In this presentation we briefly review two approaches to collusion at auction, ring mechanisms and pre-auction bribe offers, that are found in the literature. Included in the ring mechanism discussion are the questions of how a mechanism is decided upon and how a ring could negotiate for a grand coalition, places where bargaining and signaling games like those of pre-auction bribe offers may add understanding. Finally, in the pre-auction bribe offer category, a proposed mechanism currently under development using a double bribe offer is presented along with its first result in the complete information case.

Based on the economics of cultural transmission literature, this paper introduces a generalized representation of the formation of continuous cultural values (traits) in the socialization process. We define the culture of a person as a set of cultural values and introduce a cultural formation of preferences framework that models the culture of a child as the collective outcome of all socialization influences that it experiences. Thereby, a socialization influence is constituted by the chosen cultural behavior (demonstrated culture) of a person and the (relative) success that it has in the socialization process of the child. By restricting the set of agents from which a child socially learns in the socialization period to the adult generation only, we can endogenize the cultural formation of preferences process as resulting out of the optimal parental choices of their demonstrated culture (which constitutes a strategic interaction choice) and their (relative) success in the socialization process of their child. We apply this framework to an OLG environment, where the society is populated by two distinct cultural groups and analyze the endogenous evolution of the distances between the cultures of the groups.

We present an endogenous growth model with externalities of capital and elastic labour supply where we allow for public debt and public spending that is welfare enhancing. We analyze effects of different debt policies on stability and how these policies affect long-run growth and welfare. The following budgetary rules are considered: The balanced budget rule, a budgetary rule where debt grows in the long-run but at a rate lower than the balanced growth rate and a rule where public debt grows at the same rate as all other economic variables but that guarantees that the inter-temporal budget constraint is fulfilled.

This paper examines the question to what extent premia for macroeconomic risks in banking are sufficient to avoid banking crises. We investigate a competitive banking system embedded in an overlapping-generations model subject to repeated macroeconomic shocks. We show that even if banks fully incorporate macroeconomic risks into their pricing of loans, a banking system may enter bankruptcy with probability one. A major cause for this default is that risk premia of a competitive banking system may become too small if the capital base is low.

This note contains two remarks on the traditional capital asset pricing model (CAPM) with one risk-free asset. Firstly, an elementary proof ot the two-fund separation theorem is provided showing that asset-demand may become undefined if teh limiting slope of the investor's indifference curves is finite. Secondly, it is shown that an additional limiting condition on the risk aversion is generally necessary to guarantee existence of an equilibrium in the CAPM with one risk-free asset. The role of these two limiting conditions seems to have been overlooked in the established literature. A generalized existence result is formulated which allows for the case in which in equilibrium not all investors participate in the market for risky assets.

We explore the impact of sophistication in risk management, as required by Basel II, on banking stability and market conditions. We compare a competitive banking system in which only average ratings are available with a competitive system in which banks are able to assess the default risk of individual firms. Sophistivation in banking lowers deposit and loan-interest rates and hence decreases default probabilities of individual entrepreneurs. Sophistication decreases the default probability of banks only if the level of initial equity is sufficiently high. Otherwise banking stability declines.

This survey review a dynamic mulit-asset framwork in which heterogeneous agents with multi-period planning horizons interact. This framework distinguishes between temporary equilibrium maps describing the basic market mechanism of an asset market, forecasting rules which model the way in which expectations are formed, and a model for exogenous random perturbatins. Perfect forecasting rules which provide correct forecasts for first and second moments of future prices are intorduced. Based on these perfect forecasting rules, fundamental concepts of the traditional CAPM are extended to a setting in which beliefs are not homogeneous. We review a multi-fund separation theorem and introduce the notion of a generational portfolio which is held by investors with homogeneous beliefs and identival planning horizons. It is shown that social interaction among consumers may endogenously create risk leading to non-ergodic behavior of asset prices. The stochastic dynamics of asset prices, beliefs, portfolio holdings, and market shares are illistrated with numerical simulations.

This paper studies the role of information about uncertain input prices for a competitive firm. The production decision has to be taken when the price of an input factor is perceived a random. However, a signal is observable in advance, conveying some information about the future factor price. Transparency is linked to the informational content of this signal and ordered by a statistical sufficiency criterion. The impact of a higher level of transparency is analyzed from an ex ante perspective, i. e. before the information signal is observed. The effect on factor use, production amount and cost is crucially dependent on the relation of the curvature of total and marginal product, while ex ante profit always increases.

This paper uses the framework of an OLG economy for an analysis of the dynamic interaction between the precision of information about individual skills, investment in education, human capital accumulation and social welfare. The human capital of an individual depends on both his (subjectively) random ability and his investment in education. Individual investment in education is financed through a loan contract with income-contingent terms of repayment. Investment decisions are based on public signals (test outcomes) which screen all agents for their abilities. We find that better information, which allows more efficient screening, enhances aggregate human capital formation but may, at the same time, stifle aggregate investment in education. Moreover, social welfare may increase or decline depending on the transformation technology and on the relative measure of risk aversion.

We analyze the importance of information about individual skills for understanding human capital accumulation and income inequality. The paper uses the framework of an overlapping generations economy with endogenous investment in human capital. Agents in each generation differ by random individual ability, or talent, which affects the screening process. The human capital of an agent depends on both his talent and his investment in education. The investment decision is based on a public signal (test outcome), which screens all agents for their talents. We analyze how a better information system, which allows more efficient screening, affects investment in education and, hence, income inequality in equilibrium. As a main result, we find that, typically, less inequality in the distribution of actual incomes can only be achieved at the expense of more inequality in the distribution of income opportunities.

This paper discusses necessary optimality conditions for multi-objective optimization problems with application to the Second Theorem of Welfare Economics. We use the extremal principle, since we consider non-convex sets and non-smooth functions. Particularly, we develop a slight generalization of the main result of A. Jofr´e and J. Rivera Cayupi in [9], which allows more flexibility in a stochastic economy with production and stock market. Formally, we define a stock market equilibrium through the necessary optimality conditions at a constrained Pareto optimal allocation. We show that the Second Theorem of Welfare Economics holds in a two-period framework. But, by mean of an example, we show that this later result is no longer true for multi-period economies.

We examine the implications of uncertainty over patent validity on patenthold- ers’ licensing strategies. Two licensing schemes are investigated: the per-unit royalty rate and the up-front fee. We provide conditions under which uncertain patents are licensed in order to avoid patent litigation. It is shown that while it is possible for the patentholder to reap some "extra pro…t" by selling an uncer- tain patent under the per-unit royalty scheme, the opportunity to do so does not exist under the up-front fee scheme. We also establish that the relatively high bargaining power the licensor has even when its patent is weak can be reduced if the patentholder cannot refuse to license an unsucessful challenger or if collective challenges are allowed for. Furthermore we show that the patentee may prefer to license through the per-unit royalty mechanism rather than the …xed fee mecha- nism if its patent is weak whereas it would have preferred the latter to the former if the patent were strong. This …nding gives a new explanation as to why the per-unit royalty scheme may be preferred by a patentholder to the up-front fee scheme.

This paper investigates the choice of an intellectual protection regime for a process inno- vation. We set up a multi-stage model in which choosing between patent and trade secrecy is a¤ected by three parameters : the patent strength de…ned as the probability that the right is upheld by the court, the cost of imitating a patented innovation relative to the cost of imitat- ing a secret innovation, and the innovation size de…ned as the extent of the cost reduction. The choice of the protection regime is the result of two e¤ects: the damage e¤ect evaluated under the unjust enrichment doctrine and the e¤ect of market competition that occurs under the shadow of infringement. We …nd that large innovations are likely to be kept secret whereas small innovations are always patented. Furthermore, medium innovations are patented only when patent strength is su¢ ciently high. Finally, we investigate a class of licensing agreements used to settle patent disputes between patent holders and their competitors.

Economic theory views patents as policy instruments aimed at fostering innovation and diffusion. Three major implications are drawn regarding current policy debates. First, patents may not be the most effective means of protection for inventors to recover R&D investments when imitation is costly and first mover advantages are important. Second, patentability requirements, such as novelty or non-obviousness, should be sufficiently stringent to avoid the grant of patents for inventions with low social value that increase the social cost of the patent system. Third, the trade-off between the patent policy instruments of length and breadth could be used to provide sufficient incentives to inventions with high social value. Beyond these three implications, economic theory also pleads for a mechanism design approach to the patent system, where an optimal patent system could be based on a menu of different degrees of patent protection with stronger protection corresponding to higher fees.

We reformulate Grandmont's and its successors' notion of behavioral heterogeneity such as to get the exact insensitivity of the aggregate budget share function with respect to changes in prices and income, instead of a mere approximate insensitivity. We propose a non parametric set-up such that, if the population is distributed according to some \uniform" probability measure, the aggregate budget share function is constant. The important contribution is that this exact insensitivity is not explained by any insensitivity at the microeconomic level but rather by an exact "balancing e®ect". We give illustrative examples of populations that ful¯ll our requirements.

This article is devoted to the study of the Pareto-e¢ ciency of the compet- itive equilibrium for a simple overlapping generations economy with endoge- nous fertility. For CES utility and production functions, it is proved that the economic properties of the economy are closely related to the two elasticities of substitution. First, the competitive equilibrium exists and is unique if the sum of the two elasticities is not smaller than one. Secondly, a set of para- meters is provided such that the equilibrium is both in under-accumulation and ine¢ cient. Thirdly, a su¢ cient condition is proved that ensures that an equilibrium converging in under-accumulation is Pareto-e¢ cient: the sum of the two elasticities must not be greater than two.

This paper is devoted to the study of the Pareto-efficiency of the competitive equilibrium for an overlapping generations economy with endogenous fertility. Pareto-efficiency needs a reformulationwhen fertility is endogenous. Then it is proved that a competitive equilibrium that converges in over-accumulation is non-Pareto-efficient. However, we provide an example in which a competitive equilibrium that converges in under-accumulation is non-Pareto-efficient. Finally, we give a general condition that ensures the Pareto-efficiency of the competitive equilibrium.

Since the seminal paper of Ghirardato, it is known that Fubini Theorem for non-additive measures can be available only for functions defined as "slice-comonotonic". We give different assumptions that provide such Fubini theorems in the framework of product σ-algebras.

This paper presents a characterization of weak risk aversion in terms of preference for sure diversification. Similarly, we show that strong risk aversion can be characterized by weakening preference for diversification, as introduced by Dekel [11], in what we name preference for strong diversification.

In this paper we present an endogenous growth model with human capital, heterogenous agents and unemployment. Two types of households are considered. One household acquires human capital or skills through education while the other household remains low-skilled. Sustained growth is the result of human capital accumulation which is a function of the existing human capital employed in the educational sector and of public spending for teaching materials. Both households are affected by unemployment and, if so, receive unemployment benefits. The government levies an income tax and uses its revenues to pay unemployment benefits, to finance transfers to the low-skilled household and to finance human capital accumulation. The paper studies growth and welfare effects of economic policy and presents a stability analysis of the model.

This paper uses experimental data to examine the existence of a teaching strategy among bounded rational players. If players realize that their own actions modify their opponents’ beliefs and actions, they might play certain actions to this specific end; and forego immediate payoffs if the expected payoff gain from a teaching strategy is high enough. Our results support the existence of a teaching strategy in several ways: First they show that players update their beliefs in order to take account of the reaction of their opponents to their own action. Second, we examine if players actually use a teaching strategy by playing an action that induces a poor immediate payoff but is likely to modify the opponent’s behavior so that a preferable outcome might emerge in the future. We find strong evidence of such a strategy in the data and confirm this finding within a logistic model which suggests that the future expected payoff that could arise from a teaching strategy has indeed a significant impact on choice probabilities. Finally, we investigate the effective impact of a teaching strategy on achieved outcomes and find that efficient teachers can successfully use teaching in order to reach their favorite outcome at the expense of their opponents.

The paper studies the impact of higher transparency about future factor import prices on a small open economy. Production decisions have to be taken when the price of an input factor is perceived as random. However, a signal is publicly observable in advance, conveying some information about the future import price. Transparency is linked to the informational content of this signal and ordered by a statistical sufficiency criterion. The impact of a higher level of transparency is analyzed from an ex ante perspective, i.e. before the information signal is observed. The results for import, production and export are crucially dependent on the relation of the curvature of total and marginal product, while ex ante consumption always increases.

In this paper we present a dynamic model of a firm which decides whether to outsource parts of its production to a less developed economy where wages and the level of technology are lower. Outsourcing reduces production costs but is associated with spillovers to foreign potential competitors. Spillovers over time increase productivity of firms in the foreign country and make them stronger competitors on the common market. The paper analyzes the inter-temporally optimal behavior of the firm and shows that two outcomes are possible in the long-run. There is one steady state where the firm invests a positive amount in the foreign country and there is a continuum of steady states with no investment. The paper then derives conditions such that it is optimal for the firm to invest in the foreign country. In addition, using numerical dynamic optimization methods, the effect of the speed of technology adoption and of the wage differential on total labor income in the home country, is studied taking into account the transition dynamics.

The paper studies the relationship between two approaches for ranking information structures: Blackwell's sufficiency criterion and two criteria based on the sensitivity of the posterior state distributions with respect to changes in the signal. For this purpose Blackwell's criterion is reformulated using posterior distribution functions. It is shown that only in the case of binary information structures the former concept implies the latter ones and in general there is no inclusion.

In this paper we examine in a game theoretic framework in how far market conditions facilitating start-up formation positively affect technical change and firms' profits. We consider a model in which R\&D efforts of an incumbent firm generate technological know-how embodied in key R\&D employees, who might use this know-how to form a start-up. Market conditions, in particular the availability of complementary assets, influence whether new firms are created and determine expected profits for start-up-founders. Easy availability of complementary assets has the direct effect that the generation of start-ups, which leads to the diffusion and duplication of know-how, is fostered. However, incentives of incumbent firms to invest in R\&D might be reduced because of the increased danger of knowledge loss through spin-out formation. We fully characterize the effects of an increase in the availability of complementary assets, demonstrating that under certain market conditions the effects on innovative activities and industry profits can be negative.

We investigate the asset prices dynamics and the long-run market shares of two competing financial mediators who are selected by consumers. We demonstrate that the social interaction among consumers constitutes an endogenous path-depending source of risk in a financial market. Depending on consumers’ evaluation of the mediator’s investment, asset prices may behave in a non-ergodic manner: the price process converges in distribution but the limiting distribution is not necessarily uniquely determined, its multiplicity being characterized by the multiplicity of possible long-run market shares. The convergence of the process is sensitive to initial conditions and depends on the history of noise-trader transactions. Long-run portfolio holdings may be in-efficient since investors holding mean-variance efficient portfolios may not be identified.

We investigate the question of whether sophistication in risk management fosters banking stability. We compare a simple banking system in which an average rating is used with a sophisticated banking system in which banks are able to assess the default risk of entrepreneurs individually. Both banking systems compete for deposits, loans, and bank equity. While a sophisticated system rewards entrepreneurs with low default risks by low loan interest rates, a simple system acquires more bank equity and finances more entrepreneurs. Expected repayments in a simple system are always higher and its default risk is lower if productivity is sufficiently high. Expected aggregate consumption of entrepreneurs, however, is higher in a sophisticated banking system.

This paper uses an overlapping generations framework to analyze the implications of different financing regimes in the education sector for human capital formation and economic welfare. Agents privately invest in education after they have received a noisy information signal about their abilities. The incentives of the individuals to invest in education are determined by the financing regime under which the economy operates. The paper analyzes and compares three financing regimes. Under each regime, the payback obligation of an educational loan is contingent, to some extent, on an individual's future income.

In this paper a quantity-setting duopoly is considered where one firm develops a new product which is horizontally differentiated from the existing product. The main question examined is which strategically important effects occur if the decision to develop the innovation and the decision to introduce the new product in the market are separated. In our multi-stage game the firm's launch decision is explicitly taken into account and we find an equilibrium where the competitor of the potential innovator strategically over-invests in process innovation. In this equilibrium the competitor over-invests in order to push the potential innovator to introduce the new product since this reduces the competition for the existing product. It is shown that this effect has positive welfare implications in comparison with the case where the innovator commits ex ante to launching the new product.

This paper deals with the strategic reaction of firms to competitive threats stemming from newly developed products of current competitors. Due to the fact that product innovation projects go through multiple time consuming stages with multiple continuation/termination decisions, competitors can react to the threat {\bf before} the new product is introduced and thereby may prevent or facilitate the product introduction. We consider a quantity-setting duopoly model where Firm 1 can start a two-stage product innovation project for obtaining a horizontally and vertically differentiated product. In-between the two stages Firm 2 can react by investing in cost-reducing process innovation. We find that under weak vertical differentiation Firm 2 wants Firm 1 to innovate. Horizontal differentiation softens competition and Firm 2 over-invests in process innovation to induce Firm 1 to launch the new product. Second, under strong vertical differentiation Firm 1 starts the product innovation project --triggering under-investment by Firm 2 -- but never finishes it. The under-investment leads to higher production costs for Firm 2, which induces Firm 1 not to innovate. Third, under very strong vertical differentiation Firm 2 prevents a launch of the new product by over-investing in process innovation. Due to the strong decrease in production costs Firm 2 captures such a big market share that Firm 1 will not introduce the new product. In such a scenario the situation of Firm 1 in the old market also has become worse, and therefore the option to complete the innovation, which is created by initiating the first stage of the innovation project, has a negative value for Firm 1.

We study network formation in a strategic setting where every agent strives for short paths to the other agents. The main parameter of our model is the marginal rate of substitution between network benefits and linking costs. We provide boundaries of stable networks for increasing and decreasing marginal returns. The formulated model stands in strong relation to the famous connections model (Jackson and Wolinsky ‘96): we show that for certain parameter values both models induce the same network structures.

In this paper we study competitive outcomes and endogenous coalition formation in a cooperative n-person transferable utility (TU) game from the viewpoint of general equilibrium theory. For any given game, we construct a competitive exchange coalition production economy corresponding to the game. First, it is shown that the full core of a TU game is not empty if and only if the completion of the game is balanced. The full core is defined free of any particular coalition structure and the coalitions of the game emerge endogenously from the full core. Second, it is shown that the full core of a completionbalanced general TU game coincides with the set of equilibrium payoff vectors of its corresponding economy and that the coalition structures of the game are endogenously determined by the equilibrium outcomes of the economy. As a consequence, the core of a balanced general TU game coincides with the set of equilibrium payoff vectors of its corresponding economy.

We study the impact of transparency in a commodity market on the decision problem of a competitive firm under price uncertainty and hedging opportunities. Market transparency is modeled by means of the informational content of publicly observable signals which are correlated with the random price. We find that the impact of more transparency on labor employment and production depends on the firm’s technology. In particular, more transparency may result in lower average output even though on average more labor has been used in the production process. We also analyze the link between market transparency and the welfare of the firm.

Abstract: Howard (1992) argues that the Nash bargaining solution is not Nash implementable, as it does not satisfy Maskin monotonicity. His arguments can be extended to other bargaining solutions as well. However, by de.ning a social choice correspondence that is based on the solution rather than on its realizations, one can overcome this shortcoming. We even show that such correspondences satisfy a stronger version of monotonicity that is even su.cient for Nash implementability.

Abstract: In this paper we study the basic endogenous growth model with externalities of capital and elastic labour supply and analyze how budget rules affect stability of the economy. The government levies an income tax with a constant rate and finances public expenditures which are neither productive nor welfare enhancing. Two budget rules are analyzed. The first is the inter-temporal budget constraint of the government, the second is the balanced budget rule. The paper demonstrates that the balanced growth path in the economy with a balanced budget is unique and saddle point stable. The economy with public deficits yields a unique balanced growth path which is either saddle point stable or unstable. Further, the balanced budget rule yields a higher long-run growth rate. JEL: E62, H61, O41 Keywords: Balanced Budget, Inter-temporal Budget Constraint, Externalities, Endogenous Growth, Stability

This paper analyzes the dynamic interactions between the precision of information, technological development, and welfare within an overlapping generations model. More precise information about idiosyncratic production shocks has ambiguous effects on technological progress and welfare, which depend critically on the risk sharing capacity of the economy's financial system. Two effects are at work: (i) more precise information allows agents to make better decisions but restricts the scope for risk sharing (the `uncertainty-related effect') and (ii) more precise information, by changing R\&D investment, may have a long-lasting effect due to the model's intertemporal production externality (the `externality-related effect'). For example, if agents can fully share their production risks after the signals are observed, more precise information adversely affects the equilibrium risk allocation and often creates a negative uncertainty-related welfare effect. But in most cases more precise information at the same time accelerates technological progress and thereby creates a positive externality-related welfare effect.

In this paper we present an endogenous growth model with productive public capital and environmental pollution. Emissions result from production and raise the stock of pollution that negatively aects utility of the household. The govern- ment levies an income tax and a tax on emissions and uses its revenues for public investment and for abatement of pollution. The paper studies the structure of the model assuming three dierent scenarios and analyzes how the latter aect the bal- anced growth rate of the economy. The rst scenario posits that abatement is set such that the stock of pollution is constant, in the second scenario pollution declines over time and, in the third scenario, pollution grows at the same positive rate as the economic variables.

In this paper we analyze the effects of a modified Yardstick competition on firms’ cost reduction efforts. Departing from the existing literature, we use a relative cost-plus approach : firms are regulated on the basis of other firms’ performances, but they are granted a mark-up and not a lump-sum transfer in order to be compensated for their investments. We show that the tension between static and dynamic efficiency under individual cost-plus regulation disappears under relative cost-plus regulation and as a result the latter regime dominates the first one, whenever it can be implemented. Furthermore, we extend our model by including technical spillovers and we investigate their effects on firms’ cost reduction efforts and on the efficiency of the whole industry. Finally, we allow for quality enhancing investments and study the interaction between this kind of investments and cost reduction investments.

This paper presents an endogenous growth model with public capital and public debt. The government finances productive and unproductive public spending through income taxation and through public deficits. In addition, the primary surplus to GDP ratio is set such that it is a positive function of the debt ratio which is a necessary condition for the inter-temporal budget constraint of the government to be fulfilled. The paper then studies growth and welfare effects of the model assuming a balanced government budget and compares the outcome to the scenario where public debt grows in the long-run, but at a smaller rate than capital and consumption, and to the scenario where public debt grows at the same rate as capital and consumption. The analysis is undertaken both for the model on the balanced growth path as well as for the model on the transition path.

This paper investigates a financial market in which overlapping cohorts of investors with linear mean-variance preferences and multiperiod planning horizons of arbitrary finite length interact. Given heterogeneous subjective beliefs, the temporary equilibrium map determining market clearing prices is calculated explicitly. We introduce the concept of perfect forecasting rules for first and second moment beliefs which generate rational expectations and provide conditions under which these forecasting rules exist. We establish a (J+1)-fund separation theorem showing that under homogeneous beliefs investors with identical multiperiod planning horizons hold portfolios with equal proportions of risky assets.

In this paper we study the impact of more transparency in the foreign exchange market on the ex ante expected volume of international trade. Transparency is measured by the informational content of publicly observable signals. These signals convey information about the use of policy instruments which affect the future exchange rate. We find that a higher level of transparency may increase or decrease the volume of international trade. In particular, the impact of greater transparency depends on the curvature of the firms' marginal cost function. Furthermore, the firms ex ante expected profits are higher when the foreign exchange market is more transparent.

In the present paper we study the equilibrium interaction through which the interbank market is related to the public lending and borrowing market. It turns out that this interaction is affected by the transparency in the interbank market. Interbank market transparency is modeled by means of more informative signals about future interbank rates. We find that more transparency might increase or decrease the volume of bank intermediated loans in the public market. In particular, the impact of more transparency on the volume of loans depends on the curvature of the marginal cost function of the banking firm. Furthermore, we find that expected profits of the bank are higher when the interbank market is more transparent.

This paper studies effects of fiscal policy in an endogenous growth model with human capital and heterogenous agents. Two types of households are considered. One household acquires human capital or skills through education while the other household remains unskilled. Sustained growth is the result of human capital accumulation which is a function of the existing human capital employed in the educa- tional sector and of public spending for education. Aggregate production is given by a function with physical capital and labor as input factors, where total labor input is modelled by a CES function with skilled and unskilled labor as arguments. The paper studies effects of fiscal policy as concerns long-run growth and the distribution of income as well as concerns welfare of the two households.

In this paper we examine the trade off between different effects of the availability of venture capital on the speed of technological progress in an industry. We consider an evolutionary industry simulation model based on Nelson and Winter (1982) where R\&D efforts of an incumbent firm generate technological know-how embodied in key R\&D employees, who might use this know-how to found a spinoff of the incumbent. Venture capital is needed to finance a spinoff, and therefore the expected profits from founding a spinoff depend on how easily venture capital can be acquired. Accordingly, thick venture capital markets might have two opposing effects. First, incentives of firms to invest in R\&D might be reduced and, second, if spinoff formation results in technological spillovers between the parent firm and the spinoffs, the generation of spinoff firms might positively influence the future efficiency of the incumbent's innovation efforts. We study how this tradeoff influences the effect of venture capital on the innovation expenditures, speed of technological change and the evolution of industry concentration in several scenarios with different industry characteristics.

We consider an OLG economy with endogenous investment in human capital. Heterogeneity in individual human capital levels is generated by random innate ability. The production of human capital depends on each individual's investment in education. This investment decision is taken only after observing a signal which is correlated to his/her true ability, and which is used for updating beliefs. Thus, a better information system affects the distribution of human capital in each generation. Assuming separable and identical preferences for all individuals, we derive the following results in equilibrium: (a) If the relative measure of risk aversion is less (more) than 1 then more information raises (reduces) income inequality. (b) When a risk sharing market is available better information results in higher inequality regardless of the measure of risk aversion.

We consider an industry with a vertical structure and Bertrand competition with heterogeneous goods at the downstream market. There are two different firms, the network provider and a competitor. The network provider determines in a first stage the quality level of the infrastructure. In a second stage he competes with his rival at the downstream market. Thereby the network access is an essential input for serving the downstream market. According to Dixit and Stiglitz (1977) we assume that downstream demand shows itself as quality sensitive. In this context, we introduce and analyze different access pricing rules (ECPR and cost based access tariffs). Furthermore we examine cases of complete integration and liberalization without access price regulation. Following Buehler et al (2004) we compare investment incentives. In addition we investigate the social welfare generated in the different scenarios in a numerical example. As an interesting result we discover that a high level of quality does not necessarily induce a high level of social welfare. This is due to the different grades of competition under the various access pricing rules. Further, we show that a higher restriction on setting the access tariff leads to a smaller infrastructure quality. Keywords: Access Pricing, Investment Incentives, Infrastructure Quality.

Abstract: This paper presents an endogenous growth model with human capital, where human capital formation is the result of public education. The government finances expenditures in the schooling sector by the tax revenue and by public deficit. In addition, the government sets the primary surplus such that it is a positive linear function of public debt which guarantees that public debt is sustainable. The paper analyzes the structure of the growth model and derives implications of public debt. Further, a sensitivity analysis of the dynamics of the model is presented and it is demonstrated that for certain parameter values the model may produce multiple balanced growth paths and sustained cycles. Keywords: Human Capital, Public Education, Sustainability, Endogenous Growth

We present a numerical case study of the dynamics of a financial market in which heterogeneous investors described by linear mean–variance preferences and multiperiod planning horizons interact. The focus is on the induced price, portfolio, and wealth processes as well as on the transaction volume. Numerical evidence is provided that multiperiod planning horizons are a natural source of empirically observed clustered volatility and that heterogeneous planning horizons may amplify booms and busts.

This paper formalizes the price and asset allocation mechanism of multi-unit double auctions in Xetra, the electronic equity trading system operated by the German stock exchange. The trading principles are embedded into the classical theory of quantity rationing. The properties of Xetra auctions are investigated and possibilities to improve the auction mechanism are discussed.

The relationship between growth and pollution is studied through a vintage capital model, where new technology is more environmentally friendly. We find that once the optimal scrapping age of technologies is reached, an economy may achieve two possible cases of sustainable development, one in which pollution falls and another in which it stabilizes, or a catastrophic outcome, where environmental quality reaches its lower bound. The outcome will depend on countries' investment path and their propensity to innovate in environmentally clean technologies, both of which are likely to differ across economies. Empirical results using long time series for a number of developed and developing countries indeed confirm heterogenous experiences in the pollution-output relationship. Keywords: Environmental quality, sustainable economic development, vintage capital model, EKC

We investigate an extension of Dekel, Ely and Yilankaya's (2004) treatment of the evolution of preference to more general, possibly nonexpected utility preferences. Along the lines of their analysis we consider a population of types that is repeatedly and randomly matched to play the mixed extension of any given symmetric two-player normalform game with complete information. In our setup, a type is a generic best-response correspondence that is assumed to satisfy only standard assumptions. Preferences evolve according to the ``succes'' of the player which is determined by the payoff she receives in the game. As in Dekel, Ely and Yilankaya (2004), the players observe the type of their opponent and a Nash equilibrium according to their best responses is played. We show that Dekel, Ely and Yilankaya's result that stability of an outcome implies efficiency is robust in this more general setup. However, in our model we obtain full equivalence between the two concepts for 2x2 games. We show that efficiency of any strategy also implies the stability of the outcome that it induces. This is in contrast to the former work in which only efficiency of a pure strategy leads to a stable outcome. The result implies the existence of a stable outcome in any 2x2 game. Considering the class of rank-dependent expected utility preferences as example we discuss the model's ability to embed specific types of non-expected utility theories. Moreover, we study implications for well-established games like the prisoner's dilemma. Keywords: Evolution of Preferences, Non-Expected Utility Theory, Best-Response Correspondence, Stability, Efficient Strategy