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

multidimensional mechanism design for auctions with externalities abstract in an auction with externalities a buyer s type is multidimensional and specifies the payoff he would get for each of the n 1 possible outcomes the seller keeps the object or buyer i i 1 n gets the object we provide a characterization of multidimensional incentive compatible mechanisms similar to that for one dimensional mechanisms although reservation utilities are endogenous and type dependent the participation constraint is binding for only one critical type a main difficulty in a multidimensional setting is the integrability condition we present a geometric characterization for discontinuous conservative vector fields in auctions where the buyers submit scalar bids and the seller transfers the object to one of the buyers for sure a second price auction maximizes revenue with two buyers this auction remains optimal even if the seller can set a reservation price journal of economic literature classification numbers c7 c72

on the optimality of not allocating we show that the commitment to not allocate may be exploited by a seller social planner to increase the expected social surplus that can be achieved in the sale of an indivisible unit

cyclical and causal relations between real wages and employment in the eu this paper analyses and compares the joint behaviour of real wages and employment over the business cycle in the european union eu economies using both annual and quarterly data since 1960 further investigation of the cointegrating properties and the existence of causal effects in the real wage employment relation is undertaken by employing appropriate var models the evidence suggests weak procyclical or acyclic behaviour of real wages relative to cyclical employment in the quarterly data and stronger procyclicality in the annual data thus confirming the dunlop tarshis result for the majority of the eu economies with a few exceptions no cointegrating relations were detected while the granger causality tests suggest either weak or lack of unidirectional causality finally the sensitivity analysis showed that the filtering method has not much influence on the results but the choice of deflator may overturn them in certain cases

has government investment crowded out private investment in india pritha mitra in india the relationship between government investment and private investment is a controversial issue economic theory suggests that government investment financed by borrowing reduces the loanable funds available for private investment driving up interest rates and reducing the level of private investment if as keynesians argue the positive impact of increased government investment outweighs the negative impact of reduced private investment then economic growth will increase in the case of india government investment would add to the momentum of india s growth

testing misspecified cointegrating relationships the powers of various tests for cointegration are compared in an experimental design where there is a possible mismatch between the variables used in the construction of the tests and the variables entering the true cointegrating vector s

voting and optimal provision of a public good in this paper we study the optimal provision of a costly public good using an average efficiency criterion for every fixed cost we identify a quota mechanism as the optimal mechanism among those that are dominant incentive compatible deficit free and kind moreover we also consider the asymmetric case and demonstrate that a committee mechanism is optimal for a large class of mechanisms in particular this mechanism dominates all vcg pivotal mechanisms

wage determination in the uk this paper offers a sysnthesis of a number of important complementary theories of wage determination the model is estimated and tested with respect to its long run and dynamic properties applying johansen s 1998 fiml estimation procedure the maximum eigenvalue and the trace tests suggested two cointegrating vectors and estimated and another the underlying theoritical model we combined both vectors and estimated in a second step an error correction model which was satisfactory with regard to its in sample and out of sample performance none of the assumptions for ols estimation were violated and the recursive estimation revealed model stability additionally the forecasting ability of the model was satisfactory the main feauture of this model is that conflict elements are of parmount in the uk wage determination

the case for gdp indexed bonds gds indexed bonds this paper seeks to revive the case for countries to insure against economic growth slowdowns by issuing bonds indexed to the rate of growth of gdp we show that gdp indexed bonds could provide substantial benefits in reducing the likelihood of default crises and allowing countries to avoid pro cyclical fiscal policies we simulate the effects of gdp indexed bonds under different assumptions about fiscal policy reaction functions and their output effects and find that they could substantially reduce the likelihood of debt gdp paths becoming explosive the insurance premium would likely be small because cross country comovement of gdp growth rates is low and cross country gdp growth risk is thus largely diversifiable for an investor holding a portfolio of gdp indexed bonds potential obstacles to the emergence of a market for these bonds include the verifiability of gdp data the trade off between insurance and moral hazard and the need for liquidity theory and past experience suggest that financial innovation often requires official intervention and its timing and form are difficult to predict we discuss institutional fixes and suggest an approach for attempting to start up a market eduardo borensztein and paolo mauro

absorbing a windfall of foreign exchange dutch disease dynamics abstract the permanent income rule is seldom the optimal response to a windfall of foreign exchange such as that from a resource discovery absorptive capacity constraints require domestic investment and investment in structures requires non traded inputs the supply of which is constrained by the initial capital stock this particularly when combined with intra sectoral capital immobility delays adjustment and creates short run dutch disease symptoms as the real exchange rate sharply appreciates and overshoots its long run value optimal revenue management requires investing in the domestic non traded goods sector and a slow build up of consumption accumulation of foreign assets adjusts to accommodate the time paths of domestic consumption and investment

growth in post soviet russia a tale of two transitions abstract in the early stages of post soviet russia s economic transition small scale entrepreneurial activity appeared to be a strong engine of growth moreover striking regional variations in initial conditions and adopted policy reforms appeared useful in accounting statistically for observed regional variations in entrepreneurial activity here we investigate whether these relationships have persisted as russia s transition has continued to evolve and find that they have not we then document that the emergence of bank issued credit virtually non existent outside of moscow prior to 2000 has been an important engine of growth since 2000 thus to date russia s post soviet development appears as a tale of two distinct transition paths

robust auctions for revenue via enhanced competition in robust auctions for revenue via enhanced competition t roughgarden i talgam cohen and q yan revisit the classic bulow klemperer result this result compares the revenues of two well know

implementation of reduced form auctions a geometric approach an auction is a mechanism for allocating a single indivisible object to one of several competing bidders the winner is the bidder who is awarded the object the rules of the auction specify two functions the first is the probability with which a bidder wins as a function of everyone s bids the second is the payment each bidder makes to the seller as a function of all the bids and whether or not he wins for instance a first price auction awards the object to the highest bidder with probability one providing there are no tie bids the winner pays his bid and the losers pay nothing the bidders in an auction differ significantly these differences are captured by the bidder s type a type may be the bidder s personal valuation of the object for sale his degree of risk aversion or perhaps his information about the object maskin and riley 1984 discuss a number of different economically meaningful examples of bidder types from the viewpoint of the seller and the other bidders each bidder s type is a random variable in this analysis we confine attention to auctions in which the types are independently and identically distributed according to a known probability distribution the revelation principle asserts that every auction is strategically equivalent to an auction in which bidders bid by announcing their type and no bidder has any incentive to lie such an auction is called an incentive compatible direct auction we will confine our attention to the probability functions for direct auctions and let the incentive compatibility conditions restrict the payment functions each bidder can compute the probability that he wins conditional on his own type by averaging over the types of the other bidders the function relating a bidder s type to his probability of winning is the reduced form of the auction the literature on optimal auctions usually addresses the problem of maximizing expected revenue for the seller for this purpose all the relevant information about the probability function of an auction is contained in its reduced form it is the reduced form that determines each bidder s behavior and hence the seller s expected revenue in a symmetric auction each bidder s reduced form is identical so that expected revenue is a functional defined on reduced forms which are functions of one variable namely types this makes the seller s problem somewhat tractable to design an auction a seller must be able to recognize a reduced form and recover the underlying auction reduced forms satisfy an intuitive feasibility condition given a set of types the

empirical analysis of macroeconomic time series var and structural models abstract var and structural econometric models have complementary roles in the modelling of macroeconomic time series a constant parameter var provided it is statistically well specified constitutes a valid basis for testing hypotheses of dynamic specification exogeneity and a priori structure thus facilitating model evaluation as well as suggesting a potentially efficient model development strategy deterministic e g trends and regime shifts and stochastic e g integrated variables non stationarities are analysable within this framework and the johansen maximum likelihood procedure for cointegrated systems is used in an analysis of the determination of earnings prices productivity and unemployment in the u k

mechanism design by an informed principal private values with transferable utility we provide a solution to the informed principal problem in the independent private values setting with monetary transfers the principal s private information creates signaling considerations that may distort the implemented allocation we show that there is no distortion all principal types implement an allocation that is optimal for the principal ex ante before he she learns his her type as an application we consider settings with linear utility for bilateral exchange in which the principal is one of the traders the solution is a combination of a participation fee a buy out option for the principal and a resale stage with posted prices

segmented trends and non stationary time series since the influential work of charles r nelson and charles plosser 1982 many empirical studies have concluded that macroeconomic time series are difference stationary this paper proposes the segmented trend model as an alternative in which the series is the sum of a nonstationary trend and a stationary cycle and where the trend shows infrequent shifts the paper proposes tests between the difference stationary and segmented trends models and applies these to the data of nelson and plosser in general the results indicate that prices are difference stationary but quantities follow segmented trend processes copyright 1989 by royal economic society

optimal allocation of an indivisible good abstract in this paper we consider the problem of allocating an indivisible good efficiently between two agents with monetary transfers we focus on allocation mechanisms that are dominant strategy incentive compatible when agents types are private information inefficiency of an allocation mechanism may come from two sources misallocation of the indivisible good and an imbalanced budget unfortunately as green and laffont 1979 demonstrate no allocation mechanism can always overcome both kinds of inefficiency we identify allocation mechanisms that maximize the expected total utilities of agents and characterize optimal mechanisms for a large class of agents type distributions for strongly regular type distributions we show that the optimal mechanisms must be budget balanced they are either fixed price mechanisms or option mechanisms the result may not hold for other type distributions for certain type distributions we show that optimal mechanisms are hybrids of vickrey clarke groves mechanisms and budget balanced mechanisms

a var approach to the economics of fdi in china using a vector autoregression var approach this study re examines several hypotheses suggested by the economic literature on the economics of fdi applying quarterly time series data from china a country which has recently become the second largest host country for fdi innovation accounting variance decomposition and impulse response function analysis is applied to analyse the various interrelationships between fdi and other economic variables of interest in a var system the empirical research using this method in the case of china is limited the study therefore provides an interesting advance in the literature on the economics of fdi in china

wage determiniation in the uk further empirical results using conintegraion the present paper examines the long run behaviour of two types of wage models for the uk over the preiod 1996 1 1989 2 these models differing in their theoretical construction are estimated and explored using various tests for cointegration the hall 1986 1989 model is based on saragan s 1964 wage specification while the arestis and skott 1993 and arestis and biefang frisancho mariscal 1993 model is concerned with distributional and wage efficeincy theortical effects both models exhibit at least one economically sensible long run relationship for wage determination with significant and correctly signed parameters and show expected proportionality between wages and productivity further the arestis and skott 1993 model shows the effects of effciency wage elements on effort

the future of the imf in spite of significant institutional and macroeconomic reforms over the last decade or two capital flows to developing economies remain highly volatile in 1996 net private capital flows to emerging markets reached us 230 billion by 1997 these flows had been cut in half by 1998 halved again and after a mild recovery during 1999 flows fell in 2000 and 2001 to slightly over one tenth the level of 1996 with the exception of developing asia 2002 does not look much rosier see international monetary fund 2002 p 12 table 1 3 the economic political and social costs of these large swings in capital flows are enormous the most vivid examples are seen in the economies that experience deep crises including since 1997 thailand indonesia malaysia korea russia brazil turkey and argentina while in many instances there are important domestic deficiencies behind these reversals there is also a well founded sense that international financial markets often exacerbate the problem it is not surprising then that as with the debt crisis of the early 1980 s and the mexican crisis of the 1990 s this new wave of crises has led to innumerable calls for deep reform to these markets nowhere is this more apparent than in the design of new rules of engagement for the international monetary fund the important work of multiple official and unofficial commissions leveraged by its own rethinking promises to transform this institution from the ground up in a nutshell most experts agree that the international monetary fund should be much more focused transparent predictable and quick in its interventions and its role limited to surveillance pre crisis and lenderof last resort bankruptcy court during crises activities this seems right i believe however that by focusing almost exclusively on the needs of countries undergoing deep crises highly illiquid and bankrupt economies these reform proposals have left unaddressed a significant fraction of the costs associated with capital flows reversals an important share of these costs are borne by countries that experience deep contractions but do not undergo full blown crises and much of the cost experienced by those countries that do fall into deep crises is experienced well before the open crisis phase develops often the latter is just the final stage of a prolonged and politically thorny economic period of sharply reduced access to international capital markets surely the anticipation of more orderly resolution and access to a few credit lines should the open crisis phase arrive would by backward induction eliminate some of the costs that precede these events as well but this benefit is indirect only and relies on a chain of reasoning that requires more rationality and trust in the new system discussants stanley fischer citigroup allan meltzer carnegie mellon university jeffrey sachs columbia university nicholas stern world bank

full implementation and belief restrictions we introduce a framework to study the problem of full implementation under general restrictions on agents beliefs which we call implementation first we provide a characterization of the properties of the mechanisms that achieve implementation these conditions relate the possibility of achieving full implementation to the strength of the strategic externalities induced by the mechanism we then study how to achieve full implementation via the design of simple transfer schemes in these context the general conditions for implementation suggest a simple design principle in which belief restrictions are used to weaken the strategic externalities induced by the baseline transfers of the belief free benchmark importantly our results require minimal information on agents beliefs which regard simple moments of the distribution of types these moment conditions arise naturally in applications and in practical problems of mechanism design

unemployment in britain male unemployment in britain has risen from around 2 per cent in the 1950s to around 17 per cent in 1985 see figure 1 the figures are for male unemployment because there is no consistent series for women 1 even more remarkably unemployment has fallen in only three years out of the last twenty 1973 1978 and 1979 to account for this we need a model that explains both changes in the natural or non accelerating inflation rate of unemployment nairu and deviations from it we use a three equation supply side model centred on the labour market this has two main features the first concerns the determination of employment in the short run the labour demand function that we use cuts through the fruitless debate now raging especially in europe as to whether current unemployment is classical or keynesian according to the classical view employment is too high because real wages are too high according to the keynesian view real wages are not binding and unemployment is high because the product market does not clear with prices too high relative to nominal demand the whole debate is set in the framework of perfect competition yet in perfect competition prices are set by impersonal forces and it is not clear what could possibly stop prices clearing the market it is much more reasonable to think of prices as being set by imperfectly competitive firms existing prices being the best they can think of given the demand they face in this context firms demand for labour will depend on both the real product wage and the level of real aggregate demand this is the demand function we estimate and it conforms both to common sense and to the data however this does not imply that employment can be made to grow without limit by pumping up real demand for in the medium term when price surprises are eliminated our model determines three variables employment real wages and real demand on the basis of three equations an employment equation a price equation and a wage equation thus in the medium term there is a natural level of employment and corresponding to this a natural level of real aggregate demand the second key feature of our model concerns the medium term determination of unemployment in the medium term the planned mark up of wages over prices in wage settlements must be consistent with the mark up of prices over wage costs in employers pricing behaviour for if wage setters try to set real product wages higher than is consistent with employers pricing behaviour this generates ever increasing inflation thus the key to understanding unemployment in the medium term is the behaviour of wage setters if events occur that push them towards too high real wages then unemployment has to rise to offset these influences we shall call these influences wage pressure variables or push factors and they are clearly crucial in understanding unemployment the variables here include the social security system employment protection

on the equivalence of bayesian and dominant strategy implementation we consider a standard social choice environment with linear utilities and independent one dimensional private types we prove that for any bayesian incentive compatible mechanism there exists an equivalent dominant strategy incentive compatible mechanism that delivers the same interim expected utilities for all agents and the same ex ante expected social surplus the short proof is based on an extension of an elegant result due to gutmann kemperman reeds and shepp 1991 we also show that the equivalence between bayesian and dominant strategy implementation generally breaks down when the main assumptions underlying the social choice model are relaxed or when the equivalence concept is strengthened to apply to interim expected allocations

multilateral indexed loans and debt sustainability we evaluate the benefits and costs of indexing multilateral loans to variables related to developing countries ability to pay i e whether a reform of multilateral lending is feasible and eco nomically justified the analysis covers 40 international development association ida countries from 1990 to 2010 and focuses on three types of debt gdp indexed loans export indexed loans infla tion indexed loans denominated in local currency the insurance that indexed debt might offer against macroeconomic shocks depends on the conditional covariances of gdp growth real exchange rate depreciation and net exports that we estimate as the covariances of the forecast errors obtained from a vector autoregression var model the analysis shows that both gdp indexed loans and inflation indexed local currency loans would help to stabilize the debt ratio of the majority of ida countries in our sample however the adverse policy incentives created by local currency debt tends to favour gdp indexed debt the cost of indexation would be small the estimation of a capital asset pricing model capm suggests that loans indexed to gdp could be introduced at current interest rates since the estimated risk premium is less than 1 per cent any additional risk for multilateral lenders would be more than offset by a lower frequency of debt crises

small system modelling of real wages inflation unemployment and output per capita in italy 1970 1994 the relationships between real wages output per capita inflation and unemployment in italy between 1970 and 1994 are modelled using a cointegrated vector autoregression there is evidence of a change in the underlying equilibria and in the dynamic evolution of the variables probably associated with the substantial changes in many sectors of the italian economy after 1979 alternative ways to model structural change in the italian labour market are considered in adopting a split sample approach the results favour an hysteresis interpretation of unemployment

the effects of additive outliers on tests for unit roots and cointegration this article discusses the properties of the univariate dickey fuller test and the johansen test for the cointegrating rank when there exist additive outlying observations in the time series we provide analytical as well as numerical evidence that additive outliers may produce spurious stationary hence the dickey fuller test will reject a unit root too frequently and the johansen test will indicate too many cointegrating vectors the results easily generalize to models with temporary change outliers through an empirical example we discuss how additive and temporary change outliers can be detected in practice and we show how dummy variables can be used to remove the influence of such extreme observations

sectoral cointegration structural break and agriculture s role in the chinese economy in 1952 92 a var approach a var model is constructed to study the sectoral cointegration relationship in china as a primary sector of the economy agriculture is found to be a growth engine throughout the data period 1952 92 although its contribution to gdp declined steadily over time this evidence is consistently found in both the long run and the short run models of a var in contrast the growth of non agricultural sectors had little effect on agriculture in 1952 77 however a structural break is found under the economic reforms 1977 92 when industry and other non agricultural sectors started to cause agriculture to grow

money and output under alternative exchange rate regimes in the usa abstract economic theory suggests that the effects of money on output will depend on the exchange rate regime this paper examines the relationship between money and output under fixed and flexible exchange rates in the usa johansen s maximum likelihood estimation method is utilized to test for cointegration in a system consisting of money the interest rate prices the trade balance and output during 1959 1971 and 1973 1990 with the exchange rate included in the analysis fo the second period the results indicate that the variables are cointegrated suggesting the existence of long run equilibrium relationships between the domestic and external variables vaiance decompositions reveal a much larger role for money in explaining forecast error vaiance of output during the flexible exchange rate period money and the interest rate explain a substantial proportion of the variances of the trade balance and the exchange rate this suggests that effects on the exchange rate and trade balance are an important component of the transmission mechanism of monetary policy jel f41

why did the ruble collapse in august 1998 the factors that led to the collapse of the ruble are analyzed it is argued that it resulted from exogenous factors closely related to the unanticipated asian financial crisis interacting with inherited weaknesses in fundamentals of fiscal policy that made the russian economy while progressively being brought to macroeconomic stability nonetheless vulnerable to a large external shock it is contended that instead of the policy mistake of august 1998 requiring a default of domestic debt and moratorium on payment of foreign commercial debt a decision by russian authorities to offer temporary exchange controls sanctioned by the imf and the u s treasury as an emergency measure would have been a better alternative obviating the de facto partial and unilateral resort to controls that the moratorium and default implied

the future of the imf and world bank panel discussion i it undertakes surveillance of the global economy and the economies of its members reporting to its membership most of these reports are published ii it provides technical assistance to its members the fund staff draws on an unparalleled range of experience about what has worked in practice and this assistance is generally regarded as highly valuable iii it serves in the words of the articles of agreement as a permanent institution which provides the machinery for consultation and collaboration on international monetary problems virtually all international monetary problems end up for discussion and often for implementation in the imf iv it lends to its member countries

a traditional interpretation of macroeconomic fluctuations under the traditional interpretation of macroeconomic fluctuations aggregate demand shocks move output and prices in the same direction while aggregate supply shocks move output and prices in opposite directions this paper examines the joint behavior of u s output unemployment prices wages and nominal money and asks whether it is consistent with this interpretation the answer is a qualified yes

booming sector and de industrialisation in a small open economy this paper presents a theoretical analysis of the dutch disease the phenomenon whereby a boom in one traded goods sector squeezes porfitability in other traded goods sectors both by directly bi

price formation in an open economy theory and evidence for the united kingdom 1951 1991 price formation is an increasingly important part of modern macroeconomics however the empirical literature on price setting is diverse and confused this paper uses cointegration techniques to test theories of price setting on uk aggregate data for 1951 91 we find i domestic prices are determined by both domestic costs and world prices and ii at the macroeconomic level prices are related to marginal cost rather than average or normal cost

informed seller with taste heterogeneity consider a seller with a single indivisible good facing a buyer whose willingness to pay depends on his privately known taste and on product characteristics privately known by the seller what selling procedure can arise as an equilibrium of the game in which the seller strategically chooses mechanisms conditional on his information we characterize the set of equilibrium outcomes and establish that ex ante revenue maximizing mechanisms are in this set there is generally a continuum of revenue ranked equilibrium outcomes focusing on the revenue maximizing equilibrium we show that the seller in general benefits from private information and does not benefit from committing to a disclosure or a certification technology we also provide conditions under which the privacy of the seller s information does not affect revenue

optimal voting rules we study dominant strategy incentive compatible dic and deterministic mechanisms in a social choice setting with several alternatives the agents are privately informed about their preferences and have single crossing utility functions monetary transfers are not feasible we use an equivalence between deterministic dic mechanisms and generalized median voter schemes to construct the constrained efficient optimal mechanism for an utilitarian planner optimal schemes for other welfare criteria such as say a rawlsian maximin can be analogously obtained

bayesian and dominant strategy implementation in the independent private values model we prove in the standard independent private values model that the outcome in terms of interim expected probabilities of trade and interim expected transfers of any bayesian mechanism can also be obtained with a dominant strategy mechanism

optimal private good allocation the case for a balanced budget abstract in an independent private value auction environment we are interested in strategy proof mechanisms that maximize the agents residual surplus that is the utility derived from the physical allocation minus transfers accruing to an external entity we find that under the assumption of an increasing hazard rate of type distributions an optimal deterministic mechanism never extracts any net payments from the agents that is it will be budget balanced specifically optimal mechanisms have a simple posted price or option form in the bilateral trade environment we obtain optimality of posted price mechanisms without any assumption on type distributions

demand and supply factors in the determination of nie exports a simultaneous error correction model for hong kong this paper considers the issue of whether a small developing economy such as hong kong faces a perfectly elastic demand for its exports of manufactured goods we construct a simultaneous demand and supply system which is estimated using full information maximum likelihood methods and which allows us to clearly identify demand and supply factors in determining export volumes and prices our empirical findings differ from previous studies conducted with this data set in that they suggest that even a small dynamic newly industrialized economy such as hong kong may not face infinitely elastic demand for its manufactured goods we also advance some reasons to explain why the small country assumption may not be applicable in the case of most industrialized economies

sellers with misspecified models principals often operate on misspecified models of their agents preferences when preferences are such that non local incentive constraints may bind in the optimum even slight misspecification of the preferences can lead to large and non vanishing losses instead we propose a two step scheme whereby the principal 1 identifies the model optimal menu and 2 modifies prices by offering to share with the agent a fixed proportion of the profit she would receive if an item were sold at the model optimal price we show that her loss is bounded and vanishes smoothly as the model converges to the truth finally two step mechanisms without a sharing rule like 2 will not yield a valid approximation

dynamic structural models and the high ination period in brazil modelling the monetary system in this paper we develop a linear structural dynamic econometric model for the high ination period in brazil the main goal is to obtain a parsimonious model that accounts for a complex dynamic present in the monetary system during the period describing therelationships among output ination rate interest rates and real money we start the analysis after the cruzado plan cast in 1986 following a progressive strategy in deriving the econometric model the results show that we can identify a long run money demand equation and the model describes parsimoniously and in detail the relationship among the variables despite all the instability present in the second half of the 1980 s in brazil with special attention to the role played by nominal wage ination in determining the dynamics observed in price ination

asymmetric information bargaining problems with many agents a yes or no decision must be made about some issue all agents must agree the coase theorem asserts that the efficient outcome will always result suppose the value positive or negative that an individual attaches to an affirmative decision is privately known to that individual it is proved under very mild conditions that with independent types as the number of agents increases the probability of an affirmative efficient decision goes to zero an example in which it is common knowledge that an affirmative decision is efficient and yet the probability of such a decision goes to zero is given

dominant strategy implementation of bayesian incentive compatible allocation rules abstract a large literature on incentive mechanisms represents incentive constraints by the requirement that truthful reporting be a bayesian equilibrium this paper identifies mechanism design problems for which there is no loss in replacing bayesian incentive compatibility by the stronger requirement of dominant strategies we identify contexts where it is possible to change the transfer payments of an optimal bayesian mechanism so as to create dominant strategies and yet leave every participant s expected utility unchanged we also address the issue of multiple equilibria and unique implementation contexts where these results apply include auctions bilateral bargaining procurement contracting and intrafirm resource allocation

modelling relative price variability and aggregate inflation in the united kingdom the relationship between relative price variability and aggregate inflation in the uk is used to illustrate a number of issues in econometric modelling methodology the rigorous evaluation of models especially testing for congruence and encompassing is emphasized the valuable role of recursive estimation methods in assessing model adequacy is demonstrated attention is drawn to the potential limitations of single equation and univariate analysis of time series data and a recently proposed modelling strategy for analyzing nonstationary variables with cointegrating relationships based on sequential reductions of a congruent var is applied to a small system involving inflation and relative price variability

collateral constraints and the amplification mechanism abstract kiyotaki and moore j polit economy 105 1997 211 have offered a theory for how common shocks to credit constrained firms are amplified through changes in collateral values and transmitted as fluctuations in output i clarify and extend their model by showing that their collateral amplification mechanism is not robust to the introduction of markets that allow these firms to hedge against common shocks a theory of incomplete hedging is proposed in which the supply of hedging available in the economy is constrained by the aggregate value of collateral i illustrate how the constraint reinstates amplification effects and discuss empirical implications of this new mechanism

full extraction of the surplus in bayesian and dominant strategy auctions we consider auctions for a single indivisible object in the case where the bidders have information about each other which is not available to the seller we show that the seller can use this information to his own benefit and we completely characterize the environ ments in which a well chosen auction gives him the same expected payoff as that obtainable were he able to sell the object with full information about each bidder s willingness to pay we provide this characterization for auctions in which the bidders have dominant strate gies and for those where the relevant equilibrium concept is bayesian nash in both set ups the existence of these auctions hinges on the possibility of constructing lotteries with the correct properties we consider the situation in which an agent the seller possesses one indivisible unit of a good to which he attaches no value but the good has value to a number of potential buyers and its transfer to one of them would increase social welfare in particular the transfer to the buyer with the highest valuation maximizes social welfare in this paper we completely characterize environments in which the seller can design an auction that will enable him to capture for himself the full increase in social welfare induced by the transfer of the good to the bidder with the highest willingness to pay if the seller had full information about the reservation prices of potential buyers his optimal selling strategy would be very simple he would announce a price equal or very close to the highest reservation value the optimal strategy for the bidder with the highest evaluation would be to accept the offer note that we are treating a situation in which the seller can commit himself to a price as a result of the exchange the utility of the seller increases by the full amount of the increase in social welfare and he has been able to fully extract the surplus in many circumstances however a seller has only imperfect knowledge of the buyers willingnesses to pay in this case he must find some mechanism or auction which will enable him to maximize his benefit from the sale of the object the auction literature starts with this observation and shows how the seller can by an astute choice of auction extract the largest possible fraction of the surplus in general the literature has shown that this proportion is strictly less than one in some circumstances the bidders will have information about each other which is not available to the seller for instance in auctions for petroleum drilling rights bidders know the results of geological tests which they have

balanced ranking mechanisms abstract in the private values single object auction model we construct a satisfactory mechanism a symmetric dominant strategy incentive compatible and budget balanced mechanism the mechanism converges to efficiency at an exponential rate it allocates the object to the highest valued agent with more than 99 probability provided there are at least 14 agents it is also ex post individually rational we show that our mechanism is optimal in a restricted class of satisfactory ranking mechanisms since achieving efficiency through a dominant strategy incentive compatible and budget balanced mechanism is impossible in this model our results illustrate the limits of this impossibility

macroeconomic policy in an oil exporting economy with foreign exchange controls the sudden and sharp increases in oil prices during the past decade and the discovery and extraction of oil in the north sea have recently contributed to a renewal of interest in the macroeconomic problems of oil exporting countries in general and those of industrialized and semi industrialized oilexporting countries such as the uk and mexico in particular the economic implications of the north sea oil revenues for the british economy have been hotly debated by forsyth and kay 1980 1981 worswick 1980 barker 1981 corden 1981 and byatt et al 1982 the effects of oil and gas revenues on the economies of canada mexico the netherlands norway and the uk have also been the subject of analysis and discussion in barker and brailovsky 1981 despite their important contribution these studies fall short of formulating a comprehensive theoretical framework for the study of macroeconomic policy in oil exporting countries in general the resurgence of interest in the macroeconomics of oil exporting economies and the lack of a satisfactory theoretical framework emphasize the need for the explicit introduction of an oil sector into macroeconomic models of the open economy the more recent studies by buiter and purvis 1983 eastwood and venables 1982 corden and neary 1982 and neary and purvis 1982 have gone some way towards meeting this need but they are better suited to the study of macroeconomic policy in developed oil exporting countries such as the united kingdom where highly developed financial markets already exist 1 without exception all these studies assume that the economy under consideration operates with a floating exchange rate and that the private capital is internationally mobile they also invariably ignore the short term and the long term financial repercussions of changes in oil income that operate via the government budget constraint and the asset position of the private sector these assumptions are however inappropriate for most oil exporting countries in the middle east africa and latin america the purpose of this paper is to examine the short run and long run macroeconomic consequences of an increase in oil revenues in an oil exporting country characterized by strict foreign exchange controls on private capital flows we attempt to do this in the context of a keynesian underemployment model of the type analysed for example by turnovsky and kaspura 1974 branson 1976 and argy and salop 1979 but with domestic prices set according to a mark up rule along the lines advocated for example by fetherston and godley 1978 1981 unlike argy and salop but in line with other recent contributions to the macroeconomic theory of open economies the present paper explicitly allows for the existence of the government budget constraint and analyses the macroeconomic effects of changes in oil revenues both in the short run when

testing long run purchasing power parity under exchange rate targeting abstract the present paper exploits the idea that empirical estimates of the long run ppp relationship may compound two distinct influences coming from the behavior of market participants and policy makers when the latter are targeting the exchange rate this tends to bias tests of long run ppp against its acceptance the validity of the theoretical arguments is assessed by drawing on the experience of two european union countries greece and france for the post bretton woods period estimation biases due to the omission of policy effects are found to be significant only in the case of greece for france our test results provide evidence bearing on the effectiveness of the competitive disinflation strategy pursued by the french authorities