We incorporate two sets of behavioural assumptions, fairness concerns and insatiable desire for money, into a dynamic optimization model to illuminate how they can generate persistent aggregate demand shortages. We obtain the conditions for persistent unemployment and temporary unemployment. Policy implications differ significantly between the two cases. A monetary expansion raises private consumption under temporary unemployment but not under persistent unemployment. A fiscal expansion may or may not increase short-run private consumption but crowds out long-run consumption under temporary unemployment. Under persistent unemployment, however, a fiscal expansion always increases private consumption. The “paradoxes of toil and flexibility” also appear.

During the recent global financial crisis, certain central banks introduced two innovative cross-border operations to deal with the problems of foreign currency liquidity shortages: domestic liquidity operations using cross-border collateral and operations that supply foreign currency among central banks based on standing swap lines. We show theoretically that central banks improve the efficiency of equilibrium under foreign currency liquidity shortages using these two innovative temporary policy measures.

We investigate an infinitely-repeated prisoners' dilemma with imperfect monitoring and consider the possibility that the interlinkage of the players' distinct activities enhances implicit collusion. We show a necessary and sufficient condition for the existence of a generous tit-for-tat Nash equilibrium. Such an equilibrium, if it exists, is unique. This equilibrium achieves approximate efficiency when monitoring is almost perfect, where the discount factors are fixed.

We consider a minimum quality standard (MQS) regulation under a vertically differentiated duopoly model where an incumbent may deter entry by limiting qualities, and explicity examine the strategic interaction between entry cost and a limit quality. We show that MQS will increase social welfare in most cases by reducing the incentive of the incumbent to limit quality, but it might render industry entry unprofitable for the entrant, which could induce predation to deter entry.

The present paper applies Lucas's theory of endogenous growth and Stiglitz's theory of local public goods to build an econometric model consisting of five simultaneous equations to study China's fiscal decentralization effects on regional economic growth. The model is estimated by two-stage least squares using a set of panel data on 31 Chinese provinces during 1996–2005. The estimated results show that China's fiscal decentralization increased the local governments' expenditure on physical infrastructure and education, which led to the rising local physical capital stock and human capital levels, respectively, and then resulted in the growth of regional economies.

Using a two-country, two-commodity dynamic optimization model with general homothetic preference for the commodities, this paper examines the effects of a tariff and a quota on consumption and employment in the case where persistent unemployment arises due to a liquidity trap. A trade restriction improves the current account, which causes the home currency to appreciate and harms the competitiveness of home firms. Therefore, home employment and consumption decrease while foreign employment and consumption increase. Tariff-quota equivalence is found to be valid. Preference, technological and policy parameter changes that improve the current account in general worsen home unemployment.

This paper estimates individual-level matching functions to measure search frictions in the Japanese labour market and presents the determinants of search duration. We employ administrative microdata that track the job search process of job seekers who left or lost their job in August 2005 and subsequently registered at their local public employment service. Our finding is that the matching function exhibits decreasing rather than constant returns-to-scale for job seekers and vacancies. We also find that after controlling for the benefits period, job seekers who lost their job involuntarily were more likely than those quitting voluntarily to exit from unemployment.

This paper extends the Antràs and Helpman (2004) model to a continuum of sectors to explore a full set of possibilities for organizational forms in global sourcing. We show that industries of the economy are divided into seven classes of sectors in terms of the prevalence of organizational forms. In particular, the coexistence of different organizational forms is less likely as the sectoral input intensity is more extreme, so that intra-industry heterogeneity is less relevant to the firms' organizational choices. It is also demonstrated that our equilibrium analysis offers a useful framework for examining comparative statics on the sectoral input intensity.

In this paper, a three-country model incorporating the cross-border ownership of stock and international firm relocation is constructed. Using this model, the effects of a reduction in the corporate tax on welfare in all three countries is examined. The findings indicate that if the country undertaking the reduction is moderately rich, and one of the two remaining countries is rich while the other country is poor, the tax reduction not only brings about a positive effect on its own welfare, but also increases the welfare of the rich foreign country and lowers that of the poor foreign country.

It is well-known that agents overreact to public information in markets characterized by strategic complementarities. We propose a simple and implementable method of alleviating the overreaction problem. Extending the beauty-contest game of Morris and Shin to a multi-region economy, we show that, under an aggregate information announcement, each agent converts purely public information into imperfect public information endogenously. This makes the agents’ beliefs dispersed and alleviates the overreaction problem. Moreover, we compare the welfare effect of the aggregate information announcement with that of a separate announcement. We find that there exist plausible situations where the aggregate information announcement is better than the separate information announcement despite reduced quality.

This paper uses a computable general equilibrium model with overlapping generations to explore the effects of different public pension schemes on economic welfare, and intergenerational and intragenerational equity. Besides the benchmark case based on the 2004 public pension reform, the present paper considers two alternative reforms: financing the basic pension benefit through a consumption tax, and eliminating the earnings-related pension benefit. The simulation results suggest that even the consumption-tax financing of only the basic pension, namely, the combination of both reforms, might not improve overall economic welfare, although it increases economic output by inducing capital formation.

We extend a second-generation Schumpeterian growth model to incorporate human capital accumulation to clarify the general equilibrium effects of subsidy policies on human capital accumulation and R&D activities in a unified framework. Despite the conventional argument that subsidies always stimulate these growth-promoting activities, we find that subsidies asymmetrically affect human capital accumulation and R&D activities. Our theoretical results suggest that research using standard models of human capital might find false negative relationships between education subsidies and economic growth.

With Japanese hospital financing reform, a prospective payment system (PPS) has been established for inpatient care to replace the traditional fee-for-service remuneration of hospitals. This paper evaluates the effect of the reform on technical and cost efficiency of local public hospitals. Efficiency is estimated non-parametrically using two-stage data envelopment analysis with bias correction through bootstrap, and parametrically applying stochastic frontier analysis. The descriptive analysis shows that efficiency declines after the introduction of PPS. Difference-in-difference estimations reveal that PPS results in a limited efficiency gain, which might be related to inadequate incentives created by the two-part PPS tariff in Japan.

This paper analyses the relation between corporate governance and employment adjustment behaviour among Japanese firms. The results are summarized in the following two points. First, in the period before 1997, although main banks were likely to allow firms' employment maintenance until they experienced 2 consecutive years of losses, they tended to press firms to downsize once firms faced financial distress. Second, the reduced function of main banks and the increased influence of foreign owners have changed the timing of downsizing since 1997. Changes in corporate governance have brought about slight but non-negligible changes in Japanese employment practices.

This study proposes an alternative approach of utilizing direct responses to a survey on the social security earnings test for the elderly to provide new evidence on the sensitivity of the labour supply decision of workers aged between 60 and 64 with respect to the test. Our empirical results show a discouraging effect on working in a large proportion of these workers in Japan, even after correcting for the observed attributes of individuals who reported being either affected or unaffected.

The aim of this paper is to investigate the presence of the moral hazard phenomenon in the Korean car insurance market. In the context of natural experiment, I examine whether the regulatory reform introduced in 2000 generates significant difference in accident probability between before and after the reform. Further, I analyse the different effects of regulatory reform on different parts of the outcome distribution. In any case, I do not find the significant effects of regulatory reform on accident probability.

Comparison between Japan and other advanced countries shows that the relative poverty rate is high in Japan, and that many of the poor households are those with a non-regular worker. As for mobility between income classes, the proportion of households remaining in the poor class for a long period of time in Japan is close to the average for EU countries. The panel estimation of its effect on wages shows that the raising of the minimum wage is statistically significantly associated with an increase in wages of non-regular workers, in particular, female, but does not seem to decrease employment. The result shows that for male non-regular workers, firm-provided training promotes their transition to regular employment, and that for female non-regular workers, occupational training promotes their transition to regular employment at different firms.

This paper attempts to reinterpret the familiar approach to strategic public policies from the viewpoint of inefficiencies involved in oligopoly where firms engage in Cournot competition. To this end, we introduce tools called “quasi-reaction functions” and “quasi-supply curves”. These tools allow us to conduct analyses through use of the standard partial-equilibrium diagram, i.e. the quantity-price plane. We can find the relationship between prices and quantities directly and, hence, deal with inefficiencies easily and also suggest policies to correct such inefficiencies. Specifically, we reexamine public policies related to mixed-oligopoly, excess entry, technology choices with free entry and exit, and foreign oligopoly.

In the context of limited local government resources, cultural expenditures are often targeted for reduction. In Japan in particular, with its aging population, cultural expenditures have low priority. This paper examines whether or not local governments strategically influence each other with respect to cultural spending, using data from Japanese local governments. By estimating the reaction functions for local cultural expenditures, we find that there exists free-rider behaviour between local cultural expenditures that produce beneficial spillover effects. We also find a larger free-rider incentive the shorter the distance between neighbouring regions, the shorter the travel time between neighbouring regions, and the larger the neighbouring region's population. Furthermore, our results reveal that the provision of cultural services through intergovernmental strategic behaviours is more elastic with respect to the relative change of the distance or the travel time among neighbouring regions than to that of the population size among neighbouring regions.

This paper examines the long-run impacts of selective (or sector-specific) commodity, payroll, and profit taxes in a two-sector endogenous growth model with sector-specific production externalities, in which one sector produces consumption goods and the other produces investment goods. The novelty of the model is that it allows not only for endogenous labour supply but also for the intersectoral allocation of resources, which may together lead to indeterminacy. We analytically show that the stability properties of the long-run equilibrium critically affect the long-run effects of these selective taxes, which may reverse the standard results of the growth effects of distortionary taxes.

This paper examines misconfidence (over- or underconfidence) and marriage proposal strategies in a two-sided search model with non-transferable utility. Single agents are vertically heterogeneous—there exists a ranking of marital charm (types). It is shown that there are two externalities to over- or underconfident behaviour: someone's over- or underconfidence affects: (i) the duration of search for others who directly meet over- or underconfident agents; and (ii) the marriage decision of others who directly or indirectly meet over- or underconfident agents. Furthermore, these externalities prevent the lowest-type agents from marrying in an equilibrium.