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Price discrimination incentives may induce dealers to bear the financial cost of their customers' credit purchases. We focus on how financial market imperfections make it possible to segment the customer population. When borrowing and lending rates differ from each other and from the rate of interest on a durable good purchase, the structure of those rates influences customers' choices to purchase on credit or cash terms, and the scope for dealers' price discrimination. Empirical analysis of a set of installment-credit, personal-loan, and regional interest rate data offers considerable support to the assumptions and implications of our theoretical framework. [ABSTRACT FROM AUTHOR]

We characterize infrequent durables stock adjustment by consumers who also derive utility from non-durable consumption flows in the presence of idiosyncratic income uncertainty. The data we analyse include subjective future income uncertainty measures, which we use as instruments in the estimation of relevant parameters of heterogeneous consumers’ dynamic adjustment problems. The data feature two conceptually distinct sources of variation: cross-sectional heterogeneity of the sampled households’ dynamic problems, and history-dependent heterogeneity in their situation during the observation period. We note that the latter should affect the likelihood but not the size of stock adjustment decisions, and find broad support for theoretical predictions in formal selection-controlled regressions based on this insight. [ABSTRACT FROM AUTHOR]

This paper outlines theoretical insights regarding the motivation and effects of labor market institutions, and reviews empirical studies of relevant evidence from European and other countries' historical experience. Institutional interference with laissez faire labor market outcomes has both economic and distributional implications. which depend on the structure of markets and on the details of policy implementation. The resulting conceptual framework is brought to hear on a discussion of possible reforms of European labor markets in the context of the Economic and Monetary Union process. [ABSTRACT FROM AUTHOR]

Models of labour market equilibrium where forward-looking decisions maximize both profits and labour income on a risk-neutral basis offer valuable insights into the effects of employment protection legislation. Since risk-neutral behaviour in the labour market presumes perfect insurance, however, job security provisions plays no useful role in such models. This paper studies a stylized model of dynamic labour market interactions where labour reallocation costs are partly financed by uninsured workers’ consumption flows. In the resulting second-best equilibrium, provisions that shift labour reallocation costs to risk-neutral employers can increase productive efficiency if their administrative dead-weight costs are not too large, and increase workers’ welfare as long as employers’ firing costs at least partly finance workers’ mobility. [ABSTRACT FROM AUTHOR]

Highlights the need to revise the methodology used for measuring labor market flexibility and performance in the context of employment protection. Relationship between employment protection legislation (EPL) and labor market performance indicators; Role of courts in enforcing EPL; Shortcomings of available measures of employment protection.

We study positive and normative aspects of steady-state equihbrum in a market where firms of endogenous size experience idiosyncratic shocks and undergo a costly search process to hire their workers The stylized model we propose highlights interactions between job-security provisions and sectoral shocks in determining the natural rate of unemployment, the allocation of labour, and the extent of labour hoarding, and rationalizes cross-sectional asymmetries of gross employment flows at the firm level. In our model, where productivity and search costs are dynamically heterogeneous across firms, decentralized wage bargains imply Important cross-sectional inefficiencies, which overshadow the state search Inefficiencies on which simpler models focus. [ABSTRACT FROM AUTHOR]

First version received January 1991; final version accepted July 1992 (Eds.) A time varying stochastic devaluation risk is introduced in a model of exchange rate target zones. The model produces realistic patterns of covariation between exchange rates and interest rate differentials, which previous target zone models have been unable to do. A "drift adjustment" method to estimate devaluation expectations from data is suggested. [ABSTRACT FROM AUTHOR]

This paper proposes a model of firms' optimal employment policies under linear adjustment costs. We find that firing costs have a larger effect on firms' propensity to fire than to hire, and (slightly) increase average long-run employment Calibrating the model with realistic parameter values, we argue that high firing costs, slower and more uncertain growth, and lower attrition rates after the first oil shock can explain some features of employment's dynamic behaviour in the largest European countries. [ABSTRACT FROM AUTHOR]

This article studies the unprecedented job destruction which occurred throughout Europe, particularly in Italy, during the recession of the early 1990s. It raises the question whether changes in the institutional structure of various countries' labor markets may have deepened the normal effects of the recession. Institutional, legal, and sociopolitical safety nets are used to protect many European employees from technological and demand shocks throughout the 1970s and early 1980s. Important steps have since been taken to deregulate industrial relations.

Labor turnover costs may or may not decrease average employment in a partial equilibrium model of labor demand, depending on the form of the revenue function, on the rates of discount and of labor attrition, and on the relative size of hiring and firing costs. If discount and attrition rates are strictly positive, firing costs may well increase average employment even when hiring costs reduce it. [ABSTRACT FROM AUTHOR]

Throughout the 1970s and 1980s, wage differentials widened in the U.S. but not in Europe, where marginal labor-force groups experienced increasing and persistent unemployment instead. Both phenomena may be explained, for different labor-market institutions, by more pronounced volatility of labor-demand forcing processes in a simple model of labor allocation under idiosyncratic uncertainty. If workers bear the costs of labor reallocation, then a higher option value of work in currently depressed regions, occupations, or sectors is consistent with wider wage differentials in equilibrium. Under centralized wage setting and job-security legislation, conversely, higher likelihood of negative shocks in the near future decreases labor demand by hiring firms. These and other implications of our model are consistent with the phenomena motivating our work and with other pieces of evidence. [ABSTRACT FROM AUTHOR]

The dynamics of production and income growth across countries, or across regions within the same country, are often thought to give evidence on whether returns to accumulation are increasing, constant or decreasing at the local level. When poor countries or regions are found to grow no faster than richer ones, such lack of convergence is viewed as unfavorable evidence for models in which technology offers high returns to accumulation in relatively capital-poor locations increasing if the reference theoretical model takes technology to be uniform across locations, features unexplained and permanent differences in saving behavior and eliminates or limits capital mobility across locations. The theory that motivates empirical work on income convergence either takes saving propensities as exogenously given or else models them in terms of individual optimization under certainty. When individuals optimize their savings in light of the size and composition of their accumulated and non-accumulated income sources consumption-smoothing behavior leads to persistent, but station a dynamics for relative incomes and consumption levels.

In models of steady investment-driven growth, an individual's propensity to save depends on how much of his income is drawn from accumulated factors of production ('capital') rather than from nonaccumulated factors. When agents are heterogeneous in this respect, growth-oriented policies have distributional consequences and, in the absence of lump-sum redistribution, their implementation faces political constraints. If the median voter is capital-poor relative to the economy's representative agent, political interactions tend to slow down growth when policy acts on capital's income share and tend to accelerate it when investment subsidies are the policy instrument of choice. [ABSTRACT FROM AUTHOR]

We propose and solve an optimizing model which explains counterintuitive effects of fiscal policy in terms of expectations. If government spending follows an upward-trending stochastic process which the public believes may fill sharply when it reaches specific "trigger" points, then optimizing consumption behavior and simple budget-constraint arithmetic imply a nonlinear relationship between private consumption and government spending. This theoretical relation is consistent with the experience of several countries. [ABSTRACT FROM AUTHOR]

Recent contributions emphasize that the presence of exchange-rate target zones has important effects on the within-band behavior of exchange rates when agents are forward-looking. We find that the implications of available models are inconsistent with European exchange-rate data, and we suggest that the frequent realignments occurring in the period we consider may be responsible for this. We construct a model in which the likelihood of a realignment in the near future increases as the exchange rate approaches the limits of its fluctuation band and show that its implications are broadly consistent with the evidence. [ABSTRACT FROM AUTHOR]

The author discusses the principle of economist Hans-Werner Sinn for migration and the welfare state in European Union countries. He is particular of the proposal by Sinn to address the problem regarding the negative attitude of Europeans towards economic integration through the development of a political union and an integrated welfare state.

Presents an abstract of the article "Crossing the River: A Comparative Perspective on Italian Employment Dynamics," published in the October 1995 issue of "Economic Policy."