Noisy Business Cycles

This paper investigates a real-business-cycle economy that features dispersed information about the underlying aggregate productivity shocks, taste shocks, and—potentially—shocks to monopoly power. We show how the dispersion of information can (i) contribute to significant inertia in the response of macroeconomic outcomes to such shocks; (ii) induce a negative shortrun response of employment to productivity shocks; (iii) imply that productivity shocks explain only a small fraction of high-frequency fluctuations; (iv) contribute to significant noise in the business cycle; (v) formalize a certain type of demand shocks within an RBC economy; and (vi) generate cyclical variation in observed Solow residuals and labor wedges. Importantly, none of these properties requires significant uncertainty about the underlying fundamentals: they rest on the heterogeneity of information and the strength of trade linkages in the economy, not the level of uncertainty. Finally, none of these properties are symptoms of inefficiency: apart from undoing monopoly distortions or providing the agents with more information, no policy intervention can improve upon the equilibrium allocations

"Frictions in financial and labor markets": a summary of the 35th Annual Economic Policy Conference

This article contains synopses of the papers presented at the 35th Annual Economic Policy Conference of the Federal Reserve Bank of St. Louis held October 21-22, 2010. The conference theme was “Frictions in Financial and Labor Markets.” Leading participants in this field presented their research and commentary.Labor market ; Financial markets

The Economics of Agricultural Development: What Have We Learned? Processes

Agricultural development thinking has gone through several stages of fad and fancy, often without an understanding of previous fallacies. Its current doldrums are unfortunate given the unrivaled importance of agricultural development for poverty reduction in most development countries. After reviewing several policy and program areas, lessons are synthesized, and a forwardlooking research framework suggested, especially regarding role of specialization in the evolution of economic organization. The corresponding role of government is seen to be the facilitation of economic cooperation, rather than social engineering.

The Economics of Agricultural Development: What Have We Learned?

The history of thought in the field of Economic Development and corresponding development programs have gone through a series of identifiable phases. Phases of theory and praxis in Agricultural Development are likewise compared. In both cases, there is an apparent lost opportunity to learn the lessons of past failures and successes before moving to the next fad. After reviewing several policy and program areas, a few lessons are synthesized, a forward-looking research framework suggested, and the appropriate role of foreign aid discussed. A particular theme of interest is the balance in thinking and programs between social engineering and facilitation of economic cooperation.International Development,

Herd behavior, the "Penguin effect", and the suppression of informational diffusion: An analysis of informational externalities and payoff interdependency

Technology;Information;Econometric Models;Group Behaviour

The Gas Transportation Network as a ‘Lego’ Game: How to Play with It?

Gas transportation networks exhibit a quite substantial variety of technical and economical properties ranges roughly from an entrenched natural monopoly to near to an open competition platform. This empirical fact is widely known and accepted. However the corresponding frame of network analysis is lacking or quite fuzzy. As an infrastructure, can a gas network evolve or not from a natural monopoly (an essential facility) to an open infrastructure (a highway facility)? How can it be done with the same transportation infrastructure components within the same physical gas laws? Our paper provides a unified analytical frame for all types of gas transportation networks. It shows that gas transport networks are made of several components which can be combined in different ways. This very lego property of gas networks permits different designs with different economic properties while a certain infrastructural base and set of gas laws is common to all transportation networks. Therefore the notion of gas transportation network as a general and abstract concept does not have robust economic properties. The variety and modularity of gas networks come from the diversity of components, the variety of components combinations and the historical inclusion of components in the network. First, a gas network can combine different types of network components (primary or secondary ones). Second, the same components can be combined in different ways (notably regarding actual connections and flow paths). Third, as a capital-intensive infrastructure combining various specific assets, gas transportation networks show strong path dependency properties as they evolve slowly over time by moving from an already existing base. The heterogeneity of gas networks as sets of components comes firstly from the heterogeneity of the network components themselves, secondly from the different possibilities to combine these components and thirdly from the ‘path dependence’ character of gas network constructions. These three characteristics of gas networks explain the diversity of economic proprieties of the existent gas networks going from natural monopoly to competitive markets.

Property Market Purpose Efficiency: An Exploratory Analysis From an Institutional Economics Perspective

Over the last years the issue of property market efficiency has attracted increasing attention in both academic and professional research. Yet, the concept of property market efficiency is poorly developed and inadequately theorised. The conventional approaches (i.e. ‘allocative efficiency’ and ‘efficient market hypothesis’) provide flawed and ambiguous judgements as they assess efficiency with reference to idealised benchmarks, they do not take into account the intrinsic characteristics and dynamic process of the property market and they are artificially dissociated from important operational issues. In turn, institutionalist attempts to articulate more refined and pragmatic conceptualisations of property market efficiency, while they have provided useful insights, remain methodologically underdeveloped and incomplete. Building on the latter approaches the current paper explores a possible way to evaluate the effectiveness of the property market in delivering a combination of outcomes that will generate and/or sustain urban economic development. This provides the basis for the development of the idea of a ‘purpose efficient property market’. To achieve this, two theoretical devices are developed: ‘institutional uncertainty’ and ‘institutionalised variety’. Institutional uncertainty assesses the quality of the wider (urban) institutional arrangements and reflects how effectively the urban socioeconomy adapts to pressures and provides a secure economic environment. Institutionalised variety evaluates particular institutions, in this case the property market, in terms of diversity in institutions, organisations, and products provided. Such a micro-level variety is deemed necessary both for the system to reproduce itself through time and for macro dynamics to be successfully sustained. In that sense, macroeconomic order and relative stability are reinforced alongside, and arise upon, variety and diversity at the micro-level. Putting the arguments together, the property market purpose efficiency is understood with reference to the market’s ability to match ‘institutionalised variety’ to the level of ‘institutional uncertainty’ that the wider urban institutional environment exhibits. In that sense, a purpose efficient property market allocates optimal resources to institutionalised variety, given the level of uncertainty the wider institutional environment carries, and thereby delivers the property products that the economy requires at the prevailing price.

Individual vs. Collective Bargaining in the Large Firm Search Model

We analyze the welfare and employment effects of different wage bargaining regimes. Within the large firm search model, we show that collective bargaining affects employment via two channels. Collective bargaining exerts opposing effects on job creation and wage setting. Firms have a stronger incentive for strategic employment, while workers benefit from the threat of a strike. We find that the employment increase due to the strategic motive is dominated by the employment decrease due to the increase in workers' threat point. In aggregate equilibrium, employment is ineciently low under collective bargaining. But it is not always true that equilibrium wages exceed those under individual bargaining. If unemployment benefits are sufficiently low, collectively bargained wages are smaller. The theory sheds new light on policies concerned with strategic employment and the relation between replacement rates and the extent of collective wage bargaining