the replacement problem abstract a prototypical vintage capital model of economic growth is developed where the decision to replace old technologies with new ones is modeled explicitly technological change is investment specific depreciation in this environment is an economic not a physical concept the vintage capital economy s balanced growth paths and transitional dynamics are analyzed the transitional dynamics are markedly different from the standard neoclassical growth model

factor productivity and income inequality a general equilibrium analysis economic growth over the past two decades has failed to reduce income inequality we contend that major reasons for this are the slowdown and bias in technological change productivity growth given the complexity of the many interactions that take place this phenomenon is best addressed in a general equilibrium context for this purpose we have developed a computable general equilibrium cge model with advanced features relating to income distribution we perform a series of simulations based on recent overall productivity changes but under various forms of technological change bias factor mobility and government budgetary balance we find the labour augmenting technological change cases to be most consistent with recent experience

efficient mechanisms for bilateral trading we consider bargaining problems between one buyer and one seller for a single object the seller s valuation and the buyer s valuation for the object are assumed to be independent random variables and each individual s valuation is unknown to the other we characterize the set of allocation mechanisms that are bayesian incentive compatible and individually rational and show the general impossibility of ex post efficient mechanisms without outside subsidies for a wide class of problems we show how to compute mechanisms that maximize expected total gains from trade and mechanisms that can maximize a broker s expected profit journal of economic literature classification number 026

capital quality improvement and the sources of economic growth in the euro area sources of growth europe s growth slowed in the 1990s reinforcing the overall impression of a need to catch up with the us regarding standards of living in reaction eu leaders adopted the famous lisbon agenda in 2000 the agenda is now under review the aim being to determine why progress on its pro growth goals has been unsatisfactory and what can be done about it the first crucial step in this process is to understand the true sources of the european growth slowdown sources of growth calculations have always been imprecise but evidence from the us suggests that quality upgrading especially in capital goods has substantially worsened the precision problem since the 1990s unfortunately quality adjusted sources of growth calculations however have not performed satisfactorily for europe so europe s leaders are working with potentially misleading accounts of europe s growth slowdown redressing this omission is the goal of this paper failure to account properly for capital quality improvements leads to two mistakes first overall gdp is underestimated our calculations for example show that euro area gdp growth was underestimated on average by 0 7 percentage points annually in the late 1990s however similar quality adjustment figures raise us growth figures in the same period by even more so quality adjusting suggests that the us eu growth gap was even more pronounced than previously believed secondly the sources of growth calculations used to prioritize europe s pro growth policies are skewed our calculations show that the contribution of the slowdown in disembodied technical progress to the overall slowdown is more pronounced after quality adjustment our findings point to the need for adoption of microeconomic measures aimed at enhancing overall efficiency and boosting innovation activity such measures would aim at a better business environment e g by easing regulatory and administrative burden and liberalizing energy and telecommunications markets plutarchos sakellaris and focco vijselaar

the role of net foreign assets in a new keynesian small open economy model abstract this paper develops a small open economy sticky price model that determines a unique stable long run asset position for households as function of their incentive to anticipate or postpone consumption and labor effort across periods this is accomplished by adopting an overlapping generations structure in which new households with no assets enter the economy in each period the same characteristics of household behavior that determine long run assets are also important determinants of the model s responses to shocks stabilizing producer prices results in a milder recession following a drop in world demand than stabilizing consumer prices because it prevents the markup in the pricing of goods from increasing in addition given an initial foreign debt allowing consumer prices to rise causes a decrease in the ex post real interest rate on impact lowering the interest burden of the initial debt the differences across policy rules generated by the initial asset position are robust to changes in the latter as long as these are brought about by changes in parameter values that do not alter the fundamental characteristics of household and firm behavior that are also the key determinants of long run assets

robust trading mechanisms we consider the problem of designing a trading institution for a single buyer and seller when their valuation of the good is private information it is shown that posted price mechanisms are essentially the only mechanisms such that each trader has a dominant strategy a posted price mechanism is one where a price is posted in advance and trade occurs if and only if all traders agree to trade

exchange rate policies and endogenous time preference a dynamic analysis of a small open economy abstract the effects of exchange rate policies are examined for a small open economy with endogenous rate of time preference using optimizing framework and introducing money into the utility function it is shown that a depreciation of the domestic currency generates a surplus in the current account it also leads to an increase in consumption and a decrease in the holdings of real balances in the long run

a neoclassical model of the balance of payments this paper analyses the transitory and long run effects of devaluation and tariffs as well as the effects of alterations in the domestic money supply and the terms of trade for a small country on fixed exchange rates these issues are investigated in a self contained dynamic optimization model of the sort popularized by brock 1974 1975 familiar results in the trade literature are thereby explicated for the nonspecialist who is nonetheless familiar with brock s work there are some new results regarding the role played by income and substitution effects in determining the consequences of terms of trade shifts this paper introduces a perfect foresight optimizing model of the monetary approach to the balance of payments for a small country on fixed exchange rates the model is then used to analyse the effects on the balance of payments of devaluation of a tariff and of changes in the terms of trade the effects of devaluation tariffs and changes in the terms of trade have been analysed previously within the framework of nonoptimizing models dornbusch 1973 1980 and anderson and takayama 1977 have studied the effect of devaluation mussa 1974 1976 anderson and takayama 1978 1981 and batra and ramachandran 1980 have studied the effect of tariffs and rodriguez 1976 batra and ramachandran 1980 and anderson and takayama 1981 have studied the effect of changes in the terms of trade optimizing models in which real balances appear as an argument in the utility function are increasingly popular in international economics the general approach was inspired by sidrauski 1967 and brock 1974 1975 recent contributions to the trade literature using this framework include dornbusch and mussa 1975 calvo 1980 1981 liviatan 1981 and obstfeld 1981 a 1981 b 1982 the purpose of this paper is to translate the conventional small country fixed exchange rate model into this framework the results are generally congruent with those in the nonoptimizing literature which suggests that the money in the utility function approach works well here compared to the nonoptimizing literature the real advance is that price adjustment and price expectations are endogenous and rational among the benefits are that one need not postulate the ad hoc price adjustment mechanism used by anderson and takayama nor the backward looking and hence irrational permanent income formulation used by rodriguez furthermore there has been controversy over the balance of payments effects of a shift in the terms of trade while the model s predictions on this issue are theoretically ambiguous the model shows that the answer depends crucially on the magnitude of income effects this clarifies the conditions required for a terms of trade shift to improve or worsen the balance of payments

the dollarization of a small economy within a utility maximizing framework we study the effects of replacing the national currency with the dollar in a small open economy the impact effect is a drop in the levels of liquidity and wealth the economy reaccumulates real balances by reducing consumption and showing a trade surplus the welfare implications of the program depend on the social rate of time preference and the inflation rate differential we show that the u s can improve both its own welfare and that of the small country s by bribing it into switching currencies we study how these results change with the introduction of capital mobility

strategy proof exchange we consider the allocation of goods in exchange economies with a finite number of agents who may have private information about their preferences in such a setting standard allocation rules such as walrasian equilibria or rational expectations equilibria are not compatible with individual incentives we characterize the set of allocation rules which are incentive compatible or in other words the set of strategy proof social choice functions social choice functions which are strategy proof are those which can be obtained from trading according to a finite number of pre specified proportions the number of proportions which can be accommodated is proportional to the number of agents such rules are necessarily inefficient even in the limit as the economy grows

the transatlantic productivity gap is r d the main culprit the literature has pointed to different causes to explain the productivity gap between europe and united states in the last decades this paper tests the hypothesis that the lower european productivity performance in comparison with the us can be explained not only by a lower level of corporate rd however using different estimation techniques the r d coefficients for the us firms always turn out to be significantly higher to see to what extent these transatlantic differences may be related to the different sectoral structures in the us and the eu we differentiated the analysis by sectors the result is that both in manufacturing services and high tech sectors us firms are more efficient in translating their r d investments into productivity increases

income distribution and housing prices an assignment model approach we present a framework for studying the relation between the distributions of income and house prices that is based on an assignment model where households are heterogeneous by incomes and houses by quality each household owns one house and wishes to live in one house thus everyone is potentially both a buyer and a seller in equilibrium the distribution of prices depends on both distributions in a tractable but nontrivial manner we show how the impact of increased income inequality on house prices depends on the shapes of the distributions and can be inferred from data in our empirical application we find that increased income inequality between 1998 and 2007 had a negative impact on average house prices in 6 us metropolitan areas jel d31 r21

directed technical change with capital embodied technologies implications for climate policy abstract we develop a theoretical model of directed technical change in which clean zero emissions and dirty emissions intensive technologies are embodied in long lived capital stocks switching from dirty to clean innovation leads to ongoing reductions in the relative costs of producing clean investment goods making them ever cheaper to purchase and so encouraging clean investment at the same time falling replacement costs imply falling asset values consequently continuing innovation in capital embodied clean technologies also generates obsolescence costs which are borne by users of clean capital the negative effect of obsolescence costs on demand for clean investment and consequently on the speed of transition to clean growth has been neglected in the literature on directed technical change we show theoretically and using numerical simulations that optimal policies differ in our model of embodied technological change relative to an otherwise comparable model of disembodied technological change with embodied technologies i optimal emissions taxes start higher and rise faster ii much higher clean research and development subsidies are required to effect the switch to clean innovation and iii climate damages under optimal policies are greater we suggest that more attention should be paid to the role of obsolescence costs in modelling transitional effects of climate policies

technology shocks and job flows we consider a version of the solow growth model where technological progress can be investment specific or investment neutral the labour market is subject to search frictions and the existing productive units may fail to adopt the most recent technological advances technological progress can lead to the destruction of technologically obsolete jobs and cause unemployment we calibrate the model to replicate the high persistence that characterizes the dynamics of firms neutral technology and the frequency of firms capital adjustment we find that neutral technological advances increase job destruction and job reallocation and reduce aggregate employment investment specific technological advances reduce job destruction have mild effects on job creation and are expansionary hence neutral technological progress prompts schumpeterian creative destruction while investment specific technological progress operates essentially as in the standard neoclassical growth model using structural var models we provide support to the key dynamic implications of the model copyright 2007 wiley blackwell

nash equilibrium and welfare optimality if is a set of social alternatives a social choice rule scr assigns a subset of a to each potential profile of individuals preferences over a where the subset is interpreted as the set of welfare optima a game form or mechanism implements the social choice rule if for any potential profile of preferences 1 any welfare optimum can arise as a nash equilibrium of the game form implying in particular that a nash equilibrium exists and 2 all nash equilibria are welfare optimal the main result of this paper establishes that any scr that satisfies two properties monotonicity and no veto power can be implemented by a game form if there are three or more individuals the proof is constructive

the equitable top trading cycles mechanism for school choice the equitable top trading cycles mechanism a particular adaptation of gale s top trading cycles ttc procedure applied to school choice the so called ttc mechanism has attracted much attention both in theory and practice due to its superior efficiency and incentive features we discuss and introduce alternative adaptations of gale s original procedure that can offer improvements over ttc in terms of equity along with various other distributional considerations instead of giving all the trading power to those students with the highest priority for a school we argue for the distribution of the trading rights of all slots of each school this allows them to trade in a thick market where additional constraints can be accommodated by choosing an appropriate pointing rule we propose a particular mechanism of this kind the equitable top trading cycle ettc mechanism which is also pareto efficient and group strategy proof just like ttc and eliminates avoidable justified envy situations ettc generates significantly fewer justified envy situations than ttc both in simulations and the lab

deconstructing the pioneer s advantage examining vintage effects and consumer valuations of quality and variety several studies have demonstrated an order of entry effect on market share suggesting that pioneers outperform later entrants however other research has pointed out the limitations of these studies and found evidence that many pioneers fail or have low market share given this background the purpose of this research is to understand the conditions under which pioneers are more likely and also less likely to have an advantage we propose a game theoretic model that includes important sources of pioneer advantages as well as disadvantages specifically we incorporate a pioneer advantage due to preemption in markets with heterogeneous tastes in addition we incorporate a potential pioneer disadvantage due to technology vintage effects where later entrants utilizing improved technology can have lower costs and higher quality the model allows us to evaluate the extent of vintage effects necessary to overcome a pioneer s advantage key relationships are found between the magnitude of the pioneer advantage or disadvantage and consumer valuations of product attributes e g variety and quality we empirically validate the model with vintage effect data in 36 product categories and measures of consumer valuations of product variety and quality for 12 of these 36 categories the results show that pioneers do better in product categories wherevariety is more important and worse in categories where productquality is more important pioneers in categories with high vintage effects are shown to have lower market shares and higher failure rates similar results appear when analyzing persistence of market leadership over time further validating our model s major implications we also present two case studies that illustrate key elements of the model

the interplay between micro frontier and sectoral short run production functions we apply leif johansen s dynamic production function framework to the development of the finnish brewery industry over a 30 year time span 1955 to 1984 based on micro data plants the relationship between the micro frontier and short run industry production functions is analysed particularly with respect to the evidence of embodied technical progress the empirical analysis reveals striking differences in the time pattern of productivity growth of the two functions illustrates the importance of capacity expansion for technical progress at the frontier and clarifies the distinction between embodied and disembodied technical progress

large indivisibles an analysis with respect to price equilibrium and fairness an exchange economy is considered in which there are a finite number of individuals the same number of indivisibles and a fixed amount of a divisible good each individual consumes exactly one of the indivisibles and a certain quantity of the divisible good the existence of prices corresponding to pareto efficient allocations is proved it is also shown that this economy possesses fair allocations income fair allocations coalition fair allocations and pareto efficient egalitarian equivalent allocations in this study the effect of including large indivisibles in an exchange economy will be analyzed the analysis will be carried out with respect to the existence of price equilibrium and with respect to the existence of different forms of fairness the economy consists of a finite number of individuals the same number of indivisibles and a fixed amount of a divisible good it is assumed that each individual consumes exactly one of the indivisibles and some quantity of the divisible good we may interpret the indivisibles as being professions or houses the relationship between price equilibrium and a pareto efficient allocation is well known and proved in a number of cases under different assumptions about preferences and commodities for a standard economy see e g debreu 5 in case of nonconvexities which may also describe a certain type of indivisibility we may have an exact relationship in economies with a continuum of individuals see e g hildenbrand 11 but otherwise an approximate relationship obtains the degree of approximation depends on the degree of nonconvexities in preferences and not on the number of individuals see e g arrow and hahn 1 we will prove the existence of prices characterizing a pareto efficient allocation in a case where the indivisibles play an essential role and where approximate results would be too approximate the indivisibles may be considered large for the individual compared to his total consumption the theory of fairness has developed considerably during the seventies different kinds of concepts of fairness have been introduced and analyzed see daniel 41 foley 81 pazner and schmeidler 121 and schmeidler and vind 141 among others normally these authors have considered models with divisible goods or an infinite number of individuals for exchange economies the existence of fair allocations an envy free and pareto efficient allocation has been proved in

workers machines and economic growth this paper models technology adoption as replacing workers by machines which perform the same job in the production process the paper shows that such modelling of technology adoption affects significantly the analysis of economic growth this model can explain large and persistent international differences in output levels and growth rates caused by small differences in underlying parameters

transferring ownership of public housing to existing tenants a market design approach this paper explores a housing market with an existing tenant in each house and where the existing tenants initially rent their houses the idea is to identify equilibrium prices for the housing market given the prerequisite that a tenant can buy any house on the housing market including the one that he is currently possessing or continue renting the house he is currently occupying the main contribution is the identification of an individually rational equilibrium selecting and group non manipulable price mechanism in a restricted preference domain that contains almost all preference profiles in this restricted domain the identified mechanism is the minimum price equilibrium selecting mechanism that transfers the maximum number of ownerships to the existing tenants we also relate the theoretical model and the main findings to the u k housing act 1980 whose main objective is to transfer ownerships of houses to existing tenants

balanced growth despite uzawa i use an event study approach to present novel evidence on the impact of trade liberalization on firm level profits using the uncertainty surrounding the negotiation and ratification process of the canada united states free trade agreement of 1989 cusfta i estimate the impact of different types of tariff reductions on the abnormal returns of canadian manufacturing firms i find that canadian import tariff reductions lead to lower and reductions in canadian intermediate input tariffs to higher abnormal returns the impact of u s tariff reductions is less clear and depends on the size of the affected firms i also calculate the total profit increase implied by my estimates overall cusfta increased per period profits by around 1 2 this was mainly driven by intermediate input tariff reductions which more than offset the negative effect of canadian import tariff reductions

the effectiveness of exchange rate changes this article addresses the question of whether exchange rates are a useful policy instrument the very question will raise tempers the suggestion that the real exchange rate is a policy variable is firmly rejected by any student in the new classical tradi tion and even by a broader group who are reluctant to declare a broad policy role for the nominal quantity of money or the nominal exchange rate either can of course be manipulated but whether there is scope to change in this manner the real quantity of money or the real exchange rate is quite another matter

productivity in the united states trends and cycles productivity growth in the us has taken a sharp downturn in recent years two experts provide a new body of comparative data on productivity since 1948 by major sector and industry the book analyzes 20 industries to highlight trends and fluctuations in productivity and to provide a better context for the discussion of policy options the authors set forth the causes of productivity advances based on growth accounting for the business economy as a whole they detail interindustry regressions with particular reference to the productivity slowdown since 1966 they look at both the traditional measure of productivity labor output per hour and the more recently developed measure of total factor productivity which takes into account capital as well as labor inputs the quarterly and annual data are used to relate changes to other basic variables such as factor prices unit costs and product prices an appendix presents data for 35 industries 42 references 8 figures 30 tables

vintage human capital growth and the diffusion of new technology we develop a model of vintage human capital in which each technology requires vintage specific skills we examine the properties of a stationary equilibrium for our economy the stationary equilibrium is characterized by an endogenous distribution of skilled workers across vintages the distribution is shown to be single peaked under general conditions there is a lag between the appearance of a technology and its peak usage a phenomenon known as diffusion an increase in the rate of exogenous technological change shifts the distribution of human capital to more recent vintages thereby increasing the diffusion rate

productivity and the embodiment of technical progress this survey of the issues involved in the embodiment hypothesis that technical change and productivity can be explained by changes in the quality of inputs into the production process treats the interrelationships of technical change and productivity presents some empirical findings on this subject and discusses some fundamental issues in further studies of embodiment topics covered include the nature of the embodiment hypothesis the vintage model of capital and embodiment in other inputs the use of the embodiment hypothesis to study productivity trends the embodiment hypothesis and the productivity slowdown in the 1970s and 1980s and potential future applications of the embodiment hypothesis

house allocation with transfers we consider the shapley scarf house allocation problem where monetary transfers are allowed we characterize the class of mechanisms that are strategy proof ex post individually rational ex post budget balanced and collusion proof in these mechanisms the price of each object is fixed in advance and the objects are reallocated according to the unique core assignment of the shapley scarf economy associated with the prices the special case in which all prices are zero is the core mechanism studied by shapley and scarf our mechanisms are compelling alternatives to the groves mechanisms which satisfy neither budget balance nor our condition of collusion proofness journal of economic literature classification numbers c71 c78 d71 d78 d89

house allocation with existing tenants an equivalence abstract we analyze two mechanisms designed to eliminate inefficiencies in house allocation problems where there are both existing tenants and newcomers the first mechanism chooses the unique core allocation of a sister exchange economy constructed by endowing each existing tenant with her current house and each newcomer with a random vacant house the second mechanism chooses an ordering from a given distribution and determines the final outcome as follows assign the agents the best available house one at a time following their ordering in the queue and whenever an agent demands the house of an existing tenant who is still in the line modify the queue by inserting the existing tenant at the top whenever a loop of existing tenants forms assign each of them the house she demands and proceed we show that the first mechanism is equivalent to an extreme case of the second which favors the newcomers

critical survey savings and economic growth in neoclassical theory in neoclassical economics economic growth depends upon savings the paper discusses problems with this conventional view and how these have been tackled from pre solowian authors up to the recent new or endogenous growth theory egt these difficulties became particularly clear with the solow swan model of growth in which the savings rate did not affect the rate of growth in the absence of exogenous circumstances savings would only depress the marginal productivity of capital forcing the economy towards a stationary state the paper interprets egt as an attempt to react to this gloomy theoretical prospect the paper examines various difficulties with this attempt

energy price energy efficiency and capital productivity empirical investigations and policy implications abstract the immediate effect of carbon pricing policy is to raise energy costs which in turn reduces energy consumption either through induced capital under utilization or investments in new energy efficient capital the latter mechanism which implies improvements in energy efficiency is realized in the long run while the former which has implications for capital productivity tends to occur in the short run we employ panel vector autoregressions as well as co integration and error correction techniques to identify these short and long run relationships including their differences across canadian industries

real asset returns inflation and activity in a small open cash in advance economy abstract the effects of inflation are worked out for a small open economy with cash in advance cia constraints on bond purchases if all transactions are subject to cia constraints an increase in the inflation rate will reduce savings bringing about a current account deficit while the capital stock will be unaffected if investment is not subject to cia constraints an increase in the inflation rate will encourage investment and reduce savings bringing about a current account deficit numerical evaluation of the model gives rise to falls in real interest rates that are in line with recent empirical findings

crawling peg inflation hedges and exchange rate dynamics this paper stresses the effects of currency substitution and speculation on inflation hedges on the relative price of home goods in the two sector general equilibrium portfolio balance model examining the overshooting hypothesis of exchange rates in association with the overshooting phenomenon of price of inflation hedges it has shown that exchange rate undershooting is plausible with the significant overshooting of the price of inflation hedges when domestic residents hold only domestic money and inflation hedges however the impact of currency substitution is strong enough to lead to exchange rate overshooting if the domestic residents have access to foreign currency

on the outcome of inconsistent programs under exchange rate and monetary rules abstract this paper studies the case of inconsistent programs of monetary policy that is programs incompatible in the long run with a given budget deficit so that at some point in the future there is an eventual crisis and demise of the program all of which is from the outset anticipated by the public the context is one of a small open economy with perfect foresight in which two sets of possibilities are analyzed i a monetary or an exchange rule for the conduct of monetary policy and ii presence or absence of capital mobility it is found that while the choice of the rule is unimportant restrictions on capital mobility determine a very different response for the case of either rule concerning side effects of the program on non monetary variables and on the post crisis level of country indebtedness

the capital inflows problem revisited a stylized model of southern cone disinflation in the late 1970s countries in latin america s southern cone initiated attempts to lower domestic inflation rates through the progressive reduction of a preannounced rate of exchange rate devaluation the stabilization programs gave rise to massive capital inflows real exchange rate appreciation and current account deficits this paper develops a stylized intertemporal framework in which the effects of a credible preannounced disinflation scheme can be studied it is shown that even when agents have perfect foresight and markets clear continuously the capital inflows phenomenon and the associated real appreciation may result while unanticipated permanent inflation changes are neutral in the paper anticipated inflation is neutral only in exceptional circumstances a preannounced disinflation operates by altering the path of an expenditure based real domestic interest rate that depends on expected changes in the prices of liquidity services and nontradable consumption goods

strategyproof assignment by hierarchical exchange we give a characterization of the set of group strategyproof pareto optimal and reallocation proof allocation rules for the assignment problem where individuals are assigned at most one indivisible object without any medium of exchange although there are no property rights in the model the rules satisfying the above criteria imitate a trading procedure with individual endowments in which individuals exchange objects from their hierarchically determined endowment sets in an iterative manner in particular these assignment rules generalize gale s top trading cycle procedure the classical rule for the model in which each individual owns an indivisible good

monetary policy in a small open economy with durable goods and differing cash in advance constraints abstract we consider the effects of inflation in a small open economy when expenditures on non durables are more heavily financed with money than expenditures on durables the distinctions between non durables and durables and asymmetric cash in advance constraints give rise to important dynamics

dynamics of the exchange rate in anticipation of pegging abstract this paper studies an economy in which agents expect the current floating rate regime to be interrupted on a specific future date by a transitional fixed rate policy when the new peg is not revealed in advance the path of the floating rate in anticipation of pegging is determined by the interaction between what agents perceive to be the objectives and the constraints of the central bank the paper highlights the role of the pegging date the duration of the fixed rate interval the quantity of reserves available to the authorities and the nature of policies expected after pegging is terminated

balance of payments dynamics and exchange rate management abstract this paper studies the dynamics of the balance of payments in response to policy disturbances under the assumption that the central bank devalues the country s currency over time at a constant pre announced rate depending on the magnitudes of the parameters of the model i find that a given disturbance may result in qualitatively different short run behavior of the balance of payments accounts in each case however the adjustment process will lead the economy to a stable long run equilibrium provided the government finances its spending according to a certain set of rules

fair allocation of indivisible goods and criteria of justice a set of n objects and an amount m of money is to be distributed among m people example the objects are tasks and the money is compensation from a fixed budget an elementary argument via constrained optimization shows that for m sufficiently large the set of efficient envy free allocations is nonempty and has a nice structure in particular various criteria of justice lead to unique best fair allocations that are well behaved with respect to changes of m this is in sharp contrast to the usual fair division theory with divisible goods

investment and technical progress models in which the growth rate is exogenous provide no role for government in determining growth in our model growth is associated with investment through externalities from learning by watching rather than with the level of the capital stock presumption of a technical progress function with first increasing and then decreasing returns leads to multiple steady state growth equilibria there is also an explicit role of government policy in setting tax rates on output it follows that two economies with identical structures and stochastic tax policies may exhibit very different growth paths over sustained periods although the stationary distribution of growth rates is the same given the desirability in principle of subsidizing investment various practical methods are considered copyright 1992 by oxford university press

strategy proofness and essentially single valued cores in this paper we search for solutions to various classes of allocation problems we hand results pertaining to housing markets are much more encouraging roth 1982b shows that in the context of housing markets the core correspondence which is shown to be single valued by roth and postlewaite 1977 is strategy proof moreover ma 1994 shows that it is the only solution that is pareto efficient individually rational and strategy proof

uniform commercial policy illegal trade and the real exchange rates a theoretical analysis countries on fixed exchange rates sometimes use uniform tariff cum subsidy utcs schemes as a way of achieving a real depreciation without disturbing the nominal exchange rate a potential drawback of this policy in relation to an across the board devaluation is that a utcs scheme provides incentives for illegal trade using an optimizing model with currency convertibility and illegal trade the author finds that welfare is lower under a utcs scheme than under a corresponding across the board devaluation and that in some cases the real exchange rate actually appreciates in response to an increase in the utcs rate

education and economic growth in taiwan a case of successful planning abstract taiwan s education system had three features which were instrumental to its spectacular economic success first it had an infrastructure already built up by 1950 for basic education that extended fairly broadly among the population second a ready supply of highly educated labor arrived in 1949 50 from the mainland to replace the japanese and to begin the process of building the local economy most important the education system was planned to grow in a manner that closely matched the changing requirements of the growing economy the compulsary basic education was raised from six to nine years the secondary level curriculum was shifted more toward vocational fields the supply of university graduates was strictly limited and the university curriculum changed to emphasize science and engineering subjects the levels above basic junior high level were expanded but disproportionately into the private sector so they were not as costly to the government

a paler shade of green environmental policy under induced technical change conventional wisdom argues that environmental policy is less costly if it induces the development of cleaner technologies in contrast to this argument we show that once the second best nature of actual economies is taken into account the cost of environmental policy may well be larger with induced technical change itc than without thus itc may lower both the emissions reductions and the welfare gains associated with environmental policy in an endogenous policy framework itc may reduce the desired stringency of the policy

the quantitative consequences of raising the u s saving rate the authors investigate the consequences of a permanent unphased increase in the u s gross saving rate they find that the sacrifice time the time that elapses until consumption surpasses the value it would have had under the initial saving rate is roughly six years and is insensitive to the percentage increase in the saving rate delta sub s the percentage gain in output at the end of decade the decade gain is roughly 26 of delta sub s while the percentage gain in consumption is roughly 8 of delta sub s the saving rate return the internal rate of return on a permanent increase in the saving rate is roughly 16 and is insensitive to delta sub s copyright 1991 by mit press

currency trade and capital flows in general equilibrium this paper studies currency trade and capital flows in a one good general equilibrium exchange model with utility maximizing individuals the effects of both monetary and endowment shocks are examined it is shown that both can cause trade and capital flows the model is a two country version of the twostate optimizing model used recently by leroy 1984a 1984b to study the effects of monetary and endowment shocks in a closed economy each country issues its own currency real and nominal bonds and equity shares each receives an endowment of a perishable consumption good the demand for money is generated by entering real balances into the utility function as in dornbusch and mussa 1975 calvo 1981 liviatan 1981 obstfeld 1981a 1981b 1982 razin 1981 stockman 1983 and michener 1984 each country holds both currencies an assumption made only by liviatan both monetary growth and endowments of the consumption

economic growth lessons from two centuries of american agriculture this paper reviews the growth experience of u s agriculture over the past two centuries in consonance with the view that growth is determined by the economic environment which consists of the available technology incentives constraints and institutions within this framework the implemented technology is determined jointly with the resource allocation the review covers the role played by resource endowment resource flow technical change and its factor bias and product demand it highlights the importance of the income elasticity of demand and the labor augmentation of the technical change the total factor productivity tfp was almost nil at the beginning of the nineteenth century increasing gradually to the point where it exhausted output growth in the latter part of the twentieth century this pattern is consistent with the postulate emerging from this framework where the tfp is endogenous and determined jointly with growth rather than determining it the more recent performance of u s agriculture is placed within a global perspective in order to generalize the discussion

eliciting preferences to assign positions and compensation abstract we describe strategy proof rules for economies where an agent is assigned a position e g a job plus some of a divisible good for the 2 agent 2 position case we derive a robust characterization for the multi agent position case many arbitrary such rules exist so we consider additional requirements by also requiring coalitional strategy proofness or nonbossiness the range of a solution is restricted to the point that such rules are not more complex than those for the shapley scarf housing model no divisible good third we show that essentially only constant solutions are immune to manipulations involving bribes finally we demonstrate a conflict between efficiency and strategy proofness the results extend to models without externalities in which agents share positions journal of economic literature classification numbers c72 d70

the age of capital the age of utilized capital tests of the embodiment hypothesis revisited early tests of the embodiment hypothesis which suggests that new capital is more productive than old may have been biased due to the incorrect use of age rather than utilized age of capital this study which attempts to correct for the potential mismeasurement bias by using the utilized age of capital in the analysis finds evidence that the embodiment hypothesis is valid

taxation and the cost of capital the uk experience since the 1960s the uk has witnessed a series of reforms to its corporation tax system these include the creation of corporation tax as an independent tax in 1965 the gradual introduction of generous capital allowances in the early 1970s the introduction of the partial imputation system in 1973 and stock relief in 1975 and the 1984 reforms which reduced the tax rate and capital allowances and abolished stock relief a number of these reforms were designed with the specific intention of influencing company decisions regarding investment and finance through the real cost of capital

group strategy proofness in private good economies many salient rules to allocate private goods are not only strategyproof but also group strategy proof in appropriate domains of definition hence diminishing the traditional conflict between incentives and efficiency that is so for solutions to matching division cost sharing house allocation and auctions in spite of the substantive disparity between these cases in a general framework encompassing all of them we prove that the equivalence between the two forms of strategy proofness is due to an underlying common structure that transcends the many differences between the contexts and the mechanisms for which it holds jel c78 d44 d63 d71 d82

the impact of vintage and survival on productivity evidence from cohorts of u s manufacturing plants this paper examines the evolution of productivity in u s manufacturing plants from 1963 to 1992 we define a vintage effect as the change in productivity of recent cohorts of new plants relative to earlier cohorts of new plants and a survival effect as the change in productivity of a particular cohort of surviving plants as it ages both factors contribute to industry productivity growth but play offsetting roles in determining a cohort s relative position in the productivity distribution recent cohorts enter with higher productivity than earlier entrants did whereas surviving cohorts show productivity increases as they age these two effects roughly offset each other however so there is a rough convergence in productivity across cohorts in 1992 and 1987

monetary policy under dual exchange rates abstract this paper finds that the introduction of dual exchange rates gives the monetary authority greater independence from external constraints than it would otherwise enjoy the monetary authority is able to influence the level of aggregate demand in the short run and to sterilize the effects of temporary foreign disturbances in addition the paper finds that dual rates insulate the domestic economy fully from foreign interest rate changes but do not provide insulation from speculative disturbances

putty clay technology and stock market volatility abstract firms first order conditions imply that stock returns equal investment returns from the production technology much applied work uses the adjustment cost technology which implies that the realized return is high when the investment capital ratio is high this paper derives for an arbitrary stochastic discount factor the investment return implied by the putty clay technology the combination of capital heterogeneity and irreversibility creates a novel channel for return volatility the investment return is high when the ratio of investment to gross job creation is low empirically the putty clay feature helps account for u s stock market data

capital mobility and devaluation in an optimizing model with rational expectations this paper examines the effects of ex change rate policies when individuals maximize lifetime utility on the basis of rational expectations about the future the economy studied is one in which the authorities allow free mobility of capital under a crawling peg exchange rate regime many industrializing economies have adopted a crawling peg as a means of reconciling disparate inflation rates at home and abroad and some recent efforts to use the rate of crawl as an instrument of anti inflation policy have attracted considerable interest see carlos diaz alejandro tools similar to those employed here have been applied by guillermo calvo forthcoming to study this type of exchange rate management under conditions of capital immobility this abstract was borrowed from another version of this item

labor supply with job assignment under balanced growth abstract we consider a competitive equilibrium growth model where technological progress is embodied into new jobs which are assigned to workers of different skills in every period workers decide whether to actively participate in the labor market and if so how many hours to work on the job balanced growth requires that the job technology is complementary with the worker s total labor input on the job which is jointly determined by his skill and his working hours since lower skilled workers can supply longer hours we show that the equilibrium features positive assortative matching higher skilled workers are assigned to better jobs only if differences in consumption are small relative to differences in worker skills when the pace of technological progress accelerates wage inequality increases and workers participate less often in the labor market but supply longer hours on the job this mechanism can explain why as male wage inequality has increased in the us labor force participation of male workers of different skills has fallen while their working hours have increased

no envy and consistency in economies with indivisible goods we consider the problem of fair allocation in economies with indivisible goods our main objective is to identify appealing subsolutions of the no envy solution we formulate desirable properties of solutions and look for solutions satisfying them given an allocation chosen by a solution for some economy and given a subgroup of the agents consider the problem of fairly distributing among its members the resources that this group has collectively received the solution is consistent if it recommends that the same bundle be attributed to each of these agents as initially we show that there is no proper subsolution of the no envy solution that satisfies consistency however many subsolutions satisfy bilateral consistency or the converse of consistency but again there is no proper subsolution satisfying these two properties together

top trading with fixed tie breaking in markets with indivisible goods abstract we study markets with indivisible goods where monetary compensations are not possible each individual is endowed with an object and a preference relation over all objects when preferences are strict gale s top trading cycles algorithm finds the unique core allocation when preferences are not necessarily strict we use an exogenous profile of tie breakers to resolve any ties in individuals preferences and apply gale s top trading cycles algorithm for the resulting profile of strict preferences we provide a foundation of these simple extensions of gale s top trading cycles algorithm from strict preferences to weak preferences we show that gale s top trading cycles algorithm with fixed tie breaking is characterized by individual rationality strategy proofness weak efficiency non bossiness and consistency our result supports the common practice in applications to break ties in weak preferences using some fixed exogenous criteria and then to use a good and simple rule for the resulting strict preferences

measuring the cost of capital when taxes are changing with foresight abstract the familiar hall jorgenson 1967 cost of capital perturbation is not a uniquely feasible one because of institutional features of actual tax systems the optimal holding time for an incremental unit of capital will generally be infinite the impossibility of an optimal rule for recapturing excess depreciation allowances on disposal is demonstrated when tax changes are foreseen the error in the traditional measure of cost of capital can become highly significant ignorance of this effect led to underestimates of the extent to which the radical changes to the u k corporation tax in 1984 would affect cost of capital and incentives to forestall planned investment

on endogenizing long run growth this assessment of recent theoretical work on endogenous growth identifies three different engines of long run growth i the asymptotic average product of capital is positive ii labor productivity increases as an external effect of capital accumulation iii there are feedback effects on the cost of accumulating knowledge or innovating a general model encompassing all three is considered and then used to review different proposed determinants of long run growth rates the contribution of endogenous growth theory has been to create a framework in which to explain why economic institutions and policies can have long run effects on growth rates

on the employment investment and current account effects of inflation abstract the effects of inflation targets are examined for a small open economy with cash in advance constraints an increase in the inflation rate by increasing the price of consumption relative to leisure reduces consumption and labor supply the fall in labor reduces the marginal productivity of capital and a fall in investment the country runs a current account surplus despite the fall in output the dynamics of the model for permanent and temporary policy changes are fully worked out with the aid of a diagrammatic apparatus quantitative analysis of the model reveals substantial impact and steady state effects

regional and technological determinants of company productivity growth in the late 1980s ke s and bergman e m 1995 regional and technological determinants of company productivity growth in the late 1980s reg studies 29 59 71 this paper estimates the impacts on productivity growth of regional factors and technological inputs two unique data sets for us textile apparel and computer electronics companies are combined with secondary data to estimate a total factor productivity tfp growth equation a neutral technological progress ntp equation and an equation of scale economies the estimates show that regional factors and technological inputs are more significant contributors to tfp and ntp in computer electronics production than in textile apparel similarly regional factors and technological inputs have stronger influence on scale economies in computer electronics than in textile apparel scale economies as traditionally measured show a complicated pattern of empirical performance and may not be a straightforward indicator of productivity growth in an era of downsizing and flex

innovation and productivity growth the puzzle confronting economists has been that the rate of growth of output that was being observed has been much larger than the rate of increase in the principal resources that were being measured it is now clear that this puzzle is of our own making because we have been using measures of capital and labor which had been refined and narrowed in ways that excluded many of the improvements that have been made in the quality of these resources theodore w schultz 1962

incentive compatibility in a market with indivisible goods abstract in a market in which each trader s initial endowment is one unit of an indivisible good there exists an incentive compatible procedure for reaching a competitive allocation this contrasts with some recent results for similar problems

strategy proofness and the core in house allocation problems abstract we study house allocation problems introduced by l shapley and h scarf 1974 j math econ 1 23 28 we prove that a mechanism a social choice function is individually rational anonymous strategy proof and nonbossy but not necessarily pareto efficient if and only if it is either the core mechanism or the no trade mechanism where the no trade mechanism is the one that selects the initial allocation for each profile of preferences this result confirms the intuition that even if we are willing to accept inefficiency there exists no interesting strategy proof mechanism other than the core mechanism journal of economic literature classification numbers c71 c78 d71 d78 d89