Kevin Roberts (Professorial Fellow) continued with a number of projects previously started.  One project looks at the evaluation of policies that induce structural changes in economies sufficient to alter such things as the trade-off between efficiency and equity; the evaluation of such policies then needs to allow for the fact that optimal redistributive taxation will adjust in response to the policy.  The specific focus of the work is the analysis of educational policies which determine the distribution of earning power in an economy.  The work also has implications for the theory of principal-agent problems under adverse selection.  In particular, it shows how a principal’s payoff depends upon the distribution of possible agent types and suggests that, other things being equal, principals prefer distributions with bunching and with gaps.

Work also continued on a project with Godfrey Keller and Margaret Stevens looking at models with matching frictions where, unlike most previous work, the matching technology is permitted to incorporate variable returns to scale.  One paper looks at how this generalization permits a much richer dynamic structure for economies to emerge and this structure helps explain stylized facts that cannot be explained by more simple models.  By associating the idea of a market with a matching technology, variable returns to scale also allows one to consider the notion of an efficient market size and of an efficient range of markets in an economy. Other work looks at this issue and examines whether competition offers the appropriate incentives to ensure efficiency.  The issue of appropriate incentives under competition also lies at the heart of a long-standing joint project with Leonardo Felli where models of economies prone to ‘hold-up’ and coordination problems are studied.  In essence, individual market participants may make investment decisions prior to entry to the market process; these may be inefficient because investment gains may have to be shared with the agent with which one trades (hold-up) or because an efficient trade is made unlikely because of the investment decision of a competing agent (coordination).  At last, this project has now been completed.     

Publications

‘Social Choice Theory and the Informational Basis Approach’, in C. Morris (ed), Amartya Sen (Contemporary Philosophy in Focus Series). Cambridge:Cambridge University Press, 2010, 115-137.