The Relative Efficiency of Automatic and Discretionary Industrial Aid

For the last two decades, the primary instruments for UK regional policy have been discretionary subsidies. Such aid is targeted at “additional” projects - projects that would not have been implemented without the subsidy - and the subsidy should be the minimum necessary for the project to proceed. Discretionary subsidies are thought to be more efficient than automatic subsidies, where many of the aided projects are non-additional and all projects receive the same subsidy rate. The present paper builds on Swales (1995) and Wren (2007a) to compare three subsidy schemes: an automatic scheme and two types of discretionary scheme, one with accurate appraisal and the other with appraisal error. These schemes are assessed on their expected welfare impacts. The particular focus is the reduction in welfare gain imposed by the interaction of appraisal error and the requirements for accountability. This is substantial and difficult to detect with conventional evaluation techniques.

Joint estimates of automatic and discretionary fiscal policy for the OECD

Official calculations of automatic stabilizers are seriously flawed since they rest on the assumption that the only element of social spending that reacts automatically to the cycle is unemployment compensation. This puts into question many estimates of discretionary fiscal policy. In response, we propose a simultaneous estimate of automatic and discretionary fiscal policy. This leads us, quite naturally, to a tripartite decomposition of the budget balance between revenues, social spending and other spending as a bare minimum. Our headline results for a panel of 20 OECD countries in 1981-2003 are .59 automatic stabilization in percentage-points of primary surplus balances. All of this stabilization remains following discretionary responses during contractions, but arguably only about 3/5 of it remains so in expansions while discretionary behavior cancels the rest. We pay a lot of attention to the impact of the Maastricht Treaty and the SGP on the EU members of our sample and to real time data.

Joint estimates of automatic and discretionary fiscal policy: the OECD 1981-2003

Official calculations of automatic stabilizers are seriously flawed since they rest on the assumption that the only element of social spending that reacts automatically to the cycle is unemployment compensation. This puts into question many estimates of discretionary fiscal policy. In response, we propose a simultaneous estimate of automatic and discretionary fiscal policy. This leads us, quite naturally, to a tripartite decomposition of the budget balance between revenues, social spending and other spending as a bare minimum. Our headline results for a panel of 20 OECD countries in 1981-2003 are .59 automatic stabilization in percentage-points of primary surplus balances. All of this stabilization remains following discretionary responses during contractions, but arguably only about 3/5 of it remains so in expansions while discretionary behavior cancels the rest. We pay a lot of attention to the impact of the Maastricht Treaty and the SGP on the EU members of our sample and to real time data.

Joint estimates of automatic and discretionary fiscal policy: the OECD 1981-2003

Official calculations of automatic stabilizers are seriously flawed since they rest on the assumption that the only element of social spending that reacts automatically to the cycle is unemployment compensation. This puts into question many estimates of discretionary fiscal policy. In response, we propose a simultaneous estimate of automatic and discretionary fiscal policy. This leads us, quite naturally, to a tripartite decomposition of the budget balance between revenues, social spending and other spending as a bare minimum. Our headline results for a panel of 20 OECD countries in 1981-2003 are .59 automatic stabilization in percentage-points of primary surplus balances. All of this stabilization remains following discretionary responses during contractions, but arguably only about 3/5 of it remains so in expansions while discretionary behavior cancels the rest. We pay a lot of attention to the impact of the Maastricht Treaty and the SGP on the EU members of our sample and to real time data.

Noncooperative Oligopoly in Markets with a Continuum of Traders: A Limit Theorem µa la Cournot

In this paper, we consider an exchange economy µa la Shitovitz (1973), with atoms and an atomless set. We associate with it a strategic market game of the kind first proposed by Lloyd S. Shapley and known as the Shapley window model. We analyze the relationship between the set of the Cournot-Nash equilibrium allocations of the strategic market game and the Walras equilibrium allocations of the exchange economy with which it is associated. We show, with an example, that even when atoms are countably in¯nite, any Cournot-Nash equilibrium allocation of the game is not a Walras equilibrium of the underlying exchange economy. Accordingly, in the original spirit of Cournot (1838), we par- tially replicate the mixed exchange economy by increasing the number of atoms, without a®ecting the atomless part, and ensuring that the measure space of agents remains finite. We show that any sequence of Cournot-Nash equilibrium allocations of the strategic market games associated with the partially replicated exchange economies approximates a Walras equilibrium allocation of the original exchange economy.

A General and Intuitive Envelope Theorem

We present an envelope theorem for establishing first-order conditions in decision problems involving continuous and discrete choices. Our theorem accommodates general dynamic programming problems, even with unbounded marginal utilities. And, unlike classical envelope theorems that focus only on differentiating value functions, we accommodate other endogenous functions such as default probabilities and interest rates. Our main technical ingredient is how we establish the differentiability of a function at a point: we sandwich the function between two differentiable functions from above and below. Our theory is widely applicable. In unsecured credit models, neither interest rates nor continuation values are globally differentiable. Nevertheless, we establish an Euler equation involving marginal prices and values. In adjustment cost models, we show that first-order conditions apply universally, even if optimal policies are not (S,s). Finally, we incorporate indivisible choices into a classic dynamic insurance analysis.