Leif Danziger

Implementing the Lindahl voluntary-exchange mechanism

Abstract This paper analyzes a two-stage game for implementing Lindahls voluntary-exchange mechanism. The game is based on a model of matching behavior suggested by Guttman (1978). Both the price and the quantities purchased of the public good are individualized, and Lindahl prices emerge endogenously in the first stage of the game. It is shown that any perfect equilibrium with a positive provision of the public good is a Lindahl equilibrium. There might also exist nonprovision perfect equilibria that are Pareto dominated by Lindahl equilibria with positive provision of the public good.

Cost-of-Living Adjustment Clauses in Union Contracts: A Summary of Results

Our paper provides an explanation why cost-of-living adjustment (COLA) provisions and their characteristics vary widely across U.S. industries. We develop models of optimal risk sharing between a firm and union to investigate the determinants of a number of contract characteristics. These include the presence and degree of wage indexing, the magnitude of deferred noncontingent wage increases, contract duration, and the trade-off between temporary layoffs and wage indexing. Preliminary empirical tests of some of the implications of the model are described. One key finding is that the level of unemployment insurance benefits appears to influence the level of layoffs and the extent of COLA coverage simultaneously.

Delays in Renewal of Labor Contracts: Theory and Evidence

In many countries, an expired labor contract is automatically extended during the often‐protracted delay before the new contract is signed. Our theoretical model focuses on macroeconomic factors in explaining the delay. It emphasizes the importance of the realized nominal and real shocks, and of the levels of nominal and real uncertainty. The model is tested using Israeli collective wage agreements where long delays are frequent. The empirical findings strongly support the theoretical model. Thus, nominal uncertainty is found to increase the delay, and real uncertainty to decrease the delay, but less in the public than in the private sector.

A Model of University Admission and Tuition Policy

This paper contains an analysis of the admission and tuition policy of a university that maximizes its utility, which depends on the aggregate value of its students and the endowment left for the future. Higher academic ability increases a students value to the university, while higher tuition decreases the likelihood that an admitted application enrolls. The effects of the endowment, the number of applicants, etc., are studied both when applications differ in their academic ability only, and when applicants also differ in some other aspect, such as parental income, sex, or ethnic origin. The effects of affirmative action are considered. Copyright 1990 by The editors of the Scandinavian Journal of Economics.

Inflation, costly price and quantity adjustments, and time spent in the Keynesian regime

Abstract This paper considers a menu-cost firm under inflation. Due to costly quantity adjustments, the firm is sometimes in a Keynesian regime where sales are demand determined. With a positive real interest rate, the proportion of time in the Keynesian regime is less than the inverse of the absolute value of the average elasticity of demand in that regime.

Fixed Production Capacity, Menu Cost and the Output-Inflation Relationship

This paper analyses the impact of inflation when firms face frictions in both price and quantity adjustments. A vast literature examines the consequences of price-adjustment costs assuming frictionless quantity adjustments. However, temporary quantity adjustments may be expensive, for example because continual adjustments of the optimal production plant are impossible. Moreover, recent findings suggest that frictions in quantity adjustment may remove the linkage between output and inflation. In this paper we show that this is not the case when inflation is anticipated. On the contrary, a predetermined production capacity may significantly amplify the consequences of price adjustment costs.

A graphic representation of the Nash and Lindahl equilibria in an economy with a public good

Abstract In an economy with a public good the noncooperative Nash equilibrium and the cooperative Lindahl equilibrium are represented graphically. The Nash equilibrium is shown to be non-optimal, while the Lindahl equilibrium is shown to be optimal. Simple stability analyses are undertaken. Finally, the two equilibria are compared. It appears that more public good will be allocated in the Lindahl than in the Nash equilibrium, and that in a sufficiently large economy a transition from a Nash to a Lindahl equilibrium will be advantageous for everyone.

A theory of sex discrimination

Abstract In this paper we put forward a theory that explains the way in which social attitudes towards sex discrimination in the labour market have evolved. We suggest that sex discrimination in the labour market can generate both costs and benefits, and that a sizeable part of these costs can be ameliorated through marriage. The fact that marriage is no longer a pervasive and stable institution has contributed to the awareness that sex discrimination in the labour market is a major social problem.

Stochastic Inflation and Wage Indexation

The choice between an indexed and an unindexed wage in a labor contract is studied in this paper. It is shown that the expected rate of inflation does not affect the attractiveness of indexation; that an increase in the uncertainty of inflation and an increase in the workers risk aversion lead to an increase in the attractiveness of indexation; and that an increase in the cost of indexation and an increase in the perfection of the capital market lead to a decrease in the attractiveness of indexation. Labor contracts often index the money wage to the price level. Indexation serves as an important means of reducing the variation in the real wage caused by stochastic inflation, and it may therefore moderate the impact that stochastic inflation would otherwise have on a workers consumption and working hours; cf. Gray (1976), Fischer (1977 a) and Azariadis (1978). Accordingly, indexation may benefit a worker who is averse to risk; cf. Baily (1974), Gordon (1974) and Azariadis (1975). Indexation may also reduce the variation in working hours, thereby benefiting a firm that pro

Risk sharing in labor contracts

The paper studies risk sharing between risk-averse workers and a risk-averse or risk-neutral firm within a contingent labor contract. The contract determines the wage and employment probability for each realization of the price of the firms product and alternative value of a workers time. The paper shows that the optimal contract distributes risk efficiently between the employed workers and the firm, and that only a risk-neutral firm should guarantee a fixed waye. Nonetheless, the overall risk sharing is imperfect, and this entails that the employment may be too high for a socially efficient production, and that relatively attractive realizations of the unknown variables may involve relatively low wages and profits. The paper also undertakes a comparative-tatic analysis of changes in the riskiness of the price of the firms product and of the alternative value of a workers time.