The market for preferences

Learning processes are widely held to be the mechanism by which boundedly rational agents adapt to environmental changes. We argue that this same outcome might also be achieved by a different mechanism, namely specialisation and the division of knowledge, which we here extend to the consumer side of the economy. We distinguish between high-level preferences and low-level preferences as nested systems of rules used to solve particular choice problems. We argue that agents, while sovereign in high-level preferences, may often find it expedient to acquire, in a pseudo-market, the low-level preferences in order to make good choices when purchasing complex commodities about which they have little or no experience. A market for preferences arises when environmental complexity overwhelms learning possibilities and leads agents to make use of other people's specialised knowledge and decision rules.

The current account, fiscal policy, and medium-run income determination

This article presents a new framework for analyzing the simultaneous determination of current account imbalances and the path of national income. Using standard macroeconomic behavioral relationships, it first examines how and why current account deficits matter by investigating links between domestic consumption, government spending, output, saving, investment, interest rates, and capital flows. Central to the model is the distinction between aggregate output and expenditure that enables dissection of the effects of discretionary fiscal change on the current account and national income. The framework yields results relevant to the twin deficits hypothesis that are contrary to those of standard models.

Stability and cycles in a cobweb model with heterogeneous expectations

We investigate the dynamics of a cobweb model with heterogeneous beliefs, generalizing the example of Brock and Hommes (1997). We examine situations where the agents form expectations by using either rational expectations, or a type of adaptive expectations with limited memory defined from the last two prices. We specify conditions that generate cycles. These conditions depend on a set of factors that includes the intensity of switching between beliefs and the adaption parameter. We show that both Flip bifurcation and Neimark-Sacker bifurcation can occur as primary bifurcation when the steady state is unstable.

Income Ranking and convergence with physical and human capital and income equality

This paper presents an overlapping generations model with physical and human capital and income inequality. It shows that inequality impedes output growth by directly harming capital accumulation and indirectly raising the ratio of physical to human capital. The convergence speed of output growth equals the lower of the convergence speeds of the relative capital ratio and inequality, and varies with initial states. Among economies with the same balanced growth rate but different initial income levels, the ranking of income can switch in favor of those starting from low inequality and a low ratio of physical to human capital, particularly if the growth rate converges slowly. (C) 2004 Elsevier B.V. All rights reserved.

Health investment, saving, and public policy

This paper develops an overlapping-generations model in which agents invest in health to prolong life in both working and retirement periods. It explores how unfunded social security with or without health subsidies affects life expectancy, economic growth, and welfare. In particular, by extending life at a possible cost of capital accumulation, health subsidies and a pay-as-you-go pension can improve welfare, especially in the short run.

Second-best public debt with human capital externalities

This paper studies optinnal public debt in a dynastic model with human capital externalities that cause human capital investment (fertility) to be below (above) its socially optimal level. By reducing fertility and raising human capital investment, the optimal debt can exceed 10% of output for plausible parameterizations.

Macroeconomic policies, sector performance and firm response: the case of Chile's textile goods market

Includes bibliography

On inequality tax evasion and progressive taxes

This paper proposes a simple variation of the Allingham and Sandmo (1972) construct and integrates it to a dynamic general equilibrium framework with heterogeneous agents. We study an overlapping generations framework i n which agents must initially decide whether to evade taxes or not. In the event they decide to evade, they then have to decide the extent of income or wealth they wish to under-report. We find that in comparison with the basic approach, the ‘evade or not’ choice drastically reduced the extent of evasion in the economy. This outcome is the result of an anomaly intrinsic to the basic Allingham and Sandmo version of the model, which makes the evade-or-not extension a more suitable approach to modelling the issue. We also find that the basic model, and the model with and ‘evade-or-not’ choice have strikingly different political economy implications, , which suggest fruitful avenues of empirical research.