comment general competitive analysis in an economy with private information prescott and townsend 1984 extend the literature on general equilibrium theory to economies in which agents have private information about their preferences they examine the extent to which the classical welfare theorems carry over in this environment the existence of nonverifiable information imposes limits on the economy s contract structure contracts cannot be written to require an agent to reveal information unless truthful revelation is optimal incentive compatiblity constraints typically nonlinear are thereby introduced into the corresponding planner s problem as a result the space of feasible deterministic allocations is typically not convex the authors circumvent this problem by allowing for random allocations where the planner is choosing over the space of probability distributions of consumption allocations the incentive compatibility constraints in this space are linear in the planner s choice variables rendering the set of feasible consumption allocations convex some of the attainable random allocations pareto dominate the set of incentive feasible allocations attainable via deterministic allocation rules randomized allocations have two functions they convexify the planner s choice set and they may allow for pareto superior allocations to be achieved prescott and townsend s presentation may leave readers with the misleading conclusion that the nonconvexity of the choice set under deterministic allocations is necessary for random allocations to be pareto superior but one can attain pareto superior allocations with lotteries even when the choice set under deterministic allocation rules is convex this note demonstrates that prescott and townsend s own example has this property

information and incentives the agency information problem this paper considers the use of imperfect information for risk sharing and incentive purposes when perfect observation of actions and outcomes is impossible making complete contracting infeasible the incentive insurance problem is defined to consist of two parts the choice of an information system and the design of a sharing rule based on the information system a generalized agency model is formulated to analyse this problem the agency models of ross 1973a b wilson 1968 stiglitz 1974 mirrlees 1976 harris and raviv 1979 holmstrom 1979 a o appear as special cases of the generalized model the analysis focuses on the value of information in the agency information problem the set of information systems which are valuable i e improve risk sharing and incentives in a pareto sense is characterized a problem independent ranking of information systems for the agency information problem is then characterized under the assumption that the agent s preferences are additive in money and actions the ranking may be viewed as a generalization of blackwell s ranking of information systems for decision problems to this particular game when the agent s risk preferences depend on his choice of action on the other hand it is shown that the blackwell ranking may be invalid randomized incentive schemes are shown to be efficient when the incentive effect of risk is positive and sufficiently large relative to the absolute risk aversion of the partners

scheduling the production of several items with random demands in a single facility consider the problem of scheduling the production of several items in a single facility that can produce only one item at a time this problem occurs since it is often economic to produce several items in a single facility the objective is to reduce the long run average holding backorder and setup costs we assume that demands are random with constant expected rates we allow backorders and charge holding and backlogging costs at linear time weighted rates items are produced at continuous constant rates setup times and setup costs are item dependent constants these parameters however are independent of the order of setups a real time scheduling tool is developed in three steps first with demands replaced by their expectations we compute an optimal or near optimal target cyclic schedule next we study the problem of scheduling the facility after a single disruption perturbs the inventories the goal is to recover the target cyclic schedule at minimal excess over the average cost of the cyclic schedule we formulate this as a control problem and obtain a linear recovery policy that is optimal for a large configuration of disruptions finally we select safety stocks to minimize the long run average cost of following the target schedule with the recovery policy we show that optimal safety stocks are unique and have the property that in the long run the proportion of time that an item is in stock is the ratio of backorder to holding plus backorder cost we present an example that integrates the cyclic schedule the control policy and the safety stocks

general equilibrium with nonconvexities and money in a general equilibrium economy with nonconvexities there are sunspot equilibria with good welfare properties sunspots can ameliorate the effects of the nonconvexities for these economies we show that agents act as if they have quasi linear utility functions we use this result to construct a new model of monetary exchange along the lines of lagos and wright where trade occurs in both centralized and decentralized markets but instead of quasi linear preferences we assume general preferences but with indivisible labor this suggests that modern monetary theory is more robust than one might have thought it also constitutes progress on the classic problem of integrating monetary economics and general equilibrium theory

ex ante randomization in agency models we consider how a principal can use randomized strategies in designing optimal contracts in agency settings we distinguish between ex post randomization overfee schedulesfollowing act selection by the agent and ex ante randomization overfee schedules before act selection we show that ex ante randomization may be efficient in both full information and private information settings under certain assumptions regarding preferences and the production technology it is particularly significant that additive separability and concavity ofthe agent s utility function as well as concavity of the production function do not rule out efficient ex ante randomized contracts in private information settings although as is known they rule out ex post randomization

nobel lecture the transformation of macroeconomic policy and research what i am going to describe for you is a revolution in macroeconomics a transformation in methodology that has reshaped how we conduct our science prior to the transformation macroeconomics was largely separate from the rest of economics indeed some considered the study of macroeconomics fundamentally different and thought there was no hope of integrating macroeconomics with the rest of economics that is with neoclassical economics others held the view that neoclassical foundations for the empirically determined macro relations would in time be developed neither view proved correct finn kydland and i have been lucky to be a part of this revolution and my address will focus heavily on our role in advancing this transformation now all stories about transformation have three essential parts the time prior to the key change the transformative era and the new period that has been affected by the change and that is the story i am going to tell how macroeconomic policy and research changed as a result of the transformation of macroeconomics from constructing a system of equations of the national accounts to an investigation of dynamic stochastic model economies

veto players and the value of political control a theory with evidence from energy privatization we examine how veto players and the government s valuation of political control of economic activity affect the likelihood of privatization when the government ascribes a high value to political control veto players impede privatization because they would have to be compensated for their losses when the value of political control is low the government prefers to privatize enterprises that become difficult to control with multiple veto players we test the theory against data on energy privatizations in developing countries 1988 2008 oil prices offer a quantitative measure of the government s valuation of controlling the energy sector when oil prices are high the government has a keen interest in controlling the energy sector accordingly additional veto players reduce increase the likelihood of privatization in times of high low oil prices beyond illuminating the politics of privatization the results inform debates on the role of veto players in government policy

valuation equilibrium with clubs abstract this paper considers model worlds in which there is a continuum of individuals who form finite sized associations to undertake joint activities we show how through a suitable choice of commodity space restrictions on the composition of feasible groups can be incorporated into the specification of the consumption and production sets of the economy we also show that if there are a finite number of types then the classical results from the competitive analysis of convex finite agent economies can be reinterpreted to apply journal of economic literatureclassification numbers d51 h41

liquidity constrained markets versus debt constrained markets this paper compares two different models in a common environment the first model has liquidity constraints in that consumers save a single asset that they cannot sell short the second model has debt constraints in that consumers cannot borrow so much that they would want to default but is otherwise a standard complete markets model both models share the features that individuals are unable to completely insure against idiosyncratic shocks and that interest rates are lower than subjective discount rates in a stochastic environment the two models have quite different dynamic properties with the debt constrained model exhibiting simple stochastic steady states while the liquidity constrained model has greater persistence of shocks

lotteries sunspots and incentive constraints we study a prototypical class of exchange economies with private information and indivisibilities we establish an equivalence between lottery equilibria and sunspot equilibria and show that the welfare and existence theorems hold to establish these results we introduce the concept of the stand in consumer economy which is a standard convex finite consumer finite good pure exchange economy with decreasing absolute risk aversion and no indivisibilities we prove that no lotteries are actually used in equilibrium we provide a simple numerical example with increasing absolute risk aversion in which lotteries are necessarily used in equilibrium we also show how the equilibrium allocation in this example can be implemented in a sunspot equilibrium

introduction to sunspots and lotteries abstract this introduces the symposium on sunspots and lotteries two stochastic general equilibrium concepts sunspot equilibrium se and lottery equilibrium le are compared it is shown that for some general pure exchange economies which allow for consumption nonconvexities or moral hazards the set of le allocations is equivalent to the set of se allocations provided that the randomizing device can generate events of any probability journal of economic literature classification numbers d51 d82 d84 e32

quasi fixed cyclic production schemes for multiple products with stochastic demand abstract in this paper we present an approach to generate cyclic production schemes for multiple products with stochastic demand to be produced on a single production unit this scheme specifies a fixed and periodic production sequence called a cycle where each product may occur more than once in the sequence in order to stabilize the cycle length alternative control strategies are introduced these strategies keep the cycle length close to a target length by means of adding idle time to the cycle cutting production short or overproduction on basis of the selected control strategy as well as a base stock policy target inventory levels are determined for each production run in the cycle demand can be backlogged but a certain service level is required setup times are sequence dependent and the storage is capacitated employing the developed strategies we investigate the tradeoff between stability of cycle length and total cost induced by the production schedule in a computational study based on both real world data and random test instances

indivisible labor lotteries and equilibrium abstract this paper considers an economy where labor is indivisible and agents are identical although the discontinuity in labor supply at the individual level disappears as a result of aggregation it is shown that indivisible labor has strong consequences for the aggregate bahavior of the economy it is also shown that optimal allocations involve lotteries over employment and consumption

simulation based sequencing and lot size optimisation for a production and inventory system with multiple items abstract we investigate the following decision problem a manufacturing unit has to meet a random demand for n items at the same time only one item can be manufactured manufacturing times are random whereas set up times are known positive constants but different for different items finished production is stored in a warehouse with finite capacity the availability of raw material is always guaranteed demand that cannot be satisfied by items in the warehouse will be backordered in a queue with given capacity demand that meets a full backorder queue is lost we assume cost for manufacturing items for production switches for holding items in the warehouse for waiting and lost demand for sold items a given reward is earned the problem now is to define such a manufacturing policy i e a sequencing rule and a lot size rule which maximises the expected profit per time unit since that problem is too complex for an analytical solution we restrict our search for an optimal policy to simple structured policies which can be described by a few parameters to find optimal parameter values we use simulation optimisation where a simulator for the system is combined with a genetic algorithm as an optimiser the paper is finished with some numerical examples to show the applicability of the proposed approach

a dual characterization of incentive efficiency we show that incentive efficient allocations in economies with adverse selection and moral hazard problems can be determined as optimal solutions to a linear programming problem and we use duality theory to obtain a complete characterization of the optima our dual analysis identifies welfare effects associated with the incentives of the agents to truthfully reveal their private information because these welfare effects may generate non convexities incentive efficient allocations may involve randomization other properties of incentive efficient allocations are also derived

efficient competitive equilibria with adverse selection do walrasian markets function orderly in the presence of adverse selection in particular is their outcome efficient when exclusive contracts are enforceable this paper addresses these questions in the context of a rothschild stiglitz insurance economy we identify an externality associated with the presence of adverse selection as a special form of consumption externality consequently we show that competitive equilibria always exist but are not typically incentive efficient however as markets for pollution rights can internalize environmental externalities markets for consumption rights can be designed to internalize the consumption externality due to adverse selection with such markets competitive equilibria exist and incentive constrained versions of the first and second welfare theorems hold

periodic versus can order policies for coordinated multi item inventory systems the coordinated multi item inventory problem refers to the problem of managing inventories where there is a joint fixed cost for replenishing plus an item by item fixed cost for each item included in the replenishment order given that the optimal solution is likely to be too complex attention has focused on fixed heuristics and in particular can order or s c s policies this paper makes two contributions first a new lower bound on the cost of the optimal policy is proposed in order that the performance of heuristics may be measured second motivated by the lower bound a simple periodic policy is proposed and shown to be an improvement over can order policies for many data sets

pareto optima and competitive equilibria with adverse selection and moral hazard this paper explores the extent to which standard general equilibrium analysis of pareto optima and of competitive equilibria can be applied to environments with moral hazard and adverse selection problems allowing for lotteries contracts with random components we first establish that an adverse selection insurance economy a moral hazard insurance economy a signaling economy and a private information labor market economy are all special cases of a simple general structure we then show that techniques for characterizing pareto optimal contracts as solutions to concave programming problems are useful and nice and appear to be broadly applicable allowing for lotteries we show how to characterize the optimal allocations for the adverse selection insurance and labor market economies we then show that standard existence and optimality theorems for competitive equilibria apply in the linear space containing lotteries if agents with characteristics which are distinct and privately observed at the time of initial trading enter the economy wide resource constraints in a homogeneous way other kinds of diversity are not critical for economies with moral hazard which satisfy the homogeneity condition competitive contract markets single out a subset of the optima and thus can be consistent with apparent unemployment and with a random allocation of labor supplied though all households are averse to risk the adverse selection insurance and signaling economies however do not satisfy the homogeneity condition and are difficult to decentralize efficiently with a price system

competitive markets with endogenous health risks we study an economy where agents productivity and labor endowment depend on their health status and indivisible occupational choices affect individual health distributions we show that pareto efficiency requires cross transfers across occupations moreover workers with relatively less safe jobs must get positive transfers whenever labor supply is not very reactive to wages a condition in line with the findings of a large empirical literature in these instances compensating wage differentials equalizing the utilities of ex ante identical workers in different jobs undermine ex ante efficiency moreover competitive equilibria where only assets with deterministic payoffs are traded are not first best finally we show that simple transfer schemes implemented through linear subsidies to health insurance enhance efficiency

efficiency and equilibrium when preferences are time inconsistent abstract we consider an exchange economy with time inconsistent consumers whose preferences are additively separable if consumers have identical discount factors then allocations that are pareto efficient at the initial date are also renegotiation proof in an economy with a sequence of markets competitive equilibria are pareto efficient in this sense and for generic endowments only if preferences are locally homothetic

the stochastic economic lot scheduling problem cyclical base stock policies with idle times in this paper we discuss stochastic economic lot scheduling problems elsp i e settings where several items need to be produced in a common facility with limited capacity under significant uncertainty regarding demands production times setup times or combinations thereof we propose a class of production inventory strategies for stochastic elsps and describe how a strategy which minimizes holding backlogging and setup costs within this class can be effectively determined and evaluated the proposed class of strategies is simple but rich and effective when the facility is assigned to a given item production continues until either a specific target inventory level is reached or a specific production batch has been completed the different items are produced in a given sequence or rotation cycle possibly with idle times inserted between the completion of an item s production batch and the setup for the next item an optimal strategy within the class can be determined and all relevant performance measures can be evaluated in just a few cpu seconds using a 486 based pc we also derive a number of easily computable lower bounds for the optimal cost value and establish a comparison with deterministic elsps

debt constrained asset markets we develop a theory of general equilibrium with endogenous debt limits in the form of individual rationality constraints similar to those in the dynamic consistency literature if an agent defaults on a contract he can be excluded from future contingent claims markets trading and can have his assets seized he cannot be excluded from spot markets trading however and he has some private endowments that cannot be seized all information is publicly held and common knowledge and there is a complete set of contingent claims markets since there is complete information an agent cannot enter into a contract in which he would have an incentive to default in some state in general there is only partial insurance variations in consumption may be imperfectly correlated across agents interest rates may be lower than they would be without constraints and equilibria may be pareto ranked

equilibrium prices when the sunspot variable is continuous we analyze sunspot equilibrium prices in nonconvex economies with perfect markets and a continuous sunspot variable our primary result is that every sunspot equilibrium allocation can be supported by prices that when adjusted for probabilities are constant across states this result extends to the case of a finite number of equally probable states under weak nonsatiation conditions but does not extend to general discrete state spaces we use our primary result to establish the equivalence of the set of sunspot equilibrium allocations based on a continuous sunspot variable and the set of lottery equilibrium allocations

lead time minimization of a multi product single processor system a comparison of cyclic policies abstract the supply chain under consideration is a two echelon system consisting of a retailer and a manufacturer the n different products face stochastic demand at the retailer and are produced using a shared facility at the manufacturer production changeover involves setup time that is significantly higher than the processing time a cyclic polling model with exhaustive limited service policy from the networking literature is applied to the supply chain problem and the service limit values are obtained to minimize the lead time mathematically the exhaustive service policy gives least value but in practice we can set the service limit to values near the stability condition and obtain similar results other cyclic policies that take into consideration either the minimum lot size or the production quantity band or the idle time between cycles are also studied these are tested for different values of plant utilization and a comparison is drawn through simulation limitations of the model are discussed and possible extensions identified