments in economics with pro market policy conclusions e g furubotn and pejovich 1974 one of the further problems in discussing this topic is that often the term methodo logical individualism carries an ideological charge indeed by both advocates and itsopponents it is too frequently confused with individualism of a political variety however the connection between political and methodological individualism is merely assumed bythese supporters or critics or supported by cursory argument it is never demonstratedwith any rigour although there is a lack of uniformity in the use of the label it is argued here that the keyelement in the classic statements of methodological individualism is a refusal to examinethe institutional or other forces which are involved in the moulding of individual pref erences and purposes we are thus confronted with a remarkable optimism about thepossibility of explanation of social phenomena in terms of individuals but an extremereluctance to give even partial explanations of individual behaviour in social or evenpsychological terms this refusal is both dogmatic and as will be argued below unaccept able on analytical grounds this reduction of explanation and thereby causality solely to individuals has a furtherimplication the explanation of social phenomena proceeds even by a circuitous route

a life cycle consumption model with liquidity constraints theory and empirical results a structural consumption model incorporating endogenous liquidity constraints is fit to a cross section of 798 u s families liquidity constrained families are estimated to constitute 19 4 percent of the population sampled a group that accounts for 16 7 percent of consumption in the population sampled in sample simulations of the model suggest that a temporary tax has three to four times more impact on aggregate consumption than it would if liquidity constraints were not in effect copyright 1987 by the econometric society

aggregate structural macroeconomic analysis a reconsideration and defence aggregate structural macroeconomic analysis asma is frequently criticised for being ad hoc and justified if at all only as a pragmatic expedient this paper argues instead that asma is consistent with the principles of well established bodies of social theory appeal to these principles reveals that asma is adequate and likely even necessary for the successful prosecution of macroeconomic inquiry

the neoclassical trojan horse of steady state economics the vision of a steady state economy elaborated by herman daly describes an economy that uses materials and energy within the regenerative and assimilative limits of the planet s ecosystems sustainable scale just distribution and efficient allocation are its constitutive theoretical goals this paper is a critique of the theoretical foundations of steady state economics it argues that steady state economics consists in an attempt to squeeze neoclassical economics into a biophysical and ethical corset as a result many fundamental flaws and criticisms of neoclassical economics remain as a consequence steady state economics does not lead to a radical departure from or improvement upon neoclassical theory but rather to fundamental internal inconsistencies between the old economics paradigm and new progressive ecological economic thinking contradictions appear at various levels ranging from ontology and methodology to theory and values as daly has pioneered the foundations of ecological economics with his thinking these ambiguities are not only problematic for steady state economics but ecological economics as a field more generally the paper concludes that ecological economics has to let go of neoclassical foundations as they contradict its core values and ambitions a new and consistent theory of political economy of the environment along heterodox lines is needed

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

the microfoundations project in general equilibrium theory the author 1 argues that the long lived microfoundations project based on general equilibrium models has come to an end and 2 shows that non walrasian models intended to provide microfoundations for macroeconomics are inadequate the arguments are derived from the sonnenschein mantel debreu smd demonstration of the arbitrariness of aggregate excess demands in general equilibrium models of the walrasian arrow debreu mckenzie type the issues raised have significance for the proper method of modeling macroeconomic phenomena for instance the smd results have led a growing number of general equilibrium theorists to make assumptions concerning macroeconomic structure in order to analyze other regularities at the macro level these points validate the position that systematic macroeconomic phenomena are intrinsically macroeconomic copyright 1994 by oxford university press

the existence of equilibrium in discontinuous economic games i theory the article presents information about the existence of equilibrium in discontinuous economic games in this paper and its sequel presents study the existence of nash equilibrium in games where agents payoff functions are discontinuous the enquiry is motivated by a number of recent studies that have uncovered serious existence problems in seemingly innocuous economic games in the sequel to this paper authors have explained the utility function in the economic games referred to earlier are neither continuous nor quasi concave however they demonstrate that the payoff functions in mildly modified versions of these constructs exhibit two weaker forms of continuity which together with the requirement of quasi concavity suffice for the existence of an equilibrium from this one may conclude that at least in the modified versions of these models discontinuities in the payoff functions are not the real source of the problem rather it is the failure of the payoff functions to the quasi concave which is responsible for the non existence of equilibrium these observations bear on the existence of nash equilibrium in pure strategies

life cycle valuation of social security and pension wealth abstract the proper valuation of annuity wealth is important for many empirical studies of economic behavior and the distribution of wealth and well being this paper examines bernheim s argument that the value of social security benefit streams should be determined by simple discounting rather than by actuarial discounting when consumers behave according to life cycle principles in a model having a more realistic mortality structure than his we document the poor performance of both methods for a broad range of parameter values

transformations of the commodity space behavioral heterogeneity and the aggregation problem aggregation in exchange markets is studied by imposing restrictions on distributions of the households characteristics approximate bounds for market demand price elasticities that depend upon specific measures of behavioral heterogeneity are provided increasing behavioral heterogeneity makes aggregate expenditures more independent of prices this has strong consequences for the prevalence in the aggregate of the weak axiom of revealed preference of gross substitutability and on uniqueness and stability of the walrasian exchange equilibrium these strong macroeconomic regularities are obtained essentially through distributional assumptions as no rationality requirements are imposed on individual demand functions other than homogeneity and walras law journal of economic literature classification numbers d11 d41 d50 el 1992 academic press lnc there are still quite a few unpleasant gaps nowadays between macroanalysis and microanalysis of socioeconomic systems a leading instance drawn from social choice theory is arrow s celebrated impossibility theorem 1 which states that any attempt to aggregate individual preferences into a consistent social ordering or a collective choice procedure satisfying a few appealing requirements is bound to fail the impossibility arises however only if one insists that the procedure should work for every possible environment or in other words for all distributions of individual preferences a possible resolution of the problem is therefore to identify broad classes of distributions of preferences for which aggrega the bulk of the research reported in this paper was essentially done at yale university during the fall semester of 1990 i thank all my colleagues for their support and comments especially martin shubik herbert scarf and truman bewley i also had very useful conversations with jorgen weibull mike jerison andreu mas colell christian gouri6roux camille bronsard guy laroque bruno jullien and bernard caillaud i am much indebted to ai klevorick for his comments on an earlier draft but my greatest debt is to werner hildenbrand whose pioneering insights and stubborn insistance have over the years kept quite a few of us struggling beyond the fads of the moment with the aggregation problem our profession is fortunate indeed to have him around

multiplicity of equilibria and comparative statics conditions that guarantee the uniqueness of equilibrium in models of economic competition are crucial to applications of these models in exercises of comparative statics until now most of the attention given to the uniqueness question has been focused on pure exchange economies in this paper we use a topological index theorem to derive necessary and sufficient conditions for the uniqueness of equilibrium in economies with production unfortunately conditions that imply uniqueness appear to be too restrictive to have much applicability we argue for example that the only economically interpretable restrictions that imply uniqueness are either that the demand side of an economy behaves like a single consumer or that the supply side is an input output system our results suggest a need for reformulation of the comparative statics method

reallocation of production inputs in a monetary economy abstract this paper explains the return correlation between money and competing assets the coexistence puzzle and the effect of inflation on output as the model allows sellers to use lands as an input buyers portfolios can rebalance from money to land in response to inflation expanding sellers production which explains the positive correlation between output and inflation and the negative correlation between the return on money and land although the return on money is dominated by land both assets are used in equilibrium

the new keynesian view of aggregate demand some reflections from a classical sraffian standpoint the paper argues that the derivation of the aggregate demand curve in the new keynesian literature is insufficient to provide the theoretical ground for the use to which it is usually put namely as a theoretical basis for the claim that long run wage and price flexibility would push a capitalist economy to the full employment or natural level of output it is argued that the derivation solely on the basis of the propositions about optimising household consumption expenditures is insufficient to guarantee a decreasing aggregate demand function without circular reasoning this point is clarified by use of a very simple two commodity production model of long run steady states due to spaventa and nell to guarantee a decreasing aggregate demand function the new keynesian approach must invoke the kinds of propositions used in more traditional derivations propositions which themselves are in question on capital theoretic grounds

macroeconometric modeling and the theory of the representative agent the lucas critique of econometric policy evaluation 1976 argues that to the extent econometric models do not capture the primitive parameters of tastes and technology their coefficients can be expected to vary with changes in policy regimes several econometricians have undertaken empirical work that separates the parameters of tastes technology and policy estimating models that are in principle immune from this critique exemplary contributors to this effort have been thomas sargent 1978 and sargent and lars hansen 1980 the empirical work inspired by the lucas critique has proceeded using representative agent models and aggregate data the treatment of expectations and dynamic optimization has been careful although at times necessarily limited by the analytical requirements of attaining closed form solutions for dynamic programming problems under uncertainty potential problems due to aggregation have usually been ignored although when preferences and technology are quadratic it appears that they can be disposed of quickly assuming a representative firm is only a convenience as the model admits a tidy theory of aggregation sargent 1978 p 1016 it is ironic that a paradigm that emphasizes the isolation of the primitive parameters of tastes and technology has led to empirical work that has ben conducted almost exclusively with aggregate data there are exceptions t macurdy 1983 j biddle 1984 there are several difficulties with this development first the fact that representative agent models with exact aggregation can be constructed is unrelated to whether or not these models are adequate we can also construct models in which agents behavior is unaffected by the policy regime to exclusively model and test one but not the other appears to be a misplacement of emphasis second some of this work has proceeded using representative agents whose behavior cannot be aggregated exactly see m eichenbaum hansen and kenneth singleton 1984 for an example there is a third and most fundamental objection to empirical work which seeks to avoid the lucas critique yet uses aggregate data whenever econometric policy evaluation is undertaken using models estimated with aggregate data it is implicitly presumed that the aggregator function is structural with respect to the policy intervention in question formally aggregator functions are no more structural than are within regime reducedform relations of endogenous to policy variables as a modeling strategy ignoring the sensitivity of aggregators to policy changes seems no more compelling than ignoring the dependence of expectations on the policy regime this paper describes a very modest econometric model in which the effects of ignoring aggregation and of ignoring expectations each within the context of several representative agent models can be appreciated objective functions are quadratic and prices are disparate across agents in these respects the model s assumptions are in the mainstream of lucas and subsequent empirical work the model is carefully contrived so that exact aggregation is always possible this is not essential to the argument in any way but it drastically reduces the number of circumstances to be examined in constructing numerical examples the example pertains to neoclassical production and in each case there are three distinct representative agents one for production one for factor demand professor of economics duke university durham nc 27706 financial support from nsf grant ses8318778 and a sloan research fellowship are gratefully acknowledged a more detailed version of this paper is available on request from the author

the intrinsic limits of modern economic theory the emperor has no clothes assumptions of the uniqueness and stability of general equilibrium in a walrasian framework have no theoretical justification this paper argues that the key reason for this is that the walrasian model treats people as acting independently of one another especially in their demand behavior this independence plays an essential role in constructing economies with arbitrary excess demand functions thus making individual behavior dependent or similar may open the way to obtaining meaningful restrictions on aggregate excess demand functions copyright 1989 by royal economic society