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bstracts of Working Papers
Queen's Institute for Economic Research [IER]

January 1998 - December 1998

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IER #977
Dan Usher
Public Provision of Indivisible Private Goods in Short Supply
November 1998
JEL: H42.
Keywords: Social, Rationing.

Public provision of private goods is usually analysed as the displacement of a market, where people can buy as much or as little of a good as they please, with tax financed provision by the government of equal and identical amounts of the good per person. But publivc provision is not always equal per person because some goods cannot be supplied equally or because the government does not choose to supply goods equally. There may be fewer organs available for transplant than there are people who need them. Doctors and teachers may differ in skill or dedication. Governments may limit total expenditure in circumstances where there is a lower limit to useful expenditure per person.

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IER #976
Parimal Kanti Bag, Emin Murat Dinlersoz, and Ruqu Wang
More on Phantom Bidding
October 1998
JEL: D44.
Keywords: English Auction, Phantom Bidding, Fixed/Flexible Reserve Price

A phantom bidding model is analyzed for a sale auction. The following questions are addressed: the effects of phantom bidding on overall social welfare and buyers' profits. It is shown that social welfare may increase or decrease as the auctioneer switches from the fixed reserve price policy to phantom bidding. The buyers' profits will increase whenever social welfare increases.

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IER #975
Alan Gunderson and Ruqu Wang
Signally by Jump Bidding in Private Value Auctions
October 1998
JEL: D44.
Keywords: Auction, Jump Bidding.

This paper examines how a bidder can benefit from jump bidding by using the jump bid as a signal of a high valuation which causes other bidders to drop out of the auction earlier than they would otherwise. The information contained in a jump bid must be sufficient to induce a discrete change in the bidding behaviour of the other bidders. In an auction for a single item, a jump bid signals both the identity and the high valuation of a bidder. The existence of a beneficial jump bid equilibrium requires a gap in the distribution of the jump bidder and her identity must be concealed. Concealing the identity of the bidders permits the jump bidder to signal more information through the jump bid and thus she can benefit more from it. In an auction for multiple items, the jump bid signals a high valuation by the jump bidder.

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IER #974
James Bergin
Common Knowledge With Monotone Statistics
September 1998
JEL: D80, D82.
Keywords: Common Knowledge, Aggregate Statistics, Random Information, Affiliated Information.

When individual statistics are aggregated through a strictly monotone function to an aggregate statistic, common knowledge of the value of the aggregate statistic does not imply, in general, constancy of the individual statistics. This paper discusses two circumstances where it does occur. The first case arises when partitions are independently drawn: in this case common knowledge of the value of the aggregator function implies (with probability one) constancy of the individual statistics. The second case is where private statistics are related: affiliation of individual statistics and a lattice condition imply constancy of the individual statistics when the value of the aggregate statistic is common knowledge.

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IER #973
Allan W. Gregory and Alfred Haug
Conflicts Among Tests for Cointegration
August 1998
JEL: C12, C15.
Keywords: Single-Equation Residual-Based Test, System-Based Test, P-Value.

This note illustrates that, under the null hypothesis of no cointegration, the correlation of p-values from a single-equation residual-based test (i.e. ADF, Zt, or Zx) with a system-based test (trace or maximum eigenvalue) is very low. With data generating processes under the null or 'near' it, the two types of tests can yield virtually any combination of p-values regardless of sample size.

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IER #972
Shouyong Shi
Product Market and the Size-Wage Differential
June 1998
JEL: J30, L10.
Keywords: Size-Wage Differentail, Price/Wage Posting, Size Distribution of Plants.

This paper constructs a model to show that plants differing in size pay different wages to homogeneous workers. A large plant can use its large capacity to satisify buyers in the product market more readily and so can charge a higher price than a small plant can. As a result, a large plant has a higher sales revenue per worker. To capture this large revenue, large plants post high wages to recruit. The size-wage differential is shown to survive the labor market competition and entry by new plants. Entry and recruiting generate a stationary distribution of plants in the industry that interacts with the size-wage differential. With numerical examples it is shown that an increase in the demand for the industry's product reduces the size-revenue differential and shifts the size distribution in the industry towards small plants. The overall effect is such that the size-wage differential increases when the product demand is initially low and falls when the product demand is already high.

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IER #971
Shouyong Shi
Search, Inflation, and Capital Accumulation
June 1998
JEL: E40, E50.
Keywords: Search, Inflation, Capital, Extensive Effects.

This paper constructs a model to integrate the search monetary theory into a neoclassical growth model. With divisible goods and money, the model is used to examine the relationship between money growth and capital accumulation. The framework uncovers a distinct extensive effect that an increase in the money growth rate increases the frequency of successful trades by increasing the number of agents in the market. This positive extensive effect on the number of trades can dominate the conventional negative intensive effects of money growth on individuals' labor input and real money balance, in which case increasing the money growth rate increases aggregate capital and output.

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IER #970
Dan Usher
The Justification of Private Property
March 1998
JEL: P0, K0.
Keywords: Property. Voting. Law.

Justification of private property may be rights-based or needs-based. One may believe that society with private ownership of a significant part of the means of production is good or just in itself, or one may believe that a society with private ownership of a significant part of the means of production is desirable as an instrument to procure other things such as prosperity, personal freedom and the absence of tyranny. This paper defends to former view. Traditional justifications based on the will of God, 'first occupation", acquisition by labour, or social contract all seem to me inadequate. Instead, private property is bracketed with majority-rule voting, public administration and law as essential supports of almost everything we value in life.

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IER #969
Dan Usher
The Colour of the Judge's Eyes: Efficiency as a Criterion for the Legislature and for the Courts
March 1998
JEL: B4, K1.
Keywords: Efficiency. Courts. Legislature.

Correctly or not, Ronald Coase is often credited with the doctrine that courts ought to adjudicate for efficiency, that "the value of production" should serve as the criterion for resolving disputes over the boundaries between property rights. The doctrine that courts ought to adjudicate for efficiency is often contrasted with the older doctrine that it is the business of the courts to apply the law as formulated by the legislature, regardless of whether or not the law is efficient. This paper is an exploration of these doctrines. The doctrine that courts ought to adjudicate for efficiency crumbles on close inspection and is very largely wrong.

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IER #968
Katherine Cuff
Optimality of Workfare with Heterogeneous Preferences
February 1998
JEL: H21, H23.
Keywords: Workfare. Nonlinear income taxation.

Using the standard nonlinear income taxation framework with heterogeneity of preferences, this paper examines the optimality of workfare as a screening tool. It is assumed that workfare does not serve as a human capital investment, participation is mandatory, and administrative costs are negligible. Imposing alternative cardinalizations on individuals utilities, allows for the possibility that the government optimally redistributes income to or from high disutility of labour individuals. Under either case, workfare is never optimal to impose on these individuals. It is also shown that non-productive workfare can be an efficient policy tool, in contrast to the results found in Besley and Coate (1995), Brett (1997), and Beaudry and Blackorby (1997).

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