Collective Voluntary Agreements and the Production of Less Polluting Products

Recently, some industries have collectively agreed not to produce models that do not meet an energy efficiency (and hence an environmental) standard. This paper presents a simple model that can be used to examine a voluntary collective agreement to limit or completely eliminate the low efficiency model of a given product (e.g., a low efficiency washing machine). We show that, when there is competition between firms, a collective agreement to limit or even eliminate production of the polluting model can actually increase profits for all firms in the industry. This suggests that a collective agreement of this type might actually be beneficial to firms, while at the same time improving environmental quality. However, the implicit enforcement that comes from the public nature of the commitment is necessary to ensure this outcome. This suggests that, by promoting such agreements, policymakers may be able to achieve substantial environmental gains with relatively little inducement. The impact on social welfare will then depend on whether these gains are sufficiently large to offset consumer losses from reductions in product variety and the associated price increases.

Macroeconomic Rationality and Lucas' Misperceptions Model: Further Evidence from Forty-One Countries

Several researchers have examined Lucas's misperceptions model as well as various propositions derived from it within a cross-section empirical framework. The cross-section approach imposes a single monetary policy regime for the entire period. Our paper innovates on existing tests of those rational expectations propositions by allowing the simultaneous effect of monetary and short run aggregate supply (oil price) shocks on output behavior and the employment of advanced panel econometric techniques. Our empirical findings, for a sample of 41 countries over 1949 to 1999, provide evidence in favor of the majority of rational expectations propositions.