nonlinearities in economic dynamics two reasons that led to the dominance of the linear stochastic difference equations approach the first one was the fact that the nonlinear systems seemed incapable of reproducing the statistical aspects of actual economic time series at best such models were able to produce periodic motion1 and an examination of the spectra of economic time series showed the absence of the spikes that characterise periodic data the emphasis on the equilibrium approach to aggregate economic behaviour cf lucas i 986 would make things even more difficult the plethora of stability results for models of infinitely lived agents with perfect foresight turnpike theorems suggested that even the regular fluctuations that had been derived in the literature on endogenous business cycles were incompatible with a theory that had solid microeconomic foundations further this indicated that while nonlinearities could be present the explanations of the fluctuations had to rest solely on the presence of exogenous shocks that working through the equilibrating mechanism would create the observed randomness if such shocks were absent the system would tend to a stationary state the second reason was the empirical success of the models based on linear stochastic difference equations low order autoregressive processes captured some of the features of aggregate time series in turn these processes can in principle result from an economy with complete markets where production is subject to exogenous shocks though the task of confronting these equilibrium models with actual data has not yielded uncontroversial results see the discussion and references in section i there was no obvious gain in the

on the indeterminacy of capital accumulation paths abstract in neoclassical optimal growth models the stability of the accumulation paths depends on the discount parameter we prove that for discount factors small enough the policy function which describes an optimal path can be of any type the result is achieved using the notion of concavity we adopt a constructive approach given any twice differentiable map we show how to construct an optimal growth problem which produces that map as the optimal policy function a consequence is that chaos can appear in these models we also provide bounds on the values of the discount parameter for which indeterminacy is possible

capital labor substitution and competitive nonlinear endogenous business cycles abstract we develop simple geometrical methods to study local indeterminacy bifurcations and stochastic sunspot equilibria near a steady state in nonlinear two dimensional economic models we present in particular a simple constructive geometrical characterization of the support of stochastic sunspot equilibria not only arbitrarily near a steady state but also along local bifurcations these methods are applied to a simple aggregative model to study in particular the influence of capital labor substitution and of the aggregate labor supply wage elasticity on the occurrence of competitive endogenous deterministic or stochastic fluctuations journal of economic literature classification numbers e32 c62

the ethical challenge of management buy outs as a form of privatisation in central and eastern europe there has been a growing debate about the ethics of management buy outs mbos one possible criticism of the mbo is that it serves the interests of incumbent management at the expense of shareholders in this paper we develop the general arguments concerning the ethical aspects of the mbo to include other forms of buy out beyond going privates and apply the analysis to mbos as a mode of privatisation in central and eastern europe cee mbos are justified in this context postperestroika as a means of incentivising economic activity by giving managers an ownership stake in former state enterprises the actual mode of privatisation though raises issues of social justice and the criticism that mbos are at the expense of the broader social good the ethical problem for the cee is to balance the economic gains of a move to markets with the ethical risks to the agents of these markets

a characterization of erratic dynamics in the overlapping generations model abstract in this paper we characterize and give examples o wide classes of utility functions which generate erratic dynamics in the standard deterministic overlapping generations model erratic dynamics refers to feasible trajectories which are bounded but which do not converge to stationary points or periodic orbits we show that such trajectories are pareto efficient we introduce credit into the model and show how a constant credit expansion rate can result in erratic trajectories in prices and the real value of credit finally we briefly discuss certain technical aspects of the mathematics used and the statistical nature of the dynamics that can arise from deterministic dynamical systems

legal protection corruption and private equity returns in asia this article examines how private equity returns in asia are related to levels of legal protection and corruption we utilize a unique data set comprising over 750 returns to private equity transactions across 20 developing and developed countries in asia the data indicate that legal protections are an important determinant of private equity returns in asia but also that private equity managers are able to mitigate the potential for corruption the quality of legal system including legal protections is positively related to returns inefficient legal protections negatively impact transaction structures and economic certainty when exiting investments we also find that private equity managers irrespective of the quality of legal system they are operating within can mitigate the potential impact of corruption private equity returns are higher in countries with higher levels of corruption controlling for legal systems this finding is consistent with the view that private equity managers bring about organizational change to alleviate the costs of corruption our findings are robust to inclusion of controls for hofstede cultural variables economic conditions and transaction specific characteristics as well as consideration of econometric sample selection methods for unexited investments

insider privatization with a tail the screening contract and performance of privatized firms in rural china abstract this paper studies insider privatization in rural china and provides an explanation of why some firms have performed well after privatization but others have not we show theoretically that the underperformance of insider privatized firms could be due to the manager cum owner s lack of incentives after privatization a screening theory predicts that the buyout price is correlated with the postprivatization incentives and a firm s postprivatization performance increases with both the buyout price and postprivatization incentives drawing on data we collected in china we find evidence supporting the theory we also find that the buyout price decreases with the degree of information asymmetry

the interprovincial migration of canadian physicians does income matter this study applies a multinomial logit model of human capital migration to examine the factors influencing the movement of physicians within canadian provinces between 1976 and 1992 the empirical investigation covers general practitioners and specialists it excludes interns residents between seven regions atlantic canada quebec ontario manitoba saskatchewan alberta and british columbia the results suggest that differences in real income have a positive and significant effect on a physician s decision to migrate form one province to another provinces with the highest after tax income highest expenditure per physician and highest fee per service rates have the highest net rate of in migration income differences are however not the only factor influencing a physician s choice to move working conditions within a province which we proxy with the number of hospitals beds and health expenditures per capita are also important factors likewise the ratio of rural to urban population distance b

can there be short period deterministic cycles when people are long lived this paper considers whether short period deterministic cycles can exist in a class of stationary overlapping generations models with long but finite lived agents it shows that if agents discount the future positively then as life spans get large nonmonetary cycles will disappear further neither constant monetary steady states nor stationary monetary cycles can exist it also shows that if agents discount the future negatively then there are robust examples in which constant monetary steady states as well as stationary monetary cycles with undiminished amplitude can occur no matter how long agents live

stationary sunspot equilibria in a finance constrained economy abstract stationary sunspot equilibria are shown to exist in a production economy with infinite lived agents when it is not possible to borrow against future wage income equilibrium fluctuations exhibit persistence over time scales of the same order of magnitude as observed business cycles an active fiscal policy that stabilizes aggregate money expenditures can prevent such fluctuations

stability of cycles and expectations the actual dynamics of an economy depends on how agents forecast the future at every date as a function of their information on the past while possibly learning the structure of their environment we show in the case of a one dimensional state variable that under mild conditions on expectations functions a given cycle with perfect foresight that is stable in the actual dynamics is stable in a fictitious backward perfect foresight dynamics we exhibit a restricted class of expectations functions for which the converse is true

brain drain from turkey an investigation of students return intentions the emigration of skilled individuals from turkey attracted greater media attention and the interest of policymakers in turkey particularly after the experience of recurrent economic crises that have led to an increase in unemployment among the highly educated young this study estimates a model of return intentions using a data set compiled from an internet survey of turkish students residing abroad the findings of this study indicate that as expected higher salaries offered in the host country and lifestyle preferences including a more organized environment in the host country increase the probability of student nonreturn however the analysis also points to the importance of prior return intentions and the role of the family in the decision to return to turkey or stay overseas it is also found that the compulsory service requirement attached to government scholarships increases the probability of student return turkish student association membership also increases return intentions longer sta

environmental standards and cournot duopoly a stability analysis in this paper the dynamic effects of public environmental policies are investigated in a cournot duopoly with both heterogeneous and homogeneous expectations in a context of limited rationality it is shown that the increase in upper limits to emissions always tends to destabilise markets and generate a chaotic market dynamics in both cases the policy implication of this result is that the use of environmental policies may favour market stability it is also shown that higher costs of abatement technology entail a higher likelihood of stability loss although in the heterogeneous expectations case also a decrease in costs may destabilise

testing for non linear structure in an artificial financial market abstract we present a stochastic simulation model of a prototype financial market our market is populated by both noise traders and fundamentalist speculators the dynamics covers switches in the prevailing mood among noise traders optimistic or pessimistic as well as switches of agents between the noise trader and fundamentalist group in response to observed differences in profits the particular behavioral variant adopted by an agent also determines his decision to enter on the long or short side of the market short run imbalances between demand and supply lead to price adjustments by a market maker or auctioneer in the usual walrasian manner our interest in this paper is in exploring the behavior of the model when testing for the presence of chaos or non linearity in the simulated data as it turns out attempts to determine the fractal dimension of the underlying process give unsatisfactory results in that we experience a lack of convergence of the estimate explicit tests for non linearity and dependence the bds and kaplan tests also give very unstable results in that both acceptance and strong rejection of iidness can be found in different realizations of our model all in all this behavior is very similar to experience collected with empirical data and our results may point towards an explanation of why robustness of inference in this area is low however when testing for dependence in second moments and estimating garch models the results appear much more robust and the chosen garch specification closely resembles the typical outcome of empirical studies

a critical evaluation of etzioni s socioeconomic theory implications for the field of business ethics given the pervasive influence of neoclassical economic theory on the field of business the opposition of the standard economists to the inclusion of moral factors in economic decisions provides an intellectual resistance to the ideas of many business ethicists etzioni 1988 offers a theoretical alternative to the neoclassical model an alternative that includes a moral dimension this article 1 highlights the differences between etzioni s proposed model and the neoclassical economic paradigm 2 describes and critically evaluates etzioni s proposed theory in view of his objective of synthesizing the neoclassical paradigm with a duty based morality and 3 discusses the implications of etzioni s proposed paradigm for the field of business ethics

on competitive cycles in productive economies abstract in a model of overlapping generations with production money and an endogenous labor supply general conditions are given for the existence of two different types of cyclical equilibria the conditions are given in terms of the elasticities of demand for savings and for capital with respect to the interest rate and of the capital consumption ratio at the golden rule steady state examples using ces technologies are also studied

a characterization of ramsey equilibrium abstract consider a perfect foresight equilibrium model with a single capital good a borrowing constraint and many infinitely lived households with fixed but different discount factors the steady state capital stock is held by the most patient household quart j econ 95 1980 375 382 econ j 38 1928 543 559 an example shows the total capital can exhibit an equilibrium cycle in contrast to the stability property of the one household case in the example only the most patient household saves and his income deceases in capital we give a condition implying income is increasing in capital and use it to show any equilibrium converges to the steady state

the relationship between governance structure and risk management approaches in japanese venture capital firms abstract this paper attempts to understand what drives japanese venture capital jvc fund managers to select either active managerial monitoring or portfolio diversification to manage their firms investment risks j bus venturing 4 1989 231 unlike u s venture capitalists that use active managerial monitoring to gain private information in order to maximize returns j finance 50 1995 301 jvcs have traditionally used portfolio diversification to attenuate investment risks hamada y 2001 nihon no bencha kyapitaru no genkyo current state of japanese venture capital nihon bencha gakkai vc seminar may 7 we found that performance pay is positively related to active monitoring and that management ownership is positively related to active monitoring and negatively related to portfolio diversification the managerial implication of our study is that venture capitalists should be as concerned about the structure of their incentive systems for their fund managers as they are for their investee firm entrepreneurs agency theory says that contingent compensation is a self governing mechanism for individual effort that is difficult to measure and verify when properly applied equity ownership and performance based pay can have powerful influencing effects on the strategic choices of managers

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

dynamic complexity in duopoly games abstract we discuss the occurrence of periodic and chaotic phenomena in infinite horizon duopoly games where firms maximize their discounted sum of profits and use markov perfect equilibrium strategies in the alternating case their corresponding actions are then constrained orbits of a map similar to a cournot t tonnement we show that any behavior is possible for small discount factors and that one obtains the cournot t tonnement as the discount factor goes to zero in the simultaneous case we show by mean of an example that many cournot t tonnements can be viewed as markov perfect equilibria of an infinite horizon game and that one obtains the nash equilibrium of the static game as the discount parameter goes to zero we are thus led to study in detail the dynamical properties of a cournot t tonnement

policy functions for capital accumulation paths abstract it has recently been shown that in neoclassical optimal growth models the set of policy function contains all twice differentiable functions the question has been raised as to whether this restriction to twice differentiable functions is essential in this paper we show that all c 1 functions with derivative satisfying a lipschitz condition can serve as policy functions and we also show by examples that differentiability is not a required property of a policy function

business cycle asymmetry a deeper look this paper distinguishes two types of asymmetry in business cycles deepness and steepness deepness is defined as the characteristic that troughs are further below trend than peaks are above most previous research has focused exclusively on steepness which refers to cycles in which contractions are steeper than expansions a test for deepness is proposed and applied to u s post war quarterly unemployment real gnp and industrial production evidence of deepness is found for unemployment and industrial production while the evidence for real gnp is weaker previous evidence of steepness in unemployment is confirmed

nonlinearity and chaos in economic models implications for policy decisions this survey paper discusses the policy implications that can be expected from the recent research on nonlinearity and chaos in economic models expected policy implications are interpreted as a driving force behind the recent proliferation of research in this area in general it appears that no new justification for policy intervention is developed in models of endogenous fluctuations although this conclusion depends in part on the definition of equilibrium when justified however policy tends to be very effective in these models copyright 1993 by royal economic society

a contribution to the theory of business cycles an economy consisting of identical perfectly competitive firms with real liquidity costs and a one period production lag has a locally unstable stationary equilibrium with complex eigenvalues for a wide range of parameters monetary policy aimed at stabilizing real balances can support nonstationary equilibrium paths that converge to a limit cycle which has keynesian features the first welfare theorem does not hold because the price level appears in the production function through liquidity costs so that production has a positive externality

introduction to market psychology and nonlinear endogenous business cycles abstract the purpose of this symposium is to present geometric methods that are useful to study multiple equilibria and endogenous fluctuations in simple two dimensional macroeconomic models with a single predetermined variable characterizing the support of a sunspot equilibrium by its invariance properties in the underlying deterministic dynamics generates a complete description of stochastic endogenous fluctuations near a stationary state and along local bifurcations graphical methods to perform sensitivity analysis of local indeterminacy and bifurcations with respect to variations of uncertain economic parameters are also presented these methods are applied to specific macroeconomic models with constant returns to scale with external increasing returns and with imperfect competition journal of economic literatureclassification numbers e32 c62

who moves a logit model analysis of inter provincial migration in canada this paper addresses the topic of inter provincial migration in terms of the basic question who moves panel logit models of the probability that an individual changes his or her province of residence from one year to the next over the 1982 1995 period are estimated using tax based longitudinal data it is found that moving is i inversely related to the home province s population size presumably reflecting local economic conditions and labour market scale effects while language also plays an important role ii more common among residents of smaller cities towns and especially rural areas than those in larger cities iii negatively related to age marriage and the presence of children for both men and women iv positively related to the provincial unemployment rate the individuals receipt of unemployment insurance except entry men having no market income except for entry men and entry women and the receipt of social assistance especially for men v slightly positively related

cultural differences and cross border venture capital syndication we examine cross border syndication in investments led by foreign venture capitalists vcs focusing on the potential correlation between cultural differences and the formation of vc syndicates contrary to the risk sharing motive we find that a greater cultural disparity between the countries of investors and their companies is actually associated with smaller vc syndicates this is driven largely by lesser local investor representation in foreign vc led syndicates however certain cultural disparity related syndication strategies such as the involvement of locally experienced foreign vcs or syndicate members from culturally similar countries are associated with greater presence of local vcs who provide valuable monitoring services we further show that these culture linked syndication approaches are significantly correlated with vc financing and monitoring strategies in cross border investments and their eventual success

the emergence of chaos from classical economic growth this paper shows how fluctuations of an erratic and unstable nature can emerge from the classical deterministic economic growth process implications of the analysis would appear to be at least two first pronounced changes in the way an economy behaves need not cause us to reject our understanding of how it works second we need not seek in exogenous forces an explanation as to why behavioral patterns change and why it may be so difficult to anticipate future events from the profile of past experience

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

irregular growth cycles this paper uses the familiar neoclassical theory of capital accumulation to show how complex behavior can emerge from quite simple economic structures indeed when sufficient nonlinearities and a production lag are present the interaction alone of the propensity to save and the productivity of capital can lead to growth cycles that exhibit a wandering sawtooth pattern not unlike those observed in reality these fluctuations need not converge to a cycle of any regular periodicity so they are not quasi periodic because such chaotic trajectories are unstable errors of estimation in parameters or initial conditions however tiny will accumulate rapidly into substantial errors of forecast moreover periods of erratic cycling can be interspersed with periods of more or less stable growth evidently the future behavior of a model solution cannot be anticipated from its patterns in the past a situation that seems to mimic experience apparent structural change and unpredictability is explained in the present theory by a deterministic single equation model random shocks play no role so the reader can visualize just what it is we are are talking about a noteworthy simulation is presented in figure 1 for gnp in a growth model that is described below in section iii a period of relatively rapid growth is followed by a period of cycles then remarkably for a considerable time about twenty periods apparently steady state growth occurs wandering cycles however emerge another brief period close to the steady state appears again toward the end of the series i establish conditions of savings and productivity that lead to results of this kind this analysis makes use of the mathematical theory of chaos which in the form exploited here originated in the work of edward lorenz a formal definition of chaos and sufficient conditions for chaotic trajectories were provided in a seminal paper by t y li and james yorke a survey of these related contributions is found in yorke and evelyn yorke this theory was introduced into economics by jess benhabib and myself 1981 where we showed that sequences of rational choices can be erratic when preferences depend on experience in a certain way by michael stutzer who provides a detailed analysis of trygve haavelmo s growth model by benhabib and myself 1980 in an application of the overlapping generations model and in my forthcoming study of the classical growth model

the role of corruption culture and law in investment fund manager fees this article considers an international sample of venture capital and private equity funds to assess the role of law corruption and culture in setting fund manager fees with better legal conditions fixed fees are lower carried interest fees are higher clawbacks are less likely and share distributions are more likely countries with lower levels of corruption have lower fixed fees and higher performance fees and are less likely to have clawbacks and cash only distributions hofstede s measure of power distance is negatively related to fixed fees and the use of cash only distributions but positively related to performance fees and clawbacks overall the data strongly indicate that corruption culture and legal settings are much more significant in determining fees than fund manager characteristics and or market conditions

the endogeneity between language and earnings international analyses this study is concerned with the determinants of dominant language fluency its effects on earnings and its endogeneity with earnings among immigrants dominant language fluency is hypothesized to

an aggregative model of capital accumulation with leisure dependent utility this paper analyzes an aggregative optimal growth model where both consumption and leisure enter as arguments in the utility function if consumption and leisure are substitutes the model can generate multiple steady states if consumption and leisure are complements the optimal path may turn out to be cyclical preferences play an important role in determining the steady state to which the economy converges

perfectly competitive models of endogenous business fluctuations the endogenous hypothesis is not new at a pre analytic level it is based on the simple intuition that market mechanisms are inherently dynamically unstable at least around their stationary positions in this note i want to stress the theoretical point that there is nothing in the working of a perfectly competitive market system that prevents it from displaying persistent and endogenous fluctuations and that moreover such fluctuations may have their origins in market fundamentals such as factor intensities factor substitutability degree of impatience and so forth nevertheless macroeconomic models of endogenous fluctuations still have to prove that apart from being very beautiful they can also be useful to understand the so called heal world hit sunt leones this article is not intended to be a survey of all that has been written in this area in the last decade i have no title whatsoever to talk about empirical studies chera sayers contribution in this same volume addresses that guestion scheinkman 1990 is a readily available survey of nonlinear statistical methods that are relevant to this debate as for the theory incompetence recommends that i avoid touching on sunspot equilibria olg models and more generally expectations driven cycles they are instead discussed in jean michel grandmont s article finally marketing awareness implies recommending boldrin and woodford 1990 as a reasonably complete survey of what the endogenous cycle research program has recently produced at a theoretical level

dynamic analysis of policy lag in a keynes goodwin model stability instability cycles and chaos abstract in this paper we investigate the impact of government s stabilization policy on the dynamic behavior of the economic system in an analytical framework of a keynes goodwin model of the growth cycle in particular we study the effects of the policy lag on macroeconomic stability analytically and numerically it is shown that the increase of the policy lag contributes to destabilize the system and cyclical behavior and chaotic motion emerge in some ranges of the parameter values

the ethics of the complete management buyout cycle a multi perspective analysis management buyouts occur when incumbent managers typically in association with third party investors purchase all of a firm s outstanding stock and remove it from public trading prior ethical analyses of such activities have ignored the fact that large numbers of such buyouts return to public trading the ethical implications of management buyout activity can be more fully understood if the entire buyout process is considered beginning with the time the firm is taken private until it is returned to public trading using a widely employed strategic management ethical framework developed by hosmer 1994 this paper examines the ethics of the complete buyout cycle

contracts and exits in venture capital finance using a sample of european venture capital vc investments i study the relation between vc contracts and exits the data indicate that ex ante stronger vc control rights increase the likelihood that an entrepreneurial firm will exit by an acquisition rather than through a write off or an ipo my findings are robust to controls for a variety of factors including endogeneity and cases in which the vc preplans the exit at the time of contract choice my findings are consistent with control based theories of financial contracting such as aghion and bolton 1992

the ethics of leveraged management buyouts revisited although previous ethical analyses of management buyouts have presented useful insights they have been flawed in three major ways first they define the transaction too narrowly emphasizing the going private aspect and ignoring the leveraged aspect leveraging alters the nature of the transaction substantially and warrants additional ethical analysis second these previous analyses ignore the impact of buyouts on non stockholder constituents of the firm an omission which renders their implicit utilitarian approach incomplete third these analyses do not include rawlsian libertarian or kantian perspectives on ethics this paper addresses these shortcomings and finds the ethical status of leveraged management buyouts to be highly suspect

intertemporal equilibrium dynamics with a pollution externality abstract a discrete model of a market economy is coupled to an accumulating pollutant and the intertemporal equilibrium dynamics of the resulting three dimensional economic environmental system is investigated through analysis and numerical methods conditions for the existence and stability of sustainable equilibria are studied under the usual assumption of linear uptake of the pollutant by the biosphere and under an alternative assumption of a threshold mechanism for uptake that leads to potential fold bifurcations and problems of existence for real equilibria over parts of the parameter space

on endogenous competitive business cycles the belief that the long run equilibrium of a competitive monetary economy that does not experience any exogeneous shocks whether originating from the external environment or from policy should be modelled as a state that is stationary or perhaps growing at a constant rate seems to be deeply rooted in the mind of some economists

rational choice and erratic behaviour in this paper we show that rational choice in a stationary environment can lead to erratic behaviour when preferences depend on experience we mean by erratic behaviour choice sequences that do not converge to a long run stationary value or to any periodic pattern early investigations of the effects of experience on choice goes back to pareto see also benhabib 1979 some keynesian theories of the consumption function incorporate the effects of experience and habit formation on current levels of consumption duesenberry 1949 modigliani 1949 and brown 1952 a general model of experience dependent choice was described in day 1970 and investigated in day and kennedy 1971 while the specific issue of the existence of stable representable long run consumer demand when tastes vary endogenously has been treated by gorman 1967 pollak 1970 1976 weizsaicker 1971 mccarthy 1974 and hammond 1976 pollak gave conditions for the representability of long run choice when the equations of preference dependence are linear and utility additive hammond in a generalization of these findings provides conditions for stable representable long run choice when preferences are acyclic a condition which in essence assures convergence to a long run choice

on the minimum rate of impatience for complicated optimal growth paths the occurrence of complex dynamics in economic models has received wide attention by the economic profession during the last decade see boldrin and woodford 1990 for a recent survey one of the most interesting and surprising results obtained so far is the indeterminacy theorem of boldrin and montrucchio 1986b which implies that virtually every dynamical behavior is fully compatible with the standard assumptions of decreasing returns competitive markets and perfect foresight deneckere and pelikan 1986 have used a related approach to derive similar results for the special case of one dimensional dynamics whereas the analysis in boldrin and montrucchio 1986b and deneckere and pelikan 1986 is restricted to optimal growth models formulated in discrete time an analogous result holds also for the continuous time case see montrucchio 1988 and sorger 1990 all of these indeterminacy theorems have been proved by a constructive approach which requires a sufficiently high rate of impatience on the side of the decision maker in particular to construct optimal growth models exhibiting some well known chaotic maps like the logistic map or the henon map as optimal policy functions one needs time preference rates of more than 400

economic development legality and the transplant effect abstract we analyze the determinants of effective legal institutions legality using data from 49 countries we show that the way the law was initially transplanted and received is a more important determinant than the supply of law from a particular legal family countries that have developed legal orders internally adapted the transplanted law and or had a population that was already familiar with basic principles of the transplanted law have more effective legality than countries that received foreign law without any similar predispositions the transplanting process has a strong indirect effect on economic development via its impact on legality while the impact of particular legal families is weaker and not robust to alternative legality measures

endogenous real exchange rate fluctuations in an optimizing open economy model abstract this paper constructs a simple intertemporal model of a small open economy inhabited by forward looking agents in which endogenous fluctuations in the real exchange rate can arise in equilibrium i e fluctuations that are not linked to movements in economic fundamentals the key condition for the main results is the assumption that the marshall lerner condition does not hold i e that the country s exports and imports are inelastic to its real exchange rate it is shown that given that the marshall lerner condition fails there exist periodic equilibria and or stationary sunspot equilibria in the neighborhood of the stationary state

location intentions of immigrants at retirement stay return or go back and forth this article analyses the intentions of immigrants regarding their residential choice after retirement three options are investigated stay in the host country go back to the origin country and adopt a mobile strategy sharing time between the host and the origin country defined as back and forth for this purpose we analyse a cross section of non french nationals aged above 45 who are not yet retired the impacts of several potential determinants of such intentions are investigated with particular focus on the effect of the actual location of the respondents children the estimation is conducted using a multinomial logit model instrumental variable technique is used to address the issue of endogenous children s location with respect to parents location intention results suggest that the immigrants prefer to return rather than stay in the host country when their children live in the country of origin however children s location does not seem to affect the back and forth strategy with respe

on the preservation of deterministic cycles when some agents perceive them to be random fluctuations some recent equilibrium models give rise to complex but deterministic fluctuations we modify the hypothesis of universal perfect foresight by injecting into the economy a nonnegligible fraction of less informed agents who optimize their expected utility with respect to the statistical distribution of prices in the deterministic dynamics for the standard overlapping generations model with money the samuelson case it is proved that if the fraction of consumers with limited knowledge is sufficiently high then all equilibrium cycles of period k 2 disappear the global properties of the case of 2 cycles are studied in detail a brief analysis of the classical case is also given

competitive equilibrium cycles recently there has been a surge of interest in endogenous business cycles that arise in competitive laissez faire economies in the context of standard overlapping generations economies conditions for the existence of equilibrium cycles have been given by grandmont 1983 and by benhabib and day 1982 models of the economy with extrinsic uncertainty or sunspots that have been developed by shell 1977 and by cass and shell 1983 see also balasko 1983 can also lead to equilibrium cycles

chaos in economic models with exogenous shocks abstract we investigate the generation of chaos in economic models through exogenous shocks the perturbation is formulated as a pulse function where either values or instants of discontinuity are chaotically behaved we provide a rigorous proof of the existence of chaos in the perturbed model the analytical results are applied to kaldor kalecki type models of the aggregate economy subject to export and rainfall shocks respectively simulations are used to demonstrate the emergence and the control of chaos our results shed light on a novel source of chaos in economic models and have important implications for policy making

growing through cycles the neoclassical growth model focuses on factor accumulation as an engine of growth while the neo schumpetarian growth model stresses innovation this paper argues that these two views of growth may capture different phases of a single growth experience in the model presented below the balanced growth path is unstable and the economy achieves sustainable growth through cycles under an empirically plausible condition perpetually moving back and forth between two phases one phase is characterized by higher output growth higher investment no innovation and a competitive market structure the other phase is characterized by lower output growth lower investment high innovation and a more monopolistic market structure both investment and innovation are essential in sustaining growth indefinitely and yet they move in an asynchronized way only one of them appears to play a dominant role in each phase the economy grows faster along the cycles than along the unstable balanced growth path

increasing returns and cyclical international capital movements abstract this paper introduces increasing returns to domestic capital into a standard optimizing model of international portfolio selection the resulting system displays surprising dynamic behavior endogenous cycles of any length may occur around the steady state equilibrium with both capital flows and asset prices displaying regular fluctuations initial conditions and expectations both matter in selecting the cycle on which the economy converges hence animal spirits may determine the course of asset prices and capital flows

self fulfilling optimism in a trade friction model of the business cycle models of economic activity with frictions in coordinating trading have been shown to be capable of generating multiple steady states peter diamond 1982 is the pioneering work see my 1987a paper for a general discussion less work has been done on out of steady state dynamics in such models which would enable us to examine what sort of fluctuations these models may generate the absence of dynamics leaves open the question of which steady state the economy will reach as well as whether the comovements of key variables resemble what is observed over the cycle in my earlier paper 1987b i presented a model combining search and aggregate demand approaches to unemployment to show how spillovers between product and labor markets could yield multiple equilibria here a highly simplified dynamic model based on this work is presented in which self fulfilling sales expectations determine to which steady state the economy converges these expectations are summarized by the asset values of firms which are producing output relative to those that are not two types of dynamic paths leading to stationary solutions can arise the first is a saddle path in addition for certain parameter values stable limit cycles emerge interestingly over this cycle asset values of firms which one could interpret as stock market values lead economic activity i model setup

the new economics of labor migration this paper reviews selected theoretical and empirical developments in the field of labor migration economics the migration behavior of individuals differs in accordance with their perceived relative deprivation those who are relatively more deprived tend to have stronger incentive to migrate than those who are relatively less deprived moreover a reference group characterized by more income inequality is likely to generate more relative deprivation highly skilled workers are also more likely to migrate migration decisions are often made jointly by the migrant and nonmigrant with a contractual arrangement regarding the sharing of costs and returns the exchange of commitments to share income provides coinsurance of particular interest are the determinants of the speed of adoption of migration as an innovation and the characteristics associated with the delay in the adoption of innovation new econometric techniques including techniques for the analysis of qualitative dependent variables techniques that correct for sample selection bias and those for the analysis of longitudinal data have substantially benefited empirical research in this area new methods that can correct for the biased estimate of the wages particular individuals would receive at 2 or more locations at the same point in time allow researchers to test locational decsion making models estimates of these structural models of labor migration support the hypothesis that individuals respond to income incentives in making the decsion to migrate further research is needed on the pazzling observation that migrant workers earn less than native born workers with similar characteristics during the 1st few years after migration but more thereafter other topics that need further research include the macroeconomic effects of migration the microeconomic and macroeconomic relationships between aging and labor migration and the migration behavior of dual earner families

the dynamics of optimal wealth distributions with recursive utility abstract in an economy with two agents having recursive preferences an optimal wealth distribution is shown to be stable if and only if a perturbation results in the adversely affected agent becoming more patient than the positively affected one this implies a weaker stability condition than traditionally used in the literature

management buyout proposals and inside information this paper explores stock price behavior surrounding withdrawn buyout proposals to determine whether managers proposal announcements reveal any information which is unrelated to the efficiency gains associated with completed buyouts on average firms whose managers withdraw buyout proposals do not sustain significantly positive stock price effects unless they receive subsequent acquisition bids in addition managers of firms with completed buyouts are no more likely to have access to inside information than managers who withdrew proposals i interpret this evidence as inconsistent with the notion that inside information commonly motivates management buyout proposals management buyouts occur when a group of investors including some incumbent managers buy all of a firm s outstanding common stock with the intent of taking it private critics of management buyouts argue that managers access to inside information allows them to time their proposals to expropriate the wealth of outside shareholders these opponents generally cite anecdotal evidence that favorable inside information motivates management buyout proposals 1 managers themselves suggest that their proposals are motivated at least in part by their information advantage 2 however assistant professor of finance texas a m university this paper is based on my univer

equilibrium cycles in an overlapping generations economy with production abstract perfect foresight equilibrium trajectories of an overlapping generations model with production may include stable or unstable invariant closed curves these orbits are detected using the hopf bifurcation theorem where the parameter of bifurcation is purely technological the paper also proves that there is a stabilization policy that completely eliminates the cycle finally using a c e s production function it is shown that the range of values of the elasticity of substitution between capital and labor for which cycles may exist is bounded above

the emergence of equilibrium cycles in a monetary economy with a separable utility function abstract this paper analyzes the dynamic properties of the monetary economy when money held during the period induces some utility it is shown that the price level and real money balances may have chaotic dynamic paths even if the utility function is separable in real money balances and consumption a crucial point is that a constraint on the utility of money yields the wealth effect that inflation will reduce the real value of assets hence as in the overlapping generations model the conflict between substitution and wealth effects may cause globally stable periodic orbits as well as the complicated dynamics

deficits and cycles abstract this paper shows that periodic equilibria may arise in a simple overlapping generations model with capital if the government follows a policy of fixing the value of the deficit rather than fixing the value of government debt then the difference equation that describes competitive equilibria may posses complex roots in the neighborhood of the golden rule stationary state one may show that if there exist parametric families of economies for which these roots change stability then locally there exists an invariant closed curve the paper provides two simple examples that generate such equilibria and it solves these examples numerically

two period cycles in a three period overlapping generations model abstract we study the properties of two period monetary cycles in simple pure exchange overlapping generations economies in which the households live for three periods we demonstrate that these economies can support cycles under a much broader and arguably more plausible range of assumptions than the analogous two period economies we show that economies that fail the well known grandmont econometrica 53 1985 995 condition can have cycles and that economies that satisfy the condition can fail to have cycles in addition we show that economies can have monetary cycles when they do not have conventional monetary steady states and when aggregate demand for assets is not decreasing in the real return rate at a gross real rate of unity

stabilization policy can lead to chaos stabilization policy can lead to chaos nonlinearities in economies as elsewhere can generate chaotic equilibria the presence of pareto inferior chaotic equilibria might seem reason enough to use stabilization policy to select preferable equilibria however i show that a stabilization policy with feedback can itself lead to chaotic dynamics thus the existence of nonlinearities in the economy does not by itself justify monetary or fiscal policies aimed at reducing economic instability current evidence cannot distinguish whether monetary policy stabilizes a nonlinear economy creates nonlinear dynamics in the economy or both i introduction in recent years the claim has been made that nonlinearities and self fulfilling expectations in the private economy generate economic instability that can and should be offset by government policies this instability shows up as a positive variance in the steady state of an economy that otherwise would have a steady state with zero variance and higher utility for households on the basis of such models grandmont and malgrange 1986 9 conclude that we should expect a free market economy to perform rather badly under laissez faire in addition there is a possible role for deterministic stabilization policies that would if understood and believed eliminate forecasting mistakes and the corresponding efficiency losses and would guarantee the ultimate disappearance of endogenous fluctuations the purpose of this note is to provide a simple example of stabilization policy leading to chaotic time series behavior this example is an elaboration of friedman s 1953 classic argument that with uncertain knowledge about the economy stabilization policy can increase the variance of the goal variable nonlinearities can make as much a case against stabilization policy as for it the example is ad hoc in some respects but it is based on common ingredients of many models ii a simple example interesting aspects of an economy can be summarized by the quantity equation 1 mv y assume that real income y is constant which implies that changes in nominal income are proportional to changes in the price level in one respect using the quantity equation means that the example below does not have the same force as a tight general equilibrium model of the economy without the underlying detail equation 1 is ad hoc in another respect the example below has more force an equation such as 1 commonly characterizes the general equilibrium models in which money has a significant effect on the economy hence one interpretation is that the example has some generality assume that the monetary authority targets nominal income and knows 1 that the quantity theory characterizes the long run equilibrium of the economy and 2 the level of velocity that is consistent with zero inflation v in these circumstances there is one obvious equilibrium consistent with the goal the money stock is constant and the public expects a constant money supply and zero inflation in this equilibrium nominal income can be stabilized at the target level of nominal income y the monetary authority just need set the money supply to m v 1y if the monetary authority is uncertain about the public s response to its actions one strategy is to adopt a cautious stabilization policy to support the economy s approach to the long run deterministic equilibrium one commonly proposed set of feedback rules is the proportional policies introduced by phillips 1954 in the levels such a rule for the money supply is 2 m m alpha y y sub 1 where y sub 1 is last period s nominal income and alpha is the adjustment parameter assume that private agents believe that the monetary authority eventually will accomplish its goal of setting y equal to y

on the optimality of cyclical employment policies a two state variable continuous time control model of optimal employment of a profit maximizing firm with convex labour adjustment costs is considered the model is analyzed numerically it is shown that a cyclical hiring and firing policy is optimal

rational expectations business cycles in search equilibrium we examine the rational expectations equilibrium paths of the model of search and barter in diamond s aggregate demand management in search equilibrium for some initial positions there are two equilibrium paths converging to different steady states with the high activity path pareto dominating the low activity path with some parameters there is also a continuum of equilibrium paths converging to another steady state moreover there can be cycles that are equilibrium paths even though the environment is stationary

equilibrium beliefs in linear rational expectations models abstract non unique equilibria are widely found in dynamic models with money increasing returns and imperfect competition this paper provides a convenient method for representing the entire set of equilibria in a large class of models similar to those studied by blanchard and kahn the method utilizes restrictions imposed on comovements implied by the structures of such models it is an aid in theoretical analysis and can be instrumental in the development of econometric tests of indeterminacy and sunspots important restrictions on admissible non fundamental uncertainty and on model forecasts are also highlighted

the unethical exploitation of shareholders in management buyout transactions the accurate pricing of securities in the capital markets depends upon the markets being both efficient and fair in management buyout transactions mbos the price bid by inside managers enhances the efficient pricing of securities but raises a reasonable doubt about the fairness to existing shareholders this study addresses this fairness question in mbos and offers short term and long term legal alternatives which allow both the efficiency and fairness criteria to be met in the short term the case law established in the basic v levinson decision for merger negotiation disclosures should be applied to mbo transactions over the longer horizon legislative changes should be made to existing securities laws applying the investor protection principles of the 1933 and 1934 securities acts to mbo transactions will suppress the temptation of managers to extract shareholder wealth for their personal gain

does legal enforcement affect financial transactions the contractual channel in private equity analyzing 210 developing country private equity investments we find that transactions vary with nations legal enforcement whether measured directly or through legal origin investments in high enforcement and common law nations often use convertible preferred stock with covenants in low enforcement and civil law nations private equity groups tend to use common stock and debt and rely on equity and board control transactions in high enforcement countries have higher valuations and returns while relying on ownership rather than contractual provisions may help to alleviate legal enforcement problems these results suggest that private solutions are only a partial remedy

the dynamics of efficient intertemporal allocations with many agents recursive preferences and production abstract the local dynamics of efficient allocations are studied for heterogeneous agent economies with production where preferences are recursive but not time separable in the case of a one sector neoclassical technology it is shown that optimal trajectories locally converge to a unique steady state provided that every agent s utility satisfies normality and increasing marginal impatience conditions in the two sector case with the above restrictions on preferences it is shown that oscillations can result only if the consumption goods sector is sufficiently capital intensive

ergodic fluctuations in deterministic economic models abstract nonperiodic business fluctuations are shown to exist with positive measure generically and to behave like stationary stochastic processes in the standard dynamic macro model the implication is that so called chaotic fluctuations are probable for random initial conditions in a large class of recursive economies

a volatility bound for endogenous business cycles the case of even period lives with additive utility in a monetary economy abstract this paper provides a simple method for placing a bound on the extent of variation of endogenous business cycles in a monetary economy with additive utility the results apply when individuals have even period lives in general the bound shrinks as individuals discount the future less

complex nonlinear dynamics and computational methods in the summer of 1997 berc rustem asked us whether we would be interested in editing a special issue of the journal of economic dynamics control on complex nonlinear dynamics and computational methods we were enthusiastic about the idea and soon started soliciting papers on these themes this issue contains 19 contributions by some experts in the eld and should provide the reader with an impression of the current s dechert 1996 goodwin 1990 hommes 1991 lorenz 1993 medio 1992 puu 1997 rosser 1991 and de vilder 1995 for more discussions concerning this controversy is the main source of economic uctuations to be found in exogenous random shocks to an inherently stable linear economic system or can nonlinear economic laws of motion explain a signi cant part of observed uctuations in output growth rates capital stocks inventories stock prices exchange rates and other economic or nancial variables this controversy dates back to the 1930s and the 1940s when frisch slutsky and tinbergen a o proposed their propagation mechanism subject to exterior random impulses as a way of modeling business cycles in contrast e g kaldor goodwin and hicks argued that the

private equity returns and disclosure around the world to obtain more funds from the institutional investors private equity pe fund managers may report inflated valuations of private investee companies that are not yet sold however such overvaluations may result in a reputational cost when those investments are realized using evidence from 39 countries we show that there are significant systematic biases in managers reporting of fund performance we find that these biases depend on the accounting and legal environment in a country and on proxies for the degree of information asymmetry between institutional investors and pe fund managers

venture capitalist certification in initial public offerings this paper provides support for the certification role of venture capitalists in initial public offerings consistent with the certification hypothesis a comparison of venture capital backed ipos with a control sample of nonventure capital backed ipos from 1983 through 1987 matched as closely as possible by industry and offering size indicates that venture capital backing results in significantly lower initial returns and gross spreads in effect the presence of venture capitalists in the issuing firms serves to lower the total costs of going public and to maximize the net proceeds to the offering firm in addition we document that venture capitalists retain a significant portion of their holdings in the firm after the ipo the ability of third party specialists to certify the value of securities issued by relatively unknown firms in capital markets that are characterized by asymmetric information between corporate insiders and public investors has attracted much academic interest in recent years several authors including james 1990 blackwell marr and spivey 1990 and barry muscarella peavy and vetsuypens 1991 have developed and tested models based at least in part on the formal certification hypothesis presented in booth and smith 1986 a related body of work represented by deangelo 1981 beatty and ritter 1986 titman and trueman 1986 johnson and miller 1988 carter 1990 simon 1990 and carter and manaster 1990 has examined how investment bankers and auditors help resolve the asymmetric information inherent in the initial public offering ipo process in this paper we examine whether the presence of venture capitalists as investors in a firm going public can certify that the offering price of the issue reflects all available and relevant inside information we hypothesize that venture capitalists can perform this function that it will be an economically

chinese management buyouts and board transformation we assess the extent to which chinese mbos of listed corporations enable a balance to be achieved between facilitating growth and supporting the interests of minority shareholders other than the buyout organization using novel hand collected data from 19 mbos of listed corporations in china a matched sample of 19 non mbos and the population of listed corporations we examine the extent to which boards of directors are changed to bring in executive and outside directors with the skills to grow as well as restructure a business we also examine the extent to which outside directors become involved in actions to develop the business rather than actions related to fostering the interests of all shareholders we find in fact little evidence that outside board members have the skills to add value to the mbo firms boards appear to focus mainly on related party transactions with some more limited attention to growth strategies outside directors do not seem to openly disagree with incumbent managers on the disclosure of their actions but may express their views and exert pressure behind the scenes

habit persistence money and overlapping generations abstract this paper provides a comprehensive characterization of the stationary and non stationary monetary equilibria in a two period pure exchange overlapping generations model with multiplicative habit persistence preferences somewhat surprisingly the upshot is that multiplicative habit persistence preferences do not affect the qualitative properties of the dynamical system in these models in addition the qualitative properties of models with subtractive and multiplicative habits are largely similar any possibility of cyclical fluctuations beyond periodicity two is also ruled out

expectational diversity in monetary economies abstract we investigate an overlapping generations monetary economy in which expectations depend upon backward looking predictors of the future price level we use discrete choice theory to model how agents select a predictor based on its past forecast error letting the number of available predictors tend to infinity we obtain the large type limit of the system taking the large type limit dramatically reduces the number of free parameters while maintaining the expectational diversity which we argue is necessary for constructing plausible learning based models the model s dynamics are strongly influenced by the intensity of choice which measures how sensitive an agent s predictor choice is to differences in forecast errors across predictors when the intensity of choice is low the monetary steady state is stable as the intensity of choice increases and if certain parametric restrictions are met the system undergoes a hopf bifurcation in which case we document the existence of highly irregular equilibrium price paths

long waves and short cycles in a model of endogenous financial fragility this paper presents a stock flow consistent macroeconomic model in which financial fragility in firm and household sectors evolves endogenously through the interaction between real and financial sectors changes in firms and households financial practices produce long waves the hopf bifurcation theorem is applied to clarify the conditions for the existence of limit cycles and simulations illustrate stable limit cycles the long waves are characterized by periodic economic crises following long expansions short cycles generated by the interaction between effective demand and labor market dynamics fluctuate around the long waves