Export promotion, exchange rates and commodity prices

The collapse of primary commodity prices in the 1980s has been prolonged and has severely affected many developing countries. While low commodity prices can be partly explained by sluggish demand due to slow growth in the industrialised countries, high interest rates and technological change, this does not seem a complete explanation. This paper examines the evidence in favour of the hypothesis that supply factors have partly been responsible. Many developing countries have faced severe balance of payments difficulties, in part due to the debt crisis, and have resorted to real exchange rate devaluations in order to boost export earnings. Such devaluations may have boosted export supplies, or prevented downward adjustments in capacity, and therefore put pressure on commodity prices. It also considers the policy implications of this externality, whereby attempts to boost export earnings in one primary producing country adversely affect the prices received by others

Commitment and Observability in an Economic Environment

Bagwell (1995) argues that commitment in undermined by the slightest imperfectness in observation. Guth, Ritzberger & Kirchsteiger (1998) question this assertion: for any finite leader-follower game, with arbitrary many players in each role and generic payoffs, they show that there always exists a subgame perfect equilibrium outcome that is accessible, i.e. it can be approximated by the outcome of a mixed equilibrium of the game with imperfect observation. We show that accessibility fails in a class of games played in economic environments, where the payoffs to commitment actions depend upon prices set by other agents, prices being chosen from a continuum. Accessibility requires either that commitment is not required or that the price setting agents have no monopoly power. Our result follows from a generalized indifference principle which mixed strategies must satisfy in such economic environments.

Games Played in a Contracting Environment

We analyze situations where a player must contract with the monopoly supplier of an essential input in order to play an action in a strategic form game. Supplier monopoly power does not distort the equilibrium distribution over player actions under private contracting, but may dramatically affect the equilibrium actions under public contracting. When \ a player randomizes between actions, suppliers for the different actions behave as though they are producing perfect substitutes when contracts are private; when contracts are public, it is as though they are producing perfect complements.

On te generic stability of mixed strategies in asymmetric contests

Although a mixed strategy can never be evolutionarily stable in a truly asymmetric contest, examples show that mixed strategies can satisfy the weaker criterion on neutral stability. This paper shows that such examples are rare, and, generically, a mixed strategy is unstable. We apply the result to the battle of sexes between males and females over the raising of offspring.Game Theory;game theory

Oligopsony and the Distribution of Wages

A number of theories (search and efficiency wages) have been developed, in part, to explain why identically able workers are often paid different wages. However, when there is a minimum wage, they do not explain the resulting ``spike" in the wage distribution. Our model's predictions are consistent with this evidence. We assume that workers are equally able but have heterogeneous preferences for non-wage characteristics, while employers have heterogeneous productivity characteristics. This results in a model of labor market oligopsony where ``inside'' and ``outside'' forces interact, producing wage dispersion as well as a spike at the minimum wage.wage differentials, wage dispersion, monopsony, oligopsony, labor theory, minimum wage

Asymmetric Price Adjustment: Micro-foundations and Macroeconomic Implications

We present a simple menu cost model which explains the finding that firms are more likely to adjust prices upward than downward. Asymmetric adjustment to shocks arises naturally, even without trend inflation, from the desire of firms to keep industry prices as high as is sustainable and the non-convexity due to menu costs. It implies that aggregate demand shocks have asymmetric effects - negative shocks are reduce output, whereas positive shocks are inflationary. We examine the implications of asymmetric adjustment for equilibrium output and the optimal inflation rate.

Relative Performance Evaluation and Limited Liability

We analyze the role of relative performance evaluation when a principal has several agents, who face correlated shocks. If limited liability constraints are binding, relative performance evaluation may be of no value if the principal is restricted to symmetric contracts. However, with asymmetric contracts, where agents are induced to choose different effort levels, relative performance measures can be used in order to reduce informational rents. Relative performance evaluation is a way of reducing the rents of the high effort agent, who will in general be worse off than the low effort agent.

Minimum Wages in a Symmetric Model of Monopsonistic Competition

We reconsider the employment effect of a minimum wage on employment in a symmetric model of monopsonistic competition, where each employer competes equally with every other employer. The employment effect depends on the degree of distortion in the labor market. If fixed costs are high (low), the labor market is relatively non-competitive (competitive) and minimum wages increase (decrease) employment. This contrasts with the results of a Salop style model where a minimum wage unambiguously raises employment. We also find that the welfare effect of a small minimum wage is unambiguously positive.