Stiglitz Model Research Articles

Природные ресурсы в экономическом развитии: эволюция теоретических подходов

This paper considers the evolution of the main theoretical approaches considering the role of natural resources in economic development in the XVIII-XXI centuries. The study revels three main functions of natural resources in the economy: a factor of production, a traded commodity and natural capital as a component of national wealth (along with real and human capital). It is shown that at the present stage globalization processes have determined the dominant function of natural resources as a tradable commodity. It is determined that if until the end of the XX century the presence of rich and diverse natural resources ensured economic growth, then in the subsequent period natural resources had a multidirectional impact on economic dynamics. The author performs a comparative analysis of three theories that take natural resources into account: neoclassical theory of economic growth, neoclassical theory of international trade and institutional theory. In the neoclassical theory of economic growth natural resources are considered as a factor of production, which act as determinants of economic growth. This theory formulates the Dasgupta – Heal – Solow – Stiglitz model, which defines the conditions for sustainable economic growth in an economy with non-renewable natural resources. In the neoclassical theory of international trade, natural resources are primarily considered as a tradable commodity, and the possibilities of development of the economy dominated by natural capital by increasing foreign trade rent are analyzed. Within the framework of this theory, three concepts explaining different channels of natural capital impact on the economy through the connection with foreign markets are formulated: the trap of raw material specialization, the Prebisch – Singer hypothesis and the Dutch disease. The macroeconomic causes of the resource curse are identified. Institutional theory studies the role of institutional conditions in the economic development of countries dominated by natural capital. Within the framework of this theory, it is shown that the quality of institutions determines the nature of the impact of natural resource surplus on the rate of economic growth; the resource curse is defined as a violation of incentives to accumulate different forms of capital; rent-seeking is one of the main channels of negative impact in conditions of weak institutions. All the theories considered allow us to conclude that the development of the economy based on the exploitation of natural resources is possible in the long term, provided that compensatory mechanisms are formed to ensure the transformation of natural capital into other forms of capital

MONOPOLISTIC COMPETITION MODEL WITH ENTRANCE FEE

We study the monopolistic competition model with producer-retailer-consumers two-level interaction. The industry is organized according to the Dixit–Stiglitz model. The retailer is the only monopolist. A quadratic utility function represents consumer preferences. We consider the case of the retailer's leadership; namely, we study two types of behavior: with and without the free entry condition. Earlier, we obtained the result: to increase social welfare and/or consumer surplus, the government needs to subsidize (not tax!) retailers. In the presented paper, we develop these results for the situation when the producer imposes an entrance fee for retailers.

Risk Self-Selection and the Concept of Equilibrium in a Competitive Insurance Market

The purpose of this paper is an analysis of the presence of self-selection mechanisms on the market that could bring the market closer to the separating equilibrium state, in line with the Rothschild–Stiglitz equilibrium model and its subsequent modifications. An example is the Polish market of compulsory third-party liability insurance of vehicle owners. This paper describes this market in terms of both its structure and its financial results. The main focus is on describing the assumptions of the Rothschild–Stiglitz model for markets operating under the conditions of information asymmetry and based on the self-selection mechanism, allowing for an unequivocal determination of the insured’s profile without the need to actually observe the insured’s behaviour. Finally, we show that thanks to the self-selection induced by the possibility of driving behaviour monitoring, the industry can minimise the negative effect information asymmetry has on the motor insurance market. This can be achieved, for example, by observing the choices made by the insured after being offered a new voluntary contract with a premium based on telematics data. Our analysis was carried out with the use of three selected characteristics that can determine the insured’s risk profile, i.e., distance covered, self-assessment, and insurance premium paid; the significance of the latter—although it may be intuitive—is questionable at commonly accepted significance levels. Therefore, the main result is that although there is some evidence on the disputed matter, there can be no definitive conclusion—especially in terms of risk as measured by insurance premium.

Monopsony and Discrimination in Labor Market in the Solow-Stiglitz Two-Group Neoclassical Growth Model

The purpose of this study is to deal with economic growth with labor market monopsony. The economy is composed of one sector (like in the Solow model) and two groups of households (like in the Stiglitz model). The sector uses capital and labor as inputs. Capital and output markets are perfectly competitive. The population is classified into two - discriminatory and discriminated - groups. Labor market for the discriminatory group is perfectly competitive, whereas it is characterized by monopsony for the latter group. We model the behavior of the household with the concept of disposable income and utility function developed by Zhang (2013, 2017). The model endogenously determines the prot of the rm which is equally distributed among the discriminatory population. We build the model and provide a computational procedure to quantify the response of the model economy in a comparative dynamic setting. We also compare the model outcomes with a labor market under perfect competition and under monopsony. We show that monopsony harms not only national economic growth but also the discriminatory household in the long term.

A review of the current doctrines of regional Economics

Regional economics received an additional field of research by attempting to combine its provisions with the doctrines of economic growth. The causes and effects of spatial clustering for economic growth are examined in the works of Lichtenberg,Vernon, Hinitz,Marshall, etc. The hypothesis of this study is based on theory of the IDA and the theory of localization economics.Aim. The presented study aims to review the current doctrines of regional economics.Tasks. The author analyzes the classical and modern scientific doctrines in the field of regional economics.Methods. This study uses general scientific methods of cognition, axiomatic, hypothetical, abstraction, and general logical methods to systematize the results of studies of the current doctrines of regional economics.Results. The results of the study, which include the examination and generalization of the current doctrines of regional economics, become even more relevant and receive new incentives for development by combining with other economic theories in an attempt to cover the whole spectrum of problems of regional economic development, which is a direction for further research in this subject area. Regional economics gained momentum through interaction with international and interregional trade theories. The development of a new trade theory based on the Dixit–Stiglitz model inspired a new interest in trade at different development levels. These changes in the trade theory facilitate the creation of multiple spatial economic models in the form of a new economic geography.Conclusions. The approach to the current doctrines of regional economics is realized through the international business theory. The structural component of regional economics in this field of research should be determined through the formation of territorial clusters. The second group of works conducts analysis using more complex economic models based on statistical methods. The corresponding research methods make it possible to identify clusters by measuring local effects.

Optimal Policies in the Dasgupta—Heal—Solow—Stiglitz Model under Nonconstant Returns to Scale

The paper offers a complete mathematically rigorous analysis of the welfare-maximizing capital investment and resource depletion policies in the Dasgupta—Heal—Solow—Stiglitz model with capital depreciation and any returns to scale. We establish a general existence result and show that an optimal admissible policy may not exist if the output elasticity of the resource equals one. We characterize the optimal policies by applying an appropriate version of the Pontryagin maximum principle for infinite-horizon optimal control problems. We also discuss general methodological pitfalls arising in infinite-horizon optimal control problems for economic growth models, which are not paid due attention in the economic literature so that the results presented there often seem not to be rigorously justified. We finish the paper with an economic interpretation and a discussion of the welfare-maximizing policies.

Wages, Health Insurance Benefits, and Worker Sorting Under Asymmetric Information

Employer-sponsored health insurance is the single largest source of health insurance in the USA. In this paper, we explore a model that treats a firm as a de facto insurance company. More specifically, we model a firm as both a producer of goods for an output market and a health insurance company for their employees. The model accounts for the joint provision of wages and health insurance, including the possibility of asymmetric information in employee health status. With this structure, a firm can choose to pay their workers in some combination of cash wages and health insurance. We characterize optimal employment contracts and show that the Rothschild–Stiglitz model results under asymmetric information extend to employer provided insurance. We also find that employment-based insurance offers pooling options that are typically not available when insurance is sold as a standalone product, suggesting a stability to employer-based insurance that is not dependent on the tax system.

Applicability of agglomeration to tourism economics

This study examines the applicability of the agglomeration effect to tourism economics. As such, we test the hypothesis that tourists preferences include a “love of variety.” To test the hypothesis, we propose a theoretical model of tourists’ destination choices based on the Dixit–Stiglitz model of monopolistic competition, and use regional data on Japanese tourists for the empirical analysis. Here, we define the number of genres as the variety of tourism goods. The results show that the number of genres offered by destinations affects tourists’ destination choices. In other words, tourists’ preferences exhibit a love of variety.

Monopolistic competition, the Dixit–Stiglitz model, and economic analysis

Monopolistic competition, the Dixit–Stiglitz model, and economic analysis

The Shapiro-Stiglitz Model with Non-constant Marginal Utility

Abstract The Shapiro-Stiglitz model plays an important role in the employment theory. Woodford pointed out the theoretic limitation of the linear worker's utility function in that model. He questioned the model's implication of the secular decline in the unemployment rate when such rate was in fact trendless. He proposed to resolve this by allowing diminishing marginal utility of income. In this paper, the Shapiro- Stiglitz model is generalized using a nonlinear utility function implicit in the Stiglitz Efficiency-wage paper, thus linking these two well-known models. The nonlinear utility function in this generalized model not only allows for diminishing marginal utility of income but also allows for the analysis of parameters representing various factors affecting the secular unemployment rate. In particular, we can specify the condition under which the diminishing marginal utility can cause such rate to be trendless.

Endogenous Insolvency in the Rothschild–Stiglitz Model

AbstractEven 30 years after Rothschild and Stiglitz's () seminal work on competitive insurance markets with adverse selection, existence and characterization of the equilibrium outcome are still an open issue. We model a basic extension to the Rothschild and Stiglitz () model: we endogenize up‐front capital of insurers. Under limited liability, low up‐front capital gives rise to an aggregate endogenous insolvency risk, which introduces an externality among customers of an insurer (Faynzilberg, 2006). It is shown that an equilibrium with the second‐best efficient Miyazaki–Wilson–Spence allocation always exists.

Oligopolistic vs. monopolistic competition: Do intersectoral effects matter?

Recent extensions of the standard Dixit–Stiglitz (Am Econ Rev 67:297–308, 1977) model, that go beyond the CES sub-utility assumption while maintaining monopolistic competition, have mainly emphasized the role of intrasectoral substitutability. We argue that introducing oligopolistic competition can be an alternative extension, still tractable, allowing to restore the role of intersectoral substitutability and reinforcing the general equilibrium dimension of the model. For this purpose, we define a comprehensive concept of oligopolistic equilibrium to give account of a large set of competition regimes with varying competitive toughness. For two particular regimes, price competition and quantity competition, we show how, with strategic interactions, pro-competitive or anti-competitive effects now depend on the intersectoral elasticity of substitution as compared to the intrasectoral elasticity of substitution.

A non-perpetual shirking model

We provide a finite-horizon counterpart to the Shapiro and Stiglitz model of unemployment to show how workers’ effort falls as they approach the end of an employment spell. The model provides a reason for wages rising more rapidly than productivity.

Asset stripping and firm survival in mass privatization: Testing the Hoff-Stiglitz and Campos-Giovannoni models in Montenegro

We provide the first test of and find support for the Hoff and Stiglitz (2004a,b) model predicting under what conditions mass privatizations are accompanied by asset stripping. We also test and do not find support for the main prediction of the Campos and Giovannoni (2006) model. In addition to testing the theory, we tackle an important policy-oriented issue of why a large number of efficient firms disappeared during mass privatization in the booming economy of Montenegro. Econometrically, we present the first study to look at firms that disappeared during a mass privatization transition, improving upon prior studies that focused only on existing firms and ignored survival bias. Our analysis suggests that asset stripping and firm disappearance were present, and that asset stripping was a likely reason for the loss of efficient firms. We show that because more productive firms were liquidated, it is important to model survival bias in the selection of firms remaining in samples when estimating the effects of privatization or other ownership changes. We also show that one needs to distinguish between true start-ups and liquidated firms that re-appear as start-ups. In the absence of the rule of law, many firms that appear to have disappeared were in fact appropriated by managers and politically connected individuals.

Asset Stripping, Rule of Law and Firm Survival: The Hoff-Stiglitz Model and Mass Privatization in Montenegro

We provide the first test of the Hoff and Stiglitz (2004) model predicting whether and under what conditions mass privatizations are accompanied by asset stripping. In addition to directly testing the theory, we also tackle an important policy-oriented issue of why a large number of efficient firms disappeared during mass privatization in a booming economy of Montenegro. Econometrically, we present the first study to look at firms that disappeared during a mass privatization transition, improving upon prior studies that focused only on existing firms and assumed away survival bias. Our analysis suggests that asset stripping and firm disappearance were present, and that asset stripping was a likely reason for the loss of efficient firms. We show that because more productive firms were liquidated, it is important to model survival bias in the selection of firms remaining in samples when estimating the effects of privatization or other ownership changes. We also show that one needs to distinguish between true start-ups and liquidated firms that re-appear as start-ups. In the absence of the rule of law, many firms that appear to have disappeared were in fact appropriated by managers and politically connected individuals.

Facilitating Consumer Learning in Insurance Markets - What Are the Welfare Effects?

What are the welfare effects of a policy that facilitates for insurance customers to privately and covertly learn about their accident risks? We endogenize the information structure in Stiglitz's classic monopoly insurance model. We first show that his results are robust: For a small information acquisition cost c, the consumer gathers information and the optimal contracts are close to the ones in the Stiglitz model. If c is so low that the consumer already gathers information (c c*, marginally reducing c hurts the insurer and weakly benefits the consumer. Paradoxically, a reduction in c that is successful, meaning that the consumer gathers information after the reduction but not before it, can hurt both parties. The reasons for this are that, after the reduction, (i) the cost is actually incurred and (ii) the contracts can be more distorted.

Factor-augmenting technology choice and monopolistic competition

We put forward a tractable, interpretable, and easily generalizable framework for modeling endogeneous factor-augmenting technology choice by monopolistically competitive firms. The setup is framed within the standard Dixit and Stiglitz (1977) model of monopolistic competition. Optimal technology choice is made here either by final goods producers or the representative household which holds the shares of (differentiated) intermediate goods producers. These two cases have different implications for the distribution of output but they yield the same aggregate level of output, the same aggregate production function and equivalent macroeconomic dynamics. Thanks to this property, the proposed framework can be used as a building block in a variety of embedding structures, including those which require to be solved recursively (separately for the dynamics of aggregate variables and for the distribution in each time period).

Characterizing the sustainability problem in an exhaustible resource model

Abstract We provide a general condition under which consumption can be sustained indefinitely bounded away from zero in the continuous time Dasgupta–Heal–Solow–Stiglitz model, by letting augmentable capital substitute for a non-renewable resource. The assumptions made on the production function are mild, thus generalizing previous work. By showing that Hartwickʼs rule minimizes the required resource input per unit of capital accumulation, and integrating the required resource input with respect to capital, we obtain a complete technological characterization without reference to the time path. We also use the characterization result to establish general existence of a maximin path.

Firm entry, markups and the monetary transmission mechanism

Two business cycle models with endogenous firm and product entry are estimated by matching impulse responses to a monetary policy shock. The ‘competition effect’ implies that entry lowers desired markups and dampens inflation. Under translog preferences, where the substitutability between goods depends on their number, we find evidence of such an effect. That model generates more countercyclical markups than Dixit and Stiglitz (1977) monopolistic competition model, where price stickiness is the only source of markup fluctuations. In contrast, a model with strategic interactions between oligopolistic firms cannot generate an empirically relevant competition effect and is statistically equivalent to the Dixit–Stiglitz model.

On Existence and Uniqueness of Equilibrium in Noisy Rational Expectations Economies

I study a general class of noisy rational expectations models that nests the standard Grossman and Stiglitz (1980) and Hellwig (1980) models, but relaxes the usual assumption of joint normality of asset payoffs and supply, and allows for more general signal structures. I provide a constructive proof of existence of equilibrium, characterize the price function, and provide sufficient conditions for uniqueness within the class of equilibria with continuous price functions, which are met by both the Grossman and Stiglitz (1980) model and the Hellwig (1980) model with a continuum of investors. My solution approach does not rely on the typical conjecture and verify method, and I exhibit a number of non-normal examples in which asset prices can be characterized explicitly and in closed form. The results presented here open up a broad class of models for applied work. To illustrate the usefulness of generalizing the standard model, I show that in settings with non-normally distributed payoffs, shocks to fundamentals may be amplified purely due to learning effects, price drifts can arise naturally, and the disagreement-return relation depends in a novel way on return skewness.