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We study the joint determination of optimal investment and optimal depollution in a spatiotemporal framework where pollution is transboundary. Pollution is controlled at a global level. The regulator internalizes that: (i) production generates pollution, which is bad for the wellbeing of population, and that (ii) pollution flows across space driven by a diffusion process. We solve analytically for the optimal investment and depollution spatiotemporal paths and characterize the optimal long-term spatial distribution when relevant. We finally explore numerically the variety of optimal spatial distributions obtained using a core/periphery model where the core differs from the periphery either in terms of input productivity, depollution efficiency or self-cleaning capacity of nature. We also compare the distributions with and without diffusion. Key aspects in the optimal policy of the regulator are the role of aversion to inequality, notably leading to smoothing consumption across locations, and the control of diffusive pollution adding another smoothing engine

In a recent paper, Jiménez et al. (2007) propose a 'general' and 'interactive' method for solving linear programming problems with fuzzy parameters. In this study, we propose a revision to the optimal crisp value of the objective function to eliminate the restrictive constraints imposed by Jiménez et al. (2007).The revised approach can be generalised to solve many real-world linear programming problems where the coefficients are fuzzy numbers. In contrary to the approach proposed by Jiménez et al. (2007), our method is rightfully general and interactive, as it provides an optimal solution that is not subject to specific restrictive conditions and supports the interactive participation of the Decision-Maker (DM) in all steps of the decision-making process. We also present a counterexample to illustrate the merits of the proposed method and the drawbacks of Jiménez et al.'s (2007) method.

We consider a model of licensing of a non-drastic innovation in which the patent holder (an outside innovator) negotiates either up-front fixed fees or per-unit royal- ties with two firms producing horizontally differentiated brands and competing à la Cournot. We investigate how licensing schemes (fixed fee or per-unit royalty) and the number of licenses sold (exclusive licensing or complete technology diffusion) affect price agreements and delays in reaching an agreement. We show that the patent holder prefers to license by means of up-front fixed fees except if market competition is mild and the innovation size is small. Once there is private information about the relative bargaining power of the parties, the patent holder may prefer licensing by means of per-unit royalties even if market competition is strong. Moreover, the delay in reaching an agreement is greater whenever the patent holder chooses to negotiate up-front fixed fees instead of per-unit royalties.

We consider a model of wage determination with private information in a duopoly. We investigate the effects of unions having relative concerns on the negotiated wage and the strike activity. We show that an increase of unions' relative concerns has an ambiguous effect on the strike activity.

We study the endogenous formation of networks between manufacturers of differentiated goods and multi-product retailers. We find that, under both types of contracts (linear and two-part tariffs), only three distribution networks are stable for particular values of the degree of product differentiation and link costs: the non-exclusive distribution and non-exclusive dealing network, the exclusive distribution and exclusive dealing network and a mixed distribution network in which both exclusive and non-exclusive relations are observed. Moreover, the stability of the first two networks is robust to the case of manufacturers with no bargaining power and the case of differentiated retailers who compete in prices. We show that, under both types of contracts, the distribution networks that maximize social welfare are not necessarily stable. Thus, a conflict between stability and social welfare is likely to occur, even more if the degree of product differentiation is low enough.

We analyze collusion in an infinitely repeated version of a standard auction with a continuum of types. Because of the lack of efficiency results in this setting the litterature has focused on determining and comparing benchmarks on how well bidders can collude. Aoyagi (2003) has shown that the bidders can improve upon static bid rotation, making use of a dynamic bid rotation scheme, but this scheme does not allow to determine how much bidders can improve upon bid rotation. In this paper we design a very simple dynamic mechanism that improves upon static bid rotation and in the limit recovers one third of the gap between static bid rotation and efficiency, independently of the underlying distribution of values.

This paper studies the normative problem of redistribution between individuals who differ in their lifespans. We discuss aspects related to the objective function and argue that aversion to multiperiod inequality should be taken into account. Then, we study the properties of the social optimum both with full information and with asymmetric information. We highlight the role of aversion to multiperiod inequality and show that it has substantial consequences on the design of Social Security schemes. In particular, we show that for a low (resp. high) aversion to multiperiod inequality, a negative (resp. positive) implicit tax rate on continued activity is desirable.

In this paper, we consider a decision-maker facing a financial risk flanked by a non-financial background risk such as health or environmental risk. A decision has to be made about the amount of an investment (in the financial dimension) resulting in a future benefit either in the same dimension (savings) or in the other dimension (environmental quality or health improvement. In this framework, we study the impact of the correlation between the two risks on optimal choices. In the saving problem, we find conditions ensuring that positive correlation between the two risks implies that the optimal amount of savings increases. These conditions involve specific requirements on the direct and cross derivatives of the two-argument utility function. Similarly, we find a different and specific set of conditions ensuring that the same conclusion on optimal investment for health (environmental) improvement is reached. The two sets of conditions determined support the conclusion that the signs of the derivatives of the two-argument utility function should alternate.

Fractal geometry can be used for determining the morphological boundaries of metropolitan areas. A two-step method is proposed here: (1) Minkowski's dilation is applied to detect any multiscale spatial discontinuity and (2) a distance threshold is located on the dilation curve corresponding to a major change in its behavior. We therefore measure the maximum curvature of the dilation curve. The method is tested on theoretical urban patterns and on several European cities to identify their morphological boundaries and to track boundary changes over space and time. Results obtained show that cities characterized by comparable global densities may exhibit different distance thresholds. The less the distance separating buildings differ between an urban agglomeration and its surrounding built landscape, the greater the distance threshold. The few the buildings that are connected across scales, the greater the distance threshold.

Many distributive issues involve situations in which initial characteristics make individuals unequal. In view of prevailing more sentiments, some of these characteristics call for compensating transfers, and some do not. We study the literature on this problem of compensation. This literature follows the distinction between the ethical principle of compensation and that of responsibility. According to the former, a good resource allocation system should neutralize the differential influence over agents' outcomes of the characteristics that elicit compensation. According to the latter, a good resource allocation system should remain neutral with respect to inequality arising from the influence of characteristics that do not elicit compensation. The principle of responsibility can be interpreted as a libertarian principle of natural reward, or as a principle of utilitarian reward. Depending on whether the emphasis is put on the principle of compensation or of responsibility, and depending on how the latter is interpreted, there exit four main families of solutions to compensation problems. We review the axiomatic analyses of these four families of solutions in the different models in which they have been studied. We also review the applications that have been made of these solutions to problems of income taxation, education investment, social mobility and health insurance systems.

We develop rules for pricing and capacity choice for an interruptible service that recognize the interdependence between consumers’ perceptions of system reliability and their market behavior. Consumers post ex ante demands, based on their expectations on aggregate demand. Posted demands are met if ex post supply capacity is sufficient. However, if supply is inadequate all ex ante demands are proportionally interrupted. Consumers’ expectations of aggregate demand are assumed to be rational. Under reasonable values for the consumer’s degrees of relative risk aversion and prudence, demand is decreasing in supply reliability. We derive operational expressions for the optimal pricing rule and the capacity expansion rule.We show that the optimal price under uncertainty consists of the optimal price under certainty plus a markup that positively depends on the degrees of relative risk aversion, relative prudence and system reliability. We also show that any reliability enhancing investment—though lowering the operating surplus of the public utility—is socially desirable as long as it covers the cost of investment.

We examine patterns of acquiring non-native languages in a model with two linguistic communities with heterogeneous learning skills, where every individual faces the choice of self-learning the foreign language or acquiring it at a profit-maximizing linguistic school. We consider a one-school model with divisions in both communities and various two-school settings with a school in each community. We compare the number of learners and welfare implications under self-learning with those obtained under various schooling contexts. In particular, we show that for communities with similar size, introducing language schools always increases the number of learners with respect to the exclusive self-learning option.

The nonparametric estimation of a regression function from conditional moment restrictions involving instrumental variables is considered. The rate of convergence of penalized estimators is studied in the case where the regression function is not identified from the conditional moment restriction. We also study the gain of modifying the penalty in the estimation, considering derivatives in the penalty. We analyze the effect of this modification on the identification of the regression function and the rate of convergence of its estimator.

We adopt the notion of vonNeumann–Morgenstern (vNM) farsightedly stable sets to determine which matchings are possibly stable when agents are farsighted in one-to-one matching problems. We provide the characterization of vNMfarsightedly stable sets: a set of matchings is a vNM farsightedly stable set if and only if it is a singleton subset of the core. Thus, contrary to the vNM (myopically) stable sets (Ehlers 2007), vNM farsightedly stable sets cannot include matchings that are not in the core. Moreover, we show that our main result is robust to many-to-one matching problems with substitutable preferences: a set of matchings is a vNM farsightedly stable set if and only if it is a singleton set and its element is in the strong core.

This paper studies to which extent a firm using a scarce resource input and facing environmental regulation can still manage to have a sustainable growth of output and profits. The firm has a vintage capital technology with two complementary factors, capital and a resource input subject to quota, the latter being increasingly scarce through an exogenously rising price. The firm can scrap obsolete capital and invest in adoptive and/or innovative R&D resource-saving activities. Within this realistic framework, we first characterize long-term growth regimes driven by scarcity (induced-innovation) vs. long-term growth regimes driven by quota regulation (Porter-like innovation). More importantly, we study the interaction between scarcity and quota regulation. In particular, we show that there exists a threshold level for the growth rate of the resource price above which the Porter mechanism is killed while the scarcity-induced growth regime may emerge. Symmetrically, we also find that there must exist a threshold value for the environmental quota under which the growth regime induced by scarcity vanishes while the Porter-like growth regime may survive.

We study information aggregation in large elections. With two candidates, efficient information aggregation is possible (e.g., Feddersen and Pesendorfer [5–7]).We show that this result does not extend to elections with more than two candidates. We study a class of simple scoring rules in voting games with Poisson population uncertainty and three candidates. No simple scoring rule aggregates information efficiently, even if preferences are dichotomous and a Condorcet winner always exists. We introduce a weaker criterion of informational efficiency that requires a voting rule to have at least one efficient equilibrium. Only approval voting satisfies this criterion.

This paper studies the estimation of a nonparametric function \varphi from the inverse problem r = T \varphi given estimates of the function r and of the linear transform T . We show that rates of convergence of the estimator are driven by two types of assumptions expressed in a single Hilbert scale. The two assumptions quantify the prior regularity of \varphi and the prior link existing between T and the Hilbert scale. The approach provides a unified framework that allows us to compare various sets of structural assumptions found in the econometric literature. Moreover, general upper bounds are also derived for the risk of the estimator of the structural function \varphi as well as that of its derivatives. It is shown that the bounds cover and extend known results given in the literature. Two important applications are also studied. The first is the blind nonparametric deconvolution on the real line, and the second is the estimation of the derivatives of the nonparametric instrumental regression function via an iterative Tikhonov regularization scheme.

The theory of games against nature relies on complete preferences among all conceivable acts (case 1). Aumann and Drèze (Am Econ J Microecon 1(1):1–16, 2009) consider situations where preferences are defined only for a given set of acts (case 2). We extend these results to situations where (i) only the set of optimal elements from a given set of acts is known (case 3); (ii) only a single optimal act is known (case 4). To these four cases correspond four nested sets of admissible subjective probabilities. Cases 3 and 4 define the extent to which probabilities must be specified to solve a decision problem.

When selling their products domestically or internationally, firms rely on more than just price as a strategic variable. They also rely on non-price instruments such as advertising and/or R&D investments. Any trade policy that affects or limits the use of one variable will likely have strategic consequences for the use of all the others. Using a Hotelling model with vertical differentiation we focus on how trade policy barriers alter price and non-price competition on the goods market. The main results are as follows: first, no matter whether the trade restriction (tariff) is placed on the non-price instrument or on the good itself, the foreign (domestic) firm prefers to increase (decrease) its use of its pricing tool and give up some of (increase) its use of the non-price instrument. Second, in the presence of a non-price instrument, tariffs do not always lead both firms to increase their price: it can lead the foreign firm to decrease its (final) price.

Regulators for electricity network infrastructure, such as electricity distribution system operations (DSO) face some particular challenges in the Nordic countries. Due to institutional, economic and historical reasons the DSOs in the Nordic area are relatively numerous and heterogeneous in terms of ownership structure, size and operating conditions. Since the deregulation in 1994-1999, the national regulators have independently devised regulation mechanisms that address the heterogeneity through econometric or engineering cost models as a basis for high- powered regimes. The frontier analysis models (such as Data Envelopment Analysis in e.g. Norway and Finland) are particularly useful here, given their incentive properties and cautious estimation of the production set. However, the total information rents in yardstick regimes and the bias in the frontier estimation are related to the number of observations (firms), which undermine their future application in the Nordic area under increasing interregional concentration. This paper develops a proposal for an alternative model, the revenue-yardstick model, that can be ap- plied across the national regulations and permit frontier estimations on final user cost rather than cost estimates, sensitive to e.g. capital cost estimates, periodisation and allocation keys. The core of the model is a dynamic frontier yardstick model such as Agrell, Bogetoft and Tind (2005), but here applied only to strictly exogenous conditions, the output dimensions and the claimed revenues of the DSO. An equilibrium is implemented using asymmetric penalties for positive and negative deviations from the ex post frontier revenue, the yardstick, using the classic superefficiency model in analogy with Shleifer (1985). The model is particularly aimed at an international (interregional) application as it may embed national differences in regulation without jeopardizing the long-term sustainability of the model.

In this paper we propose new methods for solving huge-scale optimization problems. For problems of this size, even the simplest full-dimensional vector operations are very expensive. Hence, we propose to apply an optimization technique based on random partial update of decision variables. For these methods, we prove the global estimates for the rate of convergence. Surprisingly enough, for certain classes of objective functions, our results are better than the standard worst-case bounds for deterministic algorithms. We present constrained and unconstrained versions of the method, and its accelerated variant. Our numerical test confirms a high efficiency of this technique on problems of very big size.

Financial derivatives are important hedging tool for asset’s manager. Electricity is by its very nature the most volatile commodity, which creates big incentive to share the risk among the market participants through financial contracts. But, even if volume of derivatives contracts traded on Power Exchanges has been growing since the beginning of the restructuring of the sector, electricity markets continue to be considerably less liquid than other commodities. This paper tries to quantify the effect of this insufficient liquidity on power exchange, by introducing a pricing equilibrium model for power derivatives where agents can not hedge up to their desired level. Mathematically, the problem is a two stage stochastic Generalized Nash Equilibrium and its solution is not unique. Computing a large panel of solutions, we show how the risk premium and player’s profit are affected by the illiquidity.

Cross-border trade remains a contentious issue in the restructuring of the European electricity market. Difficulties stem from the lack of a common market design, the separation between energy and transmission markets and the insufficient coordination between Transmission System Operators (TSOs). This paper analyzes the cross-border trade problem through a set of models that represent different degrees of coordination both between the energy and transmission markets and among national TSOs. We first present the optimal organisation, not implemented in Europe, where energy and transmission are integrated according to the nodal price paradigm and Power Exchanges (PXs) and TSOs are integrated. This is our reference case. We then move to a more realistic representation of the European electricity market based on the so-called market-coupling design where energy and transmission are operated separately by PXs and TSOs. When considering different degrees of coordination of the national TSOs’ activities, we unexpectedly find that some arrangements are more efficient than the lack of coordination might suggest. Specifically we find that even without a formal coordination of the TSOs’ counter-trading operations, non discriminatory access to common counter-trading resources for all TSOs may lead to a partial implicit coordination of these TSOs. In other words, an internal market of counter-trading resources partially substitutes the lack of integration of the TSOs. While a full access to counter-trading resources is a weaker requirement than the horizontal integration of the TSO, it is still quite demanding. We show that quantitative limitations to the access of these resources decrease the efficiency of counter-trading. The paper supposes price taking agents and hence leaves aside the incentive to game the system induced by zonal systems.

We consider the single item lot-sizing problem with capacities that are non-decreasing over time. When the cost function is (i) non-speculative or Wagner-Whitin (for instance, constant unit production costs and non-negative unit holding costs) and (ii) the production set-up costs are non-increasing over time, it is known that the minimum cost lot-sizing problem is polynomially solvable using dynamic programming. When the capacities are non-decreasing, we derive a compact mixed integer programming reformulation whose linear programming relaxation solves the lot-sizing problem to optimality when the objective function satisfies (i) and (ii). The formulation is based on mixing set relations and reduces to the (known) convex hull of solutions when the capacities are constant over time. We illustrate the use and potential effectiveness of this improved LP formulation on a few test instances, including instances with and without Wagner-Whitin costs, and with both non-decreasing and arbitrary capacities over time.

We propose a jackknife for reducing the order of the bias of maximum likelihood estimates of nonlinear dynamic fixed-effect panel models. In its simplest form, the half-panel jackknife, the estimator is just $2\hat{\theta} - \bar{\theta}_{1/2}$, where $\hat{\theta}$ is the MLE from the full panel and $\bar{\theta}_{1/2}$ is the average of the two half-panel MLEs, each using T/2 time periods and all N cross-sectional units. This estimator eliminates the first-order bias of $\hat{theta}. The order of the bias is further reduced if two partitions of the panel are used, for example, two half-panels and three 1/3-panels, and the corresponding MLEs. On further partitioning the panel, any order of bias reduction can be achieved. The split-panel jackknife estimators are asymptotically normal, centered at the true value, with variance equal to that of the MLE under asymptotics where T is allowed to grow slowly with N. In analogous fashion, the split-panel jackknife reduces the bias of the profile likelihood and the bias of marginal-effect estimates. Simulations in fixed-effect dynamic discrete-choice models with small T show that the split-panel jackknife effectively reduces the bias and mean squared error of the MLE, and yields confidence intervals with much better coverage.

This paper proposes a Benders-like partitioning algorithm to solve the network loading problem. The approach is an iterative method in which the integer programming solver is not used to produce the best integer point in the polyhedral relaxation of the set of feasible capacities. Rather, it selects an integer solution that is closest to the best known integer solution. Contrary to previous approaches, the method does not exploit the original mixed integer programming formulation of the problem. The effort of computing integer solutions is entirely left to a pure integer programming solver while valid inequalities are generated by solving standard nonlinear multicommodity flow problems. The method is compared to alternative approaches proposed in the literature and appears to be efficient for computing good upper bounds.

Most industrial countries have traditionally subsidized the provision of higher education. Alternative financing schemes, which rely on larger contributions from students, are being increasingly adopted. Those based on income-contingent loans provide insurance against uncertain educational outcomes. We consider a unified framework where we analyze the following schemes: 1) the traditional tax-subsidy, 2) pure loans, 3) income-contingent loans with risk-sharing, and 4) income-contingent loans with risk-pooling. We focus on their insurance role and their effect on higher education participation. We show that an income-contingent loan with risk-pooling can induce the optimal level of participation provided that it covers both financial costs of education and forgone earnings.

We study the problem of provision and cost-sharing of a public good in large economies where exclusion, complete or partial, is possible. We search for incentive-constrained efficient allocation rules that display fairness properties. Population monotonicity says that an increase in population should not be detrimental to anyone. Demand monotonicity states that an increase in the demand for the public good (in the sense of a first-order stochastic dominance shift in the distribution of preferences) should not be detrimental to any agent whose preferences remain unchanged. Under suitable domain restrictions, we give an explicit characterization of all incentive-constrained efficient allocation rules. We then show that there exists a unique incentive-constrained efficient and demand-monotonic allocation rule: the so-called serial-rule. In the binary public good case, the serial rule is also the only incentive-constrained efficient and population-monotonic rule.

We study decision criteria under complete ignorance, that is, when there is no available information regarding plausible probability distributions over the possible outcomes. We characterize the set of criteria satisfying quasi-transitivity, Savage's independence, duplication, a strong version of dominance and scale invariance. Only three criteria satisfy these requirements. These criteria are the well-known protective criterion, its dual criterion which we call hazardous, and a neutral criterion which is the composition of both (a decision is strictly preferred according to this criterion to another one if both the protective and the hazardous criteria strictly prefer the former).

A set of agents with possibly different waiting costs have to receive the same service one after the other. Efficiency requires to maximize total welfare. Fairness requires to treat equal agents equally. One must form a queue, set up monetary transfers to compensate agents having to wait, and not a priori arbitrarily exclude agents from positions. As one may not know agents’ waiting costs, they may have no incentive to reveal them. We identify the only rule satisfying Pareto-efficiency, equal treatment of equals in welfare or symmetry, and strategy-proofness. It satisfies stronger axioms, as no-envy and anonymity. Further, its desirability extends to related problems. To obtain these results, we prove that a rule, single-valued or not, satisfies queue-efficiency and strategy-proofness if and only if it always selects efficient queues and sets transfers à la Groves [Groves, T., 1973. Incentives in teams. Econometrica 41, 617–631]. This holds in other problems, provided the domain of quasilinear preferences is rich enough.

In problems involving the simultaneous optimization and transportation, the requirement that an order can only be shipped once its production has been completed is a natural one. One example is a problem of optimizing shipping costs subject to a production capacity constraint studied recently by Stecke and Zhao. Here we present an integer programming formulation for the case in which only completed orders can be shipped that leads to very tight dual bounds and enables one to solve instances of significant size to optimality.

In order to understand patterns of urban commuter flows, insight is required into urban spatial structure (and vice versa). The present contribution first provides a concise overview of the theoretical perspectives from which economists and geographers approach commuting issues. Subsequently, the focus shifts to the classical spatial-economic urban models and how they explain commuter movements. We conduct a number of cluster analyses from which we are able to derive a commuting typology of city region areas. We conclude that distance (which also comprises journey time and proximity of traffic infrastructure), housing characteristics, housing environment, and incoem continue to play key roles in commuting patterns in the metropolitan areas under consideration?

In this paper, we consider the management of the return flows of empty logistic containers that accumulate at the customer’s sites. These containers must be brought back to the factories in order to sustain future expeditions. We consider a network composed of several factories and several customers in which the return flows are independent of the delivery flows. The models and their solutions aim at finding to which factory the contain- ers have to be brought back and at which frequency. These frequencies directly define the volume of logistic containers to hold in the network. We consider fixed transportation costs depending on the locations of the customers and of the factories and linear holding costs for the inventory of logistic containers. The analysis also provides insight on the benefit of pooling the containers among different customers and/or factories.

This paper studies to which extent a firm using a scarce resource input and facing environmental regulation, can still manage to have a sustainable growth of output and profits. The firm has a vintage capital technology with two complementary factors, capital and a resource input subject to quota, the latter being increasingly scarce through an exogenously rising price. The firm can scrap obsolete capital and invest in adoptive and/or innovative R&D resource-saving activities. We show that there exists a threshold level for the growth rate of the resource price above which the firm will collapse. Below this threshold, two important properties are found. In the long-run, a sustainable growth is possible at a growth rate which is independent of the resource price. In the short-run, not only will the firms respond to increasing resource price by increasing R&D on average, but they will also reduce capital expenditures and speed up the scrapping of older capital goods. Finally, we identify optimal intensive Vs extensive transitional growth regimes depending on the history of the firms.

We argue that the economic evaluation of health care (cost-benefit analysis) should respect individual preferences and should incorporate distributional consid- erations. Relying on individual preferences does not imply subjective welfarism. We propose a particular non-welfarist approach, based on the concept of equivalent income, and show how it helps to define distributional weights. We illustrate the feasibility of our approach with empirical results from a pilot survey.

This paper uses data from one of the most important European stock markets and shows that, in line with predictions from theoretical market microstructure, a small number of latent factors captures most of the variation in stock specific order books. We show that these order book commonalities are much stronger than liquidity commonality across stocks. The result that bid and ask side as well as the visible and hidden parts of the order book exhibit quite specific dynamics is interpreted as evidence that open order book markets attract a heterogeneous trader population in terms of asset valuations and impatience. Quantifying the informational content of the extracted factors with respect to the evolution of the asset price, we find that the factor information shares are highest (about 10%) for less frequently traded stocks. We also show that the informational content of hidden orders is limited.

In this paper, we solve the capacitated multi item lot-sizing problem with non-customer specific production time windows and setup times using two approaches: (i) using a Lagrangian relaxation-based heuristic and (ii) using reformulations and a commercial software. The results of the two approaches are analyzed and compared based on randomly generated data sets. The results show that the first approach finds feasible solution more rapidly but a steady state is reached very quickly. On the other hand, the second approach quickly finds good lower bounds and finds good feasible solutions if more CPU time is allowed. It turns out that, for a wide variety of instances varying in size and other parameters, we can obtain feasible solutions with 1-5% of optimal within 10s and also obtain solutions that are guaranteed withing 1-2% of optimal within 60-120s

In this paper, I pursue two objectives. First, I propose a primer in economic geography relying on a simple model that can be solved analytically by undergraduate students. Second, I briefly discuss two topics that, in my opinion, should rank high on the research agenda.

In this paper, we provide a characterization of interim inefficiency in stochastic economies of overlapping generations. With respect to the established body of results in the literature, we allow for sequentially incomplete markets and we remove the hypothesis of two-period horizons, by considering longer, though uniformly bounded, horizons for generations. The characterization exploits a suitably Modified Class Criterion, based entirely on observable prices and independent of the length of the horizons of generations. For sequentially incomplete markets, we introduce a notion of unambiguous inefficiency, separating the inefficient intertemporal allocation of resources from incomplete risk-sharing. Unambiguous inefficiency reduces to inefficiency when markets are sequentially complete. Furthermore, our analysis shows that the hypothesis of two-period horizons is purely heuristic in establishing a criterion for inefficiency.

Commodities communicate. Consumers choose a consumption bundle both for its intrinsic characteristics and for what this bundle communicates about their qualities (or 'identity') to spectators. We investigate optimal indirect taxation when consumption choices are motivated by two sorts of concerns: intrinsic consumption and costly signaling. Optimal indirect taxes are introduced into a monotonic signaling game with a finite typespace of consumers. We provide sufficient conditions for the uniqueness of the D1 sequential equilibrium in terms of strategies. In the case of pure costly signaling, signaling goods can in equilibrium be taxed without burden and the optimal quantity taxes on these goods are infinite. When commodities serve both intrinsic consumption and signaling, optimal taxes can be characterized by a generalization of the Ramsey rule, which also deals with the distortions resulting from signaling.

We analyze the relationship between firm-level innovation activities and firms' propensity to start exporting for firms in a small open economy. We measure innovation by innovative effort (R&D) as well as by innovative output (product and process innovation). After carefully correcting for endogeneity and selection issues, the evidence points to firms self-selecting into innovation in anticipation of their entry into export markets, rather than product and process innovation triggering entry into the export market. These results suggest that governments can foster firm-level innovation through trade liberalization.

In this paper, we empirically analyze the evolution of firms’ productivity and how the efficiency changes with variations in the inputs’ origin. Using firm-level information on a sample of Irish firms, we assess the importance of the imported inputs’ quota for a firm’s efficiency, as well as starting import activity. The main findings are that an increase in the intensive margin of imports raises firms’ efficiency of domestic firms; in addition heterogeneous effects across firms are detected. Unlike the findings of most of the literature, there is weak evidence of self-selection in import activity; differently from previous research when we introduce fixed effects, the self-selection disappears. Instead, the few observed firms that start importing raise their productivity compared to non-importing firms; learning by importing is suspected. The results suggest an important policy implication: policies that favor the imports of intermediates enhance the productivity of domestic firms, making them more competitive in the international markets.

We consider a two-country model of wage determination with private information in unionized, imperfectly competitive, industries. We investigate the effects of opening up markets to trade as well as of further market integration on the negotiated wage and the maximum delay in reaching an agreement. From an initial situation of two-way intra-industry trade, an increase in product market integration decreases the maximum delay in reaching an agreement. However, opening up markets to trade has an ambiguous effect on both the wage outcome and the maximum real delay time.

The paper examines the agency cost of winner-picking in multidivision firms and uses explicit incentive contracts to analyze the interactions between corporate headquarters' investment and incentive policies. Winner-picking, i.e. the efficient reallocation of scarce resources in an internal capital market, adds an extra layer of noise to the moral-hazard problem of incentivizing division managers to produce the resources that can then be redistributed. In particular, division managers with strong future investment opportunities anticipate that headquarters will bail them out should they fail to produce enough resources themselves. This reduces incentives to create the resources in the first place, with possible consequences for the optimal investment policy.

We study information revelation in markets with pairwise meetings. First, we reconsider the one-sided case within constant entry flow model. The same question has been studied in an identical framework in Serrano and Yosha (1993). We prove that there exists an additional equilibrium not detected by Serrano and Yosha (1993). We show that this equilibrium is characterized by incomplete information revelation. Until now, no equilibrium with incomplete revelation of information was known in this model. Our second main result is that, at this new equilibrium, information revelation is worse when frictions are weaker. One prove also that increasing the frictions is a Pareto improvement. Finally, we show that those properties should also characterize some equilibria of the two-sided case studied by Wolinsky (1990).

In this paper we develop a vintage capital model for a firm involved in a market for tradable emission permits. We analyze both the firm’s optimal investment plans and the market equilibrium. This allows us to scrutinize how firms use permits free endowment, and to highlight the implications of non-optimal uses both at the firm and at the market level. We provide a new rationale for the market of tradable permits not to be cost-efficient. The novel technical points in this context are the use a distributed (vintage) optimal control model of the firm, the use of optimality conditions for non-smooth problems, and the involvement of a nonlinear Fredholm integral equation of the first kind for the description of the equilibrium price of permits, and its practical meaning for market regularization.

This study is motivated by the evidence of global warming, which is caused by human activity but affects the efficiency of the economy. We employ the integrated assessment Nordhaus DICE-2007 model [16]. Generally speaking, the framework is that of dynamic optimization of the discounted inter-temporal utility of consumption, taking into account the economic and the environmental dynamics. The main novelty is that several reasonable types of behavior (policy) of the economic agents, which may be non-optimal from the point of view of the global performance but are reasonable form an individual point of view and exist in reality, are strictly defined and analyzed. These include the concepts of “business as usual”, in which an economic agent ignores her impact on the climate change (although adapting to it), and of “free riding with a perfect foresight”, where some economic agents optimize in an adaptive way their individual performance expecting that the others would perform in a collectively optimal way. These policies are defined in a formal and unified way modifying ideas from the so-called “model predictive control”. The introduced concepts are relevant to many other problems of dynamic optimization, especially in the context of resource economics. However, the numerical analysis in this paper is devoted to the evolution of the world economy and the average temperature in the next 150 years, depending on different scenarios for the behavior of the economic agents. In particular, the results show that the “business as usual”, although adaptive to the change of the atmospheric temperature, may lead within 150 years to increase of temperature by 2°C more than the collectively optimal policy.