The Pre-Producers

Until its sales of a product materialize, a firm is a "pre-producer" in the market for that product. That firm may may be a new start-up, or it may already sell other products. Firms that do not succeed in generating sales eventually become discouraged and move on to other activities. When this fate befalls a lot of firms, as it recently did in several IT-related businesses, the industry experiences a "shakeout." In the model that I will present, during the shakeout some firms switch to flatter, safer earnings. This switch raises earnings at the time of the shakeout but lowers them in the long run, and it therefore raises earnings-price ratios. This has happened on the Nasdaq since March, 2000 when the Nasdaq shakeout began.

Bubbles in Prices of Exhaustible Resources

Aside from the equilibrium that Hotelling (1931) displayed, his model of non-renewable resources also contains a continuum of bubble equilibria. In all the equilibria the price of the resource rises at the rate of interest. In a bubble equilibrium, however, the consumption of the resource peters out, and a positive fraction of the original stock continues to trade forever. And that may well be happening in the market for high-end Bordeaux wines.

Investment Options and the Business Cycle

A firm has investment options that it may use up immediately, or store for future use. A patent, e.g., is an option to implement an idea via a product or process innovation. Other investment options are protected by secrecy. An investment option is a profit opportunity that requires an investment to implement. Because investment options are scarce, Tobin’s q is always above unity. When the stock of these options rises, the value of stock market falls, a result that exactly invalidates the use of the stock market as a positive indicator of the stock of intangibles. Finally, the stock market alone ensures that equilibrium is efficientVolatility, Tobin's q

BUBBLES IN PRICES OF EXHAUSTIBLE RESOURCES

Aside from the equilibrium that Hotelling (1931) displayed, his model of non-renewable resources also contains a continuum of bubble equilibria. In all the equilibria the price of the resource rises at the rate of interest. In a bubble equilibrium, however, the consumption of the resource peters out, and a positive fraction of the original stock continues to be traded forever. And that may well be happening in the market for high-end Bordeaux wines.wine, exhaustible resource, bubble, Research Methods/ Statistical Methods, Resource /Energy Economics and Policy,

Asymmetric Cycles

I estimate a model in which new technology entails random adjustment costs. Rapid adjustments may cause productivity slowdowns. These slowdowns last longer when retooling is costly. The model explains why growth-rate disasters are more likely than miracles, and why volatility of growth relates negatively to growth over time. I estimate the model, and the estimates have surprising implications. Firms seem to abandon technologies long before they are perfected current-practice TFP is 17 percent below best-practice.

Optimal Migration: A World Perspective

We ask what level of migration would maximize world welfare. We find that skill-neutral policies are never optimal. An egalitarian welfare function induces a policy that entails moving mainly unskilled immigrants into the rich countries, whereas a welfare function skewed highly towards the rich countries induces an optimal policy that entails a brain-drain from the poor countries. For intermediate welfare functions that moderately favor the rich however, it is optimal to have no migration at all.

"Learning By Doing and the Choice of Technology."

This paper explores a one-agent Bayesian model of learning by doing and technological choice. To produce output, the agent can choose among various technologies. The beneficial effects of learning by doing are bounded on each technology, and so long-run growth in output can take place only if the agent repeatedly switches to better technologies. As the agent repeatedly uses a technology, he learns about its unknown parameters, and this accumulated expertise is a form of human capital. But when the agent switches technologies, part of this human capital is lost. It is this loss of human capital that may prevent the agent from moving up the quality ladder of technologies as quickly as he can, since the loss is greater the bigger is the technological leap. We analyze the global dynamics. We find that a human-capital- rich agent may find it optimal to avoid any switching of technologies, and therefore to experience no long-run growth. On the other hand, a human-capital-poor agent, who because of his lack of skill is not so attached to any particular technology, can find it optimal to switch technologies repeatedly, and therefore enjoy long-run growth in output. Thus the model can give rise to overtaking.

Stepping Stone Mobility

People at the top of an occupational ladder earn more partly because they have spent time on lower rungs, where they have learned something. But what precisely do they learn? There are two contrasting views: First, the Bandit model assumes that people are different, that experience reveals their characteristics, and that consequently an occupational switch can result. Second, in our Stepping Stone model, experience raises a worker's productivity on a given task and the acquired skill can in part be transferred to other occupations, and this prompts movement. Safe activities (where mistakes destroy less output) are a natural training ground.