Creator: Cole, Harold Linh, 1957- and Ohanian, Lee E. Series: Great depressions of the twentieth century Abstract:
There are two striking aspects of the recovery from the Great Depression in the United States: the recovery was very weak and real wages in several sectors rose significantly above trend. These data contrast sharply with neoclassical theory, which predicts a strong recovery with low real wages. We evaluate whether New Deal cartelization policies designed to limit competition among firms and increase labor bargaining power can account for the persistence of the Depression. We develop a model of the intraindustry bargaining process between labor and firms that occurred with these policies, and embed that model within a multi-sector dynamic general equilibrium model. We find that New Deal cartelization policies are an important factor in accounting for the post-1933 Depression. We also find that the key depressing element of New Deal policies was not collusion per se, but rather the link between paying high wages and collusion.
Keyword: New Deal, Great Depression, Competition, Cartels, Wages, and Collective bargaining Subject (JEL): D50 - General equilibrium and disequilibrium - General and J58 - Labor-management relations, trade unions, and collective bargaining - Public policy
Creator: Platt, Glenn J. Series: Law and economics of federalism Abstract:
This paper develops a model of firm location where communities differ by exogenous endowments of a factor of production. Firms choose to locate based on local subsidies to production. Community and firm optimal strategies are then examined. Through the introduction of information asymmetries about the communities' endowments, equilibrium bidding strategies for communities are found. The results show that auction institutions used by firms may in fact be signaling on the part of communities. These results also indicate that community bids reveal information, and restrictions on this bidding may do more harm than good.
Keyword: Tax breaks, Subsidies, Plant location, Tax competition, and Asymmetric information Subject (JEL): H70 - State and local government ; Intergovernmental relations - General, R30 - Production analysis and firm location - General, and D80 - Information, knowledge, and uncertainty - General
Creator: Roberds, William Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 264 Abstract:
A popular method of investigating the market effects of multibank holding company (MBHC) affiliation involves regression of banks' local market share on a dummy variable for MBHC affiliation. The usefulness of this procedure is called into question by means of a theoretical counterexample.
Keyword: Multibank holding companies, Bank holding company, Nonprice competition, and Bank merger Subject (JEL): D40 - Market Structure, Pricing, and Design: General and G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Creator: Bryant, John B. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 092 Keyword: Competition and Price setting Subject (JEL): D41 - Market Structure, Pricing, and Design: Perfect Competition
Creator: Bryant, John B. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 110 Keyword: Demand uncertainty, Market price, Perfect competitors, and Inventory Subject (JEL): D42 - Market Structure, Pricing, and Design: Monopoly and D41 - Market Structure, Pricing, and Design: Perfect Competition
Creator: Gane, Samuel H. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 161 Keyword: Competition, Monopoly, Oligarchy, and Anticompetitive behavior Subject (JEL): G28 - Financial Institutions and Services: Government Policy and Regulation, K21 - Antitrust Law, and L40 - Antitrust Issues and Policies: General
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: Townsend, Robert M., 1948- Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 080 Abstract:
This paper focuses on avoidable moral hazard and offers one explanation for limited insurance markets, for closely held firms, and for seemingly simple as opposed to contingent forms of debt. Agents have random endowments of a consumption good which are such that there are gains to trading contingent claims. But any realization of an endowment is known only by its owner unless a verification cost is borne. Contracts in such a setting are said to be consistent if agents submit to verification and honor claims in accordance with prior agreements. The Pareto optimal consistent contracts which emerge are shown to have familiar characteristics.
Keyword: Competition, General equilibrium theory, Contracts, and Avoidable moral hazard Subject (JEL): D61 - Allocative Efficiency; Cost-Benefit Analysis, D86 - Economics of Contract: Theory, D50 - General Equilibrium and Disequilibrium: General, and D11 - Consumer Economics: Theory