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We investigate consequences of ambiguity on efficient allocations in an exchange economy. Ambiguity is embodied in the model uncertainty perceived by the consumers: they are unsure what would be the appropriate probability measure to apply to evaluate consumption and keep in consideration a set $\mathcal{P}$ of alternative probabilistic laws. Consumers are heterogeneously ambiguity averse with smooth ambiguity preferences and $\mathcal{P}$ is point identified, and the aggregate risk is ambiguous. Our analysis addresses, in particular, the full range of set-ups where under expected utility the efficient consumption sharing rule is a linear function of the aggregate endowment. We identify the systematic differences ambiguity aversion introduces to efficient sharing rules in these environments. We also characterize the representative consumer and use it to find implications of heterogeneity in ambiguity aversion for the pricing kernel. The pricing kernel is shown to be qualitatively different under heterogeneity and has the empirically compelling implication that the Sharpe ratio is counter-cyclical.

In diesem Aufsatz blicken wir auf einige Formen und Aspekte lenkender Finanzpolitik und beschäftigen uns vorrangig mit Wirkungen von lenkenden CO2-Steuern bzw. von CO2-Abgaben, mit ihrer Eignung zur allokativen Lenkung und der geeigneten Form ihrer Institutionalisierung. Dabei prüfen wir vor allem Argumente für eine besondere zweckgebundene Verwendung der aus den Zwangsabgaben resultierenden Einnahmen.

Literature has divergent views on the relationship between market structure and allocation of credit by banks. Using quarterly bank scope data from 23 banks operating in Kenya between 2006 and 2018, we find that, while an increase in competition may improve allocation of credit in the short run, in the long run, increased competition may be detrimental to the amount of credit supplied to the private sector by commercial banks. This finding provides policy makers with evidence of how the structure of the Kenyan banking industry affects banks' credit allocation decisions. The findings may help inform the ongoing banking sector consolidation narrative given that changes to the competition structure of the market may not materially alter banks' lending behavior in the short and long run.

We show that the efficient allocation of production capacity can turn a competitive industry and downstream market into an imperfectly competitive one. Even though downstream firms have symmetric production technologies, the downstream industry structure will be symmmetric only if capacity is sufficiently scarce. Otherwise it will be asymmetric, with one large fat capacity-hoarding firm and a fringe of smaller lean and fit firms, so that Tobin`s Q varies inversely with firm size. This is so even if the number of firms is infinitely large. As demand or input quantity varies, the industry may switch between symmetric and asymmetric phases, generating predictions for firm size and costs across the business cycle. Surprisingly, an increase in available capacity resulting in such a switch can cause a reduction in total output and consumer surplus.

Nicht alle Güter werden über einen Preismechanismus auf Märkten gehandelt. Angebot und Nachfrage von Plätzen an Schulen und Universitäten, die Zuweisung von Organen bei Lebendspendern und die Partnerwahl vollziehen sich nach anderen Regeln. Wie diese Regeln gestaltet sein müssen, um zu effizienten Vermittlungsergebnissen zu kommen, und wann eine stabile Allokation auf diesen Märkten möglich ist, haben die beiden Nobelpreisträger untersucht. The Nobel prize in economics in 2012 was awarded to Lloyd S. Shapley and Alvin E. Roth for 'the theory of stable allocations and the practice of market design' (Royal Swedish Academy of Sciences). The prize honours Lloyd Shapley's theoretical foundations of the theory of stable allocations (in particular the celebrated deferred-acceptance algorithm) as well as the theoretical and practical contributions to the design of matching markets by Al Roth. As prices do not play their usual role in equating supply and demand, market failure is widespread (congestion, unravelling, lack of thickness). The actual design of two-sided matching markets, such as school choice, labour markets and kidney exchange, relies on both theory as well as on empirical investigations of the market and its rules.

We consider allocation problems with indivisible goods when agents’ preferences are single-peaked. Two natural procedures (up methods and temporary satisfaction methods) are proposed to solve these problems. They are constructed by using priority methods on the cartesian product of agents and integer numbers, interpreted either as peaks or opposite peaks. Thus, two families of solutions arise this way. Our two families of solutions satisfy properties very much related to some well-known properties studied in the case of perfectly divisible goods, and they have a strong relationship with the continuous uniform and equal-distance rules, respectively.

Überlastete Universitätsverwaltungen und langwierige Nachrückverfahren sind die Folge der dezentralen Vergabe von Studienplätzen. Um die Studienplatzvergabe künftig schneller und einfacher abwickeln zu können, soll die Zentralstelle für die Vergabe von Studienplätzen (ZVS) die Universitäten als Serviceeinrichtung unterstützen. Eine solche Unterstützung ist zwar sinnvoll, sie wird aber nicht ohne Weiteres alle Probleme lösen können. Zentrale Vergabeverfahren, bei denen die Abstimmung zwischen den Auswahlkriterien der einzelnen Universitäten und den Wünschen der Bewerber optimiert wird, stellen eine Alternative dar. Das derzeit von der ZVS angewendete Verfahren zur Vergabe von Studienplätzen in den ZVS- Fächern führt allerdings dazu, dass nicht unbedingt die besten Bewerber zugelassen werden, sondern vielmehr diejenigen, die sich bei der Bewerbung besonders clever verhalten. Anstatt wie erhofft die Bewerber mit dem besten Abitur zugeteilt zu bekommen, müssen zahlreiche Universitäten mit einer größeren Anzahl von Bewerbern mit weniger gutem Abitur vorlieb nehmen. Gleichzeitig werden die Wünsche der Bewerber nicht optimal berücksichtigt. Ineffizienzen, wie sie derzeit auftreten, können nur durch einen anderen Vergabemechanismus überwunden werden, der strategisches Verhalten der Studienbewerber verhindert. Ein solcher Mechanismus kann hochschulspezifische Zulassungskriterien berücksichtigen.

Zusammenfassung Der Beitrag untersucht die Wirkung von fiskalischer Aquivalenz bei Mehrheitsentscheiden. Betrachtet wird die Bereitstellung von offentlichen Gutern mit Spillover-Effekten. Fiskalische Aquivalenz wird dabei so interpretiert, dass alle von der Bereitstellung profitierenden Burger auch uber deren Hohe entscheiden. Wenn die Individuen keine Aquivalenzsteuern zahlen, wird gezeigt, dass fiskalische Aquivalenz nicht automatisch zu einer effizienten Allokation fuhrt. Insofern sollten Reformen der Kompetenzverteilung in einem Bundesstaat auch mogliche Verzerrungen politischer Entscheidungen berucksichtigen. Abstract The paper analyses the effect of fiscal equivalence under majority voting. It considers the provision of public goods with spillover effects. Fiscal equivalence is taken to mean that all those who benefit from the public goods vote on the provision level. When taxes are not benefit taxes, it is shown that fiscal equivalence does not automatically lead to an efficient provision of public...

In the wake of the recent financial crisis, many governments extended public guarantees to banks. We take advantage of a natural experiment, in which long-standing public guarantees were removed for a set of German banks following a lawsuit, to identify the real effects of these guarantees on the allocation of credit ('allocative efficiency'). Using matched bank/firm data, we find that public guarantees reduce allocative efficiency. With guarantees in place, poorly performing firms invest more and maintain higher rates of sales growth. Moreover, firms produce less efficiently in the presence of public guarantees. Consistently, we show that guarantees reduce the likelihood that firms exit the market. These findings suggest that public guarantees hinder restructuring activities and prevent resources to flow to the most productive uses. [Staatliche Bankgarantien und Allokationseffizienz] Im Zuge der jüngsten Finanzkrise haben viele Regierungen ihre staatlichen Garantien für Banken erweitert. Wir nutzen ein natürliches Experiment, bei dem langjährige staatliche Garantien für eine Reihe deutscher Banken nach einem Rechtsstreit aufgehoben wurden, um die realwirtschaftlichen Auswirkungen dieser Bürgschaften auf die Kreditvergabe identifizieren zu können („Allokationseffizienz“). Unter Verwendung zusammengeführter Bank- und Unternehmensdaten zeigt sich, dass staatliche Garantien diese Allokationseffizienz mindern. Werden Garantien gewährleistet, investieren leistungsschwache Unternehmen mehr und behalten höhere Zuwachsraten beim Umsatz bei. Darüber hinaus produzieren Unternehmen im Allgemeinen weniger effizient, wenn staatliche Garantien existieren. Folgerichtig zeigen wir außerdem, dass Garantien die Wahrscheinlichkeit verringern, dass Unternehmen aus dem Markt ausscheiden. Die Ergebnisse belegen, dass staatliche Garantien Restrukturierungsaktivitäten behindern und verhindern, dass finanzielle Mittel den produktivsten Verwendungszwecken zugeführt werden.

The existence of under-aided countries, sectors, and sub-national regions – also known as “aid orphans” – implies inefficiencies in the current overall allocation of aid resources. This is of particular concern because aid effectiveness depends not only on how well resources are utilised, but also on how efficiently they are allocated across recipients and uses. Different conceptual approaches to aid allocation, as well as spillovers across countries and sectors, make it difficult to define an “optimal allocation” and thus to pin down the criteria for identifying cases of “insufficient aid”. Nevertheless, it is possible to identify countries whose aid receipts are considerably lower than others with similar characteristics, as well as sectors that receive insufficient aid while donors crowd in other areas. Donor coordination and transparency in aid allocations are crucial for addressing the problem and achieving a more efficient allocation of resources

We study fiscal spending by supranational unions, where participation is voluntary and countries bargain over contributions to and the allocation of a central budget. We establish and explore the link between the budget's allocation and nations' contributions that occurs since bargaining power is endogenous, and a country's outside option during budget negotiations is to withdraw its contribution and consume its full income. Generically, it follows that unstructured bargaining gives an inefficient result in the presence of income asymmetry between member nations. Interestingly, redistribution arises endogenously, despite nations being purely self-interested. However, there exists a trade-off between increasing equality and decreasing efficiency, which becomes more severe as the centralized budget increases. We also analyze partial ex-ante commitment through alternative decision-making institutions: Both majority rule and exogenous tax rules can improve efficiency.

This paper discusses and seeks to quantify the effects of improved donor coordination on aid effectiveness. Empirical estimates are first provided of the reductions in transaction costs that can be achieved by better donor coordination via concentration to fewer partner countries and a shift from project aid to programme-based approaches. Further estimates are presented showing how much could be gained in terms of poverty reduction by optimizing aid allocation across countries. The potential gains of a coordinated reallocation would be huge, but there are severe political implementation constraints. Still, the overall conclusion of the paper is that there are huge potential gains from donor coordination.

We consider the problems of allocating several heterogeneous objects owned by governments to a group of agents and how much agents should pay. Each agent receives at most one object and has nonquasi-linear preferences. Nonquasi-linear preferences describe environments in which large-scale payments influence agents' abilities to utilize objects or derive benefits from them. The minimum price Walrasian (MPW) rule is the rule that assigns a minimum price Walrasian equilibrium allocation to each preference profile. We establish that the MPW rule is the unique rule that satisfies the desirable properties of strategy-proofness, Pareto-efficiency, individual rationality, and nonnegative payment on the domain that includes nonquasi-linear preferences. This result does not only recommend the MPW rule based on those desirable properties, but also suggest that governments cannot improve upon the MPW rule once they consider them essential. Since the outcome of the MPW rule coincides with that of the simultaneous ascending (SA) auction, our result explains the pervasive use of the SA auction.

We consider a dual labor market with a frictional formal sector and a competitive informal sector. We show that the size of the informal sector is generally too large compared to the optimal allocation of the workers. It follows that our results give a rationale to informality-reducing policies.

Do mandatory spending programs such as Medicare improve efficiency? We analyze a model with two parties allocating a fixed budget to a public good and private transfers each period over an infinite horizon. We compare two institutions that differ in whether public good spending is discretionary or mandatory. We model mandatory spending as an endogenous status quo since it is enacted by law and remains in effect until changed. Mandatory programs result in higher public good spending; furthermore, they ex ante Pareto dominate discretionary programs when parties are patient, persistence of power is low, and polarization is low.

Traders' values and information typically consist of both private and common-value elements. In such environments, full allocative efficiency is impossible when the private rate of information substitution differs from the social rate (Jehiel and Moldovanu, 2001). We link this impossibility result to a failure of the efficient market hypothesis, which states that prices adequately reflect all available information (Fama, 1970, 1991). The intuition is that if prices were able to reveal all information then the common value would simply shift traders' private values by a known constant and full allocative efficiency would result. In a series of laboratory experiments we study price formation in markets with private and common values. Rational expectations, which form the basis for the efficient market hypothesis, predict that the introduction of common values has no adverse consequences for allocative and informational efficiency. In contrast, a "private" expectations model in which traders' optimal behavior depends on both their private and common-value information predicts that neither full allocative nor full informational efficiency is possible. We test these competing hypotheses and find that the introduction of common values lowers allocative efficiency by 28% on average, as predicted by the private expectations model, and that market prices differ significantly and substantially from their rational expectation levels. Finally, a comparison of observed and predicted payoffs suggests that observed behavior is close to the equilibrium predicted by the private expectations model.

Natural resources account for 20% of world trade and dominate the exports of many countries. Policy is used to manipulate both international and domestic prices of resources, yet policy is largely outside the disciplines of the WTO. The instruments used include export taxes, price controls, production quotas, and domestic producer and consumer taxes (equivalent to trade taxes if no domestic production is possible). We review the literature and argue that the policy equilibrium is inefficient. This inefficiency is exacerbated by market failure in long-run contracts for the exploration and development of natural resources. Properly coordinated policy reforms offer an avenue to resource-exporting and resource-importing countries to overcome these inefficiencies and to obtain mutual gains.

We analyze the efficiency of urbanization patterns in a stylized dynamic model of urban growth with three sectors of production. Pollution, as a force that discourages agglomeration, is caused by domestic production. We show that cities are too large and too few in number in uncoordinated equilibrium if economic growth implies increasing pollution ('brown growth'). If, however, production becomes cleaner over time ('green growth') the equilibrium urbanization path reaches the efficient urbanization path after finite time without need of a coordinating mechanism. The results may be generalized to take other forms of congestion into account.

This paper addresses the issue of the impact of aid supply on aid effectiveness. We proceed in two steps. First, we review research works that deal with the problem of governance in donor-recipient relationships and are susceptible of highlighting effects of aggregate aid availability. Second, we provide a conceptual framework that explicitly incorporates a trade-off between considerations of needs and governance. We examine the impact of aid supply on the manner in which a donor agency allocates the available money between countries differing in terms of both needs and domestic governance. The central conclusion is that a donor's utility function that embodies the need-governance trade-off and the associated optimization mechanism yield a meaningful rule to guide inter-country allocation of aid resources.

Countries differ substantially in the extent to which more productive firms are large and/or are becoming larger and less productive firms are small and/or becoming smaller. A challenge for both emerging and advanced economies is that achieving such static and dynamic allocative efficiency requires an ongoing process of restructuring and reallocation. Such restructuring and reallocation is by its very nature costly. Market structure and institutions that promote well-functioning business dynamism are, accordingly, critical for economic performance. In the 1980s abd 1990s, the US exhibited a robust pace of business dynamism that contributed substantially to US productivity and job growth. There are, however, some disturbing trends in the nature of US business dynamism - for example, the pace of business start-ups has declined secularly especially over the last decade. The decline in the pace of business dynamism may be contributing to the anaemic US recovery from the recent recession.

In this paper, we review theory and evidence on the links between product market regulations that curb competitive pressures, the efficiency of resource allocation and productivity growth. We show that product market regulations differ across countries and industries and have evolved differently over time. We argue that differences in regulation have played an important role in driving resource allocation and productivity outcomes. Countries and industries where direct and indirect regulatory burdens are lighter have generally experienced the highest GDP per capita and productivity growth rates. Moreover, where regulatory burdens are lighter, the reallocation of resources towards the highest-productivity firms is stronger. The impacts of inappropriate regulations on aggregate and firm-level productivity performance are estimated to be quantitatively important and thus, reforming such regulations can provide a significant boost to potential growth in OECD economies.

We characterize efficient allocations and business cycle fluctuations in a labor selection model. Due to forward-looking hiring and labor supply decisions, efficiency entails both static and intertemporal margins. We develop welfare-relevant measures of marginal rates of transformation and efficiency along each margin that nest their counterparts in frictionless labor markets. In a calibrated version of the model, efficient fluctuations feature highly volatile unemployment and job-finding rates, in line with empirical evidence. We show analytically in a simplified version of the model that volatility arises from selection effects, rather than general equilibrium effects. We also develop sufficient conditions on wages, which are independent of the wage-determination process, that decentralize efficient allocations. Unlike the Hosios condition for matching models, there is no simple restriction on Nash bargaining that guarantees that Nash wages can support efficient allocations. Cyclical fluctuations in the Nash-bargaining economy display even larger amplification of productivity shocks into labor market outcomes than in the efficient economy, without extreme assumptions about bargaining shares, inflexibility of wages, or the size of surpluses that govern labor demand. The results establish normative and positive foundations for DSGE labor selection models.

This paper studies the vulnerability of the pivotal mechanism with respect to manipulation by groups. In a lab experiment, groups decide on the implementation of various alternatives, some of which imply opposite interests for the two subgroups. We investigate the occurrence of tacit and explicit collusion by allowing for communication within subgroups in one treatment and prohibiting it in another. Even though all agents' preferences are common knowledge and there exists a simple symmetric collusive strategy for one subgroup, we find little evidence for tacit collusion, not even with increasing experience. Only when explicit communication is allowed, collusion is established, and it becomes even more pronounced over time.

The increasing wage inequality in many countries is usually seen as brought about by economic forces that drive for economic efficiency within a changing technological and social environment. Ethical evaluations of these developments diverge, yet the view that free labor markets drive to efficiency remains undisputed. This note sets out to criticize, in a non-technical manner, this efficiency presumption which is based on Adam Smith’s theory of wage setting. It is urged that a Smithian wage structure would indeed be both efficient and fair. Yet modern labor markets work in ways that are fundamentally different to what was envisaged by Adam Smith. That makes the outcomes observed in modern labor markets, according to Smithian standards, both inefficient and unfair. As a consequence, the pursuit of the Smithian ideal requires organizational remedies, intervention and regulation in labor markets.

Empirically, social dilemma under information asymmetry are often much less pronounced than theory predicts. Traders experience a winner's curse and maintain efficiency enhancing exchange of commodities when theory predicts none. Especially under competition, cursed parties undergo severe losses and thereby fund social welfare. Hence, if one cures the winner's curse, one often decreases social welfare. Here, I test how market efficiency can be maintained without individual losses. In a competitive common value auction, parties sidestep both market inefficiency and a winner's curse by judging quality-by-price, and setting price-by-quality.

The paper explores weak monotonicity and convexity assumptions in a model for the decision to smoke with endogenous schooling. Theories of productive and allocative efficiency as well as the influence of time preferences are accounted for in order to derive testable constraints that bound the effect of schooling on smoking. Data from the Swiss Health Survey indicate that the degree of endogeneity depends on the level of schooling, and that schooling effects are likely heterogeneous with a reduction of the propensity to smoke by at most 5.9 percentage points.

Laboratory experiments reporting on shortfalls from allocative efficiency of allocation mechanisms depend on the induced-values methodology, which cannot be extended to the field. Harstad [2011] proposes to observe efficiency of allocation mechanisms without knowing motivations via behavior in appropriately designed aftermarkets. This paper demonstrates the approach in a highly simplified economy: allocation of a single unit of an abstract commodity. In the context studied, second-price auctions are observed to yield significantly greater behavioral inefficiencies than first-price auctions, both in terms of frequency of behaviorally inefficient outcomes, and in terms of the expected size of gains from aftermarket trade missed by the auction itself. The design is shown to be field-ready.

We introduce the concept of a TUU-game, a transferable utility game with uncertainty. In a TUU-game there is uncertainty regarding the payoffs of coalitions. One out of a finite number of states of nature materializes and conditional on the state, the players are involved in a particular transferable utility game. We consider the case without ex ante commitment possibilities and propose the Weak Sequential Core as a solution concept. We characterize the Weak Sequential Core and show that it is non-empty if all ex post TUgames are convex.

Economic experiments conducted in laboratories employing an induced-values methodology can report on allocative efficiencies observed. This methodology is limited by requiring the experimenter to know subjects' motivations, an impossibility in field experiments. Allocative efficiency implies a hypothetical costless aftermarket would be inactive. An outcome of an allocation mechanism is herein defined to be behaviorally efficient if an appropriate aftermarket is actually appended to the allocation mechanism and at most a negligible aggregate size of mutually beneficial gains is observed on the aftermarket. Methodological requirements for observation of behavioral efficiency or inefficiency are put forward. A simple field demonstration indicates when an increase in public good output can cover marginal cost in a mutually beneficial decentralization, without knowing valuations. Several empirical issues that arise with the methodology are noted.

Domestic climate policy emissions trading schemes appear to be spreading all over the word. However, carbon markets in existence often suffer from dilution in terms of ecological effectiveness, economic efficiency, and social justice. Thus, in order to firmly base carbon markets on the main pillars of Sustainable Development, this paper defines the criteria of ecological effectiveness, economic efficiency and social justice and operationalizes them for giving design recommendations for sustainable carbon markets. Methodologically, the paper uses welfare and institutional economics, jurisprudential reasoning, and modern climate justice thinking in order to discuss the three criteria. In addition, design and implication analysis is applied in order to develop design recommendations for sustainable carbon markets. By doing so, the paper provides evaluation criteria for emissions trading schemes in existence and in planning, but also allows for improvements in order to make emissions trading a valuable instrument of a sustainable global climate policy.

We study a two-sector economy with investments in human and physical capital and imperfect labor markets. Human and physical capital are heterogeneous. Workers and firms endogenously select the sector they are active in and choose the amount of their sector-specific investments. To enter the high-skill sector, workers must pay a fixed cost that we interpret as a direct cost of education. Given the distribution of the agents across sectors, at equilibrium, in each sector there is underinvestment in both human and physical capital, due to non-contractibility of investments. A second source of inefficiency is related to the self-selection of the agents into the two sectors: typically too many workers invest in education. Under suitable restrictions on the parameters, the joint effect of the two distortions is that equilibria are characterized by too many people investing too little effort in the high skill sector. We also analyze the welfare properties of equilibria and study the effects of several tax policies on the total expected surplus. In particular, consider the equilibrium associated with a flat labor income tax. Under suitable restrictions on the parameters, a revenue neutral progressive change in the marginal tax rates is welfare improving. Wir untersuchen eine Zwei-Sektoren-Ökonomie mit Investitionen in Human- und physisches Kapital und unvollkommenen Arbeitsmärkten. Human- und physisches Kapital sind heterogen. Arbeiter und Unternehmen wählen endogen sowohl den Sektor, in dem sie tätig werden, als auch die Menge der sektorspezifischen Investitionen. Für Arbeiter fallen Fixkosten an, falls sie im Sektor tätig werden wollen, der ausschließlich hoch qualifizierte Arbeiter beschäftigt. Für eine gegebene Verteilung der Agenten über die Sektoren ist das Gleichgewicht dieser Ökonomie durch Unterinvestition in Human- und physisches Kapital in beiden Sektoren gekennzeichnet. Ursächlich dafür ist die Annahme, dass Investitionen nicht vertragsfähig sind. Eine zweite Ursache von Ineffzienz ist die Selbstselektion von Agenten in die beiden Sektoren: typischerweise wählen zu viele Arbeiter den Sektor für Hochqualifizierte. Zusammen bewirken diese beiden Verzerrungen, dass im Gleichgewicht zu viele Arbeiter im Hochqualifizierten-Sektor tätig werden wollen, die dabei aber insgesamt zu wenig Bildungsanstrengung in Humankapital investieren. Weiter untersuchen wir die gleichgewichtigen Wohlfahrtswirkungen von Steuern. Es zeigt sich, dass für realistische Parameterrestriktionen eine budgetneutrale progressive Änderung der marginalen Steuersätze wohlfahrtssteigernd wirkt.

Based on an idiosyncratic reading of the literature I propose intermediate (rather than tight or soft) regulation for balancing investment incentives with allocative efficiency and competition objectives. Intermediate regulation is compatible with incentive regulation and helps lengthening the regulatory commitment period necessary for incentives. However, such commitment for the whole time horizon of infrastructure or innovation investments is impossible. The compatibility of incentive regulation and efficient investment is thus in doubt. Incentive regulation for regular infrastructure investments therefore needs periodic updating based on rate-of-return regulation criteria. Innovative infrastructure investments may warrant regulatory holidays, which should be conditioned on strict criteria.

China has achieved impressive growth over the last three decades. However, there has been debate over the sources of the growth, and the role of the intensive versus extensive margin. Growth accounting exercises at the aggregate level (Rawski and Perkins, 2008; Bosworth and Collins, 2008) suggest an equal role for both. For the non-agricultural sector, there have been doubts about the contribution of TFP improvements to growth. For the period between 1978 and 1998, Young (2003) stresses the role of labor deepening, including the reallocation from agriculture, while more recent analysis points to the role of rising rates of investment. Because labor reallocation across sectors, TFP growth at the sector level and investment are all inter-related, simple growth decompositions that are often used in the literature are not appropriate for quantifying their contributions to growth. In this paper, we develop a three-sector dynamic model to quantify the sources of China's growth. The sectors include agriculture, and within non-agriculture, the state and non-state components. We find only a modest role for labor reallocation from agriculture and capital deepening, and identify rising TFP in the non-state non-agricultural sector as the key driver of growth. We also find significant misallocation of capital: The less efficient state sector continues to absorb more than half of all fixed investment. If capital had been allocated efficiently, China could have achieved the same growth performance without any increase in the rate of aggregate investment. This has important implications for China as it tries to re-balance its growth. Finally, in light of important concerns over data, we examine the robustness of our key results to alternative data sets.

The focus of this paper is on markets for transport infrastructure capacities. Efficient allocation of scarce infrastructure capacities under cost recovery constraints requires the application of adequate pricing instruments. Under increasing returns to scale with respect to the extension of infrastructure capacity optimal congestion fees do not guarantee cost covering of the infrastructure. Therefore, alternative price and quality differentiation mechanisms for access charges are considered based on the social marginal costs of scarce infrastructure capacities. Efficient competition on the markets for transport services requires the non-discriminatory access to the infrastructures for all providers of transport services. The regulatory problem of guaranteeing non-discriminatory access arises, irrespective of whether infrastructure provision is profitable or in deficit. While price level regulation becomes relevant for profitable infrastructures, non-profitable infrastructures have to be ordered by political authorities. Der Schwerpunkt dieses Beitrags liegt auf den Märkten für Verkehrsinfrastrukturkapazitäten. Mittels geeigneter Preisinstrumente gilt es, eine effiziente Allokation knapper Infrastrukturkapazitäten sowie die erforderliche Kostendeckung anzustreben. Zunehmende Skalenerträge beim Ausbau einer Verkehrsinfrastruktur führen dazu, dass selbst optimale Staugebühren die Investitionskosten der Verkehrsinfrastruktur nicht decken können. Das Ziel marktkonformer Benutzungsgebühren macht es erforderlich, aufbauend auf den sozialen Grenzkosten der knappen Infrastrukturkapazitäten die Potenziale der Preis- und Qualitätsdifferenzierung auszuschöpfen. Funktionsfähiger Wettbewerb auf den Märkten für Verkehrsleistungen erfordert zudem den diskriminierungsfreien Zugang zu den Verkehrsinfrastrukturen für sämtliche aktiven und potenziellen Anbieter von Verkehrsleistungen. Die regulatorische Aufgabe, einen diskriminierungsfreien Zugang zu den Verkehrsinfrastrukturen zu gewährleisten, stellt sich unabhängig vom Kostendeckungsgrad. Demgegenüber ist eine Preisniveau-Regulierung der Zugangstarife nur bei profitablen Infrastrukturen erforderlich. Bei defizitären Infrastrukturen stellt sich dagegen das Bestellerproblem der öffentlichen Hand.

We consider a sequential game in which one player produces a public good and the other player can influence this decision by making an unconditional transfer. An efficient allocation requires the Lindahl property: the sum of the two (implicit) individual prices has to be equal to the resource cost of the public good. Under mild conditions this requires a personal price for the providing player that lies below half of the resource cost. These results can, for example, justify high marginal taxes on wages of secondary earners.

We explain why central counterparties (CCPs) emerged historically. With standardized contracts, it is optimal to insure counterparty risk by clearing those contracts through a CCP that uses novation and mutualization. As netting is not essential for these services, it does not explain why CCPs exist. In over-the-counter markets, as contracts are customized and not fungible, a CCP cannot fully guarantee contract performance. Still, a CCP can help: As bargaining leads to an inefficient allocation of default risk relative to the gains from customization, a transfer scheme is needed. A CCP can implement it by offering partial insurance for customized contracts.

The literature on public goods has shown that efficient outcomes are impossible if participation constraints have to be respected. This paper addresses the question whether they should be imposed. It asks under what conditions efficiency considerations justify that individuals are forced to pay for public goods that they do not value. It is shown that participation constraints are desirable if public goods are provided by a malevolent Leviathan. By contrast, with a Pigouvian planner, efficiency can be achieved. Finally, the paper studies the delegation of public goods provision to a profit-maximizing firm. This also makes participation constraints desirable.

We study the macroeconomic effects of rational asset bubbles in an overlapping-generations economy where asset trading requires specialized intermediaries and where agents freely choose between working in the production or in the financial sector. Frictions in the market for deposits create rents in the financial sector that affect workers' choice of occupation. When rents are large, the private gains associated with trading asset bubbles may lead too many workers to become speculators, thereby causing rational bubbles to lose their efficiency properties. Moreover, if speculation can be carried out by skilled labor only, then asset bubbles displace skilled workers away from the productive sector and raise income and consumption inequalities.

We use laboratory experiments to compare allocation rules in uniform price divisible good auctions. 'Standard' and 'uniform' allocation rules admit different types of low-price equilibria, which are eliminated by a 'hybrid' rule. We observe little evidence of revenue differences among the allocation rules. Under all three allocation rules, prices are competitive when bidders cannot explicitly communicate, and collusive when bidders can explicitly communicate. With explicit communication we find that collusive agreements are more fragile when the gain from a unilateral deviation is larger. We also find that the standard allocation rule is particularly vulnerable to collusive equilibria.

Wage determination under asymmetric information generates inefficiencies due to excess turnover. Severance pay and layoff taxes can improve efficiency. We show that inefficient separations can even be fully removed with fixed separation taxes in the case where the relevant private information is exponentially distributed.

The extant literature on matching markets assumes ordinal preferences for matches, while bargaining within matches is mostly excluded. Central for this paper, however, is the bargaining over joint profits from potential matches. We investigate, both theoretically and experimentally, a seemingly simple allocation task in a 2x2 market with repeated negotiations. More than 75% of the experimental allocations are unstable, and 40% of the matches are inefficient (in cases where inefficiency is possible). By defining the novel concept 'altruistic core', we can explain the occurrence of inefficient matches as well as the significant behavioral differences among our six treatments.

We prove that the change in welfare of a representative consumer is summarized by the current and expected future values of the standard Solow productivity residual. The equivalence holds if the representative household maximizes utility while taking prices parametrically. This result justifies total factor productivity (TFP) as the right summary measure of welfare (even in situations where it does not properly measure technology) and makes it possible to calculate the contributions of disaggregated units (industries or firms) to aggregate welfare using readily available TFP data. Based on this finding, we compute firm and industry contributions to welfare for a set of European OECD countries (Belgium, France, Great Britain, Italy, and Spain), using industry]level (EU]KLEMS) and firm]level (Amadeus) data. After adding further assumptions about technology and market structure (firms minimize costs and face common factor prices), we show that changes in welfare can be decomposed into three components that reflect, respectively, technological change, aggregate distortions, and allocative efficiency. Then, using appropriate firm]level data, we assess the importance of each of these components as sources of welfare improvement in the same set of European countries.

A growing body of literature indicates that competition increases bank soundness. Applying an industrial organization based approach to large data sets for European and U.S. banks, we offer new empirical evidence that efficiency plays a key role in the transmission from competition to soundness. We use a two-pronged approach. First, we employ Granger causality tests to establish the link between competition and measures of profit efficiency in banking, and find that competition indeed increases bank efficiency. Second, building on these results, we examine the relation between the Boone indicator [Boone, J. (2001) Intensity of competition and the incentive to innovate. IJIO, Vol. 19, pp. 705-726], an innovative measure of competition that focuses on the impact of competition on performance of efficient banks, and relate this measure to bank soundness. We find evidence that competition robustly increases bank soundness, via the efficiency channel.

We study the interdependence of optimal tax and expenditure policies. An optimal policy requires that information on preferences is made available. We first study this problem from a general mechanism design perspective and show that efficiency is possible only if the individuals who decide on public good provision face an own incentive scheme that differs from the tax system. We then study democratic mechanisms with the property that tax payers vote over public goods. Under such a mechanism, efficiency cannot be reached and welfare from public good provision declines as the inequality between rich and poor individuals increases.

We study the Green and Lin (2003) model of financial intermediation with two new features: traders may face a cost of contacting the intermediary, and consumption needs may be correlated across traders. We show that each feature is capable of generating an equilibrium in which some (but not all) traders 'run' on the intermediary by withdrawing their funds at the first opportunity regardless of their true consumption needs. Our results also provide some insight into elements of the economic environment that are necessary for a run equilibrium to exist in general models of financial intermediation. In particular, our findings highlight the importance of information frictions that cause the intermediary and traders to have different beliefs, in equilibrium, about the consumption needs of traders who have yet to contact the intermediary.

We study the influence of gender and gender pairing on economic decision making in an experimental two-person bargaining game where the other party's gender is known to both actors. We find that (1) gender per se has no significant effect on behavior, whereas (2) gender pairing systematically affects behavior. In particular, we observe much more competition and retaliation and, thus, lower efficiency when the bargaining partners have the same gender than when they have the opposite gender. These findings are consistent with predictions from psychology. Implications of our results for real-world organizations are discussed.

A tragedy of the commons appears when the users of a common resource have incentives to exploit it more than the socially efficient level. We analyze the situation when the tragedy of the commons is embedded in a network of users and sources. Users play a game of extractions, where they decide how much resource to draw from each source they are connected to. We show that if the value of the resource to the users is linear, then each resource exhibits an isolated problem. There exists a unique equilibrium. But when the users have concave values, the network structure matters. The exploitation at each source depends on the centrality of the links connecting the source to the users. The equilibrium is unique and we provide a formula which expresses the quantities at an equilibrium as a function of a network centrality measure. Next we characterize the efficient levels of extractions by users and outflows from sources. Again, the case of linear values can be broken down source by source. For the case of concave values, we provide a graph decomposition which divides the network into regions according to the availability of sources. Then the efficiency problem can be solved region by region.