Joaquim Silvestre

Cost share equilibria: A Lindahlian approach

Abstract We offer a new formalization of Lindahls equilibrium notion for public goods which yields an endogenous theory of profit distribution in line with the benefit approach to taxation. Increasing returns in the production of public goods are not a priori excluded. Our equilibrium notion coincides with Kanekos “Ratio Equilibrium” for economies with only one public good. By reinterpreting the commodity space, the equilibrium concept can be applied to economies with purely private goods or with externalities. In the pure private good case, our concept singles out allocations that are efficient and where individual net payments agree with average cost.

The 'Flypaper Effect' is not an anomaly

An in-kind subsidy is equivalent, both theoretically and empirically, to an increase of income for an individual consumer. But the equivalence does not empirically carry over to in-kind grants by a central government to a local one: this has been seen as an anomaly and dubbed the â??flypaper effect.â?? We argue that the â??anomalyâ?? label is incorrect: the nonequivalence of increases in grants and community income is predicted, almost everywhere, by models that understand collective decision as the outcome of electoral competition among political parties. In addition, we compute politico-economic equilibria for a model with two independent tax parameters and obtain numerical values that agree with the existing empirical literature.

Credit Constraints in General Equilibrium: Experimental Results

Our work attempts to investigate the influence of credit tightness or expansion on activity and prices in a multimarket set-up. We report on some doubleauction, two-market experiments where subjects had to satisfy an inequality involving the use of credit. The experiments display two regimes. characterized by high and low credit availability. The critical vakre of credit at the common boundary of the two regimes has a compelling interpretation as the maximal credit use at the Arrow-Debreu equilibrium of the abstract economy naturally associated to our experimental environment. Our main results are that changes in the availability of credit: (a): have minor and unsystematic effects on real and nominal variables in the high-credit regime; (b): have substantial effects, both real and nominal, in the low-credit regime.

Averting risk in the face of large losses: Bernoulli vs. Tversky and Kahneman

Prospect Theory asserts that people display risk attraction in high-probability losses. But our subjects tend to avoid fair risks for large ([euro]30 to [euro]90), high-probability (80%) real losses, vindicating Bernoullis view that risk aversion is the dominant attitude.

Undominated prices in the three good model

Abstract Any movement away from Walrasian prices will make somebody worse off. We ask: Which other prices share this property? The paper characterizes the set of such prices, called ‘undominated prices’, for the three good economy (output, labor and a nonproduced good) that is now well known from the work of Barro-Grossman, Benassy and Malinvaud. We consider two groups of consumers: workers and shareholders. We show that, under some conditions, there exist prices and wages that generate unemployment and are undominated. This requires that (a) workers be poorly endowed with the nonproduced good, (b) there be little substitution in consumption between the produced and the nonproduced good, and (c) the market for the produced good be balanced (i.e., prices equal marginal costs).

Risk Aversion and Embedding Bias

In Selten (1967) “Strategy Method,” the second mover in the game submits a complete strategy. This basic idea has been exported to nonstrategic experiments, where a participant reports a complete list of contingent decisions, one for each situation or state in a given sequence, out of which one and only one state, randomly selected, will be implemented. In general, the method raises the following concern. If S0 and S1 are two different sequences of states, and state s is in both S0 and S1, would the participant make the same decision in state s when confronted with S0 as when confronted with S1? If not, the experimental results are suspect of suffering from an “embedding bias.” We check for embedding biases in elicitation methods of Charles Holt and Susan Laury (Laury and Holt, 2000, and Holt and Laury, 2002), and of the present authors (Bosch-Domenech and Silvestre, 1999, 2002, 2006a, b) by appropriately chosen replications of the original experiments. We find no evidence of embedding bias in our work. But in Holt and Laury’s method participants tend to switch earlier to the riskier option when later pairs of lotteries are eliminated from the sequence, suggesting the presence of some embedding bias.

Progress and conservation under Rawls's maximin principle

Abstract. I argue the compatibility of progress with Rawlss maximin principle when applied to individual utility functions which are “nonaltruistic” in the sense that any transfer of consumption goods from old to young (resp. from young to old) lowers (resp. increases) old peoples utility. The paper shows that necessary conditions for that compatibility are: (A) a bound on the feasible transfers from young to old, and (B) a positive intergenerational stock externality. The analysis implies that the maximin principle has the drawback of making, under mild assumptions, conservation incompatible with progress.

A Note on Cost-Share Equilibrium and Owner-Consumers

The contributions of J. Farrell (Econ. Letters 19, 1985, 303–306) and A. Mas-Colell and J. Silvestre (J. Econ. Theory 47, 1989, 239–256) have studied the implications of two unanimity principles when a firm is owned by the consumers. Interestingly, both approaches lead to what J.E. Roemer and J. Silvestre (The proportional solution for economies with both public and private ownership, mimeo, University of California, Davis, 1991) call proportional allocations. We compare these approaches and analyze how well they serve as equilibrium foundations for proportional allocations. In a nutshell, the conclusion is that Farrells unanimity principle is simpler than Mas-Colell and Silvestres, but (assuming that the cost function is convex) the latter always works (i.e., equilibrium exists and yields proportional allocations) while the former may not (equilibrium may not exist, in other words, proportional allocations may not be supportable as equilibria).

A welfare comparison of private and public monopoly

Abstract The cost function of a monopoly is C(q)=K + θq, where θ is unknown to the regulator. We evaluate various ownership and regulation regimes in terms of social welfare, determined by both the amount of total surplus and its distribution. Maximal welfare is achieved by the regulated public firm when its bias is pro-consumer, and also when it is pro-worker and θ is low enough. We compare an unregulated public firm with a private one regulated a la Loeb–Magat–Baron–Myerson and characterize the frontier, in parameter space, where one or the other dominates.

Imperfect Competition and Fixprice Equilibria When Goods Are Gross Substitutes

It is possible, in principle, that the price-quantity pair generated by a model of imperfect competition may satisfy the conditions (voluntary trading and absence of frictions) for a fixprice equilibrium. It is shown that imperfect competitors will typically satisfy voluntary trading provided that appropriate gross substitute assumptions are satisfied. Hence, such assumptions are seen to ensure that the solutions of some well-known imperfectly competitive general equilibrium models are indeed fixprice equilibria, thus bringing together two important traditions in theoretical microeconomics. Copyright 1991 by The editors of the Scandinavian Journal of Economics.