In a model where inventories are productive for sales, both the markup of price over marginal cost and expected changes in marginal cost are key determinants of that ratio. Time markup turns out to be more important than intertemporal substitution in explaining the behavior of inventory-sales ratios. Cyclical fluctuations in the job-destruction rate magnify the output effects of shocks, as well as making them much more persistent. Interactions between capital adjustment and the job-destruction rate play an important role in generating persistence. Propagation effects are shown to be quantitatively substantial when the model is calibrated using job-flow data.
Bidders receive a signal about the quality of the objects.
We find conditions under which, in the limit, objects are allocated efficiently to those with the highest tastes, and price converges in probability to the value of an object to the marginal taste type. The effect of insecure ownership on ordinary investment and natural resource use is examined. Insecure ownership is postulated to depend on the type of government regime in power and the prevalence of political violence or instability. When introduced into empirical models of natural resource use, this index has a significant and quantitatively important effect on the use of forests and petroleum. Contrary to conventional wisdom, ownership risk slows resource use in some circumstances.