A Paradox of Environmental Awareness Campaigns

We build a workable game of common-property resource extraction under rational Bayesian learning about the renewal prospects of a resource. We uncover the impact of exogenously shifting the prior beliefs of each player on the response functions of others. What we find about the role of environmental conservation campaigns is paradoxical. To the extent that such campaigns instill overly high pessimism about the potential of natural resources to reproduce, they create anti-conservation incentives: anyone having exploitation rights becomes inclined to consume more of the resource earlier, before others overexploit, and before the resource's stock is reduced to lower levels.renewable resources; resource exploitation; non-cooperative dynamic games; Bayesian learning; stochastic games; commons; rational learning; uncertainty; beliefs

Preferences and the Dynamic Representative Consumer

This paper provides families of time-separable, twice continuously di?erentiable, and strictly concave utility functions of a group of consumers that are both su?cient and necessary in order to have linear aggregation in a single-commodity-type deterministic dynamic environment, in the presence of consumer wealth-, labor-productivity, and preference heterogeneity, for alternative settings where the rates of time preference can be the same or di?erent across consumers. The employed concept of linear aggregation pertains the existence of a representative consumer with a time-separable utility function. It is proved that when the rates of time preference are choice-independent and heterogeneous across consumers, a representative consumer exists if, and only if, the momentary utility functions of all consumers are exponential. Results are also provided for, (i) common across consumers choice-independent rates of time preference, and, (ii) heterogeneous choice-dependent rates of time preference, and compared with previously identi?ed su?cient conditions for aggregation in the existing literature.

Asset pricing under rational learning about rare disasters : [Version 28 Juli 2011]

This paper proposes a new approach for modeling investor fear after rare disasters. The key element is to take into account that investors’ information about fundamentals driving rare downward jumps in the dividend process is not perfect. Bayesian learning implies that beliefs about the likelihood of rare disasters drop to a much more pessimistic level once a disaster has occurred. Such a shift in beliefs can trigger massive declines in price-dividend ratios. Pessimistic beliefs persist for some time. Thus, belief dynamics are a source of apparent excess volatility relative to a rational expectations benchmark. Due to the low frequency of disasters, even an infinitely-lived investor will remain uncertain about the exact probability. Our analysis is conducted in continuous time and offers closed-form solutions for asset prices. We distinguish between rational and adaptive Bayesian learning. Rational learners account for the possibility of future changes in beliefs in determining their demand for risky assets, while adaptive learners take beliefs as given. Thus, risky assets tend to be lower-valued and price-dividend ratios vary less under adaptive versus rational learning for identical priors. Keywords: beliefs, Bayesian learning, controlled diffusions and jump processes, learning about jumps, adaptive learning, rational learning. JEL classification: D83, G11, C11, D91, E21, D81, C6

Endogenous Public Policy and Long-Run Growth

. We study the determinants of voting outcomes on the provision of public consumption through marginal income taxes in the context of the simple linear growth model. We focus on how the dynamic politicoeconomic equilibrium maps the economic fundamentals to policies and long-run growth. We find that in a deterministic growth environment voters internalize, although imperfectly, the deadweight losses of taxation and vote for lower taxes when the productivity of capital is higher. Therefore, the politicoeconomic channel reinforces the positive role of productivity for growth. In a stochastic environment, we find that if business cycles are driven by productivity shocks in the endogenous growth framework, equilibrium policies imply that taxes should fall in high growth periods and rise in low-growth periods. In line with existing evidence, our model predicts procyclical public consumption and countercyclical public consumption GDP shares.voting, second-best taxation, endogenous growth

The Effects of Market Structure on Industry Growth

We study the behavior of firms in an imperfectly competitive environment in which firms influence the evolution of the stock of capital equipment. Our model enables us, using analytical characterizations, to show the effect of key ingredients of dynamic competition on firm strategies and industry dynamics in addition to the usual static interaction. These effects are the static market externality (implicit in the static Cournot Equilibrium) as well as the dynamic market externality due to the effect on the market outputs of a capital stock and a dynamic externality that stems from the competition between firms for the capital stock. These strategic elements justify our conclusions, based on the study of four market structures, for the link between industrial organization and industry growth.Cournot competition, oligopolistic non-cooperative dynamic games

Saving rates and portfolio choice with subsistence consumption

We analytically show that a common across rich/poor individuals Stone-Geary utility function with subsistence consumption in the context of a simple two-asset portfolio-choice model is capable of qualitatively and quantitatively explaining: (i) the higher saving rates of the rich, (ii) the higher fraction of personal wealth held in risky assets by the rich, and (iii) the higher volatility of consumption of the wealthier. On the contrary, time-variant “keeping-up-with-the-Joneses” weighted average consumption which plays the role of moving benchmark subsistence consumption gives the same portfolio composition and saving rates across the rich and the poor, failing to reconcile the model with what micro data say. JEL Classification: G11, D91, E21, D81, D14, D1

The Effects of Market Structure on Industry Growth: Rivalrous Non-excludable Capital

We analyze imperfect competition in dynamic environments where firms use rivalrous but nonexcludable industry-specific capital that is provided exogenously. Capital depreciation depends on utilization, so firms influence the evolution of the capital equipment through more or less intensive supply in the final-goods market. Strategic incentives stem from, (i) a dynamic externality, arising due to the non-excludability of the capital stock, leading firms to compete for its use (rivalry), and, (ii) a market externality, leading to the classic Cournot-type supply competition. Comparing alternative market structures, we isolate the effect of these externalities on strategies and industry growth.

R&D Investment, Market Structure, and Industry Growth

We study how alternative market structures influence market supply and R&D investment decisions of firms operating in dynamic imperfectly competitive environments. Firms can reduce their future production cost through R&D investment today, which is the engine of endogenous industry growth. Our framework enables us to identify key strategic ingredients in firms dynamic competitive behavior through analytical characterizations. These ingredients are a static market externality, stemming from the standard oligopolistic Cournot competition, a dynamic externality that arises due to knowledge spillovers, and a dynamic market externality that comes from the interaction of knowledge spillovers with future market oligopolistic competition that firms internalize while making decisions. We isolate the impact of each strategic ingredient by comparing four alternative market structures.R&D investment, Cournot competition, oligopolistic non-cooperative dynamic games

On the Income Dependence of Equivalence Scales

We suggest a simple survey method for obtaining direct subjective estimates of equivalence scales, also appropriate for testing whether equivalence scales depend on reference-household income. We implement our approach in two countries, Germany and France. In both countries independence of base is rejected. In particular, we find that equivalence scales depend negatively on reference income, an indication of increasing economies of scale in household consumption as living standards go up. Our estimation method is non-parametric, and it allows us to test generalized equivalence-scale exactness, which is not rejected in any of our samples.equivalence scales, survey method, independence of base