Taxation and risk taking are examined in a general equilibrium mode/ that incorporates uncertain government revenue and allows the government to influence risk through portfolio investments as well as through tax r policy. It is demonstra ted that each of a wide range of taxes can be decomposed into some combina tion of a wage tax, an ex ante wealth tax, and a modification of the government’s i...

Could inflated credit ratings that provide new information have adverse ex-ante real effects? If so, why? In a debt-rollover game featuring a feedback loop, we show that when the risky projects have high upside returns, the credit rating agency’s (CRA) ex-ante real effects are negative, despite of its positive informational effects. This arises from the CRAs feedback effects: it strategically a...

Pecuniary externalities have regained the interest of researchers as they seek policy interventions and regulations to remedy externality-induced distortions, e.g., balance sheet effects, amplifiers and fire sales. We show how bundling, exclusivity and additional markets internalize these pecuniary externalities; ex ante competition can achieve a constrained-efficient allocation. We cover a lar...

The quality of many goods and services may change randomly between the time of shipment and delivery, creating disputes over quality that can result in lemons-market equilibria. We investigate the potential of third-party inspections for such inefficiencies. We consider two types of inspection, ex post verification of quality in consignment contracts and ex ante certification in FOB contracts, ...

This paper investigates the effect of different patent regimes on R&D investment and social welfare in a duopoly market with uncertain R&D process. We find that strong patent protection increases R&D investment of at least one firm but whether both firms’ R&D investment will be more under strong patent protection is ambiguous. While ex-ante welfare is more likely to be higher under strong paten...

The most widely used updating rule for non-additive probabilities is the Dempster-Schafer rule. Schmeidler and Gilboa have developed a model of decision making under uncertainty based on non-additive probabilities, and in their paper "Updating Ambiguous Beliefs" they justify the Dempster-Schafer rule based on a maximum likelihood procedure. This note shows in the context of Schmeidler-Gilboa pr...

This paper summarises the standard account of the economic calculation debate, the modern Austrian reinterpretation of the debate based on the centrality of tacit knowledge and discovery, and a neglected third strand in the historical debate, Dobb's insistence on the uncertainty associated with atomistic decision making and the need for ex ante planning. It then draws some lessons for socialist...

This paper provides an empirical investigation into the relationship between ex ante U.S. labor contract durations and uncertainty over the period 1970 to 1995. We construct measures of inflation uncertainty as well as aggregate nominal and real uncertainty. The results not only corroborate previous findings of an inverse relationship between contract duration and inflation uncertainty, but als...