sequential bargaining as a noncooperative foundation for walrasian equilibrium allocation are weakly preferred to those obtainable from the initial endowments by means of the given set of net trades these conditions are similar to ones studied by schmeidler and vind 1972 and vind 1978 but here they are thought of as characterizing the set of net trades available in steady state equilibria of market games like those studied by douglas gale 1984 1985 1986a 1986b and 1986c the characterization result is used as a key step in the proof of results like gale s the allocations induced by steady state equilibria are walrasian for the economy given by the constant flow of new agents into the market our approach generalizes the one followed in gale 1986c and allows us to dispense with assumptions made in previous treatments for example gale s 1986a assumption of dispersed characteristics is dropped we also demonstrate that such a result depends on the assumption that agents cannot observe the past behavior of agents with whom they trade

comparing policies to confront permit over allocation abstract instability in cap and trade markets particularly with respect to permit price collapses has been an area of concern for regulators to that end several policies including hybrid price quantity mechanisms and the newly introduced market stability reserve msr systems have been introduced and even implemented in some cases i develop a stochastic dynamic model of a cap and trade system parameterized to values relevant to the european union s emission trading system eu ets to analyze the performance of these policies aimed at adding stability to the system or at least at reducing perceived over allocations of permits results suggest that adaptive allocation mechanisms such as a price collar or msr can reduce permit over allocations and permit price volatility in a more cost effective manner than simply reducing scheduled permit allocations however it is also found that the performance of these adaptive allocation policies and in particular the msr are greatly affected by assumed discount rates and policy parameters

overlapping expectations and hart s conditions for equilibrium in a securities model hart j econ theory 9 1974 293 311 gave conditions for equilibrium to exist in a securities model where each agent undertakes asset transactions to maximize expected utility of wealth these conditions rule out agents wanting to undertake unbounded balanced transactions to reach a pareto superior allocation given their expectations with mild extra assumptions to make agents unwilling to risk incurring unbounded losses on their portfolios hart s conditions become equivalent to an assumption of overlapping expectations which is comparable to a much weaker form of green s common expectations econometrica 41 1973 1103 1124

policy reform and productivity change in chinese agriculture a distance function approach abstract agricultural policy reform has been an important source of change in the chinese agricultural sector the reforms led to productivity growth and helped china to pursue its self sufficiency goal especially in the grain sector in order to analyze whether observable productivity growth stems from technologically induced components or from the market induced parts a multi input multi output model is derived by using an econometric distance function framework a decomposition allows to distinguish allocative effects scale effects technological change and technical efficiency change data on farms in zhejiang from 1986 to 2000 are used to analyze the impact of policy reform

dynamic supply adjustment and banking under uncertainty in an emission trading scheme the market stability reserve abstract we study the impact of a supply management mechanism smm similar to the market stability reserve proposed in 2015 which preserve the overall emissions cap and we comment on the recent cap changing amendments we provide an analytical description of the conditions under which an smm alters the emissions abatement paths affecting the expected length of the banking period and its variability while abatement strategies of risk neutral firms solely depend on the former for risk averse firms changes in the latter would lead to higher risk premia accelerated depletion of the bank and consequently further reduction of abatement and allowance prices cancellation of part of the reserve could partially outweigh the effect on risk premia sustaining allowance prices

an expository note on individual risk without aggregate uncertainty abstract in economies where agents bear some risk the analysis would often be facilitated by the assumption that the risks are i i d and disappear in the aggregate a formal appeal to the law of large numbers requires the consideration of a sequence of finite economies in an economy with a continuum of agents there are countable families of sets for which it is impossible for a law of large numbers to be valid with countably many agents and a finitely additive measure independence is compatible with the law of large numbers

a caveat on the measurement of productive efficiency abstract the correspondence between used performance measures and enterprise objectives such as profit maximization and cost minimization is fundamental for manufacturing companies this paper identifies and critically examines a minimal set of relevant properties that a productivity index needs to satisfy to rightly assess performance development of a decision making unit commonly applied and suggested productivity measurement techniques such as partial efficiencies total factor productivity tfp index number approaches integrated partial efficiencies and operational competitiveness ratings are analyzed in order to assess the alignment with superior objectives there is a considerable spread in the results of this class of models and the interpretation may prove difficult or misleading as these apparently less complicated productivity measures increasingly are employed as a component in evaluation of manufacturing efficiency the question is of high managerial relevance in particular the paper points out inconsistencies with properties related to commensurability monotonicity and implications of maximizing behavior based on this viewpoint issues such as the consistency with profit maximization will be shown extra interest the paper also provides a critique of previous work in non parametric efficiency analysis where properties have been postulated or based on other arguments the findings suggest that there is no globally superior measurement technique to be found in this class and that care should be taken when evaluating managerial performance not to penalize rational behavior

arbitrage and the flattening effect of large numbers abstract in a model of an exchange economy with a continuum of individuals we show that competitive equilibrium can be regarded as resulting from the elimination of arbitrage opportunities generically the elimination of such opportunities results in a phenomenon we call the flattening effect of large numbers the flattening effect provides a precise meaning to the statement that under perfect competition individuals cannot influence prices they face perfectly elastic demands and supplies the attractive geometry associated with arbitrage and the flattening effect is highlighted in several figures we also link the demonstration of equilibrium through arbitrage with the logic of marginalism journal of economic literature classification number d51

asset market equilibrium with short selling this paper presents simple conditions and a simple proof of the existence of equilibrium in asset markets where short selling is allowed and satiation is possible unlike standard non satiation assumptions the one used here is weak enough to be reasonable in the mean variance capital asset pricing model and in asset market models where investors maximize expected utility and where total returns to individual assets may be negative this paper analyses the existence of equilibrium in exchange economy models where choice sets may be unbounded below and satiation is likely there are two main examples of such models one is an asset market model where investors maximize expected utility and the total return to individual assets may be negative with positive probability the other is the mean variance capital asset pricing model capm where investors do not necessarily maximize expected utility but instead maximize a function of only the mean and variance of return to their portfolios in both of these models the investors choice sets will be unbounded if short selling is allowed to short sell a share of an asset means to borrow it and sell it promising to buy it back and return it to the lender at a later date formally short selling corresponds to holding a negative number of shares if unlimited short selling is allowed then there is no limit to how large negative numbers of shares can be held and therefore the choice sets are unbounded satiation can also occur both in the mean variance model and in the expected utility model unless there is a riskless asset in the expected utility model there may be satiation if the individual assets have negative returns with positive probability as the investor gets more and more shares the potential positive returns get larger and larger but so do the potential negative returns if the investor is very averse to large negative returns then he may eventually be satiated and not want any more shares in the mean variance model the expected return to an investor s portfolio increases as he holds more and more shares of the assets but so does the variance of return it may be that at some point the additional expected return gained from adding more shares to the portfolio is not sufficient to compensate for the increase in variance if so then there will be satiation satiation in the mean variance model iie analysed in nielsen 1987 1988 the expected utility model with short selling has been used in many specific analyses of portfolio selection and asset pricing to name but one connor 1984 studies arbitrage pricing in a general equilibrium model where there are no short sales restrictions the mean variance capm is of course very prominent in the finance literature because the

bargaining and value we present and analyze a model of noncooperative bargaining among n participants applied to situations describable as games in coalitional form this leads to a unified solution theory for such games that has as special cases the shapley value in the transferable utility tu case the nash bargaining solution in the pure bargaining case and the recently introduced maschler owen consistent value in the general nontransferable utility ntu case moreover we show that any variation in a certain class of our bargaining procedure which generates the shapley value in the tu setup must yield the consistent value in the general ntu setup

analysis of environmental efficiency variation in this article we develop and implement a methodology for analyzing the sources of variation in environmental efficiency across producers we formulate a two stage model in the first stage we use stochastic frontier analysis to estimate both technical and environmental efficiency in the second stage we again use stochastic frontier analysis to regress estimated environmental efficiency scores against a variety of technology physical environment and management variables in this stage we estimate the impact of each explanatory variable on environmental efficiency and we derive conditional estimates of environmental efficiency from the one sided error component we illustrate our methodology with an empirical application to a panel of dutch dairy farms we find evidence of relatively low levels of environmental efficiency and we find that environmental efficiency can be improved through a number of policy options including the provision of farmers with more insight into the nutrient balance of their farms

fairness price stickiness and history dependence in decentralized trade this chapter investigates the implications that social preferences have for the stationary strategic equilibrium of such a decentralized market agents are supposed to be averse to unfairly unfavorable as well as unfairly favorable deals in the spirit of fehr and schmidt 1999 but we stay rather close to standard individualistic preferences the negative weights on advantageous and disadvantageous deviations from what is considered as the fair benchmark are such that utility remains strictly increasing in own surplus share and in contrast to the original fehr schmidt model the fair split need not automatically be a 50 50 division any price between sellers cost and buyers willingness to pay may be the one which for whatever reasons is agents reference point in a given market this makes it possible to consider a more flexible notion of fairness than is usually done it is in line with cognitive dissonance theory from psychology and the noteworthy experiments of binmore et al 1991 1993 where subjects who were triggered to play different bargaining equilibria ended up considering very different surplus distributions as fair

bargaining and markets complexity and the competitive outcome abstract rubinstein and wolinsky rev econ stud 57 1990 63 78 consider a simple decentralised market game in which agents meet randomly or voluntarily and bargain over the terms of trade they show that any individually rational price can be sustained as a sequential equilibrium even though the model has a unique competitive outcome here i consider rubinstein and wolinsky s model and show that if complexity costs of implementing strategies enter players preferences together with the standard payoff in the game then every equilibrium is stationary markov and induces the unique competitive price thus i demonstrate that aversion to complexity may provide a justification for the competitive outcome

competitive behavior in market games evidence and theory we explore whether competitive outcomes arise in an experimental implementation of a market game introduced by shubik 1972 market games obtain pareto inferior strict nash equilibria in which some markets are closed we find that subjects do not coordinate on autarkic nash equilibria but favor more efficient nash equilibria in which all markets are open as the number of subjects participating in the market game increases the nash equilibrium they achieve approximates the associated walrasian equilibrium of the underlying economy motivated by these findings we investigate theoretically whether evolutionary forces lead to walrasian outcomes in market games we introduce a strong version of evolutionary stable strategies sess f orfinite populations our concept requires stability against deviations by coalitions of agents a small coalition of trading agents is sufficient for pareto improving trade to be generated in addition provided that agents lack market power nash equilibria corresponding to approximate competitive outcomes constitute the only approximate sess

price quantity strategic market games this paper is yet another in a rapidly growing series e g 2 11 on strategic approaches to economic equilibrium our aim here is to make precise the remark implicitly due to bertrand 1 or 10 ch 4 5 that if the agents in an economy use price setting strategies then the strategic nash equilibria will in fact be walrasian and this without any assumption of a large number of small agents however in our models not only prices but also quantities are set by the agents thus it might actually be more appropriate to call them bertrand cournot types of models we begin with a standard walras exchange economy with a finite number of traders and commodities this is recast as a game in strategic form in essentially two different ways there is a trading post for each commodity to which traders send contingent statements about how much they wish to buy and sell and at what prices in model 1 the trading point is determined by the intersection of the aggregate supply and demand curves in model 2 trade takes place so as to meet as many contingent statements as possible each buyer whose orders are filled pays the price he quoted using a fiat money which can be borrowed costlessly and limitlessly but after trade is over there is a settlement of accounts and a penalty is levied on those who are bankrupt no attempt is made to model the penalty in any detail it is simply described in the form of a disutility but this in turn may be imagined to stem from confiscation of assets see remark 5 or the necessity of procuring highly priced loans etc call a noncooperative equilibrium active if it turns out that no trader is isolated i e trapped as the sole buyer or seller at some trading post then our results may be described as follows in model 1 the active2 n e of the game coincide with the c e of the market furthermore there is a subset of tight active n e which also coincide with the c e and each n e in this subset is strong

dynamic matching and bargaining games a general approach this paper presents a new characterization result for competitive allocations in quasilinear economies this result is informed by the analysis of non cooperative dynamic search and bargaining games such games provide models of decentralized markets with trading frictions a central objective of this literature is to investigate how equilibrium outcomes depend on the level of the frictions in particular does the trading outcome become walrasian when frictions become small existing specifications of such games provide divergent answers the characterization result is used to investigate what causes these differences and to generalize insights from the analysis of specific search and bargaining games

perfect competition and the core it is part of the conventional wisdom of economics that a mass market i e one with many relatively small participants will tend to be perfectly competitive one possible meaning of this is that it will behave as if prices were quoted and taken as given by the traders the final allocation of goods and services is then called walrasian there are at least two classical formal theories of perfect competition they can be associated with the names of cournot 1838 and edgeworth 1881 edgeworth s contribution has led to the modern theory of the core of a market see debreu scarf 1963 aumann 1964 and hildenbrand 1974 and his references its central result the core equivalence theorem states conditions under which in a mass economy competition in the sense of edgeworth yields at equilibrium walrasian allocations the extension to general equilibrium analysis of cournot s partial equilibrium model is currently being actively pursued gabzewicz vial 1972 hart 1979 1980 shubik 1973 novshek sonnenschein 1978 see also the april 1980 symposium issue of the journal of economic theory by now a variety of cournot equivalence theorems is available there is substantial but not complete overlap between the set of conditions identified as important by the edgeworth and the cournot type analysis by and large both approaches have proved to be useful tools for testing the competitiveness of some theoretical market situations for example differentiated commodities models have been analyzed in mas colell 1975 from the point of view of the core and in hart 1979 from the cournot perspective for yet another approach with a classical foundation to the theory of perfect competition see j ostroy 1980 it is probably fair to say that the economics profession at large thinks of perfect competition more in cournot s than in edgeworth s terms the purpose of this paper is to make the case for the core in the light of some of the issues raised by the recent cournot analysis we will try to argue that the edgeworth notion of competition yields a quite sensible concept and a very flexible tool and that not surprisingly edgeworth and cournot competition are close relatives once properly viewed by way of motivation it will be useful to begin by examining and commenting on four points of real or apparent contrast between the two approaches

the spanish beef sector in the 1990s impact of the bse crisis on efficiency and profitability the beef sector has undergone a series of changes as a result of successive food scares and agricultural policy reforms the purpose of the paper is to analyse technical efficiency and profitability in spanish livestock enterprises during the 1990s focusing on the possible impact of the bse crisis and the 1992 cap reform on each of these variables the main findings reveal the existence of technical inefficiency during the sample period some factors have a positive impact others a negative impact on efficiency as far as the effects of cap reform and the bse crisis are concerned the results show the ineffectiveness of agricultural policy regulation to promote efficiency in the sector and the improvement in the efficiency as a consequence of the bse crisis the profitability analysis reveals the importance of direct subsidies however in their absence a large percentage of holdings is unable to remunerate either own or rented factors analysis shows therefore that there are two counteracting effec

bargaining in dynamic markets abstract we study non stationary markets in which traders are randomly matched to bargain over the price of a heterogeneous good or the terms of a partnership the economy consists of a continuum of players drawn from a finite set of types players exogenously enter the market over time and exit upon trading at every date matching probabilities for each pair of types are determined by the endogenous distribution of trader types in the market the balance of bargaining power at any stage depends on variations in potential gains from trade the inflows of new traders the structure of agreements at future dates and the induced frequency of trading opportunities we establish that an equilibrium always exists moreover all equilibria that lead to the same evolution of the economy are payoff equivalent however we show that multiple self fulfilling expectations about the trajectory of the economy generating distinct equilibrium dynamics and payoffs may coexist

walrasian allocations without price taking behavior abstract consider an exchange economy where agents are arbitragers in that they try to upset allocations imagining plausible beneficial trades with an introspective algorithm each agent constructs an interactive choice set ics i e a set of bundles that he considers achievable through a sequence of plausible trades with other agents we show that walrasian allocations can be characterized as those where each agent chooses optimally from his ics which is always contained in a budget set with differentiability both sets coincide our analysis provides a different behavioral assumption underlying walrasian allocations offers an explanation for the source of competitive prices and connects with the core convergence theorem journal of economic literature classification numbers d00 d51

equilibrium in a market with sequential bargaining this paper considers a market where pairs of agents who are interested in carrying out a transaction are brought together by a stochastic process and upon meeting initiate a bargaining process over the terms of the transaction the basic bargaining problem is treated with the strategic approach the paper derives the steady state equilibrium agreements analyzes their dependence on market conditions such as the relative numbers of agents of different types and discusses their relations with the competitive equilibrium outcome and other results in the search equilibrium literature this paper considers a market that operates in the following way pairs of agents who have mutual interest in carrying out a transaction are brought together by a stochastic process when two agents meet they initiate a bargaining process over the terms of the transaction if two agents reach an agreement a transaction takes place and they leave the market of course the bargaining positions and hence the agreement reached in any particular meeting will be affected by the conditions prevailing in the market these will include the chances that each of the negotiating parties have of meeting other partners in the event that the agreement in the current negotiations is delayed also the expected length of time required to achieve an alternative transaction and the expected behavior of alternative partners the study of such a market mechanism is of interest for two reasons firstly it captures some realistic aspects of the trade in certain specific markets e g asset markets such as housing and some labor markets secondly it contributes to an understanding of the micro mechanisms of price formation and their role in shaping market outcomes in both cases the features studied are largely neglected in the traditional market equilibrium analyses the related literature includes the articles by diamond 4 5 diamond and maskin 6 mortensen 8 9 and zusman and bell 13 these articles consider markets of the type described above in which transactions are concluded at pairwise meetings of agents the major difference between our work and these articles is in the approach to the basic bargaining problem in the cited articles it is assumed that a meeting is concluded with an instantaneous agreement which divides the associated surplus in an arbitrary predetermined way when the surplus is assumed to be divided equally the division rule is in fact nash s axiomatic bargaining solution in contrast the present paper treats the basic bargaining problem with the strategic approach see rubinstein 19 which constitutes an attempt to look into the bargaining black box this approach explicitly models the time dimension of the bargaining process describes in detail the bargaining procedure and justifies the agreement as a perfect equilibrium in

overlapping efforts in the eu emissions trading system abstract according to the phase iv 2021 2030 rules of the eu ets the total amount of emission permits allocated to firms is not fixed but endogenous this implies that a national climate policy that overlaps with the ets can have an impact on total aggregate emissions roughly speaking if firms increase their holdings of emission permits the total amount of permits allocated is reduced this paper analytically investigates how an overlapping national policy affects the aggregate bank of emission permits if marginal abatement costs are not too convex national climate policies increase banking and thus tend to reduce overall emissions

dynamic matching two sided incomplete information and participation costs existence and convergence to perfect competition consider a decentralized dynamic market with an infinite horizon and participation costs in which both buyers and sellers have private information concerning their values for the indivisible traded good time is discrete each period has length and each unit of time continuums of new buyers and sellers consider entry traders whose expected utility is negative choose not to enter within a period each buyer is matched anonymously with a seller and each seller is matched with zero one or more buyers every seller runs a first price auction with a reservation price and if trade occurs both the seller and the winning buyer exit the market with their realized utility traders who fail to trade continue in the market to be rematched we characterize the steady state equilibria that are perfect bayesian we show that as converges to zero equilibrium prices at which trades occur converge to the walrasian price and the realized allocations converge to the competitive allocation we also show the existence of equilibria for sufficiently small provided the discount rate is small relative to the participation

provision of environmental output within a multi output distance function approach this paper redefines technical efficiency by incorporating provision of environmental goods as one of the outputs of the farm the proportion of permanent and rough grassland to total agricultural land area is used as a proxy for the provision of environmental goods stochastic frontier analysis was conducted using a bayesian procedure the methodology is applied to panel data on 215 dairy farms in england and wales results show that farm efficiency rankings change when provision of environmental outputs by farms is incorporated in the efficiency analysis which may have important political implications

assessing the implementation of the market stability reserve abstract in october 2015 the european parliament has established a market stability reserve msr in the phase 4 of the eu ets as part of the 2030 framework for climate policies in this paper we model the eu ets in presence of the market stability reserve msr as it is defined by that decision and investigate the impact that such a measure has in terms of permits price output production and banking strategies to do so we build an inter temporal model in which polluting firms competing in an homogeneous good market are price takers in a permits market and face an uncertain demand our main finding is that the msr succeeds in increasing the permits price correcting an excess supply and conversely decreasing it in case of excess demand however when the output demand is stochastic the msr may alter the arbitrage conditions that determine permits prices in some cases which depend on the extend of the demand variation unintended effects on the price pattern appear this in turns may adversely affect welfare

what s wrong with the fundamental existence and welfare theorems abstract the definition of walrasian competitive equilibrium on which the fundamental existence and welfare theorems rest assumes that all trading in decentralized exchange economies takes place at the final equilibrium prices which further implies that at equilibrium prices the value of each agent s equilibrium commodity bundle is equal to the value of her endowment and equal treatment of agents with the same preferences technology and endowment the logic of the theorems supports the conclusion that in competitive economies prices the allocation of commodities and the distribution of income and material welfare are determined by the preferences technology and endowments of the agents in real world markets however agents can discover equilibrium prices only by making mutually advantageous transactions at disequilibrium prices any sequence of such transactions leads stably to an exchange equilibrium at which the offer prices of all agents are close to each other and which exhausts all private opportunities to realize economic surpluses the exchange equilibrium set however is in general a continuum and the exact equilibrium reached depends on the path of transactions in general exchange equilibria do not treat agents with the same preferences and endowments equally and the exchange equilibrium allocation of commodities does not conserve the values of individual agent endowments existence and stability of exchange equilibrium are transparent consequences of the logic of voluntary exchange but because of transaction path dependence equilibrium prices allocations of commodities and the distribution of wealth and economic welfare are not determined by agents preferences and endowments

stochastic cascades credit contagion and large portfolio losses abstract we analyze an interactive model of credit ratings where external shocks spread by a contagious chain reaction to the entire economy counterparty relationships along with discrete adjustments of credit ratings generate a transition mechanism that allows the financial distress of one firm to spill over to its business partners the spread of financial distress constitutes a source of intrinsic risk for large portfolios of credit sensitive securities that cannot be diversified away we provide a characterization of the fluctuations of credit ratings in large economies when adjustments follow a threshold rule and analyze the effects of downgrading cascades on credit portfolios

decomposition of productivity growth using distance functions the case of dairy farms in three european countries within an output distance function framework the total factor productivity growth index is decomposed into four components technical change technical and allocative efficiency and scale component we estimate stochastic translog output distance functions using panel data from dairy farms over the period 1991 94 for three european countries germany the netherlands and poland results indicate that the change in the productivity growth index in germany 6 and poland 5 are mainly dictated by the technical change component in contrast the productivity growth index in the netherlands 3 is influenced by allocative efficiency components

the economics of pollution permit banking in the context of title iv of the 1990 clean air act amendments abstract this paper presents a model of the collective emission permit banking behavior of electricity generating units affected by title iv of the clean air act amendments of 1990 a rigorous treatment of the constraint that pollution permits cannot be borrowed from future allocations is introduced this approach enables an analysis of the impact of future changes in electricity demand regulations and technologies on the present permit price and emissions level the effect of uncertainty on the banking behavior is also explored

multilateral productivity comparisons when some outputs are undesirable a nonparametric approach multilateral productivity comparisons of firms producing multiple outputs some of which are undesirable are obtained by making two modifications to the standard farrell approach to efficiency measurement the restriction that production technology satisfy strong disposability of outputs is relaxed to allow for the fact that undesirable outputs may be freely disposable and the efficiency measures are modified to allow for an asymmetric treatment of desirable and undesirable outputs performance measures that satisfy these requirements are calculated as solutions to programming problems the methodology is applied to a sample of mills producing paper and pollutants

on the evolution of attitudes towards risk in winner take all games abstract a long standing conjecture is that winner take all games such as patent races lead to the survival of risk takers and the extinction of risk averters in many species a winner take all game determines the males right to reproduce and the same argument suggests that males will evolve to be risk takers psychological and sociological evidence buttresses the argument that males are more risk taking than females using an evolutionary model of preference formation we investigate to what extent evolution leads to risk taking in winner take all environments journal of economic literature classification numbers c7 d8

arbitrage and the existence of competitive equilibrium a general equilibrium model of markets for commodities and assets is considered the author develops the notion of a price system that admits no arbitrage opportunity and demonstrates the fundamenta l role of this concept for the theory of the existence of a competiti ve equilibrium a price system admits no arbitrage opportunity for a consumer if every bundle of desired commodities has a positive market value the author proves that the existence of a price system that a dmits no arbitrage opportunity for all consumers is sufficient for th e existence of an equilibrium copyright 1987 by the econometric society

lack of recall and centralized monetary trade we introduce lack of recall of past transactions as an alternative assumption to anonymity in a model where trade is centralized in environments where there is an intertemporal lack of double coincidence of wants problem and lack ofcommitment lack of recall can give rise to monetary equilibria that dominate nonmonetary outcomes in terms of welfare

perfect competition and the creativity of the market from the perspective of the walrasian general equilibrium model entrepreneurial and opportunistic behavior seems foreign can the model be refashioned so that it can accommodate such behavior many would say no but we argue the contrary indeed we present a reformulation of the model that serves as a gateway to rather than a detour from such contemporary issues as innovation and incentives the trick is to reexamine what perfect competition means starting with an historical summary of general equilibrium we sketch an image of the perfect competitor as an active market opportunist seeking out profit potentials wherever he can

a model of intertemporal emission trading banking and borrowing abstract this paper provides a general treatment of emission trading banking and borrowing in an intertemporal continuous time model using optimal control theory the decentralized behavior of firms is shown to lead to the least cost solution attainable under joint cost minimization explicit solutions for the time paths of emissions and permit prices are derived when firms are allowed to both bank and borrow and when firms are only allowed to bank emission permits the policy implications of emission banking and borrowing are discussed

complexity and competition extensive form market games typically have a large number of noncompetitive equilibria in this paper we argue that the complexity of noncompetitive behavior provides a justification for competitive equilibrium in the sense that if rational agents have an aversion to complexity at the margin then maximizing behavior will result in simple behavioral rules and hence in a competitive outcome for this purpose we use a class of extensive form dynamic matching and bargaining games with a finite number of agents in particular we consider markets with heterogeneous buyers and sellers and deterministic exogenous sequential matching rules although the results can be extended to other matching processes if the complexity costs of implementing strategies enter players preferences lexicographically with the standard payoff then every equilibrium strategy profile induces a competitive outcome

efficiency in new zealand sheep and beef farming the impacts of regulatory reform in this study we consider the impacts of dramatic regulatory reform during the 1980s on the efficiency of farms in new zealand using unbalanced panel data a translog distance function representing the multiple output and input technology and incorporating nonneutral regulatory impacts is used for the analysis determinants of technical inefficiency including a regulatory variable a time term and a debt equity ratio are also incorporated in a one step model estimated by maximum likelihood stochastic production frontier methods we find evidence of regulatory induced changes in output composition toward beef and deer and away from wool and especially lamb but little associated technical inefficiency these patterns motivated investment in complementary capital land and beef deer livestock inputs firms that were more flexible in their adaptation toward these new mixes adjusted to regulatory changes with less upheaval so any existing inefficiency appears linked to debt equity levels

emissions trading systems with cap adjustments abstract emissions trading systems etss with fixed caps lack provisions to address systematic imbalances in the supply and demand of permits due to changes in the state of the regulated economy we propose a mechanism which adjusts the allocation of permits based on the current bank of permits the mechanism spans the spectrum between a pure quantity instrument and a pure price instrument we solve the firms emissions control problem and obtain an explicit dependency between the key policy stringency parameter the adjustment rate and the firms abatement and trading strategies we present an analytical tool for selecting the optimal adjustment rate under both risk neutrality and risk aversion which provides an analytical basis for the regulator s choice of a responsive ets policy

perfect competition in the continuous assignment model abstract this paper provides a rigorous formalization in the context of the transferable utility assignment model of perfect competition as the inability of individuals to favorably influence prices the central tool for the analysis is the social gains function the central issue is differentiability of the gains function with respect to the population seven conditions are shown to be equivalent to perfect competition perfect competition and imperfect competition are possible for both finite and continuum assignment economies but most finite economies are imperfectly competitive while most continuum economies are perfectly competitive however most large finite assignment economies are approximately perfectly competitive journal of economic literature classification numbers c61 c62 c78

continuum economies with finite coalitions core equilibria and widespread externalities abstract we develop a new model of a continuum economy with coalitions consisting of only finite numbers of agents the core called the f core is the set of allocations that are stable against improvement by finite coalitions and feasible by trade within finite coalitions even with widespread externalities preferences depend on own consumptions and also on the entire allocation up to the null set we obtain the result that the f core coincides with the walrasian allocations without widespread externalities the f core the aumann core and the walrasian allocations all coincide however with widespread externalities there is no obvious natural definition of the aumann core

endogenizing the cap in a cap and trade system assessing the agreement on eu ets phase 4 in early 2018 a reform of the world s largest functioning greenhouse gas emissions cap and trade system the eu emissions trading system ets was formally approved the reform changed the main principles of the system by endogenizing the emissions cap we show that the emissions cap is now affected by the allowance demand and is therefore no longer set directly by eu policymakers as a consequence national policies that reduce allowance demand can now reduce long run cumulative emissions which is not possible in a standard cap and trade system using a newly developed dynamic model of the eu ets we show that policies that reduce allowance demand can have substantial effects on cumulative emissions after the reform model simulations also suggest that the reform reduces long run cumulative emissions and to a lesser extent reduces emissions in the short run even so the reform has a small short run impact on the currently large allowance surplus

markov equilibria in dynamic matching and bargaining games abstract rubinstein and wolinsky rev econ stud 57 1990 63 show that a simple homogeneous market with exogenous matching has a continuum of non competitive perfect equilibria however the unique markov perfect equilibrium of this model is competitive by contrast in the more general case of heterogeneous markets even the markov property is not enough to guarantee the perfectly competitive outcome we define a market game that allows for heterogeneous values on both sides of the market and exhibit a number of examples of non competitive markov perfect equilibria with and without discounting unlike the homogeneous case these equilibria allow for inefficient trades and for trade at non uniform prices the non competitive equilibrium may be unique

econometric estimation of technical and environmental efficiency an application to dutch dairy farms in this article we estimate the technical and environmental efficiency of a panel of dutch dairy farms nitrogen surplus arising from the application of excessive amounts of manure and chemical fertilizer is treated as an environmentally detrimental input a stochastic translog production frontier is specified to estimate the output oriented technical efficiency environmental efficiency is estimated as the input oriented technical efficiency of a single input the nitrogen surplus of each farm the mean output oriented technical efficiency is rather high 0 894 but the mean input oriented environmental efficiency is only 0 441 intensive dairy farms are both technically and environmentally more efficient than extensive farms

convergence to perfect competition of a dynamic matching and bargaining market with two sided incomplete information and exogenous exit rate abstract consider a decentralized dynamic market with an infinite horizon and incomplete information in which buyers and sellers values for the traded good are private and independently drawn time is discrete each period has length and each unit of time a large number of new buyers and sellers enter the market within a period each buyer is matched with a seller and each seller is matched with zero one or more buyers every seller runs a first price auction with a reservation price and if trade occurs the seller and winning buyer exit with their realized utility traders who fail to trade either continue in the market to be rematched or exit at an exogenous rate we show that in all steady state perfect bayesian equilibria as approaches zero equilibrium prices converge to the walrasian price and realized allocations converge to the competitive allocation

subgame perfect implementation this paper examines the use of stage mechanisms in implementation problems and provides a partial characterization of the set of subgam e perfect implementable choice rules it is shown that in many economic environments virtually an y choice rule can be implemented to illustrate the power of this approach the paper discusses a number of models in which it is possible to implement the first best although it wouldn t have been possible to do so without using stage mechanisms the diversity of these models suggests that subgame perfect implementation may find wide application copyright 1988 by the econometric society

do renewable energy policies reduce carbon emissions on caps and inter industry leakage abstract in a parsimonious two sector general equilibrium model we challenge the widely held tenet that within a cap and trade system renewable energy policies have no effect on carbon emissions if the cap does not capture all sectors we demonstrate that variations of a renewable energy subsidy change aggregate carbon emissions through an inter industry leakage effect we decompose this effect into intuitively intelligible components that depend in natural ways on measurable elasticity parameters raising the subsidy always reduces emissions if funded by a lump sum tax reinforcing recent findings that tightening environmental regulation can cause negative leakage however if the subsidy is funded by a levy on electricity it can increase emissions these results provide a valuable basis for an informed design of renewable energy policies and an accurate assessment of their effectiveness we highlight how a state of the art statistic used by governments to gauge such effectiveness virtual emission reductions is biased because inter industrial leakage effects are not captured

the communication requirements of social choice rules and supporting budget sets the paper examines the communication requirements of social choice rules when the sincere agents privately know their preferences it shows that for a large class of choice rules any minimally informative way to verify that a given alternative is in the choice rule is by verifying a budget equilibrium i e that the alternative is optimal to each agent within a budget set given to him therefore any communication mechanism realizing the choice rule must find a supporting budget equilibrium we characterize the class of choice rules that have this property furthermore for any rule from the class we characterize the minimally informative messages budget equilibria verifying it this characterization is used to identify the amount of communication needed to realize a choice rule measured with the number of transmitted bits or real variables applications include efficiency in convex economies exact or approximate surplus maximization in combinatorial auctions the core in indivisible good economies and stable many to one matchings

exploring the limits for co2 emission abatement in the eu power and industry sectors awaiting a breakthrough this study assesses the prospects for presently available abatement technologies to achieve significant reductions in co2 emissions from large stationary sources of co2 in the eu up to year 2050 the study covers power generation petroleum refining iron and steel and cement production by simulating capital stock turnover scenarios that assume future developments in the technology stock energy intensities fuel and production mixes and the resulting co2 emissions were generated for each sector the results confirm that the eu goal for reductions in greenhouse gas emission in the sectors covered by the eu emission trading system i e 21 reduction by 2020 as compared to the levels in 2005 is attainable with the abatement measures that are already available however despite the optimism regarding the potential for and implementation of available abatement strategies within current production processes our results indicate that the power and industrial sectors will fail to comply with more stringent reduction targets in both the medium term 2030 and long term 2050 deliberate exclusion from the analysis of mitigation technologies that are still in the early phases of development e g co2 capture and storage provides an indirect measure of the requirements for novel low carbon technologies and production processes

on equilibrium in hart s securities exchange model in this paper we use a no unbounded arbitrage condition to give a very direct proof of the existence of equilibrium in hart s unbounded securities exchange model j econ theory 9 1974 293 311 we also examine the relationship between the no unbounded arbitrage condition and the sufficiency conditions of hart ibid and hammond j econ theory 31 1983 170 175 we present an example to show that if traders are not sufficiently risk averse then hammond s overlapping expectations condition is not in general equivalent to the no unbounded arbitrage condition or hart s sufficiency conditions and therefore is not sufficient to guarantee the existence of equilibrium we also present an example to show that it is possible for the no unbounded arbitrage condition to hold without overlapping expectations and therefore it is possible for equilibrium to exist without overlapping expectations

decentralized markets and endogenous institutions this paper is concerned with decentralized models of market equilibrium in which the primary interest lies in the nature of the institutions that govern trade there are two separate branches in this literature in the first the institutions that govern trade are taken to be given exogenously the primary motivation for models in this class is essentially the study of comparative institutions in particular the papers are interested in whether there are specific institutions that will generate walrasian prices and allocations approximately when transactions costs are small in the second branch of the literature the institutions that govern trade themselves are made endogenous these models characterize the nature of these endogenously generated institutions and examine their efficiency in environments where transactions costs are small

an activity analysis model of the environmental performance of firms application to fossil fuel fired electric utilities the productivity of firms when some outputs pollution are undesirable has been studied in the literature for some time in this paper we introduce an environmental performance indicator based on the decomposition of overall factor productivity into a pollution index and an input output efficiency index this indicator is compared to the more conventional jaggi and freedman 1992 model results are given for illustrative purposes using data from u s fossil fuel fired electric utilities the rankings of the utilities obtained with the two models show significant divergence which is due to the different ways in which the undesirable outputs are dealt with as well as due to the different possible tradeoffs between the pollutants released into the atmosphere and the resources used as inputs

retrading in market games when agents are not price takers they typically cannot obtain an efficient real location of resources in one round of trade this paper presents a non cooperative model of imperfect competition where agents can retrade allocations consistent with edgeworth s idea of recontracting we show a there are pareto optimal allocations including competitive equilibrium allocations that can be approximated arbitrarily closely when trade is myopic i e when agents play a static nash equilibrium at every round of retrading b any converging sequence of allocations generated by myopic retrading can be supported along some retrade proof subgame perfect equilibrium path when traders anticipate future rounds of trading

technical efficiency of european railways a distance function approach this study has two principal objectives the first objective is to measure and compare the performance of european railways the second objective is to illustrate the usefulness of econometric distance functions in the analysis of production in multioutput industries where behavioural assumptions such as cost minimization or profit maximization are unlikely to be applicable using annual data on 17 railways companies during 1988 1993 multioutput distance functions are estimated using corrected ordinary least squares cols the resulting technical efficiency estimates range from 0 980 for the netherlands to 0 784 for italy with a mean of 0 863 the distance function results are also compared with those obtained from single output production functions where aggregate output measures are formed using either total revenue or a tornqvist index the results obtained indicate substantial differences in parameter estimates and technical efficiency rankings casting significant doubt upon the reliability of

competitive bargaining equilibrium in a simple exchange economy we propose a bargaining procedure that leads to a walrasian outcome as the agents become increasingly patient the competitive outcome therefore obtains even if agents have market power and are not price takers moreover where in other bargaining protocols the final outcome depends on bargaining power or relative impatience the outcome here is determinate and depends only on preferences and endowments our bargaining procedure involves bargaining over prices and maximum quantity constraints and it guarantees convergence to a walrasian outcome for any standard exchange economy in contrast without quantity constraints we show that equilibrium is generically inefficient

decentralized trading with private information the paper studies how asset prices are determined in a decentralized market with asymmetric information about asset values we consider an economy in which a large number of agents trade two assets in bilateral meetings a fraction of the agents has private information about the asset values we show that over time uninformed agents can elicit information from their trading partners by making small offers this form of experimentation allows the uninformed agents to acquire information as long as there are potential gains from trade in the economy as a consequence the economy converges to a pareto efficient allocation

what ails the european union s emissions trading system abstract the european union has adopted economists idea of curbing carbon emissions by establishing markets where bankable emissions allowances can be traded implicit in proofs that cap and trade minimizes the expected discounted cost of capping emissions however is that the regulator not intervene once the market is established otherwise market participants encounter uncertainties beyond what a social planner faces this paper discusses the equilibrium that results when private agents bank tradable allowances in the face of ongoing risk of future regulatory intervention and shows that the cap will be achieved at unnecessarily high cost even if no regulatory intervention actually occurs evidence that such risks are currently distorting eu ets comes from the depressed current spot price from the findings of schopp and neuhoff 2014 that speculators require multiples of the riskless rate of interest to bank permits and from the sensitivity of prices to votes and announcements about proposed future regulatory changes

robust policies to mitigate carbon leakage abstract unilateral climate policy induces carbon leakage through the relocation of emission intensive and trade exposed industries to regions without emission regulation previous studies suggest that emission pricing combined with border carbon adjustment is a second best instrument and more cost effective than output based rebating we show that the combination of output based rebating and a consumption tax for emission intensive and trade exposed goods can be equivalent with border carbon adjustment moreover it is welfare improving for a region that implements emission pricing along with output based rebating to introduce such a consumption tax the welfare gain is particularly large if output based rebating is already implemented for a sector that is not much exposed to leakage e g due to uncertainty about exposure or due to lobbying activities thus supplementing output based rebating with a consumption tax constitutes robust policies to mitigate carbon leakage

procrastinating reform the impact of the market stability reserve on the eu ets abstract we study the impact of the market stability reserve msr on price and emission paths of the eu ets from 2019 onwards the msr will adjust the number of allowances auctioned as a function of the size of the surplus i e in times of a large surplus it shifts the issue date of allowances into the future in a perfectly competitive allowance market the msr only affects price and emission paths if the baseline equilibrium becomes unfeasible if the msr is binding prices increase in the short run but drop in the medium run relative to the baseline the msr increases price variability if uncertainty over future allowance demand is resolved while there is a surplus the long run cap is unaffected by both the msr and overlapping climate policies this contrasts the eu s objectives of improving the resilience of the eu ets and increasing synergies with overlapping climate policies

market clearing and price formation abstract considered here is decentralized exchange of privately owned commodity bundles voluntary transactions take the form of repeated bilateral barters under broad and reasonable hypotheses the resulting process converges to competitive equilibrium price taking behavior is not assumed prices emerge over time they need neither be anticipated nor known at any interim stage

eu ets emissions under the cancellation mechanism effects of national measures abstract beginning in 2023 allowances held in the market stability reserve of the eu ets above the number of allowances auctioned the previous year will be cancelled in this paper we analyse the consequences of this new cancellation mechanism using numerical analysis we show that additional national abatement measures now have the potential to reduce total eu ets emissions a key insight is that for this to happen domestic emission reductions must occur early how early depends crucially on how the future demand for allowances evolve to facilitate an understanding of the rather complex system the reformed eu ets constitutes we present a series of extensions to the analysis to show how the results are affected by for example future emission levels technological development optimising agents and speculative trading in allowances