the rotten kid theorem meets the samaritan s dilemma a familiar result in the economic theory of the family is becker s rotten kid theorem this theorem states that altruism by a family member will lead other selfish members to act efficiently from the family viewpoint we extend becker s one period model to two periods and show that parental altruism can result in an inefficiency known in other contexts as the samaritan s dilemma implications of this for transfer arrangements within the family and for the ricardian equivalence theorem are drawn

borrowing constraints human capital accumulation and growth abstract borrowing constraints increase aggregate savings and therefore may increase growth this paper argues however that by reducing human capital accumulation borrowing constraints also have negative effects on growth these effects are discussed in an overlapping generations model with endogenous growth empirical evidence for oecd and developing countries lend support to the main predictions of the model

divisionalization and entry deterrence this paper assumes that incumbent firms can create new independent divisions more cheaply than potential entrants who must incur the additional overhead costs of new entry the main theoretical result is that such divisionalization ability leads perfectly informed incumbents to preempt all rational entry into their industries in contrast existing models of entry deterrence imply that informed incumbents even those with steadily decreasing average costs will often allow rational entry our result may explain why successful large scale entry by firms with no informational advantage is extremely rare the use of divisions to preempt entry may also explain why large firms in high profit oligopolies often divisionalize allowing their divisions to compete freely despite the negative pecuniary externality that each division imposes on others

private transfers borrowing constraints and the timing of homeownership the 1991 italian survey of household income and wealth contains retrospective information on intergenerational transfers this information is used to estimate the impact of transfers on the saving time required to purchase a house it is found that transfers have a small impact on saving time and that after receiving a transfer households purchase considerably larger homes the results have implications for the debate about the source of the relation between aggregate saving and growth

finite lifetimes and the effects of budget deficits on national saving abstract even though realistic deficit policies shift sizable tax burdens to future generations the assumption of an infinite horizon is a good approximation for analyzing a deficit s short run saving effect on individuals who are neither liquidity constrained nor myopic recent u s experience casts significant doubt on these assumptions however and appears difficult to reconcile with the ricardian equivalence proposition that the timing of taxes does not affect national saving recent deficits have coincided with reduced national saving and a substantial increase in the share of gnp devoted to consumption

effects of information revelation policies under market structure uncertainty geographically dispersed sellers in electronic reverse marketplaces such as those hosted by market makers like ariba are uncertain about the number of competitors they face in any given market session we refer to this uncertainty about the number of competitors as market structure uncertainty over the course of several market sessions sellers learn about the competitive nature of the marketplace how they learn to reduce the market structure uncertainty depends on the market transparency scheme or the revelation policy adopted a revelation policy determines the extent to which information the number of sellers in a session their bidding patterns etc is revealed to sellers because these policies control what sellers learn and how they bid in future sessions they determine buyer surplus possibly because market structure uncertainty is more prevalent in information technology enabled marketplaces than traditional ones prior work has not addressed the impact of revelation policies on this type of uncertainty currently there is little guidance available to buyers in choosing the appropriate revelation policy to address this information technology enabled problem we use game theory to compare the buyer surplus generated under a set of revelation policies commonly used in electronic reverse marketplaces we demonstrate that the policy that generates the least amount of market structure uncertainty for the sellers always maximizes buyer surplus we further investigate to provide intuition regarding how bidders reactions to overcome uncertainty differs with the nature of uncertainty and how those reactions impact buyer surplus

bundling equilibrium in combinatorial auctions this paper analyzes ex post equilibria in the vcg combinatorial auctions if is a family of bundles of goods the organizer may restrict the bundles on which the participants submit bids and the bundles allocated to them to be in t he vcg combinatorial auctions obtained in this way are known to be truth telling mechanisms in contrast this paper deals with non restricted vcg auctions in which the buyers choose strategies that involve bidding only on bundles in and these strategies form an equilibrium we fully characterize those that induce an equilibrium in every vcg auction and we refer to the associated equilibrium as a bundling equilibrium the main motivation for studying all these equilibria and not just the domination equilibrium is that they afford a reduction of the communication complexity we analyze the tradeoff between communication complexity and economic efficiency of bundling equilibrium

intergenerational transfers and liquidity constraints a growing body of evidence indicates that liquidity constraints could affect a substantial proportion of u s consumers but little is known about why these constraints might exist an important but little explored issue is the relationship between inter vivos intergenerational transfers and liquidity constraints these transfers can ease borrowing constraints empirical transfer patterns match those predicted from a model in which transfers are allocated to liquidity constrained consumers in particular the distinction between current and permanent incomes of potential recipients is a key aspect of private transfer behavior the findings have important implications for our understanding of consumer behavior

divisionalization and franchising incentives with integral competing units abstract existing game theoretic models of divisionalization and franchising treat each firm s number of competing units as a continuous variable we account for the integer constraint on divisions and show that the continuous case reasonably approximates the equilibria of the discrete game

mean field equilibria of dynamic auctions with learning we study learning in a dynamic setting where identical copies of a good are sold over time through a sequence of second price auctions each agent in the market has an unknown independent private valuation that determines the distribution of the reward she obtains from the good for example in sponsored search settings advertisers may initially be unsure of the value of a click though the induced dynamic game is complex we simplify analysis of the market using an approximation methodology known as mean field equilibrium mfe the methodology assumes that agents optimize only with respect to long run average estimates of the distribution of other players bids we show a remarkable fact in a mean field equilibrium the agent has an optimal strategy where she bids truthfully according to a conjoint valuation the conjoint valuation is the sum of her current expected valuation together with an overbid amount that is exactly the expected marginal benefit of one additional observation about her true pri

the theory of taxation for developing countries tax policy has far reaching implications for economic development and public administration this book which presents a modern theory of public finance brings together many of the most distinguished economists who have written on the subject they provide coherent principles for tax design and a systematic framework for the analysis of practical questions of tax reform and pricing policy in developing countries the book is especially timely as countries experience increasing shortages of government revenue and the distortions brought about by poorly designed tax systems it pays particular attention to the special problems of developing countries such as the taxation of agriculture the aim throughout is to develop techniques that can be quantitatively applied given the data available and empirical case studies illustrate the methods in action the authors analyze the links between tax theory social cost benefit analysis and the pricing of publicly supplied goods and services they also explore the empirical and econometric problems of identifying the tradeoffs between equity and efficiency other topics treated include the analysis of labor markets the taxation of foreign private investment and of fuel and the pricing of education although the models used concentrate on developing countries most of the methods and discussion apply as well to the problems of more affluent countries

is everything neutral in his well known analysis of the national debt robert barro introduced the notion of a dynastic family this notion has since become a standard research tool particularly in the areas of public finance and macroeconomics in this paper we critique the assumptions on which the dynastic model is predicated and argue that this framework is not a suitable abstraction in contexts in which the objective is to analyze the effects of public policies we reach this conclusion by formally considering a world in which each generation consists of a large number of distinct individuals as opposed to one representative individual we point out that family linkages form complex networks in which each individual may belong to many dynastic groupings the resulting proliferation of linkages between families gives rise to a host of neutrality results including the irrelevance of all public redistributions distortionary taxes and prices since these results are not at all descriptive of the real world we conclude

the impact of the demographic transition on capital formation the population of the united states is aging we review a variety of the implications this has for u s national saving rates and discuss the policy issues that they raise after reviewing what different models would predict for household saving over the next several decades we consider how the demographic transition may also affect national saving through changes in government behavior ways in which the composition of household saving might change as individuals age are also analyzed along with the implications of changes in government fiscal policy for asset composition excerpt

the declining price anomaly abstract data from wine auctions indicate that identical products sold sequentially typically follow a decreasing pattern of prices known as the declining price anomaly this is explained for both first and second price auctions by appealing to risk averse bidders earlier bids are then equal to expected later prices plus a risk premium associated with the risky future price we show that this logic rests on the assumption of nondecreasing absolute risk aversion which is necessary for pure strategy equilibrium bidding functions to exist thus decreasing absolute risk aversion implies ex post inefficiency with positive probability data from wine auctions are used to confirm the existence of the declining price anomaly journal of economic literature classification numbers d43 d44 d81 d82 l81

auctions an introduction abstract this is a detailed introduction to auction theory it begins with a simple analysis of standard auctions and then uses a strikingly simple general solution of symmetric private values auctions to prove the payoff equivalence of many auction rules the basic framework is then modified to admit risk aversion multi unit and repeated auctions as well as collusion then follows an introduction to optimal auctions with and without stochastic entry and to common value auctions and the winner s curse problem the survey closes with a sample of applications from the regulation of natural monopolies to price competition in oligopoly and the government securities market

on credible delegation by oligopolists a discussion of distribution channel management several papers in the recent marketing literature have suggested that delegation in distribution e g the use of independent middlemen helps manufacturers to precommit strategically to profit enhancing competitive actions further the literature suggests that the profitability of such actions depends on market structure we challenge these conclusions here this is done in two steps first we perform an analysis of the entire class of models which have been used in the literature using internally consistent assumptions about market structure and contracting the only subgame perfect equilibrium is one in which all distribution channels have infinitely many levels of delegation obviously this is not what we see in the real world next we relax a key hidden assumption namely that all intra channel agreements are observable to competitors without this assumption the usual results unravel unless channel members can offer credible guarantees that unobservable agreements do not exist the strategic effects of delegation disappear since these guarantees are virtually impossible to maintain credibly we would expect to reject the hypothesis in the earlier literature relating channel structure to competition in an empirical study controlling for observability we conclude that mechanisms other than strategic ones must be responsible for the existence of delegated channels and make some suggestions about promising avenues for future theory research in channel structure

a learning approach to auctions we analyze a repeated first price auction in which the types of the players are determined before the first round it is proved that if every player is using either a belief based learning scheme with bounded recall or a generalized fictitious play learning scheme then for sufficiently large time the players bids are in equilibrium in the one shot auction in which the types are commonly known

multidivisional firms internal competition and the merger paradox traditional modelling of mergers has the merged firms insiders cooperate and maximize joint profits this approach has several unappealing results in quantity setting games for example mergers typically are not profitable for insiders but are profitable for non merging firms outsiders we take a different approach and allow for a parent company that can play each insider off one another in quantity setting games with our approach mergers are profitable for insiders unprofitable for outsiders socially beneficial and involve in a non monopolizing merger a small number of firms finally we find that the optimal strategy depends on whether firms compete in quantity or prices jel classification l000 entreprises multi divisionnelles concurrence interne et le paradoxe des fusions les modelisations conventionnelles des fusions suggerent que les entreprises fusionnees parties prenantes cooperent et maximisent leurs profits conjoints cette approche engendre plusieurs resultats contre intuitifs dans des jeux de concurrence par les quantites i e les fusions en general ne sont pas profitables pour les parties prenantes mais sont profitables pour des entreprises qui ne sont pas fusionnees les autres les auteurs adoptent une approche differente qui permet a l entreprise mere de jouer les parties prenantes l une contre l autre dans ce genre de jeu avec l approche adoptee les fusions sont profitables pour les parties prenantes non profitables pour les autres socialement benefiques et impliquent un petit nombre d entreprises dans une fusion qui ne cree pas un monopole finalement on trouve que la strategie optimale depend fondamentalement du fait que les entreprises se concurrencent par les prix ou par les quantites

operative gift and bequest motives the ricardian equivalence theorem which is the proposition that changes in the timing of lump sum taxes have no effect on assumption or capital accumulation depends on the exist of operative altruistic motives for intergenerational transfers these transfers can be bequests from parents to children or gifts from children to parents in order for the ricardian equivalence theorem to hold one of these transfer motives must be operative in the sense that the level of the transfer is not determined by a corner solution resulting from a binding non negativity constraint this paper derives conditions that determine whether the bequest motive will be operative the gift motive will be operative or neither motive will be operative in a model in which consumers are altruistic toward their parents and their children this abstract was borrowed from another version of this item

ricardian equivalence revisited deficits gifts and bequests barro 1974 shows that operative altruistic transfer motives are key for ricardian equivalence to hold this paper evaluates the importance of this mechanism quantitatively by studying deficit financed tax cut experiments i use a heterogeneous agents overlapping generations economy with endogenously operative transfer motives to capture the fact that empirically transfers occur in some but not in all families altruism is calibrated to match aggregate transfer statistics i find that the response of aggregate consumption to a tax cut is in the ballpark of a standard overlapping generations economy that is an economy without altruistic family links welfare implications of this economy however move closer to a dynastic economy

long run equilibria with borrowing constraints and altruism this paper adapts a nonstochastic overlapping generations model to include liquidity constraints and intergenerational altruism existing work indicates the importance of both but often considers them separately this paper studies their interactions first it shows that they tend to conflict the model only admits stationary equilibria with dynastic wealth accumulation but no binding liquidity constraints or wity binding constraints but no dynastic accumulation second it examines the latter type of equilibrium closely if liquidity constraints bind quantitative examples imply that consequent utility losses may be small and that economywide wealth accumulation tends to be unrealistically low

fictitious play property for games with identical interests abstract ann person game has identical interests if it is best response equivalent in mixed strategies to a game with identical payoff functions it is proved that every such game has the fictitious play property journal of economic literatureclassification numbers c72 c73

how auctions work for wine and art interview auctioneers and even to buy a little wine in the meantime i have also had the opportunity with john abowd 1988 to observe and collect data on the auction sale of impressionist and contemporary paintings this paper reports on some of the empirical regularities that i and others have observed in the actual operation of the auction markets for these items in view of the rich and diverse array of theoretical literature on auctions it seems high time economists began to spell out precisely what facts it is meant to explain 2

optimal timing of farm transferal from parent to child when farm income is first increasing and then decreasing in the operator s age the timing of farm transferal from parent to child is optimally determined by families who seek to maximize joint income or utility using a sample of israeli farms in which the operation of the farm changed from parent to child between 1971 and 1981 equations of transfer time and child s education are derived a simultaneous equation censored regression model is estimated using a two stage method results support the theoretical predictions that transfer time is decreasing with parent s age and with child s schooling and increasing with parent s experience

borrowing constraints and two sided altruism with an application to social security abstract we develop the implications of borrowing constraints and two sided altruism in an overlapping generations framework with agents who live three periods our analysis identifies six equilibrium patterns of intertemporal and intergenerational linkages in the no loan economy one of which corresponds to the traditional life cycle model and one of which corresponds to barro s dynastic model novel linkage patterns involve parent to child transfers early in the life cycle child to parent gifts late in the life cycle or both capital accumulation behavior and the consequences of fiscal policy interventions depend often critically on which linkage pattern prevails we show for example how unfunded social security interventions can significantly depress aggregate capital accumulation even when every generation is linked to its successor generation by altruistic transfers we also derive a non ricardian neutrality result for gift motive economies that holds whether or not borrowing constraints bind and whether or not parent and child are connected by an operative altruism motive at all points in the life cycle

the limits of monopolization through acquisition we address the question of whether competitive acquisition of firms by their rivals can result in complete or partial monopolization of a homogeneous product industry this question is modeled in terms of two distinct three stage noncoopera tive games analysis of subgame perfect pure strategy nash equilibria of these games discloses that under simplifying assumptions monopolization of an industry through acquisition is limited to industries with relatively few firms partial monopolization is either limited in scope or can be completely eliminated by prohibiting any owner from acquiring over 50 percent of the firms in the industry

do private income transfers increase labor market risk abstract in a two stage model of private income transfers with a labor market we find that the aggregate effect of such transfers induces labor market responses to the increase in moral hazard thereby increasing the volatility of wages and lowering welfare the equilibrium level of transfers exceeds the socially optimum level

intergenerational transfers and capital market imperfections evidence from a cross section of italian households abstract we investigate whether a system of family finance exists and to what extent it is able to offset capital market imperfections a simple model of intergenerational transfers implies that the probability of a liquidity constrained consumer receiving a transfer is negatively correlated with his current endowment and positively correlated with his future resources we test this proposition using a recent survey of italian households in which both transfer recipients and liquidity constrained households are readily observable the results indicate that private transfers help to ease borrowing constraints however a substantial number of liquidity constrained households remain after transfers have been made

random earnings differences lifetime liquidity constraints and altruistic intergenerational transfers abstract this paper develops a model of private savings behavior in which households care about their descendants cannot have negative net worth and have lifetime earnings depending on random draws from an exogenous distribution of abilities the elements interact very lucky parents are likely to leave large estates constrained children are unusually likely to receive intergenerational transfers the paper proves the existence of a stationary cross sectional distribution of wealth endogenously determines where liquidity constraints will bind and shows that the long term interest rate must be such that ricardian neutrality fails its last section generates several illustrative numerical simulations

observable contracts strategic delegation and cooperation the role of commitments in noncooperative games is well acknowledged and documented one way to achieve commitments is by letting delegates represent the players of a game in this paper the authors study a delegation game in which the players can use agents strategically to play on their behalf and the contracts they sign with them are common knowledge they show that in such cases every pareto optimal outcome of the game can become the unique subgame perfect nash equilibrium of the delegation game the authors demonstrate this result by discussing the cournot type duopolistic game copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

free entry and social inefficiency our goal is to provide a simple yet general exposition of the conditions under which the number of entrants in a free entry equilibrium is excessive insufficient or optimal our analysis compares the number of firms that enter a market when there is free entry with the number that would be desired by a social planner who is unable to control the behavior of firms once they are in the market that is we consider the second best problem of choosing the welfare maximizing number of firms while we take as given their noncompetitive behavior after entry we demonstrate that the crucial conditions for establishing the presence of an entry bias can be stated quite simply in terms of the outcome of the postentry game played by entrants in contrast to previous work we do not need to model this postentry game explicitly

mechanism design by competing sellers a dynamic model with many sellers and buyers is constructed agents failing to trade may trade in the next period an equilibrium is found where sellers hold identical auctions and buyers randomize over the sellers they visit the distribution of buyer valuations is endogenous an auction with efficient reserve is an optimal mechanism from each seller s point of view in spite of the ability of any seller to alter the distribution of buyer types participating in the seller s mechanism by altering the mechanism copyright 1993 by the econometric society

stock options and the strategic use of managerial incentives in cournot based oligopoly models there is an incentive for firms to pursue overly aggressive behavior resulting in prices and profits below those of the cournot equilibrium compensating managers in proportion to a combination of profits and sales provides one mechanism through which aggressive behavior emerges however when the profit component of managerial compensation comes in the form of stock options the aggressive behavior is restrained or even eliminated in equilibrium this result relies only on the nonlinearity of the stock option generalizations to other forms of compensation are discussed copyright 1993 by american economic association

learning in games with strategic complementarities revisited fictitious play is a classical learning process for games and games with strategic complementarities are an important class including many economic applications knowledge about convergence properties of fictitious play in this class of games is scarce however beyond games with a unique equilibrium global convergence has only been claimed for games with diminishing returns v krishna learning in games with strategic complementarities hbs working paper 92 073 harvard university 1992 this result remained unpublished and it relies on a specific tie breaking rule here we prove an extension of it by showing that the ordinal version of strategic complementarities suffices the proof does not rely on tie breaking rules and provides some intuition for the result

ricardian equivalence long run leviathan abstract this paper presents a heterogenous overlapping generations with altruism model in which intergenerational discounting is stochastic the model nests three popular macroeconomics models those of ramsey economic journal 38 152 1928 543 559 diamond american economic review 55 1965 1126 1150 and a variant of the blanchard journal of political economy 93 2 1985 223 247 buiter the economic journal 98 391 1988 279 293 weil journal of public economics 38 2 1989 183 198 model it is shown that under a mild condition originally derived by weil journal of monetary economics 19 3 1987 377 391 the long run capital intensity is robust to practically every popular theoretical criticism of the standard ricardian model these criticisms include the imperfect inheritability of time preference parameters and hence finite horizons on the part of all households myopia in the form of overly discounting the future borrowing constraints distortionary labor taxation exchange strategic bequest motives common cultural constraints egalitarian bequests and primogeniture endogenous fertility and joy of giving while precautionary saving can theoretically violate long run neutrality the asymptotic capital intensity is still bounded below by preference parameters the overall conclusions are sharply at odds with those found in most articles dealing with the theoretical foundations of ricardian equivalence

optimal timing in the problem of family farm transfer from parent to child an option value approach abstract the optimal time for transferring the family farm from parent to child is modeled in an option value framework it is assumed that parents have the ability to wait and enrich their information set before making the decision when to transfer the farm to a succeeding child rather than making a prompt decision the results indicate that the optimal timing depends on the wedge between the parents critical level of utility and disutility from the farm transfer to a succeeding child the arguments of parents utility function are country culture and family specific

from the static to the dynamic some problems in the theory of taxation abstract this paper considers problems and issues that arise when we attempt to extend the static theory of taxation and production planning to a dynamic context and to combine that theory with theories of growth the reasons dynamic theory is less developed include problems with the analytical tractability of even those dynamic models which attempt to retain the basic structure of the static model furthermore difficult and interesting issues arise in a dynamic context which are either not present or are much less severe in the static theory special attention is paid to these new issues and the difficulties they pose

iterative computation of cournot equilibrium abstract in a homogeneous coumot model with quasi concave profit functions the problem of determining an equilibrium can be posed as one of solving an equation in one real variable total sales if the response functions are monotone or firms are identical then a certain iterative process based on averaging converges to an equilibrium such iterations have the interpretation that every firm responds to the average of sales by other firms in brevious periods

government debt redistributive fiscal policies and the interaction between borrowing constraints and intergenerational altrusim abstract we show how borrowing constraints intergenerational altruism and their interaction shape the aggregate savings response to government debt and fiscal policies that redistribute resources between living generations we also characterize the conditions under which borrowing constraints bind and the altruistic transfer motive operates in terms of the strength of the altruism motive the shape of the lifetime productivity profile the willingness to substitute consumption intertemporally and other factors finally we characterize the dynamic response of aggregate savings to nonneutral government debt policies in economies with binding borrowing constraints

nonlinear pricing in vertically related duopolies a vertically separated duopolistic market is analyzed in which manufacturers compete in wholesale price schedules and retailers in quantity under certainty there exists a continuum of equilibria the introduction of an uncertain demand parameter observed only by retailers dramatically reduces the set of equilibria quantity discounts emerge in markets with only moderately decreasing returns to scale in manufacturing and quantity competition downstream with additive shocks to demand the equilibria coincide with those of markets in which vertically integrated firms compete in supply functions before market uncertainty is resolved however generically equilibria in my model are not supply function equilibria

investment and shadow pricing in a growing economy with tax restrictions abstract this paper analyses the evolution of investment and shadow prices in a growing economy where government investment must be financed by distortionary taxation it pays particular attention to the sensitivity of this evolution to the sort of shocks that have affected developing countries recently increased debt service and an increased price for energy the analysis is conducted with the help of a numerical model of a dual economy the main policy implications are that it is inappropriate to use time invariant shadow prices in cost benefit analysis that the response of shadow prices to changes in the economic environment may not be unidirectional and that the accounting rate of interest cannot simply be seen as a regulator of investment that responds to shortages of investment finance in addition the paper develops a new approach to the valuation of terminal capital stock in a finite horizon model and shows how the non convexity of second best models can lead to discontinuities in investment

reputation in repeated second price auctions abstract a model in which two bidders take part in a series of second price comon value auctions is examined the question of an optimal auction from an auctioneer s standpoint in a repeated auction setting is partially addressed it is shown that the results from single auction models do not carry over to repeated auctions when one of the bidders is endowed with a reputation for bidding aggressively second price auctions with two bidders are highly susceptible to manipulative behaviour by an aggressive bidder and yield much lower revenues to the auctioneer

on the convergence of genetic learning in a double auction market abstract we study the learning behavior of a population of buyers and a population of sellers whose members are repeatedly randomly matched to engage in a sealed bid double auction the agents are assumed to be boundedly rational and choose their strategies by imitating successful behavior and adding innovations triggered by random errors or communication with other agents this process is modelled by a two population genetic algorithm a general characterization of the equilibria in mixed population distributions is given and it is shown analytically that only one price equilibria are attractive for the ga dynamics simulation results confirm these findings and imply that in cases with random initialization with high probability the gain of trade is equally split between buyers and sellers

commodity taxation with administered and free market prices theory and an application to china abstract this paper analyses commodity taxes in an economy where some production is centrally planned and subject to price controls and some is market determined it shows that backward shifting of taxes can lead to significant distributional effects and demonstrates how these lead to the modification of tax rules the implications of these modifications are analysed using a numerical model based on chinese data significant non uniformity of tax rates is shown to be desirable in a case where standard tax rules imply uniformity the sensitivity of optimal taxes to concern for inequality revenue requirements and food rations are also demonstrated

motives for private transfers over the life cycle an analytical framework and evidence for peru abstract this paper tests for the motives for private income transfers we consider two motives altruism and exchange the question of private transfer motives is important because such motivation can influence the effects of public income transfers on the distribution of income using a household survey for peru we find that transfer amounts received increase with recipient pre transfer income which contradicts a key prediction of the strong form of the altruism hypothesis but is consistent with exchange we also find that capital market imperfections are likely to be an important cause of private transfers and that social security benefits crowd out the incidence of private transfers

divisionalization franchising and divestiture incentives in oligopoly a two stage game is used to model firms strategic incentives to divide production among autonomous competing units through divisionalization franchising or divestiture firms simultaneously choose their number of competing units which then engage in cournot competition while it is costly to form autonomous units each firm does so in equilibrium thus reducing firm profits and increasing social welfare relative to the case where firms cannot form competing units with linear demand and costs duopolists choose the socially optimal number of competing units oligopolies with larger numbers of firms choose too many the case of nonlinear demand is also examined copyright 1996 by american economic association

retail contracting theory and practice we summarize a number of regularities that arise in the empirical literature on contractual relationships between manufacturers and their exclusive resellers we do this using studies of traditional and business format franchise relationships as well as studies of salesforce integration decisions some of the patterns that we uncover are consistent with a standard incentive cum insurance theory of organization while others are not we brie y review some theoretical extensions that seem promising in terms of reconciling seeming con icts between theory and practice i introduction manufacturers of retail products must decide whether to sell their products to consumers themselves vertical integration or to sell via independent retailers vertical separation when manufacturers do not perform the sales function internally but want exclusive retailers they usually choose some form of franchising 1 many theories attempt to explain the choice of retail organizational form moreover a considerable body of empirical evidence concerning this choice is accumulating we attempt to evaluate this econometric evidence and relate it to the theories to accomplish this task we assess studies of franchising arrangements as well as studies of sales force organization in industrial settings the paper is organized as follows in the next section we highlight a number of regularities that arise in the empirical literature on retail contracting in particular we nd that i risk is positively related to the use of high powered incentives vertical separation ii the importance of the agent s eiort in production is positively related to the use of high powered incentives

optimally uniform commodity taxes taste differences and lump sum grants abstract optimal commodity taxes for an economy with many households should be at a uniform proportional rate under certain conditions these include i linear and parallel engel curves with intercepts dependent on household composition ii separability between goods and labour and iii optimal demogrants

the strategic choice of managerial incentives do firms with separate owners and managers maximize profits we address this question for an oligopoly where managers compete in quantities or prices as in the cournot or bertrand models and owners choose their managers incentives we find that there is a strategic aspect in the problem of selecting incentives and that profit maximizing behavior does not result in particular in the oligopoly we study the behavior of firms competing in quantity price more closely resembles perfectly competitive collusive behavior than cournot bertrand behavior

optimal taxes and the structure of preferences if optimal tax theory is to be the basis for calculating tax rates a close understanding is required of the relationship between the structure of preferences and the configuration of optimal tax rates otherwise hypotheses chosen by the econometrician for practical convenience may completely determine the results independently of measurement this paper explores the relationship between various types of separability particularly weak and implicit separability and optimal tax rates in the various models discussed in the literature the use of distance functions and the antonelli matrix provides a significant unification of previously disparate results in the final analysis optimal tax theory should be the basis for actual calculation of tax rates although recently there have been great advances in theoretical results and in our understanding of their meaning we are still some way from a working knowledge of whether uniform commodity taxes are in practice optimal or if not which commodities should be discriminated against present theoretical formulae do not yield clear cut results except in special cases and it has recently become clear that optimal rates depend crucially on the detailed structure of consumer preferences for example atkinson and stiglitz 3 show that with an optimal nonlinear income tax discriminatory commodity taxes are only necessary to the extent that individual commodities are not weakly separable from leisure more recently deaton 6 has shown that a similar result holds for what is perhaps the most interesting of the standard models that where there are many consumers and only a linear income tax and proportional commodity taxes are allowed in this case separability between goods and leisure together with linear engel curves for goods removes the need for differential commodity taxation in consequence nothing can be learned about commodity taxes from consumer demand studies in which commodity demands are explained conditionally on total expenditure and commodity prices and which assume linear engel curves all such studies require separability from leisure as a maintained hypothesis and so are consistent with uniform commodity taxation these results suggest that the prospects for meaningful empirical calculations of tax rates are bleak econometricians estimating commodity demand and labor supply equations make generous use of separability assumptions to enable estimation at all in consequence it is likely that empirically calculated tax rates based on econometric estimates of parameters will be determined in structure not by the measurements actually made but by arbitrary untested and even unconscious hypotheses chosen by the econometrician for practical convenience to remedy this situation and as a prelude to fruitful empirical work it is necessary to have a more explicit understanding of how preference structure affects optimal tax rates such is the object of this paper three different

credit markets with differences in abilities education distribution and growth this article presents an endogenous growth model in which credit markets affect time allocation of individuals with different educational abilities credit markets allow the more able to specialize in studying and the less able to specialize in working this specialization can increase growth and welfare this article also shows that in economies with high low levels of education abilities the opening of credit markets induces a more disperse equal income distribution the role of intergenerational transfers in overcoming the absence of credit markets is also discussed as well as other forms of credit markets imperfections

fiscal policy with heterogeneous agents and incomplete markets i undertake a quantitative investigation into the short run effects of changes in the timing of proportional income taxes for model economies in which heterogeneous households face a borrowing constraint temporary tax changes are found to have large real effects in the benchmark model a temporary tax cut increases aggregate consumption on impact by around 29 cents for every dollar of tax revenue lost comparing the benchmark incomplete markets model to a complete markets economy income tax cuts provide a larger boost to consumption and a smaller investment stimulus when asset markets are incomplete copyright 2005 wiley blackwell

ricardian equivalence in the presence of capital market imperfections abstract it is a common claim that ricardian equivalence fails if capital markets are imperfect the validity of this claim is examined for the case of informationally imperfect capital markets we present three alternative models of adverse selection and analyze the effects of debt finance in these models it is shown that a debt financed tax cut can lead to pareto improvement in some cases in the theoretically most preferable model however ricardian equivalence survives in spite of genuine imperfections in the capital market the results point to the importance of specifying the exact nature of imperfection

replacing the u s income tax with a progressive consumption tax a sequenced general equilibrium approach abstract this paper examines the welfare consequences of changing the current u s income tax system to a progressive consumption tax we compute a sequence of single period equilibria in which savings decisions depend on the expected future return to capital in the presence of existing income taxes the u s economy is assumed to lie on a balanced growth path with the change to a consumption tax individuals save more and initially consume less as the capital stock grows consumption eventually overtakes that of the original path and the economy approaches the new balanced growth path with higher consumption and a greater capital stock both the transition and the balanced growth paths enter our welfare evaluations we find the discounted present value of the stream of net gains is approximately 650 billion in 1973 dollars just over 1 percent of the discounted present value of national income larger gains occur if further reform of capital income taxation accompanies the change we examine the sensitivity of the results both to the design of the consumption tax and to the values of elasticity and other parameters the paper also contains estimates of the time required to adjust from one growth path to the other

sequential common value auctions with asymmetrically informed bidders we study an in nitely repeated rst price auction with common values we focus on one sidedincomplete information in which one bidder learns the objects value which itself does not change overtime learning by the uninformed bidder occurs only through observation of the bids the proprietaryinformation is eventually revealed and the seller extracts essentially the entire rent for large discountfactors both players pay offs tend to 0 as the discount factor tends to 1 however the uninformed bidderdoes relatively better than the informed bidder we discuss the case of two sided incomplete informationand argue that under a markovian re nement the outcome is pooling as information is revealed onlyinsofar as it does not affect prices

aggregation and linearity in the provision of intertemporal incentives we consider the problem of providing incentives over time for an agent with constant absolute risk aversion the optimal compensation scheme is found to be a linear function of a vector of n accounts which count the number of times that each of the n kinds of observable events occurs the number n is independent of the number of time periods so the accounts may entail substantial aggregation in a continuous time version of the problem the agent controls the drift rate of a vector of accounts that is subject to frequent small random fluctuations the solution is as if the problem were the static one in which the agent controls only the mean of a multivariate normal distribution and the principal is constrained to use a linear compensation rule if the principal can observe only coarser linear aggregates such as revenues costs or profits the optimal compensation scheme is then a linear function of those aggregates the combination of exponential utility normal distributions and linear compensation schemes makes computations and comparative statics easy to do as we illustrate we interpret our linearity results as deriving in part from the richness of the agent s strategy space which makes it possible for the agent to undermine and exploit complicated nonlinear functions of the accounting aggregates

mobility costs frictional unemployment and efficiency with imperfect job information flows it is plausible that the distribution of job offerings becomes more attractive when there are more vacancies and more unemployed with word of mouth communication this condition is derived given this condition steady state equilibrium is not efficient with welfare increased by the introduction of unemployment compensation even though all agents are risk neutral in this way workers become more selective in the jobs they accept

empirical evidence on consumption smoothing and intergenerational transfers in this study i examine empirically intergenerational linkage in terms of resources transfers in the extended family in particular conditional on a household s and its parents or children s liquidity constraints status i look at how far the household can smooth its consumption in face of negative income shocks the permanent income hypothesis postulates that households make their consumption decisions based on their lifetime resources thus their consumption trajectory follows a smooth path in face of shocks to their income however in various tests 8 10 the unconditional form of the hypothesis has been rejected it is conjectured and generally agreed that the rejections of the hypothesis are mainly due to the presence of liquidity constraints i e capital market imperfections see zeldes 22 for a recent empirical investigation and hayashi 12 for an excellent survey moreover the works by cochrane 4 and mace 19 further confer cogency on the liquidity constraints capital market imperfections argument in testing whether households have full consumption insurance or equivalently the existence of complete markets against idiosyncratic shocks they reject their null of the existence of full consumption insurance in some of their tests

learning mixed equilibria we study learning processes for finite strategic form games in which players use the history of past play to forecast play in the current period in a generalization of fictitious play we assume only that players asymptotically choose best responses to the historical frequencies of opponents past play this implies that if the stage game strategies converge the limit is a nash equilibrium in the basic model plays seems unlikely to converge to a mixed strategy equilibrium but such convergence is natural when the stage game is perturbed in the manner of harsanyi s purification theorem journal of economic literature classification number c72

love thy children abstract this paper proves that barro s 1974 debt neutrality proposition whose relevance hinges in an economy with bequest motives on bequests being operative in the economy without public debt is not applicable to a wide class of overlapping generation economies those with a weak bequest motive in particular it is shown that the bequest motive is always too weak and public debt therefore non neutral when non physical assets have a well defined function reducing oversavings in the corresponding economy without bequest motive i e when the non altruistic economy is dynamically inefficient

divisionalization and strategic managerial incentives in oligopoly under uncertainty abstract this paper argues that divisionalization and incentive contracting are complementary rent shifting tools in the presence of demand uncertainty the role for divisionalization arises if managers know the state of demand prior to making output decisions and if incentive contracts are linear and non state contingent in this context incentive contracts achieve expected stackelberg outcomes but have no impact on the firm s responsiveness to demand shocks divisionalization on the other hand has the strategically beneficial effect of making the firm more responsive to demand shocks

short run fiscal policy welfare redistribution and aggregate effects in the short and long run abstract this paper quantifies the effects of two short run fiscal policies a temporary tax cut and rebate transfer that are intended to stimulate economic activities a reduction in income taxation provides immediate incentives to work and save more raising aggregate output and consumption a temporary rebate is mostly saved and increases consumption marginally both policies improve the overall welfare of households and the rebate policy benefits especially low income households in the long run however the debt accumulated to finance the stimulus and a higher tax to service the debt can crowd out capital and lower output and consumption causing welfare to deteriorate

altruism deficit policies and the wealth of future generations i introduction there is now a substantial body of evidence suggesting that altruistic financial bequests are zero for the vast majority of households 1 other studies seem to indicate that the financial bequests which are made are not likely to be altruistically motivated 2 while this evidence against the importance of altruistic financial bequests seems reasonably convincing it is by no means clear that the importance of altruism per se has been dismissed 3 for example the results reported in altonji hayashi and kotlikoff 1992 tables 14 17 indicate that extended family resources while not perfectly linked to own resources are important for explaining own consumption the authors do not reject the notion that substantial altruistically motivated transfers occur in the u s rather they suggest the altruistically motivated transfers which are made take the form of less than fully efficient human capital transfers to children if most altruistic transfers do take place via educational expenditures how does this affect the ricardian equivalence theorem robert barro 1974 1989 argues the presence of any altruistic transfer is sufficient to guarantee that intergenerational transfers caused by government policy are neutral other forms of intergenerational transfers such as inter vivos gifts to children support of children s education and so on can work in a similar manner therefore the ricardian results will hold even if many persons leave little in the way of formal bequests 1989 41 4 an alternative view however is expressed by allan drazen 1978 he argues if parents possess an insufficient mix of wealth and altruism intergenerational transfers could be exhausted before the efficient level of human capital investment is achieved if explicit or implicit loans between parents and children are not possible then the government may be able to improve welfare by generating intergenerational transfers from children to parents 5 a cut in the parents tax burden and an equal present value increase in the tax on the next generation is equivalent to a government enforced loan at the going market interest rate since educational expenditures are inefficiently low the return on human capital investment exceeds the loan rate therefore parents could put an amount less than the tax cut into their children s education and still leave the children with enough additional income to pay for the future tax increase thus a deficit policy serves to expand the consumption possibility set of the family viewed in this way drazen 1978 514 footnote 7 imagines an argument for a pareto optimal level of public debt issue 6 a third possibility was identified by nerlove razin and sadka 1988 who conduct the most explicit analysis of government transfers in an economy with altruistic but financial bequest constrained households they also find a transfer or implicit loan to parents from their children will make the parents unambiguously better off however they were the first to point out that a deficit policy may lower the welfare of the children although they fail to explain why thus even in the presence of altruistic transfers from parents to children the effect of deficits on the consumption of future generations is far from clear in this paper we wish to clarify the effect of intergenerational transfers on bequest constrained families the next section intuitively explains why a government loan or deficit policy generates an ambiguous effect on the children s consumption even though altruistic parents are fully capable of making both generations better off after the loan we also identify the key structural determinants of the change in the children s wealth due to the loan in section iii we extend the simple model of section ii to a more quantitatively realistic multi period life cycle simulation model of a bequest constrained household the simulation model is then used in section iv to examine how a government intergenerational transfer affects the consumption of each generation under various settings of the key structural determinants identified in section ii