Disequilibrium Dynamics with Inventories and Anticipatory Price-Setting:Some Impirical Results

The basic assumption of this paper is an attempt to be specific about price formation while retaining a fixed-price, quantity-constrained equilibration in the short-run. The second theme of this paper is the role of inventories in macrodynamics a topic of long-recognized importance, but one which has not received much attention within the disequilibrium literature. We will analyze how the level of inventories interacts with the level of prices and wages, and how the spillover effects in a fixed-price equilibrium produce certain testable characteristics in macro time series data. We will argue that these can be used to discriminate between a model of the type we study and the analogous flexible-price system. In section 2 we set out the basic model and discuss its assumptions. Section 3 derives the short-run quantity-constrained equilibrium as it depends on initial inventory stocks and on the random disturbances within the period. Section 4 presents, for comparison purposes, the analogous results under conditions of full price flexibility after these shocks are realized. Sections 5 and 6 are the heart of the paper. We first derive the probabilistic nature of the equilibrium as it depends upon the underlying stochastic disturbances. The probabilities of different types of quantity constrained equilibria can be compared. Then, we use these results to present the dynamics of inventory behavior and the statistical relationships between real wages, inventories and employment. We emphasize the possibility of using this type of analysis to test the disequilibrium hypothesis with anticipatory pricing, against the market-clearing assumptions.

Disequilibrium Dynamics with Inventories and Anticipatory Price-Setting

This paper studies the sequence of short-run quantity-constrained equilibria of a model with a single storable output, labor and money. The durability of output gives rise to inventory fluctuations which influence the course of the equilibria attained. One special feature of interest is the assumption that prices are not at the level which would equilibrate all markets if there were no stochastic shocks to the economy. With prices frozen at this level, the nature of the realized shocks determines the type of disequilibrium realized and the unintended component of inventory change. The analysis concentrates on two questions: What is the statistical nature of the process governing the real wage, output, employment and inventories? And is it possible to test this model against the alternative hypothesis that prices are continually flexible even after the shocks have disturbed the system? We find that although these theories are similar in their qualitative structure, tests can be developed. We also show how the frequencies of different types of quantity-constrained equilibria vary with the stochastic specification. This may shed some insight on why it is commonly believed that some types of disequilibrium phenomena have not been observed.Economic

Competition on Many Fronts: A Stackelberg Signalling Equilibrium

A single economic agent controls a variety of activities. Each activity is associated with a privately observed piece of information. The information is relevant to the actions he will take in this activity, and to the vulnerability of this activity to attack by another agent. Actions should be chosen so as partially to hide the private information, as well as to be efficient in the productive sense. This paper gives a characterization of the optimal association of actions to activities based on the private information available. Some applications are discussed

Renegotiation and the Form of Efficient Contracts

Two parties may agree to a mutually binding contract that will govern their behavior after an uncertain event becomes known. As there is no agent who can both observe this uncertain outcome and enforce the contract, contingent agreements are precluded. However, the parties recognize that the uncertain event will be common knowledge for them, and that they will be able to renegotiate the contract voluntarily, provided that they both gain in doing so. When structuring the original contract they can foresee this renegotiation phase. Efficient contracts are those that perform best, when taking this into account. This paper studies the form of such efficient contracts. It is shown that it is always better to have a contract than it is to have none, no matter which party has the preponderence of bargaining strength in the renegotiation phase. We also study whether renegotiation can substitute completely for the absence of contingent contracts. We characterize a family of cases where it can. And we present some "second-best" results in others, where it cannot