exhaustible resource allocation in an overlapping generations economy abstract this paper analyzes competitive allocations of an exhaustible resource in an overlapping generations economy conditions are given for the existence of equilibrium extraction rules such that both extraction and investment in future stocks are increasing and continuous in the current stock the paper then considers the time paths of equilibrium allocations and shows that there are economies where equilibrium resource extractions and prices exhibit nonclassical behavior this is illustrated through a finite horizon example in which extractions increase and prices decrease over the entire time horizon and an infinite horizon example where there are persistent cycles in extractions and prices and multiple equilibria the paper concludes by examining welfare issues

energy and physical capital a case of non classical dynamics we study the importance of considering different energy requirements for physical capital and final good production in an overlapping generations olg resource economy in contrast to the standard olg framework but consistently with the empirical evidence we assume that the accumulation of physical capital requires more energy than the production of consumption goods focusing on exhaustible energy resources we find that olg equilibria can exhibit non classical dynamics the economy generates complex dynamics where differing from the response predicted by the standard approach resource prices may not increase monotonically this result illustrates that the technological assumptions behind the energy inputs should be taken with caution in particular on dynamic analyses involving exhaustible energy resources

capture by threat we analyze a simple stochastic environment in which policy makers can be threatened by nasty interest groups in the absence of these groups the policy maker s desire for reelection guarantees that good policies are implemented for every realization of the shock when pressure groups can harass the policy maker good policies will be chosen for only a subset of states of nature hence honest and able leaders might implement bad policies and needed reforms could be delayed in order to make good policies more likely the public will want to increase the cost of exerting pressure for nasty groups and provide rents to those in power this last result can be used to explain the existence of political parties they play a role resembling that of the supervisor in the literature on collusion in hierarchical agency a rational public may also choose to ignore negative media reports on a politician s personal life and in general elect strong political leaders the prevalence of coercive methods of infl

moral hazard with several agents abstract we consider a situation in which a principal hires two agents whose cooperation is technically profitable and study three models that incorporate different assumptions about the agents cooperative behavior we find a close relationship between the agents commitment capacity and the characteristics of the optimal contract a greater capacity to cooperate leads to more efficient outcomes we also show that unless agents form a team the efficient level of mutual help is not achieved in equilibrium

self enforcing intergenerational transfers and the provision of education this paper considers intra family financing of human capital under the assumptions that individuals are selfish and binding contracts are not feasible cooperation among family members is possible through a family norm a family social capital which prescribes the obligations to be met at each stage in life and sanctions for those who deviate we characterize the set of self enforcing transfers and show that there is a downward bias in the family provision of education this gives a rationale for public action as a remedy to the lack of commitment between selfish family members

cooperation in ongoing organizations this paper argues that overlapping games can provide a natural theory of long lived organizations it shows that participation in organizations of infinite duration changes the incentives of agents with finite lives and will induce more cooperation than a static model would predict after developing the general theory we apply it to the description of career paths in organizations and show that it can be optimal to give the youngest workers the most arduous tasks

dynamic production teams with strategic behavior abstract we analyze if intergenerational teams reveal workers productivities some uncertainty on agents productivities persists when i each agent must work independently or ii technological shocks are agent specific in compulsory teams however when technological shocks are team specific in compulsory teams each worker s productivity is revealed when agents choose to work independently or in teams that problem falls in the class of dynamic games elective teams are preferred by high productivity young workers when the technological shocks are agent specific and maximize the expected utility of a young worker when shocks are team specific

policymakers horizon and the sustainability of international cooperation abstract this paper examines the impact of policymakers horizon on the sustainability of international cooperation we describe a prisoners dilemma game between two infinitely lived countries run by policymakers we show that re election incentives can act as a discipline device making it easier to sustain cooperation between policymakers with finite but potentially renewable mandates than between infinitely lived policymakers we also show that when voting suffers from a recency bias policymakers may have incentives to collude to get re elected and term limits may help international cooperation

the role of party reputation in the formation of policy abstract this paper shows that a party can credibly establish a platform more moderate than the ideology of its members and thereby raise the probability that the party s nominee wins the election a lame duck incumbent optimally implements his party s platform in order to maintain his party s reputation for having a moderate platform this increases the likelihood that his party retains power when candidates credibly locate themselves in policy space via this mechanism we show that if candidates are sufficiently impatient then their policies are bounded away from one another the policy convergence result is not robust

a review of scott e page s the difference how the power of diversity creates better groups firms schools and societies this assessment of scott page s the difference princeton university press 2007 emphasizes the depth and breadth of the book s coverage and arguments and checks them against existing empirical evidence when available it argues that the book navigates artfully between being a manifesto for diversity and rigorous science writing while at the same time marketing economic science in new ways the review welcomes the book s popularization of richer aspects of everyday decision making individual and collective and its making an excellent case for the social significance of abstract economic theorizing especially about problem solving it praises the book s lively interpretations of statistical tools of decision making by means of enticing narratives the book s rhetoric urges us to move beyond accepting diversity as a matter of taste or even because of its beneficial effects on the production function and ultimately adopts its powerful logic it speculates that the book s true impact will likely come after thorough empirical research in empirical endeavors issues of definition especially of identity and of measurement and evaluation of policies that would enhance diversity would be decisive in democratic societies policies may pose new dilemmas as they benefit from public interest in overcoming the accumula tion of past disadvantages jel d23 z13

energy saving in energy market reform the feed in tariffs option abstract the use of feed in tariffs fits is now widespread for renewable energy and under discussion for other low carbon electricity generation but not for energy efficiency there is a small literature on fits for electricity demand reduction but not energy efficiency more generally this paper considers the general application of fits on the demand side and sets out the economic arguments in the context of changing energy markets it then discusses the implications of some practical issues including the definitional problems arising from the difference between energy efficiency and demand reduction using experience from historical energy efficiency programmes it considers the public benefits payment methods and policy scope that need to be considered and how these might affect policy design it makes some provisional estimates of economically justified payments in the context of the proposed uk energy market reform it concludes that fits for energy saving might be a powerful tool for incentivising energy efficiency

the dispersion of employees wage increases and firm performance previous studies examining intra firm wage dispersion and firm performance have focused on wage levels the authors of this study argue that for purposes of comparing wage dispersion s positive inc

decision making with naive advice in many of the decisions we make we rely on the advice of others who have preceded us for example before we buy a car choose a dentist choose a spouse find a school for our children sign on to a retirement plan etc we usually ask the advice of others who have experience with such decisions the same is true when we make major financial decisions here people easily take advice from their fellow workers or relatives as to how to choose stock balance a portfolio or save for their child s education although some advice we get is from experts most of the time we make our decisions relying only on the rather uninformed word of mouth advice we get from our friends or neighbors we call this aive advice in this paper i will outline a set of experimental results that indicate that word of mouth advice is a very powerful force in shaping the decisions that people make and tends to push those decisions in the direction of the predictions of the rational theory

usury laws and consumer credit a note much has been written on the potential effects of rate ceilings on consumer credit markets 1 and numerous empirical studies have analyzed the impact of rate ceilings on mortgage loans and housing construction markets 2 however the actual effect of loan rate ceilings on consumer financial markets in general has not been well documented in part because credit terms are complex so the credit offer function has several arguments notwithstanding the potential complexity of credit terms it is usually assumed that if a rate ceiling reduces the nominal price of credit p the market will fail to clear and excess credit demand will need to be rationed out of the market by adjusting credit terms other than the rate in this context most investigators assume first that the price of credit is solely a function of the interest rate r and second that required credit rationing is conducted by suppliers who reject risky customers or alter credit terms to reduce risk when credit obtained at the retail point of sale is considered however more options are available in particular the price of goods purchased with credit can be raised 3 thus a more general model of consumer credit would note that p p r pr where pr the price premium on goods purchased with credit since funds are highly fungible it is likely that consumers are able to substitute retail originated credit for other sources of consumer credit at low cost if portfolio adjustment costs were zero a rate ceiling could have no effect on consumer s total indebtedness as any decrease in r could be exactly offset by an increase in pr at retail credit sources so that p would remain unchanged however it is unlikely that all consumer credit needs can be met by obtaining retail credit so that consumer use of credit may be reduced by rate ceilings this would occur if consumers bore adjustment costs such as transportation costs when they switched from cash to retail credit sources that suppliers did not receive the question then arises whether when retail credit is available adjust

on equilibrium for overlapping generations organizations a necessary feature for equilibrium is that beliefs about the behavior of other agents are rational and indi viduals maximize we argue that in stationary olg environments this implies that any future generation in the same situation as the initial generation must do as well as the initial generation did in that situation we conclude that the existing equilibrium concepts in the literature do not satisfy this condition we then propose an alternative equilibrium concept organizational equilibrium that satisfies this condition we show that equilibrium exists it is unique and it improves over autarky without achieving optimality moreover the equilibrium can be readily found by solving a maximization program rios rull thanks the national science foundation for grant sbr 9309514 and the university of pennsylvania re search foundation for their support prescott thanks the national science foundation for grant sbr 9996201 we thank julio davila igor livshits larry jones dan silverman and attendants at seminars in the penn macro lunch group federal reserve bank of minneapolis cornell penn state university macro theory conference the univer sity of rochester ucla and the 1999 midwest theory meetings for comments the views expressed herein are those of the authors and not necessarily those of the federal reserve bank of minneapolis or the federal reserve system

a theory of collective reputations with applications to the persistence of corruption and to firm quality the paper is a first attempt at modelling the idea of group reputation as an aggregate of individual reputations a member s current incentives are affected by his past behaviour and because his track record is observed only with noise by the group s past behaviour as well the paper thus studies the joint dynamics of individual and collective reputations and derives the existence of stereotypes from history dependence rather than from a multiplicity of equilibria or from the existence of a common trait as is usually done in the literature it shows that new members of an organization may suffer from an original sin of their elders long after the latter are gone and it derives necessary and sufficient conditions under which group reputations can be rebuilt last the paper applies the theory to analyse when a large firm can maintain a reputation for quality 1 collective reputations collective reputations play an important role in economics and the social sciences countries ethnic racial or religious groups are known to be hard working honest corrupt hospitable or belligerent some firms enjoy substantial rents from their reputations for producing high quality products some departments are reported to treat their faculty or students fairly the paper is a first attempt at modelling the idea of group reputation as an aggregate of individual reputations a member s current incentives are affected by her past behaviour and because her track record is observed only with noise by the group s past behaviour as well the paper studies the joint dynamics of individual and collective reputations in a model in which current generations are progressively replaced by new ones and derives the existence of stereotypes from history dependence rather than from a multiplicity of equilibria or from the existence of a common trait as is usually done in the literature see section 2 for a detailed comparison with the literature it shows that new members of an organization may suffer from an original sin of their elders long after the latter are gone and it derives necessary and sufficient conditions under which group reputations can be rebuilt last the paper applies the theory to analyse when a large firm can maintain a reputation for quality let us spell out the building blocks of our theory in more detail a a group s reputation is only as good as that of its members each member is characterized by individual traits such as talent diligence or honesty past individual behaviour conveys information about these traits and generates individual reputations

competitive business cycles in an overlapping generations economy with productive investment abstract this paper examines the emergence of long run competitive periodic equilibria in a two period overlapping generations model with capital accumulation the existence of periodic equilibria is a consequence of the existence of an aggregate bubble money and of a non linear behaviour of aggregate savings the technique used is to show that the problem can be reduced to the study of a dynamical map from an interval into itself although it is originally two dimensional this will allow us to study the occurrence of cycles from a global point of view

renewable resource use and nonseparable amenity benefits we incorporate amenity benefits into an overlapping generations model with a renewable resource as a factor of production source of amenity benefits and store of value unlike the conventional renewable resource problems studied under the assumption of additive consumption and amenity benefits we let amenity benefits affect the utility of consumers in a nonseparable fashion we examine the role that weights given to consumption and amenities have for harvesting and the resource stock we characterize dynamics and stability of steady state equilibria with a logistic resource growth function we demonstrate in parametric and numerical models that the weights given to consumption and amenities in the utility function matter substantially for the steady state equilibrium stock and its stability and dynamics both conventional saddle point equilibria and indeterminacy with infinite number of equilibria and saddle node bifurcation is possible depending on the weights given to consumption and amenities in addition we show that for each inefficient equilibrium stock there is a unique subsidy rate that can move the economy from an inefficient equilibrium to an efficient one the presence of indeterminacy provides a challenge to resource policies because the system becomes unpredictable therefore expectations and market psychology may play an important role in resource utilization and provision of amenities

voting on pensions a survey abstract the paper presents a nonexhaustive survey of the literature designed to explain emergence size and political sustainability of pay as you go pension systems it proposes a simple framework of analysis a small open two overlapping generation economy model around which some variants are displayed dictatorship of the median voter is assumed the text is organized to answer the following questions i do political equilibria with payg pension schemes exist ii why do they emerge iii what are the conditions for the participation constraint of the pension game to be verified and finally iv what is the size of the pension system chosen by the median voter and how is this size influenced by an exogenous e g demographic shock

social contracts as assets a possible solution to the time consistency problem this paper presents a new solution to the time consistency problem that appears capable of enforcing ex ante policy in a variety of settings in which other enforcement mechanisms do not work the solution involves formulating a social contract institution or agreement that specifies the optimal ex ante policy the social contract is effectively sold by succesive old generations to successive young generations who pay for the social contract through the payment of taxes both old and young generations have an economic incentive to fulfill the social contract for the old generation breaking the social contract makes the social contract valueless and the generation suffers a capital loss by not being able to sell it for the young generation the economic advantage of purchasing the existing social contract exceeds its price as well as the economic gain from setting up the a new social contract

tenure security human capital and soil conservation in an overlapping generation rural economy we develop an overlapping generation model of rural agricultural households to examine whether tenure security and subsistence needs influence the choice between unexploited topsoil and investment in children s human capital as the mode of transfer of wealth a unique dataset from bangladesh finds that tenure security is associated with greater topsoil conservation and lower human capital investment therefore there exists a tradeoff between these two modes of transfer we suggest that increased public expenditure on schooling which substitutes private expenditure may lower the pressure on land and soil resources

distributed generation storage demand response and energy efficiency as alternatives to grid capacity enhancement the need for investment in capital intensive electricity networks is on the rise in many countries a major advantage of distributed resources is their potential for deferring investments in distribution network capacity however utilizing the full benefits of these resources requires addressing several technical economic and regulatory challenges a significant barrier pertains to the lack of an efficient market mechanism that enables this concept and also is consistent with business model of distribution companies under an unbundled power sector paradigm this paper proposes a market oriented approach termed as contract for deferral scheme cds the scheme outlines how an economically efficient portfolio of distributed generation storage demand response and energy efficiency can be integrated as network resources to reduce the need for grid capacity and defer demand driven network investments

equilibrium models displaying endogenous fluctuations and chaos abstract this paper surveys current developments in dynamic general equilibrium theory concerned with conditions under which endogenous fluctuations are possible existing contributions are divided into two classes the larger one consists of models with a unique perfect foresight equilibrium while the second includes models where equilibrium is indeterminate and the set of equilibria involving endogenous fluctuations includes sunspots equilibria while the two classes of models involve oscillations of different natures and with different policy implications we show that both are consistent with optimizing behavior and competitive equilibrium

the evolution of cooperation through imitation we study evolutionarily stable outcomes for a class of games that admit cooperation and conflict as possible nash equilibria we make use of two ideas existing strategies are more likely to be imitated than new strategies are to be introduced players are able to identify opponents behavior prior to interaction the long run evolutionary limit is efficient for the case of perfect recognition of opponents behavior for the case of imperfect recognition efficiency is not achieved and long run outcomes are more efficient the more accurate is the information strategies that emerge in the long run are those where players reward opponents who are likely to play the same way and punish opponents who are likely to play differently

a foundation for markov equilibria in sequential games with finite social memory we study stochastic games with an infinite horizon and sequential moves played by an arbitrary number of players we assume that social memory is finite every player except possibly one is finitely lived and cannot observe events that are sufficiently far back in the past this class of games includes games between a long run player and a sequence of short run players and games with overlapping generations of players an equilibrium is purifiable if some close by behaviour is consistent with equilibrium when agents payoffs in each period are perturbed additively and independently we show that only markov equilibria are purifiable when social memory is finite thus if a game has at most one long run player all purifiable equilibria are markov

a theory of bureaucratization based on reciprocity and collusive behavior this paper addresses how an organization becomes a bureaucracy bureaucratization emerges from a self enforced norm of reciprocity between agents in an organization who exchange favors and promote subgoals which differ from the objective of the firm such collusive behavior becomes harder and harder to prevent over time as a result incentive schemes lose their flexibility and bureaucratization becomes a necessary equilibrium phenomenon in the long run the distribution of agents private information their preferences for the future and the force of the social norm of reciprocity are analyzed in terms of their effects on the long run behavior of the organization and on the speed of the bureaucratization process i introduction any theory of bureaucracy concerned with the analysis of the public sector or designed to understand the behavior of private organizations2 must find out why states and firms end up being more and more inefficient over time why organizations become routinized as they grow older and why unflexible rules unavoidably emerge in the long run in other words any theory of bureaucracy should also be accompanied by a theory of bureaucratization which could help us to understand organizations from a dynamic point of view following weber 1978 we hereafter define the bureaucratization of an organization as the process by which it adopts less flexible rules over time the aim of this paper is to explain this process in the case of the theory of the firm the formation of a dynamic theory of organizations has been on the research agenda at least since marshall who was the first to point out that old organizations and firms tend to decline over time first such

a review of the costs and benefits of demand response for electricity in the uk the recent policy discussion in the uk on the economic case for demand response dr calls for a reflection on available evidence regarding its costs and benefits existing studies tend to consider the size of investments and returns of certain forms of dr in isolation and do not consider economic welfare effects from review of existing studies policy documents and some simple modelling of benefits of dr in providing reserve for unforeseen events we demonstrate that the economic case for dr in uk electricity markets is positive consideration of economic welfare gains is provided

commitment deference and legislative instutions j nformational theories of legislative institutions have demonstrated the potential collective gains from committee specialization due to the use of restrictive amendment procedures for these 5 benefits to be realized however the floor majority must overcome a commitment problem i demonstrate that in a multistage game majority rule combined with the fact that generations of legislators overlap allows the legislature to solve the commitment problem and to sustain legislative norms and institutions even if legislators are finitely lived the model suggests that rather than restrictive amendment procedures it is the committee s expectation of floor deference that sustains committee specialization as a consequence legislative norms may collapse due to an unexpected influx of new members even if the distribution of preferences in the legislature does not change finally i discuss consequences for a comparative study of legislative institutions

cooperation in microcredit borrowing groups identity sanctions and reciprocity in the production of collective goods cooperation to produce collective goods is widespread in society and yet so is its failure theorists have identified competing mechanisms for facilitating group cooperation including group identity sanctions and reciprocity here i use empirical data to explore how these mechanisms influence cooperation in the natural laboratory of microcredit borrowing groups microcredit makes loans to high risk borrowers through borrowing groups in which individuals access to credit is dependent on the behavior of other members of the group thereby creating a social dilemma for members and an opportunity to observe cooperation in real world groups by analyzing both collective goods production loans and compliance repayment i find that the competing mechanisms have differential effects group identity sanctions and reciprocity are all associated with more borrowing in the group only reciprocity however limits loan delinquency and is associated with group longevity suggesting both that collective goods p

intergenerational competitive equilibria under technological uncertainty and an exhaustible resource constraint abstract this paper presents a model of competitive intertemporal equilibrium in a finite horizon overlapping generations economy facing technological uncertainty and an exhaustible resource constraint individuals form rational expectations regarding future prices and economic conditions and income is redistributed from one generation to the next through government mandated lump sum transfers under uncertainty the relationship between resource price appreciation and the interest rate is mediated by consumers risk aversion with respect to consumption in alternative states of nature the intuitively appealing proposition that the expected resource price rises at the expected rate of interest holds only as a special case if future generations are taken to be state contingent in the sense that their composition depends on the states of nature prevailing when they are born then equilibria are generally pareto efficient but if future generations are state independent so that the set of individuals born at a given date is independent of the prevailing state of nature then equilibria may be inefficient because markets do not exist where successive generations may equilibrate their marginal rates of substitution across consumption in alternative contingent states such inefficiencies may be remedied through the implementation of appropriate intergenerational transfers an optimal intergenerational welfare distribution may be supported as a competitive equilibrium if the income transfer regime is properly selected and enforced the social optima that result for a simple version of the model under the maximin welfare criterion indicate that greater sacrifices are required on the part of the present generation when future generations are taken to be state contingent than when they are regarded as state independent this finding provides a possible explanation for the extreme risk aversion of conservationists with respect to the welfare of future generations

kin groups and reciprocity a model of credit transactions in ghana this paper studies kinship band networks as capital market institutions membership in a community where individuals are dynastically linked has two effects on informal credit first the nonanonymity of the dynastic link allows to sanction the defaulters offspring and induce compliance even in short term interactions social enforcement second preferential agreements can arise in which kin members condition their behavior on the characteristics of a player s predecessor expecting others to do the same with their offspring reciprocity these effects are incorporated in an olg game with endogenous matching between lenders and borrowers and tested using household level data from ghana

costly transfer institutions and the core in an overlapping generations model we examine an overlapping generations economy with no pre existing intergenerational transfers and study the set of transfer institutions in the core of the economy that is institutions that would be admissible for the first generation to create and would not be rejected by any future generation institution building is assumed to be costly we allow the cost of creating a new institution to vary with the size of the transfer it institutes and show that all institutions in the core must cost as much to build as they transfer in fact the core set is nonempty if and only if the institution that supports the golden rule transfer costs as much to create as it transfers the core set is characterized for various cost functions we conclude that costs associated with the creation of transfer institutions are essential to make intergenerational transfers socially viable but they may induce the choice of institutions making suboptimal transfers

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

social implications of residential demand response in cool temperate climates residential electrical demand response dr offers the prospect of reducing the environmental impact of electricity use and also the supply costs however the relatively small loads and numerous actors imply a large effort response ratio residential dr may be an essential part of future smart grids but how viable is it in the short to medium term this paper reviews some dr concepts then evaluates the propositions that households in cool temperate climates will be in a position to contribute to grid flexibility within the next decade and that that they will allow some automated load control examples of demand response from around the world are discussed in order to assess the main considerations for cool climates different tariff types and forms of control are assessed in terms of what is being asked of electricity users with a focus on real time pricing and direct load control in energy systems with increasingly distributed resources the literature points to the significance of thermal loads supply mix demand side infrastructure market regulation and the framing of risks and opportunities associated with dr in concentrating on social aspects of residential demand response the paper complements the body of work on technical and economic potential

rational turnout the neglected role of groups rational choice theories have difficulty accounting for individual participation in collective action voting is among the acts hardest to explain consumption benefits have been proposed to account for nonzero turnout the model presented here establishes a political investment basis for these benefits i argue that voters often act not in isolation but as part of groups with shared interests while individuals still vote because of consumption benefits arising from the act of voting some of these consumption benefits are provided by group leaders out of collective benefits received by the group in return for its votes the collective benefit comes from a candidate adopting policy positions closer to those of the group in passing i show that the widespread availability of public opinion polling increases the candidate s incentive to shift position finally some data from recent off year elections are shown to be consistent with the model

rejoinder to kritikos and bolle making indenture viable the extortionary power of pre commitment in iterated prisoner s dilemma abstract kritikos and bolle s approach is still flawed but a viable indenture game can still readily be structured within the context of iterated prisoner s dilemma

the valuation effects of the 1977 community reinvestment act and its enforcement abstract we examine the wealth effects of the passage of the community reinvestment act cra of 1977 for commercial banks and savings and loan associations we find significantly negative average excess returns for small nyse amex banks and sl in contrast there is no evidence that large nyse amex institutions or nasdaq institutions experience wealth losses we also study the effects of individual cra protests against institutions and find they produce significantly negative excess returns which are not reversed when the protests are resolved our results have implications for proposed changes to cra and for the future consolidation of the financial services industry the results also demonstrate the difficulties associated with studying returns from the early years of the nasdaq market

intergenerational resource rights efficiency and social optimality the discipline of economics is generally defined as the science of the allocation of scarce resources between competing social objectives given an initial distribution of resources between economic agents how would they behave so as to improve their welfare according to the pareto criterion the agents would exchange commodities until the opportunities for fruitful exchange were fully exhausted and no agent could be made better off without rendering at least one other agent worse off pareto efficiency is a powerful concept in microeconomic analysis provided that the initial distribution of property rights is equitable allocative efficiency gives rise to the best of all possible worlds acknowledging that the assumptions of perfect competition are often violated firms are monopolistic information is incomplete and externalities exist economists have argued for the modification of institutions so that economic reality will conform more closely to the assumptions of the model that yields such gratifying results but microeconomic theory has always maintained that allocative efficiency is in itself insufficient to maximize social welfare bator 1957 a social welfare function is required to discriminate a social optimum among the array of efficient allocations that correspond to alternative assignments of property rights though economists have posited alternative functional forms for the sake of pursuing conceptual arguments welfare functions have remained elusive constructs for well known theoretical and practical reasons consequently a sharp line of demarcation has been drawn between questions of efficiency the province of economics and equity the principal focus of ethical and political discourse in resource economics however the line demarcating efficiency and equity is often crossed the term optimal depletion appears regularly where only efficient depletion is meant while political debates about resource exploitation over time are laden with questions of the proper distribution of our natural patrimony between generations resource economists have predominantly espoused particular use rules that guarantee efficiency but overlook potential improvements in social welfare achievable through the reassignment of property rights across generations we document the evolution and current status of the misuse of the term optimal depletion in section ii we develop a simple two generation three period general equilibrium model in section iii to illustrate how alternative distributions of resource rights between generations relate to alternative pareto efficient solutions in section iv we demonstrate how different social welfare functions affect the optimal solution and associated assignment of resource rights between generations

renewable resources in an overlapping generations economy without capital abstract we incorporate a renewable resource into an overlapping generations model without capital and with quasi linear preferences besides being an input for production the resource serves as a store of value we characterize the dynamics efficiency and stability of the steady state equilibria the stability properties are sensitive to the type of resource growth for constant growth there is only one steady state equilibrium which is stable and efficient in the general case of the concave growth function there are usually at least two steady state equilibria one of which is stable and the other one unstable the unstable steady state is efficient but the stable one may or may not be we study the robustness of our results by assuming a logarithmic utility function we show that for the cobb douglas production function the steady state is unique and stable regardless of whether the equilibrium is efficient or inefficient our analytical results are illustrated by numerical calculations

tradition and common property management since management of a common property resource can be undertaken only by a government of finitely lived agents studying the behaviour of such governments is a natural way to study common property management i propose that we regard the choice of management objective by such a government as a move in a game of sequential agents given this framework it is shown that subgame perfect equilibria exist in which successive governments choose the same traditional management objective these strategies enable an economy to overcome any intergenerational externality thus following a tradition of conservation may be a rational response to an intergenerational externality tradition et gestion d une ressource en propriete commune puisque la gestion d une

joint tax evasion tax evasion analysis typically assumes that evasion involves individual taxpayers responding to some given policies however evading taxes could require the collaboration of at least two taxpayers detection depends on the costly avoidance activities of both transacting partners an increase in sanctions leads to a direct increase in the expected cost of a transaction in the illegal sector but it may also increase the incentive for the partners to cooperate in avoiding detection the total cost of transacting in the illegal sector can fall and tax evasion may increase the policy implications of this phenomenon are considered jel classification h26 l evasion fiscale collective dans les analyses de l evasion fiscale on suppose habituellement que le payeur de taxe fait face a un ensemble donne de politiques auxquelles il reagit pourtant dans le cas des transactions marchandes l evasion fiscale n est possible que si plusieurs agents cooperent ensemble la probabilite que l evasion soit detectee depend alors des efforts que chacun fait pour la cacher dans un tel contexte de plus lourdes sanctions accroissent le cout espere des transactions illegales mais peuvent aussi indirectement accroitre l incitation pour les partenaires a cooperer pour cacher leur activite illegale il en resulte que le cout total des transactions illegales peut diminuer et l evasion fiscale augmenter nous etudions les implications de ce phenomene

regulatory capture a review this article reviews both the theoretical and empirical literatures on regulatory capture the scope is broad but utility regulation is emphasized i begin by describing the stigler peltzman approach to the economics of regulation i then open the black box of influence and regulatory discretion using a three tier hierarchical agency model under asymmetric information in the spirit of laffont and tirole 1993 i discuss alternative modelling approaches with a view to a richer set of positive predictions including models of common agency revolving doors informational lobbying coercive pressure and influence over committees i discuss empirical work involving capture and regulatory outcomes i also review evidence on the revolving door phenomenon and on the impact that different methods for selecting regulators appear to have on regulatory outcomes the last section contains open questions for future research copyright 2006 oxford university press

a repeated game with finitely lived overlapping generations of players abstract this paper analyzes infinitely repeated noncooperative games where the players have finite but overlapping terms thus the nature of the game remains constant but the identity of the players changes over time this type of scenario depicts the situation facing firm managers in regulated or oligopolistic environments despite finite lives which lead players to always choose opportunistic actions at the end of their careers it is shown that there are equilibria where cooperative behavior emerges in this noncooperative setting further a folk theorem result is obtained any individually rational payoffs can be realized as a subgame perfect equilibrium journal of economic literature classification numbers 022 026

bowling alone a review essay abstract this paper is a critical review of robert putnam s influential analysis of social capital in america bowling alone the review argues that bowling alone reflects many of the strengths and weaknesses of the social capital literature like this literature bowling alone describes a remarkable number of facts concerning community life in america at the same time the book suffers from many of the conceptual problems and empirical weaknesses that have plagued the social capital literature i conclude that bowling alone does not succeed in establishing the importance of social capital in understanding various socioeconomic phenomena it purports to explain

equilibrium in a production economy with an income tax this paper develops a method to study an infinite horizon production economy distorted by a state dependent income tax this setting permits taxes to depend on the capital stock an endogenous state variable and thus captures situations where the evolution for capital and taxes is jointly determined to solve this model the consumption function is represented as a fixed point of a nonlinear monotone operator that is defined such that its nth iteration computes the consumption function n steps away from the horizon for a corresponding finite horizon economy the oparator s monotonicity is exploited in proving the existence of and constructing an equilibrium copyright 1991 by the econometric society

intergenerational conflicts of interest and seniority systems in organizations this paper studies the role of a proposed seniority system in an organization the organization consists of at least three overlapping generations of short lived members and chooses either a shortsighted or a farsighted action in each period this results in intergenerational conflicts of interest the old generation desires to obtain an immediate profit while the middle and young generations have incentives to invest for future profits we use a model of infinitely repeated games and demonstrate that the seniority system solves these conflicts in the sense that the farsighted action profile is sustainable in equilibrium

on the strength of corporate cultures abstract we model corporate culture s as production technologies for which employees have to undertake culture specific investments that improve their effectiveness at a later date the organization can adopt cultural changes that make this investment partially redundant this leads to under investment however as agents invest more the organization s opportunity cost of a change increases which in turn increases each agents incentives to invest this externality among agents leads to multiple equilibria otherwise similar organizations can thus exhibit either high investment levels and low probability of changes strong culture or low investment levels and high probability of changes weak culture we also explore some implications for the nature and management of corporate culture

reply on comment to small firms and the merger mania research on performance differences between small and large firms is booming it emerges relatively separated from the mainstream industrial organization literature inspired by levy s comment on an earlier paper we try to bridge the gap between the two areas especially we screen non cooperative game theoretical models for predictions on performance differences most of them forecast higher profits for larger firms but there exist also some models which predict the opposite for very specific circumstances

behind the revolving door a new view of public utility regulation regulatory officials frequently work for firms they regulate after they leave office this revolving door has been the subject of much scrutiny owing to the natural suspicion of corruption in a time dependent supergame i take a strategic look behind the revolving door and find it can lead to improved performance of regulated industries when firm managers and regulators have finite and concurrent terms investment incentives are minimal staggered terms and revolving doors can result in improved performance of regulated firms when each side s actions at each date are contingent on past outcomes

forward and backward intergenerational goods why is social security good for the environment this paper studies the ability of nonmarket institutions to invest optimally in forward intergenerational goods figs such as education and the environment when agents are selfish or exhibit paternalistic altruism we show that backward intergenerational goods bigs such as social security play a crucial role in sustaining investment in figs without them investment is inefficiently low but with them optimal investment is possible we also show that making the provision of bigs mandatory crowds out the voluntary provision of figs and that population aging can increase investment in figs

demand response and energy efficiency in the capacity resource procurement case studies of forward capacity markets in iso new england pjm and great britain abstract demand side resources like demand response dr and energy efficiency ee can contribute to the capacity adequacy underpinning power system reliability forward capacity markets are established in many liberalised markets to procure capacity with a strong interest in procuring dr and ee with case studies of iso new england pjm and great britain this paper examines the process and trends of procuring dr and ee in forward capacity markets and the design for integration mechanisms it finds that the contribution of dr and ee varies wildly across these three capacity markets due to a set of factors regarding mechanism design market conditions and regulatory provisions and the offering of ee is more heavily influenced by regulatory utility ee obligation dr and ee are complementary in targeting end uses and customers for capacity resources thus highlighting the value of procuring them both system needs and resources market potential need to be considered in defining capacity products over the long term it is important to ensure the removal of barriers for these demand side resources and the capability of providers in addressing risks of unstable funding and forward planning for the edr pilot in the uk better coordination with forward capacity auction needs to be achieved

repeated games played by overlapping generations of players the present paper tries to explain cooperative behaviour in an organization run by a sequence of long but finitely lived agents we show that the folk theorem holds for infinitely repeated games with overlapping generations of finitely lived players any mutually beneficial outcome can approximately be sustained if the player s life span and the overlapping periods are long enough the result is stronger than the usual folk theorems in that it employs no assumption on the stage game such as the full dimensionality of payoff set or multiplicity of equilibria

cooperation in stochastic olg games abstract this paper builds on cremer s quart j econ 101 1986 33 seminal analysis which shows that almost complete cooperation can be achieved as an equilibrium in a game played by overlapping generations of players if the institution in which players cooperate is infinitely lived we analyze a similar model in which the costs of cooperation are subject to random shocks even if these random shocks are very small the range of parameters for which cooperation can be sustained is decreased considerably in comparison to the deterministic case furthermore we show how the efficient outcome can be approximated if the level of cooperation can be varied continuously and the cooperation technology has decreasing or constant returns to scale while this is not possible in the case of increasing returns to scale

recursive contracts firm longevity and rat races an experimental analysis abstract this paper reports the results from a laboratory experiment which investigates the structure of contracts that emerge in overlapping generation firms where future ownership is a perquisite of employment workers in the young generation are offered employment contracts designed by the firms owners who belong to the old generation when old employed workers are granted ownership rights as long as the firm continues to operate in line with theoretical predictions the results indicate that as firm longevity increases the recursive nature of the contracts leads to a rat race characterized by low wages high effort levels and rent dissipation these results have important implications for the optimal management of long lived firms such as partnerships

governance reform in legal service markets this paper discusses proposed governance reforms of legal services markets the model distinguishes between a status quo position supported by a system of professionally enforced collective reputation and forms of governance based more squarely on market mechanisms we identify a number of forces which determine the success of reform focussing particularly on the rent recapture and relationship substitution effects we highlight their impact on client welfare and quality of legal services in different types of market according to whether clients are transient or repeated users of the service

bitcoin 1 bitcoin 2 an experiment in privately issued outside monies the value of bitcoin depends upon self fulfilling beliefs that are hard to pin down we demonstrate this for the case where bitcoin is the only form of money in the economy and then generalize the message to the case of multiple bitcoin clones and or a competing sovereign currency some aspects of the indeterminacy we describe would no longer hold if bitcoin were an interesting bearing object

mortal managers and long term goals an impossibility result this article examines decision myopia under effort and risk neutrality an infinite non overlapping sequence of mortal managers is selected and their performance evaluated contracts admit premature termination plant condition depends on maintenance which induces an interstage linkage in production when ability and action are imprecisely known by employers no contract achieves the first best outcome furthermore if the manager discounts less than the owners inefficiency is partially due to moral hazard which resembles myopia optimal contracts infer ability and motivate behavior via manipulation of wage schedules and tenure guidelines

conservationist government policies and intergenerational equity in an overlapping generations model with renewable resources abstract this paper shows that in overlapping generations models incorporating renewable natural resources competition may lead to perpetually declining living standards in environments in which it is technically feasible to achieve intergenerationally equitable distributions of consumption first and second best conservationist government policies are examined these include forced nationalization of the entire stock of natural capital government open market purchases and sales of natural capital taxation of industrial use of resources and subsidies to private investments in natural capital

parties as political intermediaries this paper argues that parties regulate competition among like minded factions so as to enhance reputation building by and voter trust in the politicians standing for a given cause while intra and interparty competition contributes to keeping politicians on their toes unbridled competition may encourage politicians to challenge good platforms and to wage competition along socially suboptimal dimensions for example by privileging form over content the paper builds a simple model of intraparty competition and studies whether various hierarchical or democratic party institutions constitute an efe cient form of party governance the paper shows that intraparty disagreements when they occur hurt the party s position in the general election but that their possibility enhances party image and that parties must be able to avoid behind the scene allocations of portfolios and spoils in order to be credible last it analyzes the impact of political polarization and interparty competition on the choice of party governance

parental altruism and common property regulation since any regulation of a common property resource must be selected and enforced by a government of finitely lived agents a natural way to study common property regulation is to study the behavior of these governments in this paper such behavior is analyzed in an overlapping generations economy where agents are altruistic towards their children

optimal financial structure of finance companies in a regulated environment of a developing country little is known about the regulatory framework for financial institutions in developing countries in this paper the effect of regulations in the financial structure of finance companies in a developing country is examined the analysis suggests that regulations are so restrictive that they are reducing competition limiting the mobilization of local resources and inducing credit rationing in the financial system the application of simple programming techniques to evaluate the regulatory framework is also demonstrated some policy recommendations and suggestions for further research are presented at the end

gerontocracy revisited unilateral transfer to the young may benefit the middle aged according to conventional wisdom intergenerational transfers can survive in the absence of altruism only if the old are net recipients i prove that this need not hold in an overlapping generations model with a fixed factor for example the middle aged owning land may gain by providing public education even when they cannot tax the young and when the young face no credit market constraints this requires that labor is not mobile furthermore establishing public education may benefit only the generation which pays for education twice first for itself and then for the next generation