Strong Complements Research Articles

IMF-Supported Programs and Crisis Prevention: An Analytical Framework

This paper presents an analytical framework for considering the role of IMF-supported programs in preventing crises, particularly capital account crises. The model builds upon the global games framework to establish a unique relationship between the crisis probability and the parameters of the program, which is assumed to be negotiated between the IMF and the member country, taking explicit account of each party's interests. In the model, from the perspective of the borrowing country, IMF financing and policy adjustment are (perfect) substitutes inasmuch as they both contribute to the country's liquidity and thus reduce the likelihood of a crisis. In equilibrium, however, IMF financing promotes stronger policies, implying that financing and adjustment are strong complements in crisis prevention. Conditionality plays a crucial role in sustaining the program, providing mutual assurances-to the member country that, if it undertakes the agreed policies, financing will indeed be forthcoming, and to the IMF that the country will implement the agreed policies as the IMF disburses its resources. The model helps explain how liquidity crises may come about, how IMF support can reduce the likelihood of a crisis by providing liquidity and sustaining stronger policies, and why the observed mix between financing and adjustment may vary across programs.

Imf-Supported Programs and Crisis Prevention: An Analytical Framework

This paper presents an analytical framework for considering the role of IMF-supported programs in preventing crises, particularly capital account crises. The model builds upon the global games framework to establish a unique relationship between the crisis probability and the parameters of the program, which is assumed to be negotiated between the IMF and the member country, taking explicit account of each party's interests. In the model, from the perspective of the borrowing country, IMF financing and policy adjustment are (perfect) substitutes inasmuch as they both contribute to the country's liquidity and thus reduce the likelihood of a crisis. In equilibrium, however, IMF financing promotes stronger policies, implying that financing and adjustment are strong complements in crisis prevention. Conditionality plays a crucial role in sustaining the program, providing mutual assurances-to the member country that, if it undertakes the agreed policies, financing will indeed be forthcoming, and to the IMF that the country will implement the agreed policies as the IMF disburses its resources. The model helps explain how liquidity crises may come about, how IMF support can reduce the likelihood of a crisis by providing liquidity and sustaining stronger policies, and why the observed mix between financing and adjustment may vary across programs.

On interjurisdictional competition and environmental federalism

Herein we construct a competitive interjurisdictional model that reconciles two recent exceptions to the race to the bottom (J. Publ. Econ. 35 (1988) 333–354; J. Urban Econ. 37 (1995) 290–310). Our results suggest that since environmental rents from local production are likely not captured 100 percent by local residents, devolved command and control environmental regulation is inefficient. Moreover, faced with the reality of fiscal constraints, local governments adopt property tax structures that serve to compound inefficiencies. Within such a ‘second best’ setting, if a jurisdiction underprovides non-environmental public goods and jurisdictional capital productivity and emissions are strong complements, a race to the bottom equilibrium is supported.

Valuing New Goods in a Model with Complementarity: Online Newspapers

Many important economic questions hinge on the extent to which new goods either crowd out or complement consumption of existing products. Recent methods for studying new goods are based on demand models that rule out complementarity by assumption, so their applicability to these questions has been limited. I develop a new model that relaxes this restriction, and use it to study the specific case of competition between print and online newspapers. Using new micro data from the Washington DC market, I show that the major print and online papers appear to be strong complements in the raw data, but that this is an artifact of unobserved consumer heterogeneity. I estimate that the online paper reduced print readership by 27,000 per day, at a cost of $5.5 million per year in lost print profits. I find that online news has provided substantial welfare benefits to consumers and that charging positive online prices is unlikely to substantially increase firm profits.

Optimal commodity taxation with moral hazard and unobservable outcomes.

The optimal public insurance-taxation scheme is derived for a model with unobservable outcomes. If the government can only observe aggregate commodity expenditures, reimbursement insurance is constrained-efficient. However, two distortions accompany the reimbursement scheme. First, consumers are induced to take (forego) actions which increase (decrease) the likelihood of adverse outcomes (i.e., ex ante moral hazard). Second, reimbursement insurance creates a subsidy distortion (i.e., ex post moral hazard). Ex ante moral hazard calls for taxation (subsidization) of commodities which increase (decrease) the probability of adverse outcomes. The second distortion calls for taxation (subsidization) of commodities which are sufficiently strong complements to (substitutes for) the insured commodity. An example centered on cigarettes and medical insurance is presented.

On “Research vs. Teaching”: A Long-Term Perspective

Views Icon Views Article contents Figures & tables Video Audio Supplementary Data Peer Review Share Icon Share Twitter LinkedIn Tools Icon Tools Get Permissions Cite Icon Cite Search Site Citation Joel S. Demski, Jerold L. Zimmerman; On “Research vs. Teaching”: A Long‐Term Perspective. Accounting Horizons 1 September 2000; 14 (3): 343–352. doi: https://doi.org/10.2308/acch.2000.14.3.343 Download citation file: Ris (Zotero) Reference Manager EasyBib Bookends Mendeley Papers EndNote RefWorks BibTex toolbar search Search Dropdown Menu nav search search input Search input auto suggest Search

Public Sector Wage Cycles and the Co-Movement of the Fiscal Deficit and Inflation in Less-Developed Countries

In this paper I analyze the co-variation of the fiscal deficit and inflation in a simple perfect foresight model that incorporates low- and high-wage cycles of equal depth and duration. When money and consumption are not extremely strong complements and the wage-cycle not extremely short-lived, inflation rises above its pre-stabilization level while the deficit is lower. The results thus argue that public sector wage cycles may underlie the weak empirical correlation of the deficit and inflation.

Technological change and elasticities of substitution in Korean agriculture

In this paper, by using the translog cost function, two issues are investigated concerning the Korean agricultural sector during the prewar (1918 to 1938) and postwar (1949 to 1971) periods. First, characteristics of the technology used and the process of technical innovation are analyzed. Second, an attempt is made to determine the partial elasticities of substitution for various pairwise combinations of land, labor, fixed capital, and working capital. We find that the technological innovations in Korean agriculture were land and labor saving, fixed capital neutral, and working capital using. Further, we find that working capital was a strong substitute for land and labor in the prewar period and a weak substitute in the postwar period. Fixed capital was a weak substitute for land and labor in the prewar period and a weak complement to land and labor in the postwar period. Finally, working capital and fixed capital were weak substitutes in the prewar period and strong complements in the postwar period.

The assumption of constant returns to scale

Nicholas Kaldor was right to maintain that this assumption is unrealistic, but that does not mean that it is useless. There are propositions that can be proved assuming it, which would never have been found without it, but that look as if they are independent of it. Two examples: (1) Paul Samuelson's factor-price equalization theorem in international trade and (2) the author's theory of relations between factors in production ( elasticity of substitution in a modern form). P-and q-substitutes (complements) must be distinguished. Weakly related factors are p-substitutes and q-complements. This is the only case when no more than two factors are present. Otherwise, two factors (out of many) may be strong substitutes (substitutes both ways) or strong complements (complements both ways). The excluded case, when they would be p-complements and q-substitutes, appears, in the presence of scale economies, to be excluded a fortiori. Copyright 1989 by Oxford University Press.