Economic Efficiency Requires Interaction

We study the necessity of interaction between individuals for obtaining approximately efficient allocations. The role of interaction in markets has received significant attention in economic thinking, e.g. in Hayek's 1945 classic paper. We consider this problem in the framework of simultaneous communication complexity. We analyze the amount of simultaneous communication required for achieving an approximately efficient allocation. In particular, we consider two settings: combinatorial auctions with unit demand bidders (bipartite matching) and combinatorial auctions with subadditive bidders. For both settings we first show that non-interactive systems have enormous communication costs relative to interactive ones. On the other hand, we show that limited interaction enables us to find approximately efficient allocations

A Market-based Approach to Multi-factory Scheduling

In this paper, we report on the design of a novel market-based approach for decentralised scheduling across multiple factories. Specifically, because of the limitations of scheduling in a centralised manner -- which requires a center to have complete and perfect information for optimality and the truthful revelation of potentially commercially private preferences to that center -- we advocate an informationally decentralised approach that is both agile and dynamic. In particular, this work adopts a market-based approach for decentralised scheduling by considering the different stakeholders representing different factories as self-interested, profit-motivated economic agents that trade resources for the scheduling of jobs. The overall schedule of these jobs is then an emergent behaviour of the strategic interaction of these trading agents bidding for resources in a market based on limited information and their own preferences. Using a simple (zero-intelligence) bidding strategy, we empirically demonstrate that our market-based approach achieves a lower bound efficiency of 84%. This represents a trade-off between a reasonable level of efficiency (compared to a centralised approach) and the desirable benefits of a decentralised solution

Optimal Taxation of Married Couples with Household Production

The literature suggests that the concern for economic efficiency calls for individual-based taxation of married couples with a higher rate on the primary earner. This paper reconsiders the choice of tax unit in the Becker model of household production. Our aim is to study the robustness of previous results to the modelling of time allocation. In addition, we analyze the interaction between the optimal income tax for couples and the chosen commodity tax structure. In the absence of restrictions on the use of commodity taxes, efficient taxation requires joint taxation of the family. In the presence of restricted commodity taxation, the income tax should compensate for the erroneous commodity taxes. In this case, individual taxation is typically optimal, but not necessarily with a higher rate on primary earners as usually suggested.

No time for reason: Deliberation, status, and democracy in the modern society.

Economic use of time (efficiency) and democracy are common features in many modern western societies. However, a strong egalitarian democracy requires equal participation in the social construction of meaning, reason and ultimately knowledge. That is, the intersubjectivity that is formed through communication and social interaction is the base of a democratic society. The pursuit of efficiency and status often stand in opposition to broad social interaction and human communication and therefore our ability to build common understanding and reason. That is, the temporal anxiety (the need for constant quantifiable gratification), that is strongly connected to the modern notion of individualism, negatively affects the creation of social bonds. The modern western society is therefore characterized by a quantifiable mass of disconnected individuals rather that a connected group of citizens

Efficiency wage theory, labormarkets, and adjustment

Conventional labor theory argues that wages are determined by the interaction of labor supply and demand. Policy analysis on wage rigidity has emphasized distortions arising from exogenous intervention. One emphasis in adjustment lending has been deregulation of labor markets. Efficiency wage models of unemployment try to explain persistent real wage rigidities when unemployment persists. Their central assumption is that higher real wages can improve labor productivity. A major implication of these theories is that wages (and hence labor markets) may be unresponsive to typical macroeconomic policies that seek to lower real wages, change resource allocation, and reduce open unemployment. The three central macroeconomic implications of efficiency wage theory are : 1) there is an equilibrium"natural"level of open unemployment, which differs among groups in the labor force and cannot be affected by demand management policies; 2) when reducing the level of production, the typical firm will resort to laying off labor instead of reducing wages, thereby introducing a significant wage inertia and an overshooting of open unemployment; and 3) wages do not respond to clear the labor market and are not responsive to macroeconomic policies and microeconomic deregulation. The authors conclude that applying the theory in developing countries requires suitably defining labor costs and tackling the problem of segmentation of the labor market.Environmental Economics&Policies,Economic Theory&Research,Banks&Banking Reform,Municipal Financial Management,Youth and Governance

Public spending and economic growth: The role of institutions in Ivory Coast

Several studies have analysed the effects of public spending, institutions and interaction between public spending and institutions on economic activity. This existing literature has ignored the effect of institutional shocks on the relationship between public spending and economic growth. To fill this gap, the current study aims to estimate the effects of public spending, institutional factors and institutional shocks on GDP per capita in Ivory Coast. It uses annual data that covers the period 1984-2019. We exploit the principal component analysis technique to construct an institutional composite index. We then estimate two Nonlinear AutoRegressive Distributed Lag models with interaction variables such as institutional index and public spending, corruption and public spending. The empirical results reveal symmetric effects of long-run institutional and corruption shocks on GDP per capita. In contrast, the effects of institutions are asymmetric in the short term. Negative institutional shocks worsen GDP per capita in the short term, as do positive corruption shocks in the long term. Similarly, public spending promotes economic growth, but neither institutions nor corruption significantly accentuate its effects. These results imply that improving the efficiency of public spending requires a prior improvement in the institutional framework and, above all, in the fight against corruption

Efficiency and profitability: a panel data analysis of UK manufacturing firms, 1993-2007

This paper examines the impact of efficiency on profitability using a panel of 11728 UK manufacturing firms for the period 1993-2007. A key contribution is estimation of the relationship between firm efficiency and profitability in a new way. Part of this novelty involves direct estimation of firm efficiency using a stochastic frontier method rather than inferences being made about the impact of efficiency based on anticipated firm and market behaviour. Two key aspects of the discussion are (1) the shape of the relationship between efficiency and profitability and (2) the way in which this changes in the short and long runs. A simple theoretical model is developed that predicts a 4th order polynomial for efficiency on the right hand side of a profit equation in levels. This model also predicts short-run and long-run impacts that can involve a switching in the sign of the impact of efficiency. Estimation of this model suggests a threshold effect of efficiency on profitability. Below the threshold efficiency has effectively no effect on profitability, but above the threshold the impact is positive in the short-run but negative in the long-run. This switching is consistent with theoretical expectations

Determining Utility System Value of Demand Flexibility From Grid-interactive Efficient Buildings

This report focuses on ways current methods and practices that establish the value to electric utility systems of distributed energy resource (DER) investments can be enhanced to determine the value of demand flexibility in grid-interactive efficient buildings that can provide grid services. The report introduces key valuation concepts that are applicable to demand flexibility that these buildings can provide and links to other documents that describe these concepts and their implementation in more detail.The scope of this report is limited to the valuation of economic benefits to the utility system. These are the foundational values on which other benefits (and costs) can be built. Establishing the economic value to the grid of demand flexibility provides the information needed to design programs, market rules, and rates that align the economic interest of utility customers with building owners and occupants. By nature, DERs directly impact customers and provide societal benefits external to the utility system. Jurisdictions can use utility system benefits and costs as the foundation of their economic analysis but align their primary cost-effectiveness metric with all applicable policy objectives, which may include customer and societal (non-utility system) impacts.This report suggests enhancements to current methods and practices that state and local policymakers, public utility commissions, state energy offices, utilities, state utility consumer representatives, and other stakeholders might support. These enhancements can improve the consistency and robustness of economic valuation of demand flexibility for grid services. The report concludes with a discussion of considerations for prioritizing implementation of these improvements

A needs theory of governance

New-institutional economics hypothesizes imperfect rationality, self-seeking preferences, monetary-related needs, and opportunism as fundamental features of human behavior. Consistently, new-institutionalist models of governance highlight the efficiency and transaction costs minimizing features of control rights and governance. Differently, needs theory of governance, as here presented, hypothesizes imperfect rationality, multiple needs, and reciprocity, in which case opportunism is reduced to an exception to individual behavior. Consistently, it presents a theory that links production governance with the wellbeing of those partaking in production. Building on Maslow’s human psychology, the governance model suggested in this paper is aimed at evidencing the self-actualization potential of control rights, organizational structures and practices. The application of Maslow’s theory to the institutional structure of organizations suggests that the deepest organizational layers (control rights and governance) broadly correspond to the most basic needs in Maslow’s theory (survival, security and belonging), while the outer layers (managerial models and employment relations) correspond to the fulfillment of the highest needs (self-esteem and self-actualization). Cooperative firms are used as an illustration of governance solutions consistent with needs theory in human psychology