Creator: Chari, V. V., Jagannathan, Ravi, and Jones, Larry E. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 316 Abstract:
In this paper, we characterize those situations in which after the introduction of futures markets there is either an unambiguous change in the volatility of spot prices or an unambiguous change in welfare. We provide examples of the usefulness of this approach by giving two alternative sets of sufficient conditions for price volatility to decline following the introduction of futures trading. We also provide a set of sufficient conditions for the introduction of futures trading to increase the welfare of all agents.
Keyword: Futures market, Prices, and Commodities Subject (JEL): O16 - Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
Creator: Chari, V. V. and Jones, Larry E. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 324 Abstract:
This paper examines the validity of one very special version of Coase's Theorem. The version we examine is that in any economy in which the property rights are fully allocated, competition will lead to efficient allocations. One repercussion of this result is that one way to "solve" the public goods problem would be to allocate property rights fully, transforming the economy to a private goods one and let markets do their work. This is particularly appealing due to its decentralized nature, but one must question the claim that the market will lead to efficient outcomes in this case. That is, the privatized economy created above is of a very special type which, as it turns out is highly susceptible to strategic behavior. We show that the "mechanism" suggested above is not likely to work well in economies with either pure public goods or "global" externalities. Basically, the free-rider problem manifests itself as one of monopoly power in this private goods setting. On the other hand, if the public goods or externalities are "local" in nature, there is reason to hope that this (and perhaps other) mechanism(s) will work well. The work is related to the recent literature on the foundations of Walrasian Equilibrium in that it points up a relationship between the appropriateness of Walrasian equilibrium as a solution concept, the incentives for strategic play, the aggregate level of complementarities in the economy and the problem of coordinating economic activity.
Keyword: Competition, Coordinating economic activity, Property rights, Walrasian Equilibrium, and Coase's Theorem Subject (JEL): H41 - Public Goods
Creator: Hosseini, Roozbeh, Jones, Larry E., and Shourideh, Ali Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 674 Abstract:
We use an extended Barro-Becker model of endogenous fertility, in which parents are heterogeneous in their labor productivity, to study the efficient degree of consumption inequality in the long run. In our environment a utilitarian planner allows for consumption inequality even when labor productivity is public information. We show that adding private information does not alter this result. We also show that the informationally constrained optimal insurance contract has a resetting property—whenever a family line experiences the highest shock, the continuation utility of each child is reset to a (high) level that is independent of history. This implies that there is a non-trivial, stationary distribution over continuation utilities and there is no mass at misery. The novelty of our approach is that the no-immiseration result is achieved without requiring that the objectives of the planner and the private agents disagree. Because there is no discrepancy between planner and private agents' objectives, the policy implications for implementation of the efficient allocation differ from previous results in the literature. Two examples of these are: 1) estate taxes are positive and 2) there are positive taxes on family size.
Subject (JEL): H21 - Taxation and Subsidies: Efficiency; Optimal Taxation, D30 - Distribution: General, D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement, D64 - Altruism; Philanthropy; Intergenerational Transfer, H23 - Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies, H43 - Project Evaluation; Social Discount Rate, and C61 - Optimization Techniques; Programming Models; Dynamic Analysis
Creator: Golosov, Mikhail, Jones, Larry E., and Tertilt, Michèle Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 630 Abstract:
In this paper, we generalize the notion of Pareto-efficiency to make it applicable to environments with endogenous populations. Two efficiency concepts are proposed, P-efficiency and A-efficiency. The two concepts differ in how they treat people who are not born. We show how these concepts relate to the notion of Pareto-efficiency when fertility is exogenous. We then prove versions of the first welfare theorem assuming that decision making is efficient within the dynasty. Finally, we give two sets of sufficient conditions for noncooperative equilibria of family decision problems to be efficient. These include the Barro and Becker model as a special case.
Keyword: First welfare theorem, Altruism, Dynasty, Pareto optimality, and Fertility
Creator: Chari, V. V., Jones, Larry E., and Marimon, Ramon, 1953- Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 582 Abstract:
In U.S. elections, voters often vote for candidates from different parties for president and Congress. Voters also express dissatisfaction with the performance of Congress as a whole and satisfaction with their own representative. We develop a model of split-ticket voting in which government spending is financed by uniform taxes but the benefits from this spending are concentrated. While the model generates split-ticket voting, overall spending is too high only if the president’s powers are limited. Overall spending is too high in a parliamentary system, and our model can be used as the basis of an argument for term limits.
Subject (JEL): H40 - Publicly Provided Goods: General, H00 - Public Economics: General, and H30 - Fiscal Policies and Behavior of Economic Agents: General