Linda Welling

Industrial Blackmail: Dynamic Tax Competition and Public Investment

A dynamic model of intergovernmental competition for a large plant is presented, when local productivity is uncertain. One firm determines the location of its plant in each period by conducting an auction, soliciting bids from local governments. Equilibrium subsidies from the local governments are derived. The author also consider a two-stage game where local governments first choose a level of costly infrastructure then participate in the sequential auction. Even when costs are identical across locations, investing in different levels of infrastructure is a Nash equilibrium. Moreover, when infrastructure is endogenous in this manner, it is chosen efficiently.

Commitment, Efficiency and Footloose Firms

The authors consider dynamic competition between a small number of local governments to attract a single large plant. The surplus available in each location is unknown when the initial location decision is made. Two cases are considered: if all agents can commit to second period actions and if they cannot. Without commitment, initially the firm will discriminate against the region with the lower set-up costs. If first-period productivity is low, the firm may relocate and receive an ex post subsidy from a second region. Commitment decreases the expected total surplus and, if fixed costs are small, favors the firm. Copyright 1992 by The London School of Economics and Political Science.

Investment decisions under first and second price auctions

A seller of an indivisible object faces multiple buyers, whose valuations are a function of their unobservable prior investments. A second price auction generates efficient investment, but the seller prefers a first price sealed bid auction, which induces inefficient investment.

The Early Bird Gets the Worm? Birth Order Effects in a Dynamic Family Model

Birth order effects are found in empirical work but lack solid theoretical foundations in economics. Our new modeling approach to children provides this. Each child’s needs change as it grows, and births are sequential. Each child has the same genetic makeup and parents do not favor one child over the other. Parental childcare time lowers the caregiver’s current and future wages; this opportunity cost varies across time. Benefits also vary and when parental childcare is a public input, coresident children allow economies of scope in childcare. Birth order effects emerge from the changing benefits and costs. (JEL D13, D91, J13)

Overlapping Generations Models and Graded Age-Set Societies

From Africa through North America to Asia, anthropologists have found societies with formalized age-group systems. In these societies, social and economic relations between individuals are regulated by well-established rules governing transitions through the lifecycle. In this paper we detail the relationship between the classic formulations in Stewarts (1977) Fundamentals of Age-Group Systems and the overlapping generations (OLG) model. We establish that OLG models can accurately represent a large subset of actual age-group societies called graded age-set societies. Thus, an OLG model bears a close resemblance to reality.

Who's minding the kids? An economic comparison of sole and joint custody

We examine the allocation of spending by divorced parents on both private goods and goods which they share with their child. Sole and joint custody arrangements differ in the pattern of shared goods. Parents play a non-cooperative game. We compute the putcomes under sole and joint custody, and examine the effects of income redistribution.

Efficiency of Family Bargaining Models with Renegotiation: The Role of Transferable Utility across Periods

In dynamic family bargaining models, it is often assumed, for simplicity, that spouses have transferable utility as well as identical and constant marginal rates of intertemporal substitution. It has been argued that as long as spouses are at an interior solution, renegotiation does not hinder efficiency. We show that identical and constant marginal rates of intertemporal substitution (i.e., transferable utility across periods) are the source of this efficiency result. Even at an interior solution, renegotiation can cause inefficiency if marginal rates of intertemporal substitution are not constant. Our model is the first to both identify this source of inefficiency in a bargaining model in which the threatpoints of later periods are determined endogenously and demonstrate that there is no one-size-fits-all policy regulating divorce that can restore efficiency when couples are allowed to differ in their initial wage rates and/or preferences.