PRODUCTION SUBSIDY AS A MACROECONOMIC POLICY IN A STAGNATION ECONOMY

2008 ◽  
Vol 53 (02) ◽  
pp. 317-333 ◽  
Author(s):  
WATARU JOHDO
Keyword(s):  
Steady State ◽  
Utility Function ◽  
Monopolistic Competition ◽  
Full Employment ◽  
Macroeconomic Policy ◽  
Elasticity Of Substitution ◽  
Nominal Wage ◽  
Differentiated Products ◽  
Effective Demand ◽  
Number Of Firms

This paper analyzes the effects of a changing production subsidy in a model with money-in-the-utility function for households, monopolistic competition amongst an endogenously-determined number of firms, and nominal wage sluggishness that can prevent the equilibrium from attaining full employment. Its conclusion is that in a steady state with less than full employment (that is, under stagnation), a larger production subsidy will promote entry and stimulate effective demand provided that the elasticity of substitution among the differentiated products is sufficiently high. This paper is motivated by recent Japanese experiences.

A Note on the Existence of the Competitive Equilibrium in Grossman and Shapiro (1984)

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Anthony Creane
Keyword(s):  
Monopolistic Competition ◽  
Competitive Equilibrium ◽  
Differentiated Products ◽  
Informative Advertising ◽  
Seminal Paper ◽  
Economic Studies ◽  
Number Of Firms

Abstract In their seminal paper, Grossman, G. M., and C. Shapiro. 1984. “Informative Advertising with Differentiated Products.” The Review of Economic Studies 51: 63–81 assume that it is not profitable for a firm to deviate to the supercompetitive price of Salop, S. C. 1979. “Monopolistic Competition with outside Goods.” The Bell Journal of Economics 10: 141–56. In this note, it is shown that this assumption is violated if, roughly, each firm reaches less than half of all consumers unless it is a duopoly. This implies that most of the simulations in Grossman, G. M., and C. Shapiro. 1984. “Informative Advertising with Differentiated Products.” The Review of Economic Studies 51: 63–81 are not actually equilibria. More importantly, this implies that for their equilibrium to exist nearly all consumers must receive at least one ad. For example, with just four firms in the market, at least 96% of the consumers must receive at least one ad, and this percentage increases with the number of firms in the market.

scholarly journals Quality Matters: Monopolistic Competition with Heterogeneous Consumers

2019 ◽  
pp. 152-175
Keyword(s):  
Product Quality ◽  
Monopolistic Competition ◽  
Incentive Compatibility ◽  
Industrial Sector ◽  
Differentiated Products ◽  
Optimal Price ◽  
Demand Functions ◽  
Optimum Price ◽  
Heterogeneous Consumers ◽  
Love Of Variety

The paper builds a two-sector monopolistic competition model featuring multi-product firms and heterogeneous consumers endowed with a Cobb–Douglas utility nesting a generalized CES function. In contrast to the standard CES, the generalized CES function includes both the love of variety and the love for product quality, which makes it possible to distinguish consumers differing in their product quality perception. The industrial sector encompasses firms producing differentiated products of varied quality, targeting a certain type of consumer. In such a case, firms set the price and quality for a particular product so as to maximize their profits, while consumers find the optimum price-quality combination, which may be different for groups of consumers having different preferences. The model allows one to derive the demand functions of heterogeneous consumers for goods of different quality and makes it possible to analyze different strategies of firms in their choice of the optimal price-quality ratio for their products. It also allows the formulation of conditions for screening in the case of incomplete information about the type of consumers. The main difference between the equations for screening in the model of monopolistic competition and the standard screening models in theory of contracts lies in the absence of individual rationality restrictions in the monopolistically competitive setting, where only the incentive compatibility is taken into account for both groups of consumers. As a result, in the absence of additional restrictions on the part of the regulatory authorities, the screening procedure in the monopolistic competition setting leads to a decrease in welfare for less affluent consumers.

scholarly journals Involuntary Unemployment in a Neoclassical Model

2020 ◽  
Vol 65 (2) ◽  
pp. 12-28
Author(s):  
Yasuhito Tanaka
Keyword(s):  
Wage Rate ◽  
Utility Maximization ◽  
Overlapping Generations ◽  
Monopolistic Competition ◽  
Returns To Scale ◽  
Profit Maximization ◽  
Nominal Wage ◽  
Olg Model ◽  
Neoclassical Model ◽  
Involuntary Unemployment

AbstractWe show the existence of involuntary unemployment without assuming wage rigidity using a neoclassical model of consumption and production. We consider a case of indivisible labor supply and increasing returns to scale under monopolistic competition. We derive involuntary unemployment by considering utility maximization of consumers and profit maximization of firms in an overlapping generations (OLG) model with two or three generations. In a two-periods OLG model it is possible that a reduction of the nominal wage rate reduces unemployment. However, if we consider a three-periods OLG model including a childhood period, a reduction of the nominal wage rate does not necessarily reduce unemployment.

Labour in the Technocratic Frame: Macroeconomic Policy and Wages in 1950s Australia

2021 ◽  
Vol 121 (1) ◽  
pp. 129-154
Author(s):  
Michael Beggs
Keyword(s):  
Twentieth Century ◽  
Labour Market ◽  
Full Employment ◽  
Macroeconomic Policy ◽  
Economic Power ◽  
Wage Setting ◽  
Employment Conditions ◽  
Setting Process ◽  
The 1950S

Though the labour market has always been central to macroeconomics, policy has usually had no instrument for intervening directly in the wage-setting process. But in the mid-twentieth century, economists commonly believed that there should be such an instrument. In 1950s Australia, it seemed that the arbitration system could potentially be used as such. This article uses Trevor Swan’s contemporary model of Australian policy in the 1950s to understand the tensions facing policy and explain why wage control seemed to be a solution. The arbitration judges began to consider macroeconomics in their decisions, and the unions adapted by presenting macroeconomic arguments of their own. In full employment conditions, labour had considerable economic power outside the tribunal, and the limitations of arbitration as an instrument of policy raised the shadow of unemployment as an alternative disciplining device.

Concluding remarks

2019 ◽  
pp. 180-186
Author(s):  
Kazimierz Łaski
Keyword(s):  
Economic Theory ◽  
Great Depression ◽  
Full Employment ◽  
Supply Side ◽  
Financial Instability ◽  
Effective Demand ◽  
Quantity Theory ◽  
Fiscal Austerity ◽  
Supply Side Factors ◽  
Advanced Capitalist

Since 2008 the most advanced capitalist countries have suffered financial instability and mass unemployment, often likened to the catastrophic Great Depression of the 1930s. Which economic theory can better explain the root causes of the crisis, the practical moves that can be designed and implemented by governments to contain the crisis and better guidance to prevent such crises in the future? The theory advanced by Kalecki and Keynes, emphasizing effective demand in the economy, or the mainstream theory that rests on supply-side factors in output and employment, fiscal austerity, and a quantity theory of money approach to prices? The latter theory has brought the misery of unemployment and instability. Full employment depends upon a return to the theory of Kalecki and Keynes.

Public Good Provision Financed by Nonlinear Income Tax Under Reduction of Envy

2019 ◽  
Vol 19 (4) ◽  
Author(s):  
Takuya Obara ◽  
Shuichi Tsugawa
Keyword(s):  
Utility Function ◽  
Public Good ◽  
Income Tax ◽  
Optimal Taxation ◽  
Optimal Level ◽  
Elasticity Of Substitution ◽  
Public Good Provision ◽  
Constant Elasticity ◽  
Constant Elasticity Of Substitution ◽  
Good Provision

Abstract We examine optimal taxation and public good provision by a government that considers reduction of envy as a constraint. We adopt the extended envy-freeness proposed by Diamantaras and Thomson (1990. “A Refinement and Extension of the No-Envy Concept.” Economics Letters 33: 217–22), called λ-equitability. We derive the modified Samuelson rule under an optimal nonlinear income tax and show, using a constant elasticity of substitution utility function, that the direction of distorting the original Samuelson rule to relax the λ envy-free constraint is crucially determined by the elasticity of substitution. Furthermore, we numerically show that the optimal level of provision increases (decreases) in the degree of envy-freeness when the original Samuelson rule is upwardly (downwardly) distorted.

AN ITERATIVE PROCEDURE FOR OPTIMAL POLLUTION CONTROL UNDER INCOMPLETE INFORMATION

2008 ◽  
Vol 10 (03) ◽  
pp. 279-302 ◽  
Author(s):  
NICOLAS QUEROU
Keyword(s):  
Steady State ◽  
Pollution Control ◽  
Iterative Procedure ◽  
Tax Rates ◽  
Full Information ◽  
Nash Implementation ◽  
Tax Rate ◽  
Long Run ◽  
Regulation Model ◽  
Number Of Firms

We consider a repeated regulation model in an oligopoly under asymmetric information with pollution. An iterative procedure is proposed where the regulator designs stationary taxes, and firms are not required to be perfectly rational. They can form and update simple beliefs about their competitors' aggregate output at each period. Two versions of the mechanism are provided depending on whether firms behave adaptively or with perfect foresight. Conditions under which the procedure converges to a unique steady state are provided. It is proved that there exists a suitable stationary tax policy that enables the firms to adjust to socially optimal choices in the long run. The tax rates of both versions are typically strictly less than the ones that result from a full information, Nash implementation. Moreover, in the myopic case, the tax rate decreases as the number of firms increases. We discuss problems relating to the potential implementation of the procedure.

Monetary and Non-Monetary Inflation Factors

2019 ◽  
Vol 7 (4) ◽  
pp. 9-14
Author(s):  
Ольга Николайчук ◽  
Olga Nikolaychuk ◽  
Э. Зайцева ◽  
E. Zayceva
Keyword(s):  
Financial Stability ◽  
Scientific Research ◽  
Wage Growth ◽  
Macroeconomic Policy ◽  
Nominal Wage ◽  
Graphic Method ◽  
Theoretical Conclusion ◽  
Previous Issue ◽  
Analysis And Synthesis ◽  
The Relationship

In continuation of our scientific research, published in the previous issue of the journal, this article was written. In the process of research, the methods of analysis and synthesis, the graphic method were used. The results of this study prove the general theoretical conclusion about the relationship between nominal wage growth and inflation. Achieving financial stability is possible with a decrease in the rate of inflation. Based on the analysis of the scientific periodic and monographic literature, the calculations we have cited, the article concluded that the reasons for inflation in Russia are mostly non-monetary. But when choosing a macroeconomic policy, it is necessary to base on the coordination of influence on both monetary and non-monetary factors of inflation.

FACTOR SUBSTITUTION AND ECONOMIC GROWTH: A UNIFIED APPROACH

2012 ◽  
Vol 16 (4) ◽  
pp. 625-656 ◽  
Author(s):  
Jianpo Xue ◽  
Chong K. Yip
Keyword(s):  
Economic Growth ◽  
Steady State ◽  
Growth Models ◽  
Elasticity Of Substitution ◽  
Unified Approach ◽  
Factor Income ◽  
Factor Substitution ◽  
State Income ◽  
Per Capita ◽  
Relative Scarcity

This paper provides a unified approach to characterizing the relation between factor substitution and economic growth in different one-sector growth models (namely, the Solow, Ramsey, and Diamond models). Our main finding is that if better factor substitution raises savings in the steady state, then a higher per capita income results. There are two channels by which factor substitution affects savings: the positive efficiency effect via income and the ambiguous distribution effect via factor income shares. If the efficiency effect dominates, then a higher elasticity of substitution leads to a higher level of per capita steady-state income. In transition, factor substitution affects the rate of convergence both directly and through the equilibrium profit share. The former arises from diminishing marginal productivity of capital whereas the latter reflects its relative scarcity. Depending on the interaction of these effects, the net outcomes are characterized.

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