Taste Asymmetries and Trade Patterns

We study trade patterns in a pure exchange economy where preferences are symmetric up to taste intensity parameters. In a 2-person, 2-good endowment economy, then all endowments in a particular Edgeworth box rectangle require trading out of that rectangle. Under strictly quasi-concave preferences, trade will occur away from a larger area of initial endowments. The identified area is larger still when preferences are homothetic and identical up to taste intensity parameters. Implications for the factor price equalization theorem are explored.

Market Equilibrium in Exchange Economies with Some Families of Concave Utility Functions

We present explicit convex programs which characterize the equilibrium for certain additively separable utility functions and CES functions. These include some CES utility functions that do not satisfy weak gross substitutability.Exchange economy, computation of equilibria, convex feasibility problem

Accounting for Household Heterogeneity in General Equilibrium Models

The paper investigates differences in total consumption and demand according to how heterogeneity is incorporated into the model of the general equilibrium type. The sensitivity analysis for a static case with CES utilities and production functions demonstrates that the relative differences in total consumption can be considerable when a model with several heterogeneous consumer groups is compared to the one with a representative consumer. In a dynamic model, investment is proved to depend both on the production and consumption sides even in the case with one-sector production. By using the first-order optimality conditions to the multi-sector case it is shown that a model has enough capability to represent household heterogeneity to be applied for integrated assessment of carbon cycle emissions and energy demand

A Dynamic Two Country Heckscher-Ohlin Model with Non-Homothetic Preferences

We examine the properties of a two country dynamic Heckscher-Ohlin model that allows for preferences to be non-homothetic. We show that the model has a continuum of steady state equilibria under free trade, with the initial conditions determining which equilibrium will be attained. We establish conditions under which a static Heckscher-Ohlin theorem will hold in the steady state, and also conditions for a dynamic H-O theorem to hold. If both goods are normal, each country will have a unique autarkic steady state, and all steady state equilibria are saddle points. We also consider the case in which one good is inferior, and show that this can lead to multiple autarkic steady states, violations of the static H-O theorem in the steady state. Furthermore, there may exist steady state equilibria that Pareto dominate other steady states. These steady states will be unstable if discount factors are the same in each country, although they may exhibit dynamic indeterminacy if discount factors differ.two-country model, Heckscher-Ohlin, inferior good, multiple equilibria, indeterminacy

The Complexity of Non-Monotone Markets

We introduce the notion of non-monotone utilities, which covers a wide variety of utility functions in economic theory. We then prove that it is PPAD-hard to compute an approximate Arrow-Debreu market equilibrium in markets with linear and non-monotone utilities. Building on this result, we settle the long-standing open problem regarding the computation of an approximate Arrow-Debreu market equilibrium in markets with CES utility functions, by proving that it is PPAD-complete when the Constant Elasticity of Substitution parameter \rho is any constant less than -1

A General Equilibrium Financial Asset Economy with Transaction Costs and Trading Constraints

This paper presents a unified framework for examining the general equilibrium effects of transactions costs and trading constraints on security market trades and prices. The model uses a discrete time/state framework and Kuhn-Tucker theory to characterize the optimal decisions of consumers and financial intermediaries. Transaction costs and constraints give rise to regions of no trade and to bid-ask spreads: their existence frustrate the derivation of standard results in arbitrage-based pricing. Nevertheless, we are able to obtain as dual characterizations of our primal problems, one-sided arbitrage pricing results and a personalized martingale representation of asset pricing. These pricing results are identical to those derived by Jouini and Kallal (1995) using arbitrage arguments. The paper's framework incorporates a number of specialized existing models and results, proves new results and discusses new directions for research. In particular, we include characterizations of intermediaries who hold optimal portfolios; brokers who do not hold portfolios, and consumer-specific transactions costs and trading constraints. Furthermore we show that in the special case of equiproportional transaction costs and a sufficient number of assets, there is an analogue of the arbitrage pricing result for European derivatives where prices are interpreted as mid-prices between the bid-ask spread. We discuss the effects of non-convex transaction technologies on prices and trades.Financial Markets, Transaction Costs, Trading Constraints, Asset Pricing, General Equilibrium, Incomplete Markets

The exchange rate and purchasing power parity in arbitrage-free models of asset pricing.

Exchange; Purchasing; Purchasing power; Power; Models; Model; Asset pricing; Pricing;

Trade and Location with Land as a Productive Factor

This paper is motivated by the fact that, contrary to its importance in practice, the role of land for production has received no attention in the new trade theory and the new economic geography. We set up a simple monopolistic competition model and we show that, due to the factor proportions effect which emerges when land is used as a productive factor besides labor, a number of tenets of the new trade and geography literature no longer hold. We also show that in order to explain the stylized facts, notably that wages are higher in larger locations, land-use for production and housing has to be taken into account. Our analysis furthermore implies that market-size based agglomeration forces are too weak to overcome the very strong congestion force associated with competition for land, unless the consumers' desire of variety (as expressed by a low elasticity of substitution) is very strong. This suggests that further agglomeration forces have to be invoked to explain the agglomeration of economic activity observed in the real world.trade and location, land for production, agglomeration, relative wage, home market effect

On welfare criteria and optimality in an endogenous growth model

In this paper we explore the consequences for optimality of a social planner adopting two different welfare criteria. The framework of analysis is an OLG model with physical and human capital. We first show that, when the SWF is a discounted sum of individual utilities defined over consumption per unit of natural labour, the precise cardinalization of the individual utility function becomes crucial for the characterization of the social optimum. Also, decentralizing the social optimum requires an education subsidy. In contrast, when the SWF is a discounted sum of individual utilities defined over consumption per unit of efficient labour, the precise cardinalization of preferences becomes irrelevant. More strikingly, along the optimal growth path, education should be taxed.endogenous growth, human capital, intergenerational transfers, education policy