taxation of uncertain business profits private risk markets and optimal allocation of risk abstract in this paper we explore what happens if the government bears some of the risk through a profit tax when the risk sharing in the venture capital market is incomplete due to non observability of effort and moral hazard if the external equity investors can enforce exclusive contracts with the entrepreneurs the risk relief through a profit tax will lead to too much insurance and too low effort as compared with a second best optimal solution bond and devereux bond s r and devereux m p 1995 on the design of a neutral business tax under uncertainty journal of public economics 58 57 71 show that a proportional profit tax would be neutral in the absence of moral hazard in the presence of moral hazard we demonstrate that the tax may affect the risk shifting through the market in which case the premise for the neutrality result will no longer hold

labor s share the firm s market power and total factor productivity we investigate the relationship between labor s share firm s market power and the elasticity of output with respect to labor input using an approach based on an unobserved components model the approach yields time varying estimates of market power and the elasticity evidence on the market power of firms which we find to be rising since 2000 gives a deeper understanding of movements in labor s share and the labor wedge the generated values of the elasticity yield revised estimates of total factor productivity growth which is informative about the extent of the downward bias inherent in traditional estimates which use labor s share as a proxy for the elasticity jel o47 c32 e25

the role of investment specific technological change in the business cycle this is a quantitative investigation of the importance of technological change speci c to new investment goods for postwar us aggregate uctuations a growth model that incorporates this form of technological change is calibrated to us data and simulated using the relative price of new equipment to identify the process driving investmentspeci c technology shocks the analysis suggests that this form of technological change is the source of about 30 of output uctuations 2000 elsevier science b v all rights reserved

product differentiation and entry timing in a continuous time spatial competition model abstract we extend the well known spatial competition model d aspremont gabszewicz thisse 1979 to a continuous time model in which two firms compete in each instance our focus is on the entry timing decisions of firms and their optimal locations we demonstrate that the leader has an incentive to locate closer to the center to delay the follower s entry leading to a non maximum differentiation outcome we also investigate how exogenous parameters affect the leader s location and firms values and in particular numerically show that the profit of the leader changes non monotonically with an increase in the transport cost parameter

neutral taxation under uncertainty abstract the analogs under uncertainty of two well known certainty results are derived first if there are timing differences between tax payments and accruals neutrality is preserved if the resulting tax credits or liabilities are carried forward at the risk free interest rate provided that tax credits and liabilities are sure to be redeemed eventually second the invariance of asset valuations with respect to the rate of income tax at a given pre tax interest rate proved by johansson and samuelson under certainty can be extended to cover the case of uncertainty given analogous ceteris paribus conditions

endogenous sequential entry in a spatial model in this paper we simulate a sequential entry of firms in a differentiated industry a la hotelling firms select a product location once for all they are aware of the unique price equilibrium that will take place after entry has occurred and take into account the behaviour of subsequent entrants it is found that early entrants will systematically locate around the centre but in such a way as not to induce later competitors to locate in between them location choices are also investigated as an instrument for entry deterrence which is feasible because of a fixed cost we identify several ranges of fixed cost for which entry is innocently deterred corresponding to a natural monopoly duopoly triopoly entry deterrence is then typically used to stretch the range of fixed cost for which a given number of firms can be sustained deterrence strategies are consistently such that firms locate at more regular intervals

labor contracts and business cycles this paper investigates the claim often put forth by real business cycle proponents that the poor performance of their models in matching real world aggregate labor market behavior is due to the fact that observed real wage payments do not correspond to the actual marginal productivity of labor but contain an insurance component that cannot be accounted for by the walrasian pricing mechanism to test this idea we dispense with the walrasian description of the labor market and introduce contractual arrangements between employees and employers assuming that employees are prevented from accessing capital markets and are more risk averse than employers we use the theory of optimal contracts to derive an equilibrium relation between aggregate states of the economy and wage labor outcomes this contractual arrangement is then embedded into a standard one sector stochastic neoclassical growth model in order to look at the business cycle implications of the contractual hypothesis the resulting dynamic equi

endogenous sequential entry in a spatial model revisited abstract this article reexamines sequential entry of firms in a hotelling model of spatial product differentiation as analyzed by neven neven d j 1987 endogenous sequential entry in a spatial model international journal of industrial organization 5 419 434 i show that the pattern of locations is generally asymmetric in the case of a duopoly profits are non monotonic in market size even in the range where the number of firms does not change the firm that bears the burden of entry deterrence gains from lower barriers to entry as long as entry deterrence is possible equilibrium profits of all firms may be larger in situations in which more firms are active

strategic multi store opening under financial constraint abstract this paper analyzes strategic store openings in a situation in which firms can open multiple stores depending on the financial constraints of the firm specifically given any upper limit of the number of store openings that two potentially symmetric firms can open they sequentially determine the number of store openings including their locations to maximize their profits as a result of our analysis in a microeconomic framework we show that the equilibrium strategy can be wholly classified into only two following opposite strategies according to the level of their financial constraints involved when firms can afford to invest significant amounts of money in the market the leader chooses segmentation strategy in which a part of the market can be monopolized by opening a chain of multiple stores and deterring the follower s entry in contrast when the leader has a severe financial constraint so that it can only monopolize less than half of the market the leader chooses minimum differentiation strategy where firms open each of their stores at exactly the same point as the rival s under this strategy the leader necessarily captures just half of the market furthermore we show that regardless of potential symmetry between firms both first and second mover advantages in terms of profit can occur in the equilibrium

the effects of permanent technology shocks on hours can the rbc model fit the var evidence abstract i show that a standard rbc model can be used to explain why hours per capita decrease in response to a permanent technology shock when hours enter a vector autoregressive var in first differences and why hours increase when hours enter in levels there are two parts to my argument first empirical evidence suggests that a positive permanent technology shock goes together with a persistent increase in the expected growth rate and the rbc model predicts this increase in the expected growth rate to have a downward effect on hours worked and can even result in a sizeable negative response of hours second first differencing hours in vars results in a considerable downward bias using the estimated parameters for the technology process i find i that the true model response of hours is positive and ii that when the var methodology is used with finite samples of simulated data then the hours response is negative positive when hours enter the var in first differences levels

is the decline in labour s share in the us driven by changes in technology and or market power an empirical analysis in this paper we provide a perspective on the explanations suggested for the decline in labour s share in the nonfinancial corporations sector of us economy since 1947 the literature identifies t

a general proposition on the design of a neutral business tax abstract a simple and general means of levying a business tax that is neutral in the sense that it does not affect the firm s decisions at the margin is discussed in particular we analyze the effect of a business tax of our design on the investment decision of the firm the well known imputed income and immediate write off methods of levying a neutral business tax are found to be special cases of our general tax design the implication of our results is that a neutral pure profits tax can be levied without the informational difficulties of the imputed income method or the cash flow disadvantages of the immediate write off method

factor demand linkages technology shocks and the business cycle abstract this paper argues that factor demand linkages can be important for the transmission of both sectoral and aggregate shocks we show this using a panel of highly disaggregated manufacturing sectors together with sectoral structural vars when sectoral interactions are explicitly accounted for a contemporaneous technology shock to all manufacturing sectors implies a positive response in both output and hours at the aggregate level otherwise there is a negative correlation as in much of the existing literature furthermore we find that technology shocks are important drivers of the business cycle

redistributive shocks and productivity shocks abstract a productivity innovation reduces labor share at impact making it countercyclical it subsequently produces a long lasting increase that peaks five years later at a level larger in absolute terms than the initial drop before slowly returning to average i e labor share overshoots we estimate a bivariate shock process to the production function that under competition in factor markets accounts for this overshooting we pose this process in an otherwise standard real business cycle economy and we find that the contribution of productivity innovations to the variance of hours is 1 of that in the standard rbc model

on the design of a neutral business tax under uncertainty this paper extends the results of boadway and bruce journal of public economics 1984 24 231 239 and fane journal of public economics 1987 33 95 105 to describe a tax on business profits which is neutral with respect to investment and wind up decisions and default outcomes under uncertainty and bankruptcy risk the tax base allows deductions for depreciation and the cost of finance but requires knowledge of neither true economic depreciation nor the firm s required rate of return we show that the tax must treat taxable profits and losses symmetrically and that the tax rate must be a known constant even in the special case when the tax base coincides with the economic rent earned in each period

the dynamics of hours worked and technology the response of hours worked to technology shocks in the postwar us economy has increased over time we offer a structural interpretation of this important time varying macroeconomic moment the time varying patterns captured by a structural var are consistent with those obtained from a parsimonious rbc model with a less than unitary elasticity of substitution between capital and labour the observed changes in the response of hours are attributable to increases in the magnitude of the degree of capital labour substitution finally we conjecture that the observed time variation in is related to changes in the skill composition of the work force and biases in technological change

sequential product positioning under differential costs this paper examines the product positioning decisions of firms that enter a market sequentially and that have potentially different cost structures it shows that if the first mover knows the second mover to have a lower production cost it positions away from the most attractive location in the market further the larger the second mover s cost advantage the farther away the first mover positions from the most attractive location the paper also models uncertainty in the first mover s mind about the later entrant s cost structure and shows that an increase in this uncertainty in the sense of mean preserving spread also makes the first mover position farther from the most attractive location in the market overall this paper suggests that unless the first entrant in a market is certain that the later entrant will not have a superior cost structure it may be better off leaving the best position in the market vacant and having a niche or fringe product

the cyclical behavior of the price cost markup countercyclical markups constitute the key transmission mechanism for monetary and other demand shocks in new keynesian models this paper tests the foundation of those models by studying the cyclical properties of the markup of price over marginal cost the first part of the paper studies markups in the aggregate economy and the manufacturing sector we use bils s 1987 insights for converting average cost to marginal cost but do so with richer data we find that all measures of markups are either procyclical or acyclical moreover we show that monetary shocks lead markups to fall with output the second part of the paper merges input output information on shipments to the government with detailed industry data to study the effect of demand changes on industry level markups industry level markups are found to be acyclical in response to demand changes

ces technology and business cycle fluctuations we contribute to an emerging literature that brings the constant elasticity of substitution ces specification of the production function into the analysis of business cycle fluctuations using us data we estimate by bayesian maximum likelihood methods a standard medium sized dsge model with a ces rather than cobb douglas cd technology we estimate a elasticity of substitution between capital and labour well below unity at 0 15 0 18 in a marginal likelihood race ces decisively beats the cd production and this is matched by its ability to fit the data better in terms of second moments we show that this result is mainly driven by the implied fluctuations of factor shares under the ces specification the ces model performance is further improved when the estimation is carried out under an imperfect information assumption hence the main message for dsge models is that we should dismiss once and for all the use of cd for business cycle analysis

sequential location games we study location games where market entry is costly and occurs sequentially and where consumers are nonuniformly distributed over the unit interval we show that for certain classes of densities including monotone and under some additional restrictions hump shaped and u shaped ones equilibrium locations can be determined independently of when they are occupied our analysis reveals a number of peculiarities of the uniform distribution extensions of the model allow for price competition and advertisement in media markets winner take all competition trade offs between profits in the short and the long run and firms operating multiple outlets

the macroeconomic effects of large scale asset purchase programmes the effects of asset purchase programs on macroeconomic variables are likely to be moderate we reach this conclusion after simulating the impact of the federal reserve s second large scale asset purchase program lsap ii in a dsge model enriched with a preferred habitat framework and estimated on u s data our simulations suggest that such a program increases gdp growth by less than half a percentage point although the effect on the level of gdp is very persistent the program s marginal contribution to infl ation is very small one key reason for our fi ndings is that we estimate a small degree of fi nancial market segmentation if we enrich the set of observables with a measure of long term debt the semi elasticity of the risk premium to the amount of debt in privatesector hands is substantially smaller than that reported in the recent empirical literature in this case our baseline estimates of the effects of lsap ii on the macroeconomy decrease by at least a factor of two throughout the analysis a commitment to an extended period at the zero lower bound for nominal interest rates increases the effects of asset purchase programs on gdp growth and infl ation

shocking stuff technology hours and factor substitution the response of hours to technology shocks is a key controversy in macroeconomics we show that differences between rbc and nk models hinge on highly restrictive views of technology we introduce ces production technologies and demonstrate that the response of hours depends on the factor augmenting nature of shocks and the capital labor substitution elasticity in both models we develop analytical expressions to establish the thresholds determining its sign this opens new margins for shock identification combining theory and var evidence we discuss how our models provide new robust restrictions for empirical work especially using the labor income share

corporate finance side of the q theory of investment abstract this paper presents a model of a firm under uncertainty in which the financial and investment decisions are simultaneously determined if profits are small relative to investment the firm finances a constant fraction of incremental investment by debt and the rest by retentions if profits are large relative to investment a constant fraction of marginal finance comes from debt and the rest from new shares in these two financing regimes a one to one relationship between optimal investment and q can be derived no such relation exists in the third and intermediate regime in which incremental investment is entirely debt financed

brand positioning under lexicographic choice rules this paper discusses a brand positioning model in which two brands of a product are to be positioned in a price quality space under a new behavioral assumption this assumption asserts that customers determine the highest quality product within their reservation price and purchase it provided its quality does not fall short of a minimum standard the model also includes producers costs that are incurred for delivering a certain quality we first delineate reaction functions for the optimal location of one brand give a location of its competitor we then show that nash equilibria do not exist as long as price and quality are both variable finally we consider a two phase model in the first phase the duopolists sequentially choose their quality levels under the assumption that both competitors know that in the second phase a nash equilibrium in prices follows single variable mathematical programming formulations are presented to solve the problem a numerical example is also given to illustrate the working of the model

estimating dsge models with zero interest rate policy we propose estimating dsge models in which the central bank fixes the policy rate for an extended period of time and apply our approach to estimate expected durations of the federal reserve s zero interest rate policy since 2009 we find a large increase in expected duration in 2011 with the move to calendar based guidance and a decrease in 2013 with the taper tantrum these changes are identified by the influence of expected duration on output inflation and interest rates at longer maturities the structural model measures the severity of the zero lower bound constraint and the effects of unconventional policy

asymmetric equilibria in spatial competition abstract the main purpose of this paper is to study the impact of consumer concentration around the market center on the equilibrium locations of location price games in the case of symmetric triangular density it is shown that no symmetric equilibrium exists however we demonstrate the existence of asymmetric equilibria in pure strategies these equilibria are also characterized our secondary purpose is to study the sequential entry of two firms when the location space is not restricted to the market space this leads us to uncover a substantial first mover advantage which has been neglected in the literature

the normalized ces production function theory and empirics abstract the elasticity of substitution between capital and labor and in turn the direction of technical change are critical parameters in many fields of economics until recently though the application of production functions with specifically non unitary substitution elasticities i e non cobb douglas was hampered by empirical and theoretical uncertainties as recently revealed normalization of production technology systems holds out the promise of resolving many of those uncertainties we survey and assess the intrinsic links between production as conceptualized in a production function factor substitution as made most explicit in constant elasticity of substitution functions and normalization defined by the fixing of baseline values for relevant variables first we recall how the normalized constant elasticity of substitution function came into existence and what normalization implies for its formal properties then we deal with the key role of normalization in recent advances in the theory of business cycles and of economic growth next we discuss the benefits normalization brings for empirical estimation and empirical growth research finally we identify promising areas of future research

solving linear rational expectations models with predictable structural changes abstract standard solution methods for linear stochastic models with rational expectations presuppose a time invariant structure consequently credible announcements that entail future changes of the structure cannot be handled by standard solution methods this paper develops the solution for linear stochastic rational expectations models in the face of a finite sequence of anticipated structural changes these events encompass anticipated changes to the structural parameters and also anticipated additive shocks we apply the solution to some examples of practical relevance to monetary policy

product imitation product differentiation and international trade using the hotelling approach to product differentiation this article derives the equilibrium product configurations and prices when two firms enter and sell in two interdependent markets separated by barriers to trade it shows that product imitation and no trade as well as product differentiation with two way or one way trade are all consistent with the equilibrium copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

on unemployment cycles in the euro area 1999 2018 abstract this paper studies the recurrent sources of unit root unemployment fluctuations in greece italy portugal spain and the euro area by integrating wage markup and labor disutility shocks that exhibit permanent euro area wide shifts country specific trend developments and stationary changes in an estimated dsge model in all economies these labor market shocks account for a negligible share of unemployment cycles demand shocks explain about 40 of them contribute to the pre crisis convergence of unemployment rates and shape the unemployment spikes during the great recession cross country relative price distortions and supply factors account for about 40 and 20 of those cycles respectively

stochastic technical progress smooth trends and nearly distinct business cycles this paper studies a model of random technical progress where technology diffuses at realistically slow rates it fits smooth trends to the sum of gdp series generated by this model and series representing transitory or cyclical fluctuations detrended gdp is then largely unrelated to technical progress the detrending method proposed by rotemberg 1999 reconstructs cyclical variations somewhat more accurately than the hp filter with sufficiently slow diffusion it is also more accurate than a method based on vars fitted to hours and gdp growth consistent with the model s predictions permanent shocks initially depress both hours and output in these vars

incumbent positioning as a determinant of strategic response to entry existing research has identified different firm characteristics that determine an incumbent s reaction toward market entrants this study widens the perspective from a firm s absolute attributes to its relative positioning within its competitive environment the hypotheses for the empirical analysis are derived from game theoretic models with either vertical or horizontal product differentiation in each of the two theoretical models two incumbents initially choose very different quality and variety levels respectively and move closer to the center when faced by entry of a competitor from the vertical differentiation model we predict a stronger price reduction by high quality firms in our empirical analysis we are using a novel dataset of the high quality restaurant market in germany to test the theoretical findings while the hypotheses with respect to adjustments of prices and varieties are supported we do not find empirical evidence for the predicted quality adjustment

macroeconomic effects of regulation and deregulation in goods and labor markets product and labor market deregulation reduce and redistribute rents leading economic players to adjust to this new distribution it typically comes with distribution and dynamic effects to study these effects we build a macroeconomic model on two central assumptions monopolistic competition in the goods market which determines the size of rents and bargaining in the labor market which determines the distribution of rents product market regulation determines entry costs and the degree of competition labor market regulation determines the bargaining power of workers we show the effects of deregulation we then use our results to discuss the political economy of deregulation and recent macroeconomic evolutions in europe

strategic entry deterrence in analyzing deterrence of large scale entry two classes of entry barriers may be distinguished an innocent entry barrier is unintentionally erected as a side effect of innocent profit maximization in contrast a strategic entry barrier is purposely erected to reduce the possibility of entry two types of innocent barriers may also be distinguished a postentry absolute advantage has the property that if entry did occur the established firm would be at a profit advantage over the entrant examples are superior technology or product design patents and lower input prices a preentry asymmetry advantage arises from the fundamental preentry asymmetry between established firm and potential entrant before the entrant makes his entry decision the established firm has already committed resources this prior existence gives first move advantages the preentry asymmetry is independent of symmetry or asymmetry in the rules the equilibrium concept of the postentry game that might ensue even if the postentry game will be played according to nash cournot or entrant as leader rules the preentry leadership

sequential entry and deterrence with competitive spatial price discrimination abstract this paper analyzes sequential entry with perfect foresight in a competitive spatial price discrimination model with both an exogenous and an endogenous number of firms the spne locations do not coincide with the social cost minimizing locations

factor complementarity and labour market dynamics abstract we propose and estimate a dynamic stochastic general equilibrium model featuring search and matching frictions deep habits and a ces production function the model successfully replicates the cyclical properties of labour market variables in the us economy for three main reasons first two of the endogenous mechanisms of the model factor complementarity and unemployment benefits play a key role for explaining the amplification in unemployment and vacancies second deep habits have a smaller but significant role as an endogenous mechanism third capital augmenting productivity investment specific and matching efficiency innovations explain large part of the variation in labour market variables

read all about it what happens following a technology shock existing indicators of technical change are plagued by shortcomings i present new measures based on books published in the field of technology that resolve many of these problems and use them to identify the impact of technology shocks on economic activity they are positively linked to changes in r d and scientific knowledge and capture the new technologies commercialization dates changes in information technology are found to be important sources of economic fluctuations in the post wwii period and total factor productivity investment and to a lesser extent labor are all shown to increase following a positive technology shock jel e22 e23 e32 o33 o34 o47

capital labor substitution structural change and the labor income share abstract recent work has documented declines in the labor income share in the united states and beyond this paper documents that this decline was more pronounced in manufacturing than in services in the u s and in a broad set of other industrialized economies and shows that a model with cross sectoral differences in productivity growth and in the degree of capital labor substitutability is consistent with these trends we calibrate the model exploiting additional information on the pace of structural change from manufacturing to services on which the model also has predictions we then conduct a decomposition to establish the relative importance of several potential drivers of changes in factor income shares and structural change that have been proposed in the literature this exercise reveals that differences in the degree of capital bias of technical change across sectors combined with differences in substitution possibilities are key determinants of the observed patterns

trend breaks long run restrictions and contractionary technology improvements abstract structural vector autoregressions with long run restrictions are extraordinarily sensitive to low frequency correlations recent literature finds that the estimated effects of technology shocks are sensitive to how one treats hours per capita however after allowing for statistically and economically significant trend breaks in productivity results are much less sensitive hours fall when technology improves the issue is that the common high low high pattern of productivity growth and hours i e the low frequency correlation inevitably leads to a positive estimated response the trend breaks control for this correlation this example suggests a practical need for care in using long run restrictions

weak entrants are welcome abstract this paper investigates the decision problem of an incumbent firm confronted by both a weak and strong entrant in a differentiated market suppose that the incumbent can deter entry of the weak firm but cannot deter entry of the strong firm by itself then the incumbent may allow entry of the weak firm and use it to alter the strong firm s entry decision the present paper formalizes this idea and it sheds new light on the fact that domestic firms are sometimes able to block strong foreign firms after trade liberalization the idea also explains why a dominant firm lets fringe firms be in the market

slow recoveries a structural interpretation an analysis of the speed of recovery of employment unemployment and gdp following business cycle troughs in the postwar u s economy points to much slower recoveries in the three most recent episodes but does not reveal any signi cant change in the relation between gdp and employment or unemployment across recoveries this leads us to characterize the last three episodes as slow recoveries as opposed to jobless recoveries we use the estimated new keynesian model in gali smets wouters 2011 to provide a structural interpretation for the slower recoveries since the early nineties

endogenous persistence in an estimated dsge model under imperfect information a framework for estimating dynamic stochastic general equilibrium dsge models by bayesian methods and validation under very general information assumptions is applied to a new keynesian model the standard asssumption that private agents have perfect information observing all state variables including shocks whereas the econometrician uses only observable data is compared with both agents having the same imperfect information ii set we also generalise rational expectations to a behavioural composite model that allows some households and firms to form expectations adaptively we find significant empirical support for ii as an endogenous persistence mechanism but this is dominated by that from habit and adaptive learning

appropriate technology and balanced growth we provide a general theoretical characterization of how firms technology choice on a technology frontier determines the long run elasticity of substitution between capital and labour we show that the shape of the frontier determines factor shares and the elasticity of substitution between capital and labour if there are adjustment costs to technology choice the short and long run elasticities differ with the long run always higher if the technology frontier is log linear the production function becomes cobb douglas in the long run but consistent with empirical evidence short run dynamics are characterized by gross complementarity the approach is easily implementable and yields a powerful way to introduce ces type production functions in macroeconomic models we provide an illustration within an estimated dynamic general equilibrium model and show that the use of our production technology provides a good match for the short and medium run behaviour of the u s labour share

strategic entry deterrence recent developments in the economics of industry this paper reviews the recent developments in the economics of industry with respect to strategic entry deterrence starting from bain s 1956 classical analysis a simple two stage game between an incumbent firm and a potential entrant is used to present the general structure of the entry deterrence problem commitments credible threat and sub game perfection are illustrated in this context the various strategic variables that an incumbent firm can use to bar entry are discussed the issue of whether a group of incumbents can noncooperatively deter entry is taken up and some empirical evidence is reviewed copyright 1989 by blackwell publishers ltd

the race between man and machine implications of technology for growth factor shares and employment we examine the concerns that new technologies will render labor redundant in a framework in which tasks previously performed by labor can be automated and new versions of existing tasks in which labor has a comparative advantage can be created in a static version where capital is fixed and technology is exogenous automation reduces employment and the labor share and may even reduce wages while the creation of new tasks has the opposite effects our full model endogenizes capital accumulation and the direction of research towards automation and the creation of new tasks if the long run rental rate of capital relative to the wage is sufficiently low the long run equilibrium involves automation of all tasks otherwise there exists a stable balanced growth path in which the two types of innovations go hand in hand stability is a consequence of the fact that automation reduces the cost of producing using labor and thus discourages further automation and encourages the creation of new tasks in an extension with heterogeneous skills we show that inequality increases during transitions driven both by faster automation and introduction of new tasks and characterize the conditions under which inequality is increasing or stable in the long run

exploring the income distribution business cycle dynamics abstract we document the business cycle behavior of the us income distribution and explore the extent to which unemployment spells and cyclically moving factor shares account for this behavior by analyzing four heterogeneous household extensions of the neoclassical growth model we conclude i that partitioning the population into five types subject to type specific employment processes seems to be enough to account for most aspects of the us income distribution business cycle dynamics ii that the role played by cyclically moving factor shares is small and iii that the income distribution business cycle dynamics may be essentially independent from the significant part of the observed wealth concentration that these model worlds fail to account for

concentrating on the fall of the labor share in this paper we discuss an explanation for the fall in share of labour in gdp based on the rise of superstar firms if globalization or technological changes advantage the most productive firms in each industry product market concentration will rise as industries become increasingly dominated by superstar firms with high profit margins and a low share of labor in firm value added and sales as the importance of superstar firms increases the aggregate labour share will fall this hypothesis suggeststhat sales will increasingly concentrate in a small number of firms and that industries where concentration rises most will have the largest declines in the labour share we find support for these predictions aggregating up micro data from the us census 1982 2012

the dynamic effects of neutral and investment specific technology shocks the neoclassical growth model is used to identify the short run effects of neutral technology shocks which affect the production of all goods homogeneously and investment specific shocks which affect only investment goods the real equipment price crucial for identifying the investment shocks experiences an abrupt increase in its average rate of decline in 1982 so the analysis is based on a split sample on the basis of the preferred specification the two technology shocks account for 73 percent of hours and 44 percent of output s business cycle variation before 1982 and 38 percent and 80 percent afterward the shocks also account for more than 40 percent of hours and 58 percent of output s forecast errors over a three to eight year horizon in both samples the majority of these effects are driven by the investment shocks

hotelling s competition with demand location uncertainty abstract firms product variety choices are examined in a differentiated products model where the range of consumers preferences is an unknown strict subset of the range of potential innovations it is found that the firms locating sequentially will follow the basic pattern of locations found by neven international journal of industrial organization 1987 5 419 434 the uncertainty however generally causes a greater more symmetric amount of differentiation among varieties as firms gamble on finding a market niche with less fierce competition for a sufficiently large pool of potential entrants some firms will lose this gamble and will fail

the taxation of risky assets this paper reconsiders the effects of taxation on risky assets recognizing the importance of variations in asset prices we show that earlier analyses that assumed that depreciation rates are constant and that the future price of capital goods is known with certainty are very misleading as guides to the effects of corporate taxes we then examine the concept of economic depreciation in a risky environment and show that depreciation allowances if set ex ante should be adjusted to take account of future asset price risk some empirical calculations suggest that these adjustments are large and have important implications for the burdens of and nonneutralities in the corporation income tax

global and local players in a model of spatial competition abstract we analyze equilibrium configurations of hotelling location games where some players compete on several markets with the same product such global players tend to lower product diversity across markets the model is consistent with recent empirical findings on preference externalities

optimal monetary policy under low trend inflation abstract in the monetary policy literature it is common to assume that trend inflation is zero despite overwhelming evidence that zero inflation is neither empirically relevant nor a practical objective for central bank policy we therefore extend the standard new keynesian model to allow for positive trend inflation showing that even low trend inflation has strong effects on optimal monetary policy and the dynamics of inflation output and interest rates under discretion the efficient policy deteriorates and there is no guarantee of determinacy even with commitment targeting non zero trend inflation leads to substantial welfare losses our results serve as a warning against indiscriminate use of models assuming zero trend inflation

pricing patterns as outcomes of product positions prior empirical work shows that different markets are characterized by different pricing patterns such as bertrand nash pricing or stackelberg leader follower pricing the author considers a duopolistic market where ex ante identical firms sequentially position their products prior to competing on prices in a single or multiperiod setting and show that the unique equilibrium outcome involves 1 firms choosing stackelberg pricing over bertrand nash pricing and 2 the positioning first mover acting as the price leader an attractive property of this model is that the ex post larger firm acts as the price leader which is consistent with prior empirical evidence copyright 1999 by university of chicago press

two stage perfect equilibrium in hotelling s model hotelling i 929 suggests that his spatial competition model can be used to describe a wide range of differentiation problems he points to the selection of product variety within an industry as a potential application most of the subsequent work in his tradition has taken the equivalence of the two problems for granted in this note we look more closely at this equivalence we distinguish between two types of differentiated products according to the variety of preferences assumed with respect to those products building on this distinction we recognize that the demand faced by a firm locating on hotelling s line is analogous to the demand faced by a firm selecting a horizontally differentiated product it should be emphasized thus that the equivalence between the geographical and the product selection problem is by no means general and relies on specific assumptions about consumers preferences next we formulate a small model close to hotelling s one in which firms select a horizontally differentiated product within this model it will be shown that a pure strategy price equilibrium exists for every pair of products this statement is to be contrasted with the results of d aspremont et al i979 who have shown that in the original hotelling s setting an equilibrium fails to exist when firms are too close together 1 in addition we will examine the product selection problem faced by firms in a two stage game in the first stage each firm selects a product in the second stage the firm defines a price for its product we will seek the existence of a perfect equilibrium in this game a perfect equilibrium in this context can be viewed as a nash equilibrium in a game in which firms select a product aware of the non cooperative price equilibrium that will occur for each of their choices it will be shown that contrary to hotelling s principle the two firms will maximise their differentiation i e firms will locate at opposite ends of the market

the effects of technology shocks on hours and output a robustness analysis we analyze the effects of neutral and investment specific technology shocks on hours and output long cycles in hours are removed in a variety of ways hours robustly fall in response to neutral shocks and robustly increase in response to investment specific shocks the percentage of the variance of hours output explained by neutral shocks is small large the opposite is true for investment specific shocks news shocks are uncorrelated with the estimated technology shocks copyright 2009 john wiley sons ltd

accounting for the cyclical dynamics of income shares over the business cycle labor s share of output is negatively but weakly correlated with output and it lags output by about four quarters profit s share is strongly procyclical it neither leads nor lags output and its volatility is about four times that of output despite the importance of understanding the dynamics of income shares for understanding aggregate technology and the degree of competition in factor markets macroeconomics lacks models that can account for these dynamics this paper constructs a model that can replicate those facts we introduce costly entry of firms in a model with frictional labor markets and find a link between the ability of the model to replicate income shares dynamics and the ability of the model to amplify and propagate shocks that link is a countercyclical real interest rate a well known fact in u s data but a feature that models of aggregate fluctuations have had difficulty achieving