# Massachusetts Institute of Technology (MIT), Department of Economics

# Working papers

Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), DEPARTMENT OF ECONOMICS, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA

Phone: (617) 253-3361

Fax: (617) 253-1330

Web page: http://econ-www.mit.edu/

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Phone: (617) 253-3361

Fax: (617) 253-1330

Web page: http://econ-www.mit.edu/

More information through EDIRC

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Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), DEPARTMENT OF ECONOMICS, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA

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**Series handle:**repec:mit:worpap

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### 1985

**404 Consumer Differences and Prices in a Search Model***by*Peter Diamond**403 Auctioning Incentive Contracts***by*Jean-Jaques Laffont & Jean Tirole**402 Theories of Speculation***by*Jean Tirole**401 Monopolistic Competition, Aggregate Externalities and real Effects of Nominal Money***by*Olivier J. Blanchard & Nobuhiro Kiyotaki**400 The Wage Price Spiral***by*Olivier J. Blanchard**399 Steady State Unemployment Under Profit Sharing***by*Martin Witzman**398 Correlated Equilibria and Sunspots: A Note***by*Eric Maskin & Jean Tirole**397 The Dynamics of Incentive Contracts***by*Jean-Jacques Laffont & Jean Tirole**396 The Logic of Vertical Restraints***by*Patrick Rey & Jean Tirole**395 Vertical Restraints from a Principal-Agent Viewpoint***by*Patrick Rey & Jean Tirole**394 Equilibrium Without An Auctioneer***by*Peter Diamond**393 Economic Issues in Standardization***by*Joseph Farrell & Garth Saloner**392 The Japanese Bonus -- Profit Share or Disguised Wage?***by*Martin L. Witzman**391 Fiscal Policy, Interest Rates, and Exchange Rates: Some Simple Analytics***by*Paul Krugman**390 Were Russian Serfs Overcharged for their land in 1861? The History of One Historical Table***by*Evsey D. Domar**389 Search Theory***by*Peter Diamond**388 Price Leadership***by*Julio Rotemberg & Garth Saloner**387 Moral Hazard as an Entry Barrier***by*Joseph Farrell**386 Credible Neologisms in Games of Communication***by*Joseph Farrell**385 Installed Base and Compatibility With Implications for Product Preannouncements***by*Joseph Farrell & Garth Saloner**384 Production-Theoretic Input Price Indices and the Measurement of Real Aggregate Input Use***by*Franklin M. Fischer**383 Predation, Mergers and Incomplete Information***by*Garth Saloner**382 Communication Equilibrium in Games***by*Joseph Farrell**381 Allocating and Abrogating Rights: How Should Conflicts be Resolved Under Incomplete Information***by*Joseph Farrell**380 Owner-Consumers and Efficiency***by*Joseph Farrell**379 The Performance of Coal-Burning Electric Generating Units in the United States: 1960-1980***by*Paul L. Joskow & Richard Schmalensee**378 Public Policy Implications of Declining Old-Age Mortality***by*James M. Poterba & Lawrence H. Summers**377 Predation Without Reputation***by*Drew Fudenberg & Jean Tirole**376 A Tax-Based Test for Nominal Rigidities***by*James M. Poterba & Julio J. Rotemberg & Lawrence H. Summers**375 How Effective is Potential Competition?***by*Joseph Farrell**374 Voluntary Disclosure: Robustness of the Unraveling Result, and Comments on Its Importance***by*Joseph Farrell**373 A Theory of Dynamic Oligopoly, II: Price Competition***by*Eric Maskin & Jean Tirole**372 The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration***by*Oliver Hart & Sanford Grossman**371 Strategic Inventories and the Excess Volatility of Production***by*Julio J. Rotemberg & Garth Saloner**370 Pricing and the Distribution of Money Holdings in a Search Economy***by*Peter Diamond & Joel Yellin**369 Efficient Estimation and Identification of Simultaneous Equation Models with Covariance Restrictions***by*Jerry A. Hausman & Whitney K. Newey & William E. Taylor**368 Using Cost Observation to Regulate Firms***by*Jean Tirole & Jean-Jaques Laffont**367 Incomplete Contracts and Renegotiation***by*Oliver Hart & John Moore**366 Sequential Bargaining with Many Buyers***by*Drew Fudenberg & David Levine & Jean Tirole**365 Symmetrically Trimmed Least Squares Estimation For Tobit Models***by*Jim Powell**364 On the Misuse of the Profit-Sales Ratio to Infer Monopoly Power***by*Franklin M. Fischer**363 Hierarchies and Bureaucracies***by*Jean Tirole**362 Procurement and Renegotiation***by*Jean Tirole

### 1984

**361 Vertical Integration and Long Term Contracts: The Case of Coal Burning Electric Generating Plants***by*Paul Joskow**360 Excess Capacity as a Policing Device***by*Garth Saloner**359 A Unified Theory of Consistent Estimation for Parametric Models***by*Charles Bates & Halbert White**358 Optimal Bayesian Mechanisms***by*Eric S. Maskin**357 The Simple Macroeconomics of Profit Sharing***by*Martin L. Weitzman**356 Distribution of Preferences and the 'Law of Demand'***by*Jean-Michel Grandmont**355 The Analysis of Union Behavior***by*Henry S. Farber**354 The General Basis of Arbitrator Behavior: An Empirical Analysis of Conventional and Final-Offer Arbitration***by*Henry S. Farber & Max H. Bazerman**353 The Persistence of Volatility and Stock Market Fluctuations***by*James M. Poterba & Lawrence H. Summers**352 The Benefits of Price Stability***by*Stanley Fischer**351 Adjusting the Gross Changes Data: Implications for Labor Market Dynamics***by*James M. Poterba & Lawrence H. Summers**350 Expected Future Tax Policy and Tax Exempt Bond Yields***by*James M. Poterba**349 A Supergame-Theoretic Model of Business Cycles and Price Wars During Booms***by*Julio J. Rotemberg & Garth Saloner**348 Intergenerational & International Trade***by*R. Dornbusch**347 External Debt, Budget Deficits and Disequilibrium Exchange Rates***by*R. Dornbusch**346 The Estimation of Complete Aggregate Structures***by*J. Powell & T. Stoker**345 Standardization, Compatibility and Innovation***by*Joseph Farrell & Garth Saloner**344 Moral Hazard....***by*Joseph Farrell**343 The Economic Effects of Dividend Taxation***by*James M. Poterba & Lawrence H. Summers**342 Dynamic Equilibrium Limit-Pricing in an Uncertain Environment***by*Garth Saloner**341 Duopoly with Time-Consuming Production***by*Garth Saloner**340 The Citizens Utilities Case: A Further Dividend Puzzle***by*James M. Poterba**338 New Evidence that Taxes Affect the Valuation of Dividends***by*James M. Poterba & Lawrence A. Summers**337 An Asymmetric Least Test of Heteroscedasticity***by*J. Powell & W. Newey**336 The Effects of Technical Change, Experience and Environmental Regulation on the Construction Cost of Coal-Burning Generating Units***by*Paul Joskow & N. Rose**310 The Folk Theorem and Repeated Games with Discount and with Incomplete Information***by*E. Maskin & D. Fudenberg

### 1983

**339 Tax Subsidies to Owner-occupied Housing: An Asset Market Approach***by*James M. Poterba**335 The Multiproduct Firm: Horizontal and Vertical Integration***by*E. Helpman**334 Communication in Game I: Mechanism Design without a Mediator***by*J. Farrell**333 The Theory of Implementation in Nash Equilibrium: A Survey***by*E. Maskin**332 Profitability and Market Share***by*B. Stangle & M. A. Adelman**331 Efficient Estimation and Identification of Simultaneous Equation Models with Covariance Restrictions***by*J. Hausman & W. Newey & W. Taylor**330 The Distribution of Inventory Holdings in a Pure Exchange Barter Search Economy***by*J. Yellin & P. Diamond**321 A General Equilibrium Appraisal of Energy Policy in Mexico***by*T. J. Kehoe & J. Serra-Puche**317 Early Impacts of Proposition 2-1/2 on the Massachusetts State-Local Public Sector***by*J. Rothenberg & P. Smoke**314 Regularity in Overlapping Generations Exchange Economies***by*T. J. Kehoe & D. K. Levine**313 Indeterminacy of Relative Prices in Overlapping Generations Models***by*T. J. Kehoe & D. K. Levine

### 1982

**320 A Theory of Dynamic Oligopoly, I: Overview and Quantity Competition with Large-Fixed Costs***by*J. Tirole & E. Maskin**315 Intertemporal Separability in Overlapping Generations Models***by*D. K. Levine & T. J. Kehoe**312 Comparative Statics and Perfect Foresight in Infinite Horizon Economies***by*T. J. Kehoe & D. K. Levine**309 Equilibrium and Disequilibrium Exchange Rates***by*R. Dornbusch**308 A Model of the Managerial Revolution***by*P. Temin**307 On the Profitability of Russian Serfdom***by*M. Machina & E. D. Domar**304 Product Safety, Liability Rules and Retailer Bankruptcy***by*M. J. Simon & R. G. Wolf & J. M. Perloff**303 Incentives and the Allocation of Legal Costs: Products Liability***by*M. J. Simon**302 A General Equilibrium of Domestic Commerce in Mexico***by*T. J. Kehoe & J. Serra-Puche & L. Solis**301 Some Macroeconomic Implications of Alternative Wage Systems***by*M. L. Weitzman**299 The Determination of the Union Status of Workers***by*H. S. Farber**297 Money in Search Equilibrium***by*P. A. Diamond**296 Social Insurance with Variable Retirement and Private Saving***by*J. A. Mirrlees & P. Diamond**295 The Demand for Union Representation***by*H. S. Farber**294 Costs, Technology and Productivity in the U. S. Automobile Industry***by*A. F. Friedlaender & C. Winston & D. K. Wang**293 Expectations and Monetary Policy in an Open Economy: Should Canada Follow U. S. Interest Rates?***by*G. S. Sparks

### 1981

**311 Optimal Auctions with Risk Averse Buyers***by*J. Riley & E. Maskin**292 Specification Tests for the Multinominal Logit Model***by*D. McFadden & J. Hausman**291 Increasing Returns and Unemployment Equilibrium***by*M. L. Weitzman**290 Worker Preferences for Union Representation***by*H. S. Farber**289 Mergers, Competition and Monopoly in the Regulated Trucking***by*J. S. W. Chaing & A. F. Friedlaender**288 Italian Small Business Development Lessons for U. S. Industrial Policy***by*M. J. Piore & C. F. Sabel**286 Convergence in Industrial Relations?***by*M. J. Piore**286-A Macro-Experiments Versus Micro-Experiments for Health Policy***by*J. E. Harris**285 The Theory of Macro-Economic Regulation and The Current Economic Crisis in the U. S***by*M. J. Piore**284 Aggregate Production Functions: Does Fixed Capital Matter?***by*F. M. Fisher**283 A Dual Approach to Regularity in Production Economies***by*T. J. Kehoe**282 On the Simultaneous Existence of Full and Partial Capital Aggregate***by*F. M. Fisher**280 Identification in Linear Simultaneous Equations Models with Covariance Restrictions: An Instrumental Variables Interpretation***by*J. Hausman & W. E. Taylor**279 Price Distortions, Financing Constraints and Second Best Investments Rules in the Transportation Industries***by*A. Friedlaender & S. C. Mathur**278 Union Wages and the Minimum Wage***by*H. S. Farber**277 Bayes and Empirical Bayes Methods for Combining Experiments in Man and Other Species***by*W. DuMochel & J. Harris

### 1980

**276 Pictures of Egypt's Future***by*R. S. Eckaus & Y. Boutros-Ghali & A. M. Eldin & R. Feenstra**275 An Exact Small Test of Non-Nested Hypothesis***by*M. L. Weitzman**271 Uniqueness of Equilibrium in Production Economics***by*T. Kehoe**268 Aggregate Demand Management in Search Equilibrium***by*P. Diamond**267 Prenatal Medical Care and Infant Mortality***by*J. Harris**266 Comparing Specification Tests and Classical Tests***by*J. A. Hausman & W. E. Taylor**265 Consequences of Changes in Subsidy Policy in Egypt***by*R. S. Eckaus & A. M. Eldin**265-A Labor Force Macroeconomics in Egypt: Structure of a General Equilibrium Model***by*Y. Boutros-Ghali & L. Taylor**264 Cigarette Smoking Among Women and Men in the United States***by*J. Harris**263 On a General Approach to Search and Information Gathering***by*M. Weitzman & K. W. S. Roberts**262 Exchange Risk and Macroeconomics of Exchange Rate***by*R. Dornbusch**258 On the Efficiency of Keynesian Equilibrium***by*E. Maskin & J. Tirole**257 Mobility Costs, Frictional Unemployment and Efficiency***by*P. Diamond**256 Inflation, Unemployment and Public Opinion***by*S. Fischer & J. Huizinga**255 Panel Data and Unobservable Individual Effects***by*J. A. Hausman & W. E. Taylor**254 The Effect of Taxes on Labor Supply***by*J. A. Hausman

### 1979

**249 Foreign Ownership and the Theory of Trade and Welfare***by*J. N. Bhagwati & R. A. Brecher**248 Dynamic Inconsistency, Co-operation and the Benevolent Dissembling Government***by*S. Fischer**247 Relative Prices, Employment and the Trade Balance in a Model With International Goods***by*R. Dornbusch**246 Effects of Construction Migration on the Egyptian Economy***by*R. S. Eckaus**245 Siting Nuclear Power Plants***by*Y. Joskow & J. Yellin**244 The Effects of Competition and Regulation on Hospital Bed Supply and the Reservation Quality of the Hospital***by*Y. Joskow**243 Revenue-Seeking: A Generalization of the Theory of Tariffs***by*J. Bhagwati & T. N. Srinivasan**242 An Analysis and Evaluation of Final Offer Arbitration***by*H. S. Farber**241 Imperfect Information, Costly Litigation and Product Quality***by*M. Simon**240 Reflections on Fiscal Policy***by*E. C. Brown**239 The 'Ratchet Principle' and Performance Incentives***by*M. Weitzman**238 The Effect of Wages, Taxes and Fixed Costs on Women's Labor Force Participation***by*J. Hausman**237 An Equilibrium Analysis of Search and Breach of Contract, II: A Non-Steady State Example***by*P. Diamond & E. Makin**236 An Overview of Real Economic Development in the Middle East Since 1973***by*R. S. Eckaus**235 Modes of Economic Behavior: Variations on Themes of J. R. Hicks and Herbert Simon***by*P. Temin**234 Funding Criteria for Research, Development and Exploration Projects***by*M. L. Weitzman & K. Roberts**233 Multisector General Equilibrium Policy Models for Egypt***by*R. S. Eckaus et al.**232 Neighborhood Deterioration and the Urban Housing Market Complex***by*J. Rothenberg**231 Stability, Disequilibrium Awareness, and the Perception of New Opportunities***by*F. Fisher**230 Sterling and the External Exchange***by*R. Dornbusch**229 Voting Schemes for Public Alternatives: Some Notes on Majority Rule***by*E. Maskin**228 Monetary Policy Under Exchange Rate Flexibility***by*R. Dornbusch

### 1978

**227 Rational Expectations With Market Power: The Paradox of the Disadvantageous Tariff***by*E. Maskin & D. Newbery**226 Diagnosing Monopoly***by*F. M. Fisher**225 Uncertainty and Optimal Social Security Systems***by*E. Sheshinski & Y. Wiess**224 National Welfare in an Open Economy in the Presence of Foreign Owned Factors of Production***by*J. Bhagwati & R. Brecher**223 The Evolution of the Modern Pharmaceutical Industry***by*P. Temin**222 The Origin of Compulsory Drug Prescriptions***by*P. Temin**221 An Equilibrium Analysis of Search and Breach of Contract, I***by*P. Diamond & E. Maskin**220 Inventories, Rational Expectations, and the Business Cycle***by*A. S. Blinder & S. Fischer**219 On Inferring Resource-Allocational Implications Feom DRC Calculations in Trade-Distorted Open Economics***by*J. N. Bhagwati & T. N. Srinivasan**218 Regulation in Theory and Practice: An Overview***by*P. L. Joskow & R. G. Noll**217 Optimal Taxation in a Stochastic Economy: A Cobb-Douglas Example***by*P. Diamond & J. Helms & J. Mirrlees**216 Implementation and Strong Nash Equilibrium***by*E. Maskin**215 On the Relations Between Econometric Sectoral And Macro Models***by*F. M. Fisher**214 Optimal Search for the Best Alternative***by*M. L. Weitzman

### 1977

**213 Taxing Tar and Nicotine***by*J. E. Harris**212 Interest Arbitration, Outcomes and the Incentive to Bargain: The Role of Risk Preference***by*H. S. Farber & H. C. Katz**211 The Effect of Taxation on Labor Supply: Evaluating the Gary Negative Income Tax Experiment***by*G. Burtless & J. A. Hausman**210 A Model of Social Insurance With Variable Retirement***by*P. A. Diamond & J. A. Mirrlees**209 The Effects of Learning by Doing on Nuclear Plant Operating Reliability***by*P. L. Joskow & G. A. Rozanski**208 Pricing Rules for Hospitals***by*J. E. Harris**207 Anticipation and the Non-Neutrality of Money II***by*S. Fischer**206 Call Option Pricing When the Exercise Price Is Uncertain and the Valuation of Index Bonds***by*S. Fischer**205 Shadow Prices in Project Evaluation With and Without Distortions, and With Many Goods and Factors***by*J. N. Bhagwati & H. Wang, Jr.**204 Value Subtracted, Negative Shadow Prices of Factors in Project Evaluation and Immiserizing Growth: Three Paradoxes in the Presence of Trade Distortions***by*J. N. Bhagwati & T. N. Srinivasan & H. Wan, Jr.**203 Hedonic Cost Functions for the Trucking Industry***by*R. H. Spady & A. F. Friedlander**202 A Regional Economic Policy Simulation Model***by*G. Treys & A. Friedlander & B. H. Stevens**201 Explaining the Relative Efficiency of Slave Agriculture in the Antebellum South: Comment***by*P. A. Diamond & P. Temin**200 Non-Random Missing Data***by*J. A. Hausman & A. M. Spence**199 Capital Taxation in a Dynamic General Equilibrium Setting***by*A. F. Friedlaender & A. F. Vandendorpe**198 Quality and Quantity Competition***by*A. Dixit**197 Resource Extraction and Recycling With Environmental Costs***by*M. Hoel**196 Resource Extraction When a Future Substitute Has an Uncertain Cost***by*M. Hoel**195 Tax Incidence in a Two Good Model***by*P. Diamond**194 The Effect of Simple Specification Error on the Coefficients of 'Unaffected' Variables***by*F. M. Fisher

### 1976

**193 Optimal Revenue Functions for Economic Regulation***by*M. L. Weitzman**192 Welfare Analysis of Imperfect Information Equilibria***by*P. Diamond**191 Contractionary Effects of Devaluations***by*P. Krugman & L. Taylor**190 Endogenous City-Suburb Governmental Rivalry Trough Household Location***by*J. Rothenberg**189 On the Microeconomics of Internal Migration***by*J. Rothenberg**188 Keynesian Models of Unemployment***by*H. R. Varian**187 A Remark on Boundary Restrictions in the Global Newton Method***by*H. R. Varian**186 Commercial Impossibility, the Uranium Market, and the Westinghouse Case***by*P. L. Joskow**185 Specification Tests in Econometrics***by*J. A. Hausman**184 Organizational Failure in Hospitals: An Analysis and a Proposal***by*J. E. Harris**183 The Theory of Effective Protection and the Stolper-Samuelson Theorem***by*Y. Uekawa**182 The Theory of Effective Protection and Resource Allocation: The Many-Industry Case***by*Y. Uekawa**181 The Post-Bellum Recovery of the South and The Cost of the Civil War***by*P. Temin**180 Shadow Prices for Project Selection in the Presence of Distortions: Effective Rates of Protection and Domestic Resource Costs***by*T. N. Srinivasan & J. N. Bhagwati**179 Market Behavior With Demand Uncertainty and Price Inflexibility***by*D. W. Carlton**178 Comparative Advantage, Trade and Payments in a Ricardian Model With a Continuum of Goods***by*R. Dornbusch & S. Fischer & P. A. Samuelson