a contingent claims analysis of optimal investment subsidy this paper uses contingent claims analysis to answer two questions i why are some subsidy markets apparently slow in attracting an optimal subsidy when others are not and ii what can be done about it the lack of activity in the green investment subsidy markets has been a concern as it appears optimal that countries should offer such support from a welfare point of view but progress has nonetheless been stalling which motivates this paper we show that free riding which is likely to affect the green subsidy market cools down the subsidy market with harmful welfare effects and preemption which is likely to affect the more active fdi subsidy market overheats the subsidy market with similarly harmful effects the theory dictates a taxation scheme that offsets these effects to restore the welfare to its maximum point

representative democracy and capital taxation abstract in this paper we study a political model of capital taxation voters who differ in their relative shares of capital and labor income choose tax policy under majority rule we compare two political regimes direct democracy where the voters vote directly on the policy and representative democracy where they elect a representative who then chooses policy in both regimes some form of commitment by the voters is necessary to avoid excessive taxation of capital but the necessary commitment under representative democracy corresponds closely to that provided by the actual institutions of most democracies

who gains from capital market integration tax competition between unionized and non unionized countries the welfare effects of capital market integration are examined under a model of tax competition with two asymmetric countries the asymmetry is expressed through the labour market one country has a perfect labour market whereas the other country s labour market is unionized our results indicate that the welfare effects of capital market integration differ depending on whether governments are active or passive in attracting capital in the absence of active governments capital market integration benefits the country with a competitive labour market whereas it harms the unionized country capital market integration benefits both countries if governments are active and compete for mobile capital using taxes subsidies

competition in taxes and performance requirements for foreign direct investment abstract tax incentives offered to attract firms engaged in foreign direct investment are often tied to performance requirements such as domestic content restrictions or adherence to environmental standards the tax competition literature has repeatedly shown that competition between municipalities for mobile firms tends to drive taxes to low levels one would expect a comparable result for burdensome performance requirements despite this the evidence suggests that while taxes have indeed been driven down performance requirements are as popular as ever we explain this seeming conundrum by showing that in the presence of spillovers binding performance requirements can act as a coordination device for firms in equilibrium municipalities choose performance requirements which maximize joint surplus from investment competition between municipalities then transfers this surplus to firms via tax subsidies

foreign direct investment intra firm trade and ownership structure abstract asymmetric information about true opportunity cost in trade between a multinational and its foreign affiliate can alleviate the hold up problem in foreign direct investment selling shares in the affiliate to locals is also beneficial because it increases the parent multinational s information rent that is protected from a host government s confiscatory taxation

wage vacancy contracts and coordination frictions abstract we consider a directed search model with risk averse workers and risk neutral entrepreneurs who can set up firms that post wage vacancy contracts i e contracts where firms can make payments to more than one applicant and where the payments can be different for each applicant and be contingent on the number of applicants we establish that the type of contracts the literature focuses on are not offered if firms can post wage vacancy contracts we show that there exists an equilibrium satisfying a monotonic expected utility property which is efficient furthermore we investigate the role of wage vacancy contracts on welfare and competition

technology agglomeration and regional competition for investment competition for firms by region has a long standing history and the academic literature has debated whether such competition is efficient we develop a model that explores technology development by firms facing regional competition for their invest ment and examine the endogenous determination of region policy firm technology and agglomeration externalities we find a new source of inefficiency regional competition leads firms to inefficiently distort their development and selection of production tech nology to improve their standing in the regional competition for their investment we show that these inefficient firm decisions on technology and location can also weaken agglomeration externalities jel classification h71 l2

cooperation in ongoing organizations this paper argues that overlapping games can provide a natural theory of long lived organizations it shows that participation in organizations of infinite duration changes the incentives of agents with finite lives and will induce more cooperation than a static model would predict after developing the general theory we apply it to the description of career paths in organizations and show that it can be optimal to give the youngest workers the most arduous tasks

endogenous transfer institutions in overlapping generations abstract we characterize the set of equilibrium transfers between overlapping generations when transfer institutions are endogenous in stationary economies pareto improving transfers require institutions cost as much to construct as they convey even if less costly institutions exist that make the same transfer if institutions can be built upon they may cost less and convey more but transfers may become excessive interpreting such institutions as social security we introduce private saving with time social security crowds out savings still the potential to save limits any excess transfer endogenous costly to create gold money institutions are examined and the role of compulsion in evolving to costless to create fiat currency detailed

how to maximize domestic benefits from foreign investments the effect of irreversibility and uncertainty when a foreign monopolist facing uncertain future demand can either export to a host country or serve the market by undertaking an irreversible foreign direct investment the host government maximizes net domestic benefits by nearly fully subsidizing the investment cost in combination with taxing away benefits that exceed the gains from exporting without the subsidy maximization of domestic benefits leads to underinvestment from a world welfare point of view

money competitive efficiency and intergenerational transactions abstract this paper shows that a three period overlapping generations model with an inverse v life cycle endowment structure can generally restore the first welfare theorem without imposing price characterization conditions even when walras s law fails a walrasian equilibrium may be optimal in a three period model depending on the endowment and generational structure if middle aged generations have sufficiently high income so that both the old and the young are net borrowers transactions are generation by generation bilaterally balanced thus ruling out potentially better but unenforceable contracts in equilibrium and ensuring competitive efficiency when there are imbalances fiat money which serves as a medium of intergenerational exchanges becomes valuable

on the endogeneous formation of secondary employment centers in a city a new approach is proposed to explain the formation of secondary employment centers in a monocentric city specifically a large firm considers locating a new plant in a city where none of the existing businesses has a significative share of the labor force so that its location can be viewed as a secondary employment center the choice of this location results from the interplay between the process of competition on both the labor and land markets and the technological externalities generated by the proximity of the city center where other firms are located

human capital and fdi inflow an assessment of the african case summary this study assesses the role of human capital hk on fdi inflows to sub saharan africa it uses panel data for the period 1980 2012 to asses if changing skill needs influence fdi inflows several measures of hk are used to assess whether the quality of labor explains fdi flows over the study period various versions of an fdi model were estimated and the results show that all measures of hk have a significant influence on fdi as are the traditional variables there is no evidence of the increasing importance of hk on fdi over time probably reflecting the type of fdi flowing into ssa

privacy and time consistent optimal labor income taxation abstract incomplete information is a commitment device for time consistency problems in the context of time consistent optimal labor income taxation privacy can lead to a pareto superior outcome and increases the effectiveness of public education as a second best policy

a theory of collective reputations with applications to the persistence of corruption and to firm quality the paper is a first attempt at modelling the idea of group reputation as an aggregate of individual reputations a member s current incentives are affected by his past behaviour and because his track record is observed only with noise by the group s past behaviour as well the paper thus studies the joint dynamics of individual and collective reputations and derives the existence of stereotypes from history dependence rather than from a multiplicity of equilibria or from the existence of a common trait as is usually done in the literature it shows that new members of an organization may suffer from an original sin of their elders long after the latter are gone and it derives necessary and sufficient conditions under which group reputations can be rebuilt last the paper applies the theory to analyse when a large firm can maintain a reputation for quality 1 collective reputations collective reputations play an important role in economics and the social sciences countries ethnic racial or religious groups are known to be hard working honest corrupt hospitable or belligerent some firms enjoy substantial rents from their reputations for producing high quality products some departments are reported to treat their faculty or students fairly the paper is a first attempt at modelling the idea of group reputation as an aggregate of individual reputations a member s current incentives are affected by her past behaviour and because her track record is observed only with noise by the group s past behaviour as well the paper studies the joint dynamics of individual and collective reputations in a model in which current generations are progressively replaced by new ones and derives the existence of stereotypes from history dependence rather than from a multiplicity of equilibria or from the existence of a common trait as is usually done in the literature see section 2 for a detailed comparison with the literature it shows that new members of an organization may suffer from an original sin of their elders long after the latter are gone and it derives necessary and sufficient conditions under which group reputations can be rebuilt last the paper applies the theory to analyse when a large firm can maintain a reputation for quality let us spell out the building blocks of our theory in more detail a a group s reputation is only as good as that of its members each member is characterized by individual traits such as talent diligence or honesty past individual behaviour conveys information about these traits and generates individual reputations

an overlapping generations model of electoral competition this paper presents a dynamic model of political competition between two parties with different policy preferences a party is explicitly modeled as a sequence of overlapping generations of candidates all of whom face finite decision horizons in general there is a conflict between the interests of the individual policymakers and those of the party which includes subsequent generations of candidates we characterize this conflict and suggest a scheme of intergenerational transfers within the party which can resolve or mitigate this conflict the paper shows how the overlapping generations model can be usefully applied to the political arena this abstract was borrowed from another version of this item

directed search and the bertrand paradox i study a directed search model of oligopolistic competition extended to incorporate general capacity constraints congestion effects and pricing based on ex post demand in the presence of any one of these ingredients the bertrand paradox fails to hold hence despite the emphasis that has been placed by the literature on sellers capacity constraints as a resolution to the paradox the existence of such constraints is only a subcase of a general class of environments where the paradox fails specifically bertrand s paradox will not arise whenever the buyers expected utility from visiting a seller is decreasing in that seller s realized demand

social contracts as assets a possible solution to the time consistency problem this paper presents a new solution to the time consistency problem that appears capable of enforcing ex ante policy in a variety of settings in which other enforcement mechanisms do not work the solution involves formulating a social contract institution or agreement that specifies the optimal ex ante policy the social contract is effectively sold by succesive old generations to successive young generations who pay for the social contract through the payment of taxes both old and young generations have an economic incentive to fulfill the social contract for the old generation breaking the social contract makes the social contract valueless and the generation suffers a capital loss by not being able to sell it for the young generation the economic advantage of purchasing the existing social contract exceeds its price as well as the economic gain from setting up the a new social contract

the forgotten history of domestic debt there is a rich scholarly literature on sovereign default on external debt comparatively little is known about sovereign default on domestic debt even today cross country data on domestic public debt remains curiously exotic particularly prior to the 1980s we have filled this gap in the literature by compiling a database on central government public debt external and domestic the data span 1914 to 2010 for most countries reaching back into the nineteenth century and earlier for many our findings here on debt sustainability sovereign defaults the temptation to inflate and the hierarchy of creditors only scratch the surface of what the domestic public debt data can reveal first domestic debt is big for the 64 countries for which we have long time series domestic debt accounts for almost two thirds of total public debt for most of the sample this debt carries a market determined interest rate except for the financial repression era between wwii and financial liberalization second the data go a long way toward explaining the puzzle of why countries so often default on their external debts at seemingly low debt thresholds third domestic debt has largely been ignored in the vast empirical work on inflation in fact domestic debt a significant portion of which is long term and nonindexed is often much larger than the monetary base in the run up to high inflation episodes last the widely held view that domestic residents are strictly junior to external creditors does not find broad support

the intergenerational state education and pensions allocation is inefficient when generations overlap this failure can be mitigated by properly designed social arrangements we show that public financing of education and public pensions can be designed to implement an intergenerational transfer scheme supporting the complete market allocation neither the public financing of education nor the pension scheme we consider resemble standard ones in our mechanism via the public education system the young borrow from the middle aged to invest in human capital they pay back the debt via a social security tax the proceedings of which finance pension payments when the complete market allocation is achieved the rate of return implicit in this borrowinglending scheme should equal the market rate of return

parental altruism and common property regulation since any regulation of a common property resource must be selected and enforced by a government of finitely lived agents a natural way to study common property regulation is to study the behavior of these governments in this paper such behavior is analyzed in an overlapping generations economy where agents are altruistic towards their children

individual and collective time consistency this paper reconsiders the strotz pollak problem of consistent planning and argues that a solution to this problem requires a refinement of subgame perfectness such a refinement is offered through an analysis based on greenberg s theory of social situations the properties of this refinement are investigated and illustrated a unifying framework is presented whereby consistent one person planning as a problem of individual time consistency and renegotiation proofness as a problem of collective time consistency are captured through the same general concept

bidding for firms recently toyota sought a plant location in the united states the 800 million plant will employ 3000 workers and numerous states offered toyota generous investment incentives hoping this would induce toyota to select their state the commonwealth of kentucky won this competition but the price was high the present value of the payments exceeds 125 million the payment of investment incentives for the toyota plant is not unique in 1976 pennsylvania paid 75 million to attract a volkswagen plan nissan honda and mazda received generous investment incentives when locating plants in the united states and this bidding is not limited to states to attract the headquarters of the presbyterian church usa with its 1300 jobs and 38 million annual payroll civic leaders in louisville kentucky offered the church a warehouse and 6 2 million for renovation of the structure bidding the church away from kansas city missouri in this paper we contend that this competition may result from the average cost pricing of publicly provided goods and services 2 when the marginal cost of providing a firm and its workers with public services is less than the tax revenue they generate a government may offer the firm subsidies that reduce the distortions the average cost pricing of the public service creates thus this competition for industry is not a zero sum game where the subsidies are only transfers from the government to the firm rather these subsidies may facilitate the efficient location of industry

bribery and public debt repudiation in cases where policy makers accept bribes offered by organised lobbies or interestedparties government decisions can be modelled as a first price menu auction in this paper we adaptthis structure to model debt repudiation we considera one period model in which two generations parents and children are present and debt titles are unevenlydistributed among parents the government can repaythe debt by a combination of taxes on the children sincome and on the outstanding debt we excludeintergenerational conflicts assuming that the parents and children s objective is to maximise the utility ofthe family in this perspective families make offersthat relate monetary contributions to the taxstructures chosen by the government on the hypothesisthat all interests are represented we obtain theresult that the government is indifferent to the taxstructure

the politics of intergenerational redistribution this paper studies the political economic equilibrium of a two period model with overlapping generations in each period the policy is chosen under majority rule by the generations currently alive the paper identifies a politically viable set of values for public debt any amount of debt within this set is fully repaid in equilibrium even without commitments by issuing debt within this set the first generation redistributes revenue in its favor and away from the second generation the paper characterizes the determinants of the equilibrium intergenerational redistribution and identifies a difference between debt and social security as instruments of redistribution

directed search and firm size standard directed search models predict that larger firms pay lower wages than smaller firms contrary to the data this article proposes one way to obtain this positive size wage differential in a directed search setting i posit that there is an optimal size associated with a firm a firm suffers a penalty by not operating at its optimal size i show that if this penalty is sufficiently large the size wage differential will be obtained my model also gives a new way to look at the data because it highlights the importance of the distinction between intended and realized firm sizes

regional tax coordination and foreign direct investment this paper analyses the effects of a regionally coordinated profit tax or location subsidy in a model with three active countries one of which is not part of the union and a globally mobile firm we show that regional coordination can lead to two types of welfare gain first for investments that would take place in the union in the absence of coordination a coordinated tax increase can transfer location rents from the firm to the union second by internalising all of the union s benefits from foreign direct investment a coordinated tax reduction can attract more welfare enhancing investment than when member states act in isolation depending on which motive dominates tax levels may thus rise or fall under regional coordination

equilibrium wage dispersion and interindustry wage differentials this paper develops a search theoretic explanation of interindustry wage differentials given coordination problems in the labor market the probability of filling a vacancy is an increasing function of the wage offered in equilibrium firms that find vacancies more costly will offer higher wages the model thus explains the persistence of interindustry wage differentials and their correlation with industry average capital labor ratio and profitability additionally the model predicts that high wage firms will receive more applications per job opening and that wages in the labor market will behave as strategic complements

competition for foreign direct investments abstract this paper models international competition for foreign direct investment as a common agency problem using the theory of menu auctions developed by bernheim and whinston in the model national governments act as principals and a multinational corporation as the single agent governments are assumed to maximize the net wage income generated by the corporation s investment it is shown that in the equilibrium of this game a high wage country may be able to attract investment even though all countries use subsidies furthermore it is shown that a country may choose to pay the highest subsidies even if it attracts less investment than in the unsubsidized regime our framework can also be used to study interregional subsidy competition within a country

technology agglomeration and regional competition for investment technology agglomeration the active courting of firms by municipalities regions and even nations has a long standing history and the competition for firm location through a wide variety of incentives seems to have escalated to new heights in recent years we develop a model that explores technology development by firms that face regional competition for their investment and examine the endogenous determination of regions policies firm technology and agglomeration externalities in particular we find that regional competition leads firms to inefficiently distort their research and development efforts in hopes of improving their standing in the competition amongst regions for their investment this loss in efficiency is aggravated by the agglomeration externalities that are inherently present in many industries we offer several case studies that provide evidence consistent with our theoretical conclusions

the effects and policy implications of state aids to industry an economic analysis state aids making eu policy properly reflect geography and subsidiarity the use of state aids to industry is a poorly understood part of competition policy currently the eu commission presumes that state aids distort competition yet it approves 98 of applications often for social or distributional reasons we argue that proper regulation of state aids should focus on two issues the externalities generated and the inefficiencies arising from failures in competition between governments we thus develop a new framework for eu policy and compare its implications with the existing practice of the eu commission timothy besley and paul seabright

local fiscal competition an application to sales taxation with multiple federations abstract local sales tax rates influence the location of retail activity this paper develops a theory and empirical identification strategy for studying sales tax competition with multiple federations as exemplified by multiple counties each containing several cities in addition to strategic interactions with nearby cities and a city s own county city tax rates are influenced by the tax rates of neighboring counties cities react heterogeneously to own county sales tax rates depending on distance to the county border using data on the driving time to county borders and a comprehensive cross section of local sales tax rates i exploit variation in proximity to county borders to identify vertical fiscal competition cities located near county borders react more intensely to their county s tax rate in comparison to towns at the interior an increase in the neighboring county tax rate raises city tax rates in nearby counties

costly transfer institutions and the core in an overlapping generations model we examine an overlapping generations economy with no pre existing intergenerational transfers and study the set of transfer institutions in the core of the economy that is institutions that would be admissible for the first generation to create and would not be rejected by any future generation institution building is assumed to be costly we allow the cost of creating a new institution to vary with the size of the transfer it institutes and show that all institutions in the core must cost as much to build as they transfer in fact the core set is nonempty if and only if the institution that supports the golden rule transfer costs as much to create as it transfers the core set is characterized for various cost functions we conclude that costs associated with the creation of transfer institutions are essential to make intergenerational transfers socially viable but they may induce the choice of institutions making suboptimal transfers

private income transfers and market incentives the paper introduces labour supply considerations and labour earnings uncertainty into a parent child framework in the presence of merit goods i investigate the implications of various parental bequest rules on the effort decisions of the offspring where the parent cannot perfectly observe her child s market activities the asymmetry in information and preferences gives rise to a moral hazard problem and as a result the parent may not fully insure her child because the source of risk is not entirely exogenous in this case optimal parental transfers are shown to be state contingent moreover the child s effort is higher in the case with a merit good and parental transfers than in the case without a merit good goods are not only economic commodities but vehicles and instruments for realities of another order influence power sympathy status emotion and the skillful game of exchange consists of a complex totality of maneuvers conscious or unconscious in order to gain security and to fortify one s self against risks incurred through alliances and rivalry levi strauss the principle of reciprocity

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

taxes and stimuli of investment under uncertainty this article considers the effect on an irreversible investment of a subsidy to investment in combination with a taxation of future profits it is shown that such a combination raising a zero expected revenue decreases the trigger value of investment the tax rate for which the stimulus works at zero expected cost decreases as heterogeneity in the group of investors increases the importance of the result is exemplified by the graduate tax

wages rents and the quality of life this study focuses on the role of wages and rents in allocating workers to locations with various quantities of amenities the theory demonstrates that if the amenity is also productive then the sign of the wage gradient is unclear while the rent gradient is positive the theory is extended to include the housing market and nontraded goods these extensions require little modification of the conclusion the empirical work on wages shows that the regional wage differences can be explained largely by these local attributes with the use of site price data implicit prices are estimated and quality of life rankings for the cities are computed

directed search and job rotation abstract we consider the impact of job rotation in a directed search model in which firm sizes are endogenously determined and match quality is initially unknown a large firm benefits from the opportunity to rotate workers so as to partially overcome the loss of mismatch as a result in the unique symmetric equilibrium large firms have higher labor productivity and lower separation rates in contrast to the standard directed search model with multi vacancy firms this model can generate a positive correlation between firm size and wage without introducing any ex ante productivity differences or imposing any non concave production function assumptions

nonlinear capital taxation without commitment we study efficient nonlinear taxation of labor and capital in a dynamic mirrleesian model incorporating political economy constraints policies are chosen sequentially over time without commitment our main result is that the marginal tax on capital income is progressive in the sense that richer agents face higher marginal tax rates

inter generational transfers and common values in a society abstract we present a model in which inter generational transfers are interpreted as a cooperative agreement across generations cooperation is obtained by allowing each generation to share common principles defined as a set of strategies which answer the question if an inter generational transfer was to be designed which one would be chosen under the premise that each generation shares with the next generations not only the outcome of the process but also the reasoning that leads to this outcome

real options and preemption under incomplete information abstract this paper introduces incomplete information and preemption into an equilibrium model of firms facing real investment decisions the optimal investment strategy may lie anywhere between the zero npv trigger level and the optimal strategy of a monopolist depending on the distribution of competitors costs and the implied fear of preemption our model implies that the equity returns of firms which hold real options and are subject to preemption will contain jumps and positive skewness

politicians decision making with re election concerns abstract we study the impact of elected officials re election concerns on their decisions on whether to undertake new projects the value of a project to a jurisdiction depends in part on its elected official s uncertain ability at providing some public goods our main result is that the elected official s willingness to pay for the project differs from voters willingness to pay if the incumbent official expects to lose win the election then she is willing to pay more less than the project s total value to voters we show how our analysis can be applied to bidding wars among jurisdictions for firms

tradition and common property management since management of a common property resource can be undertaken only by a government of finitely lived agents studying the behaviour of such governments is a natural way to study common property management i propose that we regard the choice of management objective by such a government as a move in a game of sequential agents given this framework it is shown that subgame perfect equilibria exist in which successive governments choose the same traditional management objective these strategies enable an economy to overcome any intergenerational externality thus following a tradition of conservation may be a rational response to an intergenerational externality tradition et gestion d une ressource en propriete commune puisque la gestion d une

the macroeconomics of dr strangelove the cold war has ended and president george bush has declared the beginning of a 4 new world order this new world order has so far been characterized by the intensification of regional disputes civil strife and civil war its implications for arms proliferation and arms control are still unclear this paper considers both superpower conflict and the transition to international cooperation in the context of a model that emphasizes intergenerational linkages specifically we explore the weapons accumulation decisions of two adversarial countries in the context of a deterrence conflict initiation game embedded in an overlapping generations model the demographic structure of the overlapping generations model allows the analysis of both between and withincountry intergenerational external effects caused by past weapons accumulation decisions while the two country setting permits consideration of international external effects caused by the adversary country s current weapons accumulation decision we analyze the noncooperative equilibrium and then consider the effects of a regime change characterized by international cooperation but where the intergenerational externali

wage vacancy contracts and multiplicity of equilibria in a directed search model of the labour market this paper studies a directed search model of the labour market which is standard in all aspects except two first we allow firms to post wage vacancy contracts advertising the number of workers they would pay as well as the payment all will receive second we consider two cases one where workers are risk neutral and one where workers are risk averse both in finite and large economies our paper shows that when firms post wage vacancy contracts whether workers are modelled as risk neutral or risk averse matters the types of symmetric equilibria and the nature of multiplicity of equilibria are different somewhat surprisingly when there are finite numbers of risk neutral workers and firms we obtain a finite number of symmetric equilibria but when workers are risk averse we obtain a continuum of equilibria furthermore our paper sounds a cautionary note on using large economies as an approximation of finite economies when workers are risk neutral the nature of equilibrium is preserved going from a finite to a large economy but the nature of equilibrium is different when workers are risk averse les contrats salaire emploi et la multiplicite des equilibres au sein d un modele de recherche dirigee applique au marche du travail cet article etudie un modele de recherche dirigee applique au marche du travail qui differe du modele standard en deux points premierement les entreprises peuvent proposer des contrats dits salaire emploi qui en plus du salaire indiquent le nombre de travailleurs qu un employeur est dispose a recruter deuxiemement nous considerons deux cas un ou les travailleurs ne presentent pas d aversion au risque et l autre ou ils sont averses au risque a chaque fois pour des economies avec une nombre fini puis infini d agents l article demontre que la presence ou non d aversion au risque a de l importance quand les entreprises peuvent proposer des contrats salaire emploi car les types d equilibres symetriques et la nature des multiplicites different dans les deux cas par exemple si l on considere une economie avec un nombre fini de travailleurs il existe un nombre fini d equilibres symetriques lorsque les travailleurs ne presentent pas d aversion au risque alors qu il en existe un continuum lorsque les travailleurs sont averses au risque qui plus est l article invite a la prudence en utilisant une economie a nombre infini d agents comme approximation d une economie peuplee d un nombre fini d agents car en allant de l une a l autre la nature des equilibres est preservee dans le cas de travailleurs ne presentant pas d aversion au risque alors qu elle change lorsque les travailleurs sont averses au risque

taking the bite out of fiscal competition regions can benefit by offering infrastructure services that are differentiated by quality thus segmenting the market for industrial location regions that compete on infrastructure quality have an incentive to increase the degree of differentiation between them this places an upper bound on the number of regions successfully able to participate in the location market and limits the dissipation of regional surplus through tiebout competition it indicates a process of fiscal agglomeration through which regional concentrations arise which does not depend on the circular causation underlying much of the recent literature on economic geography

ex ante price offers in matching games non steady states a matching problem is considered in which sellers can publicly commit to a trading price that differs from the price at which buyers expect to trade elsewhere in the market when demand and supply are nearly equal the equilibrium ex ante price offer lies below the price associated with the nash bargaining split this relationship reverses when the level of excess demand is large sellers always have an incentive to make ex ante offers when prices elsewhere are determined by nash bargaining this can be interpreted to mean that nash bargaining is an unstable pricing institution copyright 1991 by the econometric society

subsidies as sorting devices abstract the divergence between tax payments and the cost of providing public services that arise from financing local public services provides an incentive for higher income communities to deter the entry of lower income households into their community here we demonstrate that higher income households to insure that low income households do not enter their community or reduce the number that do enter subsidize goods consumed by higher income households more than by lower income households this strategy will make the rich community less attractive to the poor deterring their entry to the community

forward and backward intergenerational goods why is social security good for the environment this paper studies the ability of nonmarket institutions to invest optimally in forward intergenerational goods figs such as education and the environment when agents are selfish or exhibit paternalistic altruism we show that backward intergenerational goods bigs such as social security play a crucial role in sustaining investment in figs without them investment is inefficiently low but with them optimal investment is possible we also show that making the provision of bigs mandatory crowds out the voluntary provision of figs and that population aging can increase investment in figs

a bargaining model of tax competition abstract this paper develops a model in which competing governments offer financial incentives to induce individual firms to locate within their jurisdictions equilibrium is described under three specifications of the supplementary taxes there is no misallocation of capital under two of these specifications and there might or might not be capital misallocation under the third this result contrasts strongly with that of the standard tax competition model which does not allow governments to treat firms individually that model finds that competition among governments almost always leads to capital misallocation

directed search and optimal production abstract i consider a model of directed search where strategic sellers advertise general trading mechanisms a mechanism determines the number of buyers that will get served and the side payments as a function of ex post realized demand buyers observe these advertisements and visit one seller without being able to coordinate their visiting strategies despite the oligopolistic nature of the model all symmetric equilibria are constrained efficient in small markets multiple equilibria exist that are not payoff equivalent this indeterminacy vanishes as the market grows large i provide closed form solutions for equilibrium prices profits and the matching function under any parameter values

pricing and matching with frictions suppose that n buyers each want one unit and m sellers each have one or more units of a good sellers post prices and then buyers choose sellers in symmetric equilibrium similar sellers all post one price and buyers randomize hence more or fewer buyers may arrive than a seller can accommodate we call this frictions we solve for prices and the endogenous matching function for finite n and m and consider the limit as n and m grow the matching function displays decreasing returns but converges to constant returns we argue that the standard matching function in the literature is misspecified and discuss implications for the beveridge curve

product market and the size wage differential using directed search to model the product market and the labor market i show that large plants can pay higher wages to homogeneous workers and earn higher expected profit per worker than small plants although plants are identical except size a large plant charges a higher price for its product and compensates buyers with a higher service probability to capture this sizerelated benefit large plants try to become larger by recruiting at high wages this size wage differential survives labor market competition because a high wage is harder to get than a low wage moreover the size wage differential increases with the product demand when demand is initially low and falls when demand is already high

on the optimal structure of government subsidies for enterprise zones and other locational development programs abstract government locational development programs often reward businesses for decisions they would have made or that are going to be quickly reversed this paper presents a model to determine the amount and structure of government locational subsidies that minimize this problem we model the firm s decision to switch locations as an option whose value depends on stochastic operating costs the costs to switch locations and subsidies offered by the government the government maximizes the expected benefit from the operation of the firm within its preferred location by choosing a subsidy package that explicitly and endogenously recognizes the firm s switching option

capital taxation under political constraints this paper studies optimal dynamic tax policy under the threat of political reform a policy will be reformed ex post if a large enough coalition of citizens supports reform thus sustainable policies are those that will continue to attract enough political support in the future we find that optimal marginal capital taxes are either progressive or u shaped so that savings are subsidized for the poor and or the middle class but are taxed for the rich u shaped capital taxes always emerge when individuals political behavior is purely determined by economic motives

corporate lobbying and commitment failure in capital taxation this paper investigates the effects of lobbying by corporations when investments are irreversible and government cannot commit to tax policies we show that industries which rely more heavily on sunk capital lobby more vigorously and are generally more successful in obtaining tax breaks thus lobbying can mitigate the capital levy problem nevertheless these industries invest less in long run equilibrium than more flexible ones we then consider the effects of relaxing legal restrictions on corporate lobbying when the deadweight costs of lobbying fall taxes on sunk capital tend to fall but political contributions may rise as lobbyists compete more intensively for political favors on balance a ban of lobbying may therefore cause investment to rise or fall this abstract was borrowed from another version of this item

pension design when fertility fluctuates the role of education and capital mobility this study compares alternative designs of an unfunded pension system convex combinations between a fixed contribution rate and a fixed benefit rate are considered the objective is to maximize the expected ex ante welfare under stochastic fertility the model is a three period cge framework where the financing of education and effects on factor prices are accounted for factor prices depend on the degree of capital mobility for low degrees of capital mobility it is optimal to have a fixed benefit rate in the pension system but for the small open economy a fixed contribution rate is optimal if the education system has a fixed benefit rate in this case individuals in the small open economy are unaffected by fertility fluctuations

ruling out speculative hyperinflations the role of the government abstract in this paper we show that if the government can levy taxes to back the currency speculative hyperinflations are ruled out as equilibrium outcomes this is so even though convertibility is never observed in equilibrium the only observational difference between a pure fiat money economy and a convertible economy as the one described in this paper is the potential of the former to exhibit speculative hyperinflations the lack of empirical support for those speculative paths can be taken as evidence against interpreting modern economies as pure fiat money systems

cooperation in an overlapping generations experiment abstract recent theoretical work shows that folk theorems can be developed for infinite overlapping generations games cooperation in such games can be sustained as a nash equilibrium but of course there are other equilibria this paper investigates experimentally whether cooperation actually occurs in a simple overlapping generations game subjects both play the game and formulate strategies our main finding is that subjects fail to exploit the intertemporal structure of the game even when we provided subjects with a recommendation to play the grim trigger strategy most of the subjects still employed safe history independent strategies journal of economic literature classification numbers c72 c92 d90

double tax discrimination to attract fdi and fight profit shifting the role of cfc rules abstract governments worldwide use targeted tax policies to trade off the gains from increased fdi against the cost of excessive profit shifting by multinational firms we show that nationally optimal tax systems generally incorporate both thin capitalization rules which tax discriminate between purely national and multinational firms and controlled foreign company cfc rules which discriminate between home based and foreign based multinationals in the non cooperative policy equilibrium both thin capitalization rules and cfc rules are set more lenient than if tax policies were chosen cooperatively implying an excessive tax discrimination in favor of multinationals we also analyze the effects of reduced transaction costs for fdi and reduced costs for debt shifting on the optimal policy mix our results correspond to the observed developments of anti avoidance rules in oecd countries

an overlapping generations model of growth and the environment this article analyzes the potential conflict between economic growth and the maintenance of environmental quality in an overlapping generations model short lived individuals make decisions which have long lasting effects on both factor productivity and the environment the model provides a theoretical explanation of observed correlations between environmental quality and income whereby economic growth is associated first with declines then improvements in environmental quality it suggests circumstances in which multiple pareto ranked steady state equilibria may arise and in which sustained growth of both capital and environmental quality may occur overmaintenance of the environment analogous to dynamically inefficient overaccumulation of capital may emerge copyright 1994 by royal economic society

heterogeneous firms and the organization of production firms in the same industry exhibit systematic differences in the organization of production and the structure of employment entrepreneurial ability is the specific scarce input that limits the size of a firm this input must be allocated to two activities coordinating production and monitoring workers able entrepreneurs can convert calendar time into larger supplies of coordinating effort that enable them to assemble large firms greater ability implies a higher shadow price of time which increases the implicit costs of monitoring a dispersion of entrepreneurial abilities generates an equilibrium size distribution of firms differences in monitoring costs affect the choice of worker productivities the design of products and the organization of production the monitoring cost hypothesis advanced in this paper goes a long way in explaining the equilibrium of an industry containing heterogeneous firms that differ in size and behavior

eu regional policy and tax competition the european union eu provides coordination and financing of trans european transport infrastructures i e roads and railways which link the eu member states and reduce the cost of transport and mobility this raises the question of whether eu involvement in this area is justified by inefficiencies of national infrastructure policies moreover an often expressed concern is that policies enhancing mobility may boost tax competition we analyze these questions using a model where countries compete for the location of profitable firms we show that a coordination of investment in transport cost reducing infrastructures within union countries enhances welfare and mitigates tax competition in contrast with regard to union periphery infrastructure the union has an interest in a coordinated reduction of investment expenditures here the effects on tax competition are ambiguous our results provide a rationale for eu level regional policy that supports the development of intra union infrastructure

a positive theory of social security in many countries social security accounts for a large fraction of the government budget why is this so given that at any point in time the number of recipients of social security benefits is smaller than the number of contributors in the overlapping generations model studied in this paper all individuals currently alive vote on social security in every period in equilibrium the size of social security is larger the greater is the proportion of elderly people in the population and the greater is the inequality of pre tax income within each generation both predictions of the theory are supported by the empirical evidence in cross country data

wage differentials employer size and unemployment the unique equilibrium solution to a game in which a continuum of individual employers choose permanent wage offers and a continuum of workers search by sequentially sampling from the set of offers is characterized wage dispersion is a robust outcome provided that workers search while employed as well as when unemployed the unique nondegenerate equilibrium distribution of wage offers is constructed for three cases 1 identical workers and employers 2 identical employers and an atomless distribution of worker supply prices and 3 identical workers and an atomless distribution of job productivities copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

constitutional rules reputation and sovereign debt abstract the inability of governments to pre commit to certian policies often results in pareto inefficient equilibria a policy is not time consistent if it requires a course of action that will subsequently become undesirable this paper examines the possibility of creating constitutional rules which can support sovereign debt contracts which would otherwise violate the requirement of time consistency the possibility of establishing international reputation with internal enforcement mechanisms is sensitive to the constitutional environment which will also determine the appropriate form of the constitutional rules

self enforcing intergenerational social contracts for pareto improving pollution mitigation we consider in an overlapping generations model with an environmental externality a scheme of contracts between any two successive generations under each contract agents of the young generation invest a share of their labor income in pollution mitigation in exchange for a transfer in the second period of their lives the transfer is financed in a pay as you go manner by the next young generation different from previous work we assume that the transfer is granted as a subsidy to capital income rather than lump sum we show that the existence of a contract which is pareto improving over the situation without contract for any two generations requires a sufficiently high level of income in a steady state with social contracts in each period the pollution stock is lower compared to a steady state without contracts analytical and numerical analysis of the dynamics under nash bargaining suggests that under reasonable conditions also steady state income and welfare are higher delaying the implementation of a social contract for too long or imposing a contract with too low mitigation can be costly net income may inevitably fall below the threshold in finite time so that pareto improving mitigation is no longer possible and the economy converges to a steady state with high pollution stock and low income and welfare in the second part of the paper we study a game theoretic setup taking into account that credibly committing to a contract might not be possible we show that with transfers granted as a subsidy to capital income there exist mitigation transfer schemes which are both pareto improving and give no generation an incentive to deviate from any of its contracts even in a dynamically efficient economy social contracts coexist with private savings