IS THERE A GOLDEN RULE FOR THE STOCHASTIC SOLOW GROWTH MODEL?

This paper analyzes the dependence of average consumption on the saving rate in a one-sector neoclassical Solow growth model with production shocks and stochastic rates of population growth and depreciation where arbitrary ergodic processes are considered. We show that the long-run behavior of the stochastic capital intensity, and hence average consumption along any sample path, is uniquely determined by a random fixed point that depends continuously on the saving rate. This result enables us to prove the existence of a golden-rule saving rate that maximizes average consumption per capita. We also show that the golden-rule path is dynamically efficient. The results are illustrated numerically for Cobb Douglas and CES production functions.

Money Illusion and the Double Dividend in the Short Run

In their seminal paper, Bovenberg and De Mooij (1994) elucidate why an ecological tax reform will not yield a double dividend, i.e. fails to increase the efficiency of the tax system. The present paper slightly modifies the Bovenberg and De Mooij model by introducing money illusion. With this modification, an environmental tax reform that raises the price level may generate a double dividend, since the additional tax on the dirty good does not reduce labor supply. A prerequisite for the double dividend to occur is a sufficiently small elasticity of substitution between clean and dirty consumption. Moreover, accounting for money illusion always reduces the intertemporal gross cost of the tax reform

Resuscitating the Cobweb Cycle

"This note shows that permanent fluctuations in the Cobweb model — though inconsistent with a rational expectations equilibrium — can be justified as being rational when reinterpreting the model in the theory of rational beliefs.

Are people conditionally cooperative? Evidence from a public goods experiment

We study the importance of conditional cooperation in a one-shot public goods game by using a variant of the strategy-method. We find that a third of the subjects can be classified as free riders, whereas 50% are conditional cooperators

Product-Market Competition in the Water Industry: Voluntarily Nondiscriminatory Pricing

This paper presents an attempt to create competition in the water market by means of direct competition. We argue that the usual liberalisation device, competition for the market by franchise bidding, is problematic due to particular features in the water industry. Our approach proposes the implementation of product market competition, i.e. competition in the market. In such a situation several water utilities using a single set of pipes compete for customers in the same area. nUsing a two way access model with vertically integrated water suppliers, we show that: (i) Even without any regulation, an inefficient incumbent will give up its monopoly position and lower the access price far enough so that the low-cost competitor can enter his home market. (ii) Efficiency of production will rise due to liberalization. (iii) In contrary to prejudicial claims, investment incentives are not destroyed by the introduction of competition. Investments of low-cost firms may even increase