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* Revised: [10-04, 2010], Countries with higher implicit taxes on continued work are associated with lowerlabor force participation rates of the elderly. This paper constructs a politicoeconomicmodel that accounts for this feature based on multiple, self-fulfilling expectationsof agents. In this model, agents are identical at birth and can becomeskilled (or remain unskilled) through educational investment. When agents holdexpectations of larger social security benefits, it provides a disincentive to engagein educational investment, thereby resulting in an unskilled majority. In turn, thisunskilled majority supports larger social security benefits, which induces the retirementof the elderly and thus results in a lower labor force participation rate. Theopposite applies when agents have expectations of smaller social security benefitsin their old age.

* Revised: [10-04, 2010], Countries with higher implicit taxes on continued work are associated with lowerlabor force participation rates of the elderly. This paper constructs a politicoeconomicmodel that accounts for this feature based on multiple, self-fulfilling expectationsof agents. In this model, agents are identical at birth and can becomeskilled (or remain unskilled) through educational investment. When agents holdexpectations of larger social security benefits, it provides a disincentive to engagein educational investment, thereby resulting in an unskilled majority. In turn, thisunskilled majority supports larger social security benefits, which induces the retirementof the elderly and thus results in a lower labor force participation rate. Theopposite applies when agents have expectations of smaller social security benefitsin their old age.

We investigate Matsuyama’s Econometrica, 72, pp. 853-84, 2004) model modified only to include endogenous and forward looking labor supply decision. Young agents supply one unit of labor endowment elastically to a competitive labor market. While, old agents of ex-ante identical individuals are divided in equilibrium into depositors and entrepreneurs. Depositors lend funds in the form of interest bearing loans, while entrepreneurs borrow funds in the competitive credit market. We emphasize the interaction between credit and labor markets and show the possibility of occurrence of multiple steady states, local and global indeterminacy, and endogenous fluctuations. When young agents become optimistic about the future deposit rate then they decide to work harder and invest more. Countercyclical borrowing constraint will help agents to fulfill their initial optimistic expectations, because the next period credit volume and deposit rate can increase simultaneously. By conducting global bifurcation analysis, we show that credit cycles can occur through a selffulfilling expectation mechanism. History-versus-expectations considerations can exist and escape from underdevelopment as well as fall into poverty can be a selffulfilling prophecy.

In the present paper we study voting-based corporate control in a general equilibrium model with incomplete financial markets. Since voting takes place in a multi-dimensional setting, super-majority rules are needed to ensure existence of equilibrium. In a linear-quadratic setup we show that the endogenization of voting weights (given by portfolio holdings) can give rise to - through self-fulfilling expectations - dramatical political instability, i.e. Condorcet cycles of length two even for very high majority rules.

In the present paper we study voting-based corporate control in a general equilibrium model with incomplete financial markets. Since voting takes place in a multi-dimensional setting, super-majority rules are needed to ensure existence of equilibrium. In a linear-quadratic setup we show that the endogenization of voting weights (given by portfolio holdings) can give rise to - through selffulfilling expectations - dramatical political instability, i.e. Condorcet cycles of length two even for very high majority rules.

In the present paper we study voting-based corporate control in a general equilibrium model with incomplete financial markets. Since voting takes place in a multi-dimensional setting, super-majority rules are needed to ensure existence of equilibrium. In a linear-quadratic setup we show that the endogenization of voting weights (given by portfolio holdings) can give rise to - through selffulfilling expectations - dramatical political instability, i.e. Condorcet cycles of length two even for very high majority rules.

In the present paper we study voting-based corporate control in a general equilibrium model with incomplete financial markets. Since voting takes place in a multi-dimensional setting, super-majority rules are needed to ensure existence of equilibrium. In a linear-quadratic setup we show that the endogenization of voting weights (given by portfolio holdings) can give rise to - through selffulfilling expectations - dramatical political instability, i.e. Condorcet cycles of length two even for very high majority rules.

In the present paper we study voting-based corporate control in a general equilibrium model with incomplete financial markets. Since voting takes place in a multi-dimensional setting, super-majority rules are needed to ensure existence of equilibrium. In a linear-quadratic setup we show that the endogenization of voting weights (given by portfolio holdings) can give rise to - through self-fulfilling expectations - dramatical political instability, i.e. Condorcet cycles of length two even for very high majority rules.

In the present paper we study voting-based corporate control in a general equilibrium model with incomplete financial markets. Since voting takes place in a multi-dimensional setting, super-majority rules are needed to ensure existence of equilibrium. In a linear-quadratic setup we show that the endogenization of voting weights (given by portfolio holdings) can give rise to - through selffulfilling expectations - dramatical political instability, i.e. Condorcet cycles of length two even for very high majority rules.

This paper shows imperfect competition can lead to indeterminacy in aggregate output in a standard DSGE model with imperfect competition. Indeterminacy arises in the model from the composition of aggregate output. In sharp contrast to the indeterminacy literature pioneered by Benhabib and Farmer [J. Benhabib, R. Farmer, Indeterminacy and increasing returns, J. Econ. Theory 63 (1) (1994) 19-41] and Gali [J. Gali, Monopolistic competition, business cycles, and the composition of aggregate demand, J. Econ. Theory 63 (1) (1994) 73-96], indeterminacy in our model is global; hence it is more robust to structural parameters. In addition, sunspots in our model can be autocorrelated. The paper provides a justification for exogenous variations in desired markups, which play an important role as a source of cost-push shocks in the monetary policy literature. Our model outperforms a standard RBC model driven by technology shocks in several dimensions, including the volatility of labor market and the hump-shaped output dynamics. (C) 2008 Published by Elsevier Inc.

This paper shows imperfect competition can lead to indeterminacy in aggregate output in a standard DSGE model with imperfect competition. Indeterminacy arises in the model from the composition of aggregate output. In sharp contrast to the indeterminacy literature pioneered by Benhabib and Farmer [J. Benhabib, R. Farmer, Indeterminacy and increasing returns, J. Econ. Theory 63 (1) (1994) 19-41] and Gali [J. Gali, Monopolistic competition, business cycles, and the composition of aggregate demand, J. Econ. Theory 63 (1) (1994) 73-96], indeterminacy in our model is global; hence it is more robust to structural parameters. In addition, sunspots in our model can be autocorrelated. The paper provides a justification for exogenous variations in desired markups, which play an important role as a source of cost-push shocks in the monetary policy literature. Our model outperforms a standard RBC model driven by technology shocks in several dimensions, including the volatility of labor market and the hump-shaped output dynamics. (C) 2008 Published by Elsevier Inc.

The purpose of this paper is twofold. First, we present an alternative model of agglomeration and trade that displays the main features of the recent economic geography literature while allowing for the derivation of analytical results by means of simple algebra. Second, we show how this framework can be used to adopt a forward-looking approach to the dynamics of migration in the process of agglomeration instead of the myopic Marshallian model used so far in this literature.

The purpose of this paper is twofold. First, we present an alternative model of agglomeration and trade that displays the main features of the recent economic geography literature while allowing for the derivation of analytical results by means of simple algebra. Second, we show how this framework can be used to adopt a forward-looking approach to the dynamics of migration in the process of agglomeration instead of the myopic Marshallian model used so far in this literature.

This paper develops a simple two-region two-sector general equilibrium model of trade and migration where one monopolistically competitive sector generates local pecuniary externalities. The aim is to gain insight on the question whether economic integration can be expected to increase the differences in industrial structure between more and less developed regions. It is shown that a reduction in trade and/or migration costs weakens the lock-in effect of historical events while strengthening the role of expectations. (C) 1999 Elsevier Science B.V. All rights reserved.