Handling Defeasibilities in Action Domains

Representing defeasibility is an important issue in common sense reasoning. In reasoning about action and change, this issue becomes more difficult because domain and action related defeasible information may conflict with general inertia rules. Furthermore, different types of defeasible information may also interfere with each other during the reasoning. In this paper, we develop a prioritized logic programming approach to handle defeasibilities in reasoning about action. In particular, we propose three action languages {\cal AT}^{0}, {\cal AT}^{1} and {\cal AT}^{2} which handle three types of defeasibilities in action domains named defeasible constraints, defeasible observations and actions with defeasible and abnormal effects respectively. Each language with a higher superscript can be viewed as an extension of the language with a lower superscript. These action languages inherit the simple syntax of {\cal A} language but their semantics is developed in terms of transition systems where transition functions are defined based on prioritized logic programs. By illustrating various examples, we show that our approach eventually provides a powerful mechanism to handle various defeasibilities in temporal prediction and postdiction. We also investigate semantic properties of these three action languages and characterize classes of action domains that present more desirable solutions in reasoning about action within the underlying action languages.Comment: 49 pages, 1 figure, to be appeared in journal Theory and Practice Logic Programmin

Endogenous income taxes and indeterminacy in dynamic models: When Diamond meets Ramsey again.

This paper introduces fiscal increasing returns, through endogenous labor income tax rates as in Schmitt-Grohe and Uribe (1997), into the overlapping generations model with endogenous labor, consumption in both periods of life and homothetic preferences (e.g., Lloyd-Braga, Nourry and Venditti, 2007). We show that under numerical calibrations of the parameters, local indeterminacy can occur for distortionary tax rates that are empirically plausible for the U.S. economy, provided that the elasticity of capital-labor substitution and the wage elasticity of the labor supply are large enough, and the elasticity of intertemporal substitution in consumption is slightly greater than unity. These indeterminacy conditions are similar to those obtained within infinite horizon models and from this point of view, Diamond meets Ramsey again.Indeterminacy; Endogenous labor income tax rate.

Are Progressive Income Taxes Stabilizing? : A Reply

Dromel and Pintus [Are Progressive Income Taxes Stabilizing?, Journal of Public Economic Theory 10, (2008) 329-349] have shown that labor-income tax progressivity reduces the likelihood of local indeterminacy, sunspots and cycles in a one sector monetary economy with constant returns to scale. In this note, we extend Dromel and Pintus (2008) into a two sector monetary economy with constant returns to scale studied by Bosi et al. (2007) and reassess the stabilizing effect of progressive income taxes. We show that the result in Dromel and Pintus (2008) is robust to this extension, which means that changes of the production structure won't affect the stabilizing effect of progressive income taxes, i.e., tax progressivity (regressivity) reduces (increases) the likelihood of local indeterminacy, sunspots and cycles.Tax Progressivity, local indeterminacy

Tariff and Equilibrium Indeterminacy

We study the effect of tariffs in a one-sector small open economy that imports oil. We find that (1) the model may exhibit local indeterminacy and sunspots when tariff rates are endogenously determined by a balanced-budget rule with a constant level of government expenditures (or lump-sum tansfers); and (2) indeterminacy disappears if the government finances endogenous public spending and transfers with fixed tariff rates. Under the first type of balanced budget formulation, we provide numerical (calibration) examples to illustate that the government shouldn't distort the oil price paid by firms with tariffs in order to avoid aggregate instability. Under the second type of balanced budget formulation, we prove that the economy exhibits equilibrium uniqueness, regardless of the existence of lump-sum transfers.Indeterminacy, Endogenous Tariff Rate, Small Open Economy, Balanced-budget Rule

Tariff and Equilibrium Indeterminacy--(II)

We establish conditions under which indeterminacy can occur in a small open economy oil-in the production RBC model with lump sum tariff revenue transfers. The indeterminacy would require that the steady state tariff rates be in an open interval. This means that as long as the government revenues are exogenous, our indeterminacy result will be robust to the usage of the government revenue.Indeterminacy; Endogenous Tariff Rate; Small Open Economy; Lump Sum Transfers

Does the utility function form matter for indeterminacy in a two sector small open economy?

In his paper "Does utility curvature matter for indeterminacy", Kim (2005) analyzed the relationship among the utility function form, curvature and indeterminacy, concluding that the relationship between curvature and indeterminacy is not robust in neoclassical growth model and the indeterminacy may disappear under the utility specification as in Greenwood et.al (1998). The models he discussed are confined within one sector closed economy. Weder (2001), Meng and Velasco (2004) extend the Benhabib and Farmer (1996) and Benhabib and Nishimura (1998)'s closed economy two sector models into open economy, showing that indeterminacy can occur under small external effects, independently of the intertemporal elasticities in consumption. Meng and Velasco (2003) went further, showing the independence between the elasticity of labor supply and indeterminacy in open economy. Under nonseparable utility forms like in King, Plosser and Rebelo (1988, henceforth KPR) or Bennett-Farmer (2000) form, do we still have this property? In other words, is the independence between curvature and indeterminacy in small open economy models robust to the specification of the utility functions? In this note, I tackle this issue under two different versions of nonseparable utility functions commonly used in the literature. The answer is "yes" to KPR form but "no" to Bennett-Farmer form. Endogenous time preference and consumable nontradable goods are two elements to deliver this result.Indeterminacy, Endogenous time preference