granger causality and policy effectiveness it is generally recognized that if a set of monetary and fiscal policy variables granger cause1 real economic variables this does not imply that alternative deterministic rules for determining the values of these policy instruments will alter the joint density function of the real variables 2 it has however also been asserted that letting x denote a suitably restricted vector of real economic aggregates g a list of monetary and fiscal policy variables and e the mathematical expectation operator

long term bilateral monopoly the case of an exhaustible resource we construct a model of long term bilateral competition between the supplier of an exhaustible resource and a consuming country capable of producing a perfect substitute for the resource the technology for producing the substitute is known and the strategy of the consuming country is to choose an investment program for installing the substitute we derive equilibrium configurations of investment and extraction for the case of linear demand under three scenarios 1 the resource supplier is a von stackelberg leader 2 the consuming country is a von stackelberg leader and 3 buyers and sellers of the resource engage each other period by period a comparison of these cases reveals incentives for long term commitment on the part of one or both parties and also suggests that there may be gains from strategic intervention into resource markets by governments of consuming nations

a little bit more evidence on the natural rate hypothesis from the u k abstract the evidence for the neutrality of anticipated changes in monetary policy in the u k over the period 1963q1 1982q1 is examined breaks in the stochastic process generating the money stock are used to identify the model the results are generally unfavourable to the proposition that only unanticipated money matters

coevolution of capitalism and political representation the choice of electoral systems protocorporatist west european countries in which economic interests were collectively organized adopted pr in the first quarter of the twentieth century whereas liberal countries in which economic interests were not collectively organized did not political parties as marcus kreuzer points out choose electoral systems so how do economic interests translate into party political incentives to adopt electoral reform we argue that parties in protocorporatist countries were representative of and closely linked to economic interests as electoral competition in single member districts increased sharply up to world war i great difficulties resulted for the representative parties whose leaders were seen as interest committed they could not credibly compete for votes outside their interest without leadership changes or reductions in interest influence proportional representation offered an obvious solution allowing parties to target their own voters and their organized interest to continue effective influence in the legislature in each respect the opposite was true of liberal countries data on party preferences strongly confirm this model kreuzer s historical criticisms are largely incorrect as shown in detail in the online supplementary appendix

centripetal and centrifugal incentives under different electoral systems inaseminalarticle cox 1990 suggestedthatelectoralsystemswithlargerdistrictmagnitudesprovideincentivesforparties to advocate more extreme policy positions in this article we put this proposition to the test informed by recent advances in spatial models of party competition we introduce a design that embeds the effect of electoral rules in the utility function of voters we then estimate the equilibrium location of parties as the weight voters attach to the expected distribution of seats and votes changes our model predicts that electoral rules affect large and small parties in different ways we find centripetal effects only for parties that are favorably biased by electoral rules by contrast smaller parties see their vote share decline and are pushed toward more extreme equilibrium positions evidence from 13 parliamentary democracies supports model predictions along with testing the incentives provided by electoral rules results carry implications for the strategies of vote maximizing parties and for the role of small parties in multiparty competition

balanced budget constraints and the time consistency of optimal policy in a non ricardian economy it has become increasingly apparent that some optimally determined monetary and fiscal policies may be time inconsistent if governments are allowed full discretion over time this is to say that at any point in time a government s announced commitment to a time path of its monetary and or fiscal instruments which seems optimal at the initial date may provide the government with the incentive to renege on the pre announced policy commitment upon re evaluation at a future date the often cited example 8 is of a government which inflates initially to minimize the current reliance on distortionary labour income taxes but promises reduced inflation in the future at a later date it finds it optimal to re evaluate the commitment and initiates a surprise inflation acquiring revenue in a relatively nondistortionary manner if the government s optimal policy is time inconsistent it will not likely be credible from the private sector s perspective as rogoff 16 has described some authors have suggested that the time inconsistency problem may be resolved if the private sector is able to impose reputational costs on the government for reneging on pre announced policies if the cost associated with the loss of reputation is sufficiently high the government may adopt consistent but sub optimal policies while consideration of reputational costs may yield a policy which is time consistent it may be a second best among the set of consistent policies for example a number of authors have suggested 2 3 16 optimal discretionary policies derived when the government is bound by a rule may be consistent and preferred to the optimal unconstrained discretionary policy imposition of the rule creates a pareto improvement since it alleviates the government s incentive to cheat and therefore reduces the social cost of the private sector s reputational enforcement the difficulty with this solution is to derive the appropriate rule the trivial solution is to commit the government to its optimal plan derived at the initial date however this type of rule relieves the government of any discretion after the policy is announced and it is unlikely that any government would restrict its discretionary powers to that extent a preferable rule would be one which restricts only

can first mover and early mover advantages be sustained in an industry with low barriers to entry imitation this study examines whether first mover and early mover advantages can be sustained in an industry where the barriers to entry are generally low and new product innovations can be easily imitated namely the money market mutual fund industry using a simultaneous equation supply and demand model of panel data from a variety of money market fund product categories the study finds that first movers and early movers enjoy both a highly sustainable pricing advantage and a moderately sustainable market share advantage these counterintuitive results are interpreted in terms of the structural characteristics of demand in the industry implications of these results for the ongoing debate between the sustainability and hypercompetition perspectives are discussed 1998 john wiley sons ltd

economic policy precommitment and social welfare abstract the claim that economic policy precommitment is advantageous is investigated in a context in which the welfare basis of the government s objectives is explicit three results are demonstrated each one defining a class of welfare functions and a class of models such that precommitment would not raise welfare in models of that class it is concluded that if a purely welfare economic argument for precommitment is to be found attention will have to be paid either to conflicts asymmetries and differences within the private sector or to multiple equilibria

foreign direct investment with unemployment and endogenous taxes and tariffs it is well known that high tariffs can induce foreign direct investment or tariff jumping this paper analyzes tariff jumping in the context of a host government which can set specific tariffs and taxes subject to the credibility constraint that the chosen levels be optimal once capital is irreversibly in place the foreign multinational is assumed to choose its location and level of investment strategically taking into account the induced tax and tariff levels in the presence of unemployment the optimal tariff exceeds the optimal tax for any given level of capital investment leading to foreign direct investment

james tobin an appreciation of his contribution to economics jim tobin who died on march 11 2002 at the age of 84 was one of giants of economics of the second half of the twentieth century and the greatest macroeconomist of his generation tobin s influence on macroeconomic theory is so pervasive so much part of our professional acquis that many younger economists often are not even aware that it is his ideas they are elaborating testing criticising refuting or re inventing in this appreciation i consider tobin s scholarly contributions made over a period of more than 50 years tobin received the 1981 nobel memorial prize for his analysis of financial markets and their relations to expenditure decisions employment production and prices i consider his contributions to mean variance portfolio demand and asset pricing theory especially the portfolio separation theorem pitfalls in financial model building portfolio balance and flow of funds models and the credit channel the life cycle model and social security econometric methodology including the tobit estimator and his pioneering work using both time series and cross sectional data to estimate food demand functions economic growth tobin s q the tobin tax the monetary and fiscal policy effectiveness debate first with milton friedman and then with the new classical macroeconomics and real business cycle schools and tobin s approach to methodological questions including microfoundations and aggregation

macroeconomic policy design and control theory a failed partnership my subject is the applicability of control theory to the pressing questions of macroeconomic policy design that face us both domestically and in the international arena i approach the issue with some trepidation conscious that i am a relative amateur in control matters i am also mindful of the dangers of claiming too much in the field of policy design those were nicely stated in a broader context by that eminent biologist sir peter medawar i984 when he wrote

the competitive road to proportional representation partisan biases and electoral regime change under increasing party competition one of the most noteworthy political regularities in the early twentieth century was the shift away from majoritarian electoral rules in western europe the conventional wisdom suggests that proportional representation pr was introduced by elites who believed that under the existing majoritarian rules simple plurality block vote two ballot rules they would soon lose power to rapidly growing socialist parties but this does not explain why many electoral reforms were carried out in countries with weak or nonexistent socialist parties the author shows that increasing the number of parties distorts the seat vote properties of electoral rules to a larger degree than previously anticipated under increasing party competition electoral regimes display larger partisan biases than those observed in two party races and crowd out minority parties that have territorially dispersed constituencies in favor of minority parties that have territorially concentrated constituencies using a dynamic bayesian model for seats and votes the author measures the partisan biases brought about by the expansion of voting rights in the late nineteenth century to explain the drive to reform majoritarian electoral systems

investment in education and the time inconsistency of redistributive tax policy time inconsistency of tax policy is shown to arise in a setting where households differ in their ability to accumulate wealth and where the government has redistributional objectives it is assumed that wealth accumulation takes the form of human capital acquired through education the government is precluded from redistributing to a first best optimum by a self selection constraint the second best is shown to be time inconsistent in the time consistent optimum households underinvest in education an argument can be made for public intervention in the provision of education

the welfare economics of cooperative and noncooperative fiscal policy abstract in the absence of ricardian equivalence lump sum transfers between households within a country can alter the pattern of national saving and consumption allowing the government to exploit the country s size in world trade and in international borrowing and lending redistribution across generations through unfunded social security retirement schemes or public sector deficit finance with lump sum taxes and transfers enables a national planner to affect both the static and intertemporal terms of trade when trade restrictions or discriminatory taxation of asset income are unavailable due to international agreements the case for cooperative fiscal policy formation by governments of interdependent economies is examined in an overlapping generations economy with internationally perfectly mobile capital and a single relative price the world interest rate the optimum unfunded social security scheme when no distortionary tax instruments are allowed is derived for a government with nationalistic social preferences this policy targets both intergenerational distribution objectives and interest rate objectives the absence of distortionary taxes implies that no overall loss in world surplus need result from the strategic use of lump sum transfers so that coordination of intergenerational transfers is unnecessary for pareto optimality when internationally enjoyed public goods are introduced allocational efficiency requires cooperative selection of national exhaustive public spending programs but it does not demand that the financing of public expenditures be coordinated

rapid fdi expansion and firm performance today more firms are expanding rapidly into foreign markets to reach global scale quickly and to capture or nullify first mover advantages these trends run counter to the conventional theory of gradual internationalization which suggests that firms maximize the benefits of learning from prior experience thereby minimizing the hazard of failure we argue that this conventional wisdom does not consider the risk of being a perennial late mover in the face of increased global competition this study explores the circumstances under which rapid fdi expansion a strategy of undertaking fdi expansion at an accelerated speed can be a viable strategy using data on korean firm expansion we find that rapid fdi expansion enhances firm performance in industries where globalization pressures are high and when it is done by firms with superior internal resources and capabilities

time inconsistency of benevolent government economies abstract a dynamic walrasian economy is said to exhibit inconsistency if the competitive equilibrium path resulting from government reoptimization at some time 0 is not a continuation of the competitive equilibrium path resulting from the initial government optimization at time 0 the present paper establishes necessary and sufficient conditions for consistency for a general class of dynamic walrasian economies it is seen for example that reliance on nondistortionary policy instruments is neither necessary nor sufficient for consistency it is also shown that pareto optimal paths can be supported as optimal competitive equilibrium paths only if consistency prevails however consistent optimal competitive equilibrium paths need not be pareto optimal

real effects of anticipated and unanticipated money some problems of estimation and hypothesis testing abstract the paper addresses two issues that arise in estimation and testing of the real effects of anticipated and unanticipated money first it is shown that identification of the effects of unanticipated or unperceived monetary growth on real output is possible only if the a priori restriction is imposed that monetary growth does not depend on unanticipated or unperceived output second the existing empirical work of barro and others does not allow for three known channels through which money can affect real variables these are 1 past and present anticipations of future monetary growth the inflation tax channel 2 expectations of monetary growth in a given period conditioned at various preceding dates the fischer phelps taylor effect and 3 past and present revisions in forecasts of future monetary growth the presence of the first of these would mean that alternative open loop monetary growth rules have real effects the presence of the other two implies that monetary feedback rules can have real effects omission of the first channel can lead to biased estimates of the effects of past anticipated monetary growth potentially serious observational equivalence problems are associated with the other two

loss of monetary discretion in a simple dynamic policy game abstract we analyze a simple policy game featuring monetary credibility problems and argue that loss of monetary discretion is not advantageous two elements form the basis of our analysis firstly we endogenize the source of credibility problems and secondly we consider a dynamic framework where credibility problems are not time invariant by doing this we are able to demonstrate that credibility problems are temporary and in steady state the government has removed these through sound policies a binding policy rule will only serve as an obstacle towards this steady state

electoral markets party strategies and proportional representation closeness of its dialogue with historical knowledge kreuzer 2010 383 kreuzer also insists on the role that historical research plays in generating and testing theoretical propositions however in what i judge to be a more ambitious move he maintains that historical work when properly conducted may be a particularly suitable method to test the causal structures of a large swath of the theoretical work currently done in political science the crux of this position can be stated succinctly although still crucial for testing many causal propositions standard statistical methods may be inadequate to capture the underlying strategic structure that characterizes most if not all political and for that matter social events that is they may be insufficient to fully identify the players of the game inspect their beliefs payoffs and alternative strategies properly examine the sequence of decisions and verify the equilibrium conditions of the final outcome 2

incumbent positioning as a determinant of strategic response to entry existing research has identified different firm characteristics that determine an incumbent s reaction toward market entrants this study widens the perspective from a firm s absolute attributes to its relative positioning within its competitive environment the hypotheses for the empirical analysis are derived from game theoretic models with either vertical or horizontal product differentiation in each of the two theoretical models two incumbents initially choose very different quality and variety levels respectively and move closer to the center when faced by entry of a competitor from the vertical differentiation model we predict a stronger price reduction by high quality firms in our empirical analysis we are using a novel dataset of the high quality restaurant market in germany to test the theoretical findings while the hypotheses with respect to adjustments of prices and varieties are supported we do not find empirical evidence for the predicted quality adjustment

technological regimes and the persistence of first mover advantages this article investigates first mover and early entrant advantages in terms of market share and its growth by analyzing a unique panel data set of korean manufacturing firms specifically this article examines the existence and persistence of first mover and early entrant advantages across different technological regimes we find that these advantages are influenced by characteristics of the firms as well as of the technological regimes under which they operate in general early entry into a market benefits a firm in terms of the size and growth rate of its market share early entrants including first movers have higher market shares except in regimes with high technological opportunity and low r d appropriability however first movers are disadvantaged in terms of market share growth except in regimes with low technological opportunities and high r d appropriability we also find that firm specific competences in r d and advertising help to maintain attenuate first mover and early entrant advantages disadvantages copyright 2011 the author 2011 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

dynamic monetary control and interest rate stabilization abstract interest rate stabilization results in an instrument shortage that complicates monetary control by introducing strategic considerations into the trading desk s decision problem the paper demonstrates that when expected future open market operations influence current bank and depositor behavior an instrument shortage is necessary and sufficient for the commitment policy to be time inconsistent and for the discretionary policy to be suboptimal i e worse than the commitment policy the moving average component of the commitment policy is of higher order than the discretionary policy under either regime the expected value of the representative bank is increasing in the trading desk s emphasis on interest rate stability

do contingent rules really dominate fixed rules in the following pages we examine the generality of the proposition buiter i98i that innovation contingent or feedback or closed loop policies are always superior to non innovation contingent or fixed or open loop policies in the design of stabilisation programmes unless i they arbitrarily increase the randomness of current and future policy instruments or ii the authorities either pursue the wrong objectives or else pursue the right objectives in an inept manner what is at stake here is the general presumption that acting on more information is necessarily beneficial to the economic agent in order to tackle the question we bring together two strands of the literature that have so far remained largely separate first the optimum control strand which discusses policy within a framework where the authorities are assumed to be stackelberg leaders and the public stackelberg followers e g buiter i98i miller i984 and in which the proposition under scrutiny has been proved second the recent suggestion by barro and gordon i983 a b that the policy game in the absence of pre commitments may be better approximated by a nash non cooperative equilibrium between the authorities and private agents on the grounds that it is the only incentive compatible notion in this case the solution to the game is constructed in such a way that in equilibrium each agent is maximising his utility given the strategy chosen by the opponent i e each player has chosen his best reply to the other players moves it will be shown here that once a nash equilibrium is assumed contingent policies do not dominate fixed policies in the process it will also become apparent that once innovation contingent responses are allowed for barro and gordon s argument against discretionary policy is strengthened even if the deterministic component of the nash policy is non inflationary its innovationcontingent part is counterproductive in other words even if the authorities aim at stabilising output at and not above the natural rate or equivalently do not derive utility from positive deviations from the natural rate the absence of precommitment entails a welfare loss in section i we briefly discuss the relationship between information and precommitment and rules versus discretion to avoid misunderstanding of the thrust of our analysis in sections ii iv we demonstrate the central proposition in two different classes of models first in models as in buiter i98i wlhere the decision takers are restricted to react to exogenous shocks with a one peried lag second in models e g b friedman i977 and courakis i984 where while still unable to observe directly the behaviour of the ultimate goal variables

interactions of commitment and discretion in monetary and fiscal policies we consider monetary scal interactions when the monetary authority is more conservative than the scal with both policies discretionary 1 nash equilibrium yields lower output and higher price than the ideal points of both authorities 2 of the two leadership possibilities scal leadership is generally better with scal discretion monetary commitment yields the same outcome as discretionary monetary leadership for all realizations of shocks but scal commitment is not similarly negated by monetary discretion second best outcomes require either joint commitment or identical targets for both authorities output socially optimal and price level appropriately conservative or complete separation of tasks jel e61 e63

why do we have nominal government debt abstract we study the choice between nominal and indexed debt in a stochastic macroeconomic model with discretionary monetary and fiscal policy with distortionary taxes nominal debt provides valuable insurance against the budgetary effects of economic fluctuations we show that a welfare maximizing government always issues some nominal debt even though nominal debt increases inflation along the time consistent path of the economy the result is fairly robust with respect to changes in assumptions about policy constraints and about the macroeconomic setting

are technology intensive industries more dynamically competitive no and yes a substantial body of research in management and related public policy fields concludes that recent decades saw greater dynamic competition throughout technology intensive ti industries with widespread steady increase in ti industry and business performance instability as key implications we set this conclusion within a broader framework of purportedly increasing dynamic competition among ti industry businesses and then test for evidence of its performance implications in a large sample of u s businesses operating from 1978 to 1997 in 31 industries with high average research and development expenditure to sales ratios in the full sample we find no evidence of sustained increase in ti industry and business performance instability nor any evidence of significant cross sectional differences in performance instability between ti and non ti industry businesses over these 20 years for a small segment of very high performing businesses from ti industries however we do uncover evidence of declining performance stability and cross sectional differences in performance stability we conclude that assumptions of widespread long term increase in dynamic competition lack robust evidentiary support it is premature to embrace and apply broadly new theoretical perspectives management practices and public policies to ti industry competitive dynamics that may be slightly changed since the late 1970s yet there may be increasing dynamic competition among very high performing ti industry businesses in that small realm careful application of new perspectives practices and policies may lead to deeper insight on business behavior and performance in ti industries

intertemporal substitution and the role of monetary policy new classical macroeconomists have asserted that once one ignores the consequences of sustained expected inflation or what is normally referred to as the tobin effect or inflation tax monetary policy is invariably ineffective both in the long and short run this view is not correct it will be shown that inflation tax free monetary policy rules can have strong stabilisation effects in rational expectations models with intertemporal substitution the best way to eliminate possible inflation tax effects of monetary growth is to assume that as in barro s i976 model the long run expected rate of growth of the money supply is zero more generally if one were concerned exclusively with the effectiveness of stabilisation policy in the new classical sense i e the capability of influencing deviations of actual equilibrium output from its full information level it would be sufficient to postulate that money transfers are simply proportional to pre existing money holdings the a priori exclusion of the tobin effect as a pre requisite for the new classical doctrine is clearly stated in lucas i98i

interfirm differences in scale economies and the evolution of market shares evolutionary and resource based theories imply that firms in an industry with different resources and capabilities may differ in critical characteristics of their production functions such as economies of scale this paper measures these inter firm differences in economies of scale and examines how they affect the subsequent evolution of the market share distribution in the money market mutual fund industry the findings indicate that fund families with larger marginal benefits to increasing their scale do subsequently gain market share at the expense of their rivals but that this effect diminishes as the fund family ages perhaps as a consequence of imitation copyright 1999 john wiley sons ltd

on the strategic accumulation of intangible assets the resource based view holds that firms can earn supranormal returns if and only if they have superior resources and those resources are protected by some form of isolating mechanism preventing their diffusion throughout industry one isolating mechanism that has been proposed for intangible assets is their accumulation process the hypothesis is that intangible assets are inherently inimitable because would be imitators need to replicate the entire accumulation path to achieve the same resource position thus entrants can never catch up to incumbents an interesting challenge to this hypothesis is counterfactual evidence that entrants sometimes outperform incumbents such counterfactual evidence should not exist if the theory is strictly correct this paper attempts to reconcile resource accumulation theory with the counterfactual evidence we do so by building an intermediate good production function for a firm s intangible asset stocks we test the contribution of the intangible asset stock to the firm s final good production function and examine the extent to which that asset stock deters rival mobility in the pharmaceutical industry we find that the asset accumulation process itself cannot deter rivals because asset stocks reach steady state rather quickly entrants can achieve an incumbent s intangible asset stock merely by matching its investment until steady state thus we conclude that the accumulation process per se is not an isolating mechanism while this is perhaps the most important contribution another contribution is an empirical methodology for characterizing the accumulation function

optimal monetary policy rules in a rational expectations model of the phillips curve using a rational expectations model based on a phillips curve with persistence in inflation we derive optimal monetary policy rules under both commitment and discretion we assume that the central bank targets the natural rate of output so there is no incentive generating an average inflation bias with commitment inflation has less persistence but more conditional variability whereas output has more persistence and less conditional variability than with discretion as the commitment strategy stabilizes the systematic component of inflation it is less responsive to random shocks to inflation

social insurance with risk reducing investments a two sector model with sector dependent disability risks is presented working in the low risk sector requires skills that can be obtained by investments in education moral hazard precludes full insurance the labour force allocation is responsive to the incentives created by a social insurance system the rationale for intervention lies in the government s power to cross subsidize between the sectors and it is demonstrated how the responsiveness of the labour force allocation limits cross subsidization the second best policy is time inconsistent the consistent equilibrium is explored and is argued to provide weak incentives to reduce risks ties to live off their own work recently social insurance has come under scrutiny owing to increased pressures to reduce government expenditures one critical view that has been put forward is that a public system that pools work ers with different occupations may cause a significant loss of welfare since different occupations are associated with different levels of risk it is argued that pooled systems while adhering to a general notion of fairness cause an inefficient allocation of the labour force put in simple terms pooled systems implicitly subsidize risky activities and thereby promote excessive undertaking of such activities the purpose of this study is to investigate the problem of social insurance design in a setting where workers can influence the disability risks they are exposed to by choosing a low risk occupation the model presented has two sectors a high risk sector and a low risk sector working in the low risk sector requires some kind of costly investment which we represent as a choice of education although it is clear that any investment undertaken by the work ers e g migration investments leads to precisely the same trade offs the workers choose which sector to enter in response to the incentives created by the social insurance system this allows an analysis of the trade off between the efficiency of the labour force allocation and distributive concerns as well as a characterization of optimal social insurance under various assumptions about the government s ability to cross subsidize and to affect occupational choices following the seminal work by diamond and mirrlees 1978 a moral hazard problem precludes full insurance and creates a second best environment our framework is similar in some respects to that of whinston 1983 in a pure moral hazard framework whinston shows that optimal contracts cross subsidize in favour of more accident prone workers to an extent that makes them better off than less accident prone workers on this point we extend whinston s result by identifying the exact redistributive rule and by providing an interpretation of the result as an instance of tagging whinston further

monetary policy and policy credibility theories and evidence within the past decade there has been a significant shift in attitude by many western industrialized countries toward the objectives and conduct of national economic policy the events of the 1970s accelerating inflation and stagnant economic growth motivated the view that inflation had created its own stubborn self sustaining momentum that either was not amendable to the influences of conventional macroeconomic policy or else would yield to such influences only at unacceptable costs this led to the development of a program aimed at reestablishing control over prices while minimizing any adverse consequences of anti inflationary policies on output and employment seen as a new monetary experiment the essential ingredients included prudent financial management abstinence from discretionary intervention commitment to intermediate targets and above all prior announcement of these policies evidence of this program and its effects can be found oni the continents of europe north america and latin america and provide further important lessons in anti inflationary management this paper is a survey of recent theoretical developments in monetary policy which among other issues attempt to explain one rationale for this program and the likely consequences thereof to the extent that the new program of monetary and fiscal reform was deliberately made public and impressed upon citizens as an overriding commitment of governments in advance of its execution reflects a prevailing opinion that economic policies are more effective if they are credible to private economic agents this view emphasized forcefully by william fellner 1976 1979 may be seen as being mainly due to the assimilation of the rational expectations hypothesis

rules commitment and the search for stable money a review essay political economists have always criticized existing monetary institutions and struggled to articulate a vision of an ideal monetary system the volume under review the search for stable money essays on monetary reform edited by james a dorn and anna j schwartz university of chicago press 1987 stands firmly in this tradition it addresses the shortcomings of modern monetary institutions and debates the merits of various alternative arrangements the volume consists of nineteen essays and a number of short comments among the contributors are three nobel prize winners buchanan friedman and hayekthough buchanan simply comments on bernholz generally speaking the essayists disapprove of the virtually unlimited discretion invested in the federal reserve they argue that discretion leads to unnecessarily high and variable rates of inflation the essayists also agree that the solution ought to take the form of a change in the political rules which would have the effect of limiting government control over the monetary system beyond this there is no consensus the contributors consider money growth rules the gold standard a proposal for a compensated dollar and competitive currency systems but often find one another s proposals as objectionable as the status quo the essays in this volume are about five years old with the exception of the introductory piece by james dorn each was originally published elsewhere most originally appeared in the cato journal in 1983 sometimes the age of the essays shows careful analysis of federal reserve policy in 1981 82 was no doubt of topical interest when the essays were written but is less so now

public economics and the theory of public policy when james mirrlees and william vickrey were awarded the nobel prize in economics last year it marked only the third time that the award had gone to scholars of public sector economics in contrast to the reception given to the previous two winners ronald coase and james buchanan the news was greeted with some bewilderment by policy specialists once removed from the academic literature who are mirrlees and vickrey and what have they done that has been of lasting benefit to the study of public economics let alone of practical benefit to policy makers this seems to me to be a fair question coase after all had set out a conceptual approach to the study of externalities and transaction costs that has become an implicit part of the methodological baggage carried around by policy economists and policy makers alike buchanan was in part responsible for the welcome emphasis on institutions in public sector decision making and for insisting that politicians bureaucrats and voters are human beings with human motives the legacy of mirrlees and vickrey is less well known but i would argue it is every bit as profound their approach to the theory of economic policy which is grounded on the importance of imperfect information as a constraint on public policy has changed the very nature of public economics research and of its implications for economic

consistent tariffs with dynamic supply response abstract this paper models a large importer of a competitively produced good for which there are nonlinear adjustment costs in production if producers have rational expectations and the importer is unable to make a credible commitment regarding future tariffs market power may be disadvantageous this is more likely to occur when the difference between short and long run elasticities of supply are large this result depends on the particular subgame perfect equilibrium that is chosen if producers were capable of strategic behavior other equilibria which rely on trigger strategies would be reasonable and market power could no longer be disadvantageous

debt contingent inflation contracts and targets abstract this paper analyzes fiscal and monetary policy interaction in a simple policy game with debt and output shocks seigniorage provides revenue for the government but results in an inflation bias we analyze three mechanisms designed to eliminate some or all of the biases in monetary policy an inflation performance contract inflation target both contingent on the stock of debt and a zero inflation rule the performance contract and inflation target result in higher interest rate remove all biases in monetary policy and achieve the pre commitment policy hence they are equivalent the first two solutions also yield a higher expected welfare than a zero inflation policy

strategic discipline in monetary policy with private information optimal targeting periods this paper analyzes a multiperiod monetary targeting procedure as a possible resolution to the credibility problem in pol icy when the monetary authority has some private information by limitin g the degree of flexibility permitted in policy this procedure mitiga tes the credibility problem as the length of the targeting horizon decreases the severity of the credibility problem falls but at the expense of weakening the monetary authority s ability to pursue its stabilization goals based on model simulations the analysis studi es the determinants of the optimal targeting horizon that balances the benefits of flexibility and discipline in policy copyright 1993 by american economic association

monetary nominal income and exchange rate targets in a small open economy abstract in this paper i examine the properties of monetary nominal income and exchange rate targets as stabilization policies in an open economy perfect capital mobility and a wide variety of transitory random shocks is assumed nominal wages are assumed to have been set in advance of the realization of the shocks none of these rules is in general sufficient to minimize the welfare cost of aggregate fluctations and none necessarily dominates all others under the assumption that monetary control is subject to random errors optimal policy implies reactions to all observable shocks and is characterized by heavy exchange market intervention

competitive bluffing an examination of a common practice and its relationship with performance bluffing a common and consequential form of competitive behavior has been comparably ignored in the management literature even though misleading one s rivals is suggested to be an advantageous skill in a multifaceted and highly competitive environment to address this deficiency and advance scholarship on competitive dynamics our study investigates the moral reasoning behind competitive bluffing and using a simulated market entry game examines the performance effects of bluffing findings suggest that decision makers views on the ethicality of bluffing competitors differ from their beliefs on the ethicality of misleading other organizational stakeholders analysis also indicates that decision makers who view competitor bluffing as more ethical less unethical are more willing to engage in competitive bluffing finally while bluffing is often thought to be an effective business practice results show that in the context of repeated interaction bluffing is not conducive to high levels of performance and in fact can have undesirable consequences

macroeconomic policy evaluation and optimal control theory a critical review of some recent developments abstract this survey addresses the recent literature on the application of optimal control theory and game theory to macroeconomic policy evaluation and design this literature focuses on strategic interactions between governments and private agents engaged in dynamic non cooperative games and emphasizes such issues as precommitment credibility and reputation as important and endemic aspects of optimal policy design a dominant theme is the problem of dynamic inconsistency and the inferiority of an equilibrium in single stage full information games without commitment this may be alleviated in repeated games involving reputation effects and threat strategies designed to coerce rivals into pursuing particular strategies and to sustain a sequential equilibrium the type and characteristics of a sequential equilibrium also depend importantly upon the information structure conditioning players beliefs under uncertainty included here are separating and pooling equilibria involving notions of learning signalling and information revelation additional dimensions exist in stochastic systems which introduce other forms of uncertainty optimal control and game theory have also been applied to international macroeconomic policy design with emphasis on the potential costs and benefits of non cooperative and cooperative behaviour between countries and problems of international policy coordination

the superiority of contingent rules over fixed rules in models with rational expectations the paper investigates the robustness of the proposition that in stochastic models contingent or feddback rules dominate fiped or openloop rules four arguments in favour of fixed rules are considere 1 the presence of an incompetent op malevolent policy maker 2 a trade off between flexibility and simplicity or credibility 3 the new classical proposition that only unanticipated stabilization policy has real effects 4 the time inconsistency of optimal plans in non causal models that is models in which the current state of the economy depends on expectations of future states the main conclusion is that the rational expectations revolution represented by arguments 3 and 4 does not affect the potential superiority of time inconsistent closed loop policies over time inconsistent open loop policies the case against conditionality in the design of policy must therefore rest on argument 1 or 2 which predate the new classical macroeconomics

don t rest on your laurels reputational change and young technology based ventures abstract we combine resource based theory and social cognition theory to investigate the factors both limiting and related to between period reputational change of young firms in a dynamic technology based industry an analysis of computer graphics chipmakers during the period 1992 2003 provides evidence that operational signals are related to reputational change specifically receiving a product award in the current period is associated with positive change and gaps in product announcements are associated with negative change we find little support for our hypothesis that the reputations of older firms are less likely to change

rules or discretion in public sector decision making rules and discretion in public sector decision making are compared in a macroeconomic setting where there is a potential role for an active stabilization policy when the policymaker has private information about nominal shocks the credibility of announcements about the state of nature is shown to depend critically on both the policymaker s preferences over output and inflation and on the institutional setting rules or discretion the issue of rules versus discretion is found to depend on the flexibility lost under a rule relative to the timeinconsistency problem arising under discretion