- University of Edinburgh
Tim Worrall
University of Edinburgh, Economics, Faculty Member
- Professor of Economics at the University of Edinburgh. Educated at Liverpool and Essex Universities and graduated wit... moreProfessor of Economics at the University of Edinburgh. Educated at Liverpool and Essex Universities and graduated with a PhD in Economics from Liverpool University in 1983. Member of the REF2021 Economics and Econometrics sub-panel. Previously a member of Professor Frank Hahn's ESRC project on Risk, Information and Quantity Signals in Economics at Cambridge University 1983-85 and part of the DFG Sonderforschungsbereich 178 on the Internationalization of the World Economy at Konstanz and Kiel Universities, 1987-1990. Also Assistant Professor at the University of Western Ontario, Reading University and Liverpool University, Professor of Economics at Keele University 1996-2008 and Hallsworth Research Fellow in Political Economy at the University of Manchester, 2008-2011.edit
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How should successive generations insure each other when the enforcement of transfers between them is limited? This paper examines transfers that maximize the expected discounted utility of all generations subject to a participation... more
How should successive generations insure each other when the enforcement of transfers between them is limited? This paper examines transfers that maximize the expected discounted utility of all generations subject to a participation constraint for each generation. The resulting optimal intergenerational insurance is history dependent even when the environment is stationary. Consequently, consumption is heteroskedastic and autocorrelated across generations. The optimal intergenerational insurance arrangement is interpreted as a pay-as-you-go social security scheme with means testing and a mixture of flat-rate and contributory-related elements. With logarithmic preferences, the pension received when old depends on the contribution rate paid when young.
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Lending across national boundaries is different from lending within national boundaries because of the difficulty of imposing legal sanctions. This paper examines a simple model of international lending where the borrower can repudiate,... more
Lending across national boundaries is different from lending within national boundaries because of the difficulty of imposing legal sanctions. This paper examines a simple model of international lending where the borrower can repudiate, without legal sanction, if this is to ...
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This paper considers a long-term relationship between two agents who undertake costly actions or investments which produce a joint benefit. Agents have an opportunity to expropriate some of the joint benefit for their own use. The... more
This paper considers a long-term relationship between two agents who undertake costly actions or investments which produce a joint benefit. Agents have an opportunity to expropriate some of the joint benefit for their own use. The question asked is how to structure the investments and division of the surplus over time so as to avoid expropriation. It is shown that investments may be either above or below the efficient level and that actions and the division of the surplus converges to a stationary solution at which either both investment levels are efficient or both are below the efficient level.
This paper considers a simple stochastic model of international trade with three countries. Two of the tree countries are in an economic union. Comparisons are made between equilibrium welfare for these two countries under fixed and... more
This paper considers a simple stochastic model of international trade with three countries. Two of the tree countries are in an economic union. Comparisons are made between equilibrium welfare for these two countries under fixed and flexi-ble exchange rate regimes. Within the model it is shown that flexible exchange rate regimes generate greater welfare. However, we then consider comparisons of wel-farewhen the two countries also engage in some international assistance in order to share risk. Such risk-sharing is limited by enforcement constraints of cross border assistance. It is shown that taking into account limited commitment risk-sharing fixed exchange rates or currency areas can dominate flexible exchange rate regimes reversing the previous result.
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In this paper we consider a regulated monopoly that can pad its costs to increase its cost reimbursement. Even while padding is inefficient the optimal incentive scheme tolerates some padding of costs to reduce the information rents paid... more
In this paper we consider a regulated monopoly that can pad its costs to increase its cost reimbursement. Even while padding is inefficient the optimal incentive scheme tolerates some padding of costs to reduce the information rents paid to low cost types. It is shown that high cost firms pad costs more than low cost firms. We also show that cost padding moves pricing away from Ramsay optimal pricing toward more monopolistic pricing rules. We show that when auditing of total costs is costly, low cost firms face a fixed price contract and engage in no cost padding. High cost firms do less well but do engage in padding to increase the verified cost. If padded costs can be audited at some cost, low cost types engage in cost padding but high cost types do not. We also endogenize the distribution of cost types by allowing firms to engage in a pre-contractual, non-observable or verifiable cost-reducing investment. The firm adopts a mixed strategy and this determines the distribution of co...
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ABSTRACT. This paper studies efficient insurance arrangements in village economies when there is complete information but limited commitment. Commitment is limited because only limited penal-ties can be imposed on households which renege... more
ABSTRACT. This paper studies efficient insurance arrangements in village economies when there is complete information but limited commitment. Commitment is limited because only limited penal-ties can be imposed on households which renege on their promises. Any efficient insurance arrangement must therefore take into ac-count the fact that households will renege if the benefits from doing so outweigh the costs. We study a general model which admits aggregate and idiosyncratic risk as well as serial correla-tion of incomes, It is shown that in the case of two households and no storage the efficient insurance arrangement is characterized by a simple updating rule. An example illustrates the similarity of the efficient arrangement to a simple debt contract with occa-sional debt forgiveness. The model is then extended to multiple households and a simple storage technology. We use data from the ICRISAT survey of three villages in southern India to test the the-ory against three alternativ...
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This paper considers a long-term relationship between two agents who undertake costly actions or investments which produce a joint benefit. Agents have an oppor-tunity to expropriate some of the joint benefit for their own use. The... more
This paper considers a long-term relationship between two agents who undertake costly actions or investments which produce a joint benefit. Agents have an oppor-tunity to expropriate some of the joint benefit for their own use. The question asked is how to structure the investments and division of the surplus over time so as to avoid expropriation. It is shown that investments may be either above or below the efficient level and that actions and the division of the surplus converges to a stationary solution at which either both investment levels are efficient or both are below the efficient level. [100 words]
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This paper considers whether countries might mutually agree a policy of open borders, allowing free movement of workers across countries. For the countries to agree, the short run costs must outweighed by the long term benefits that... more
This paper considers whether countries might mutually agree a policy of open borders, allowing free movement of workers across countries. For the countries to agree, the short run costs must outweighed by the long term benefits that result from better labor market flexibility and income smoothing. We show that such policies are less likely to be adopted when workers are less risk averse workers and when countries trade more. More surprisingly, we find that some congestion costs can help. This reverses the conventional wisdom that congestion costs tend to inhibit free migration policies.
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Optimal intergenerational insurance is examined in a stochastic overlapping generations endowment economy with limited enforcement of risk-sharing transfers. Transfers are chosen by a benevolent planner who maximizes the expected... more
Optimal intergenerational insurance is examined in a stochastic overlapping generations endowment economy with limited enforcement of risk-sharing transfers. Transfers are chosen by a benevolent planner who maximizes the expected discounted utility of all generations while respecting the participation constraint of each generation. We show that the optimal sustainable intergenerational insurance is history dependent. The risk from a shock is unevenly spread into the future, generating heteroscedasticity and autocorrelation of consumption even in the long run. The optimum can be interpreted as a social security scheme characterized by a minimum welfare entitlement for the old and state-contingent entitlement thresholds.
This paper considers whether countries might mutually agree a policy of open borders, allowing free movement of workers across countries. For the countries to agree, the short run costs must outweighed by the long term benefits that... more
This paper considers whether countries might mutually agree a policy of open borders, allowing free movement of workers across countries. For the countries to agree, the short run costs must outweighed by the long term benefits that result from better labor market flexibility and income smoothing. We show that such policies are less likely to be adopted when workers are less risk averse workers and when countries trade more. More surprisingly, we find that some congestion costs can help. This reverses the conventional wisdom that congestion costs tend to inhibit free migration policies.
This paper studies the dynamic and steady state properties of optimal intergenerational insurance when enforcement is limited. It considers a pure exchange and stochastic overlapping generations economy. The optimal allocation is chosen... more
This paper studies the dynamic and steady state properties of optimal intergenerational insurance when enforcement is limited. It considers a pure exchange and stochastic overlapping generations economy. The optimal allocation is chosen by a benevolent government whose welfare function values the initial old and places a positive, but vanishing weight on the welfare of future generations. The optimal allocation is constrained to be self-enforceable. That is, generations must have no incentive to default on the consumption allocation at any history of states. We show that the optimal intergenerational insurance when enforcement is limited takes the form of a history-dependent pension plan payable by the young to the old generation. In a simple two-state example we show how the degree of insurance depends on the history of states, in particular, insurance falls with more consecutive good states for the young but reverts whenever the bad state occurs. Finally, we solve for the optimal ...
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Numerous reports warn that Brexit may have negative effects on the UK stock market. But whatever the outcome, it seems unlikely that the impact will be a uniform one, argue Costas Milas, Tim Worrall, and Robert Zymek.
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This paper considers a long-term relationship between two agents who undertake costly actions or investments which produce a joint benefit. Each agent has an op- portunity to expropriate some of the joint benefit for his or her own use.... more
This paper considers a long-term relationship between two agents who undertake costly actions or investments which produce a joint benefit. Each agent has an op- portunity to expropriate some of the joint benefit for his or her own use. The question asked is how to structure the investments and division of the surplus over time so as to avoid expropriation. It is shown that investments may be either above or below the efficient level. However if investment is initially below (above) the efficient level it will tend to rise (fall) over time. It is shown that actions and the division of the surplus converges to a stationary solution at which either both investment levels are efficient or both are below the efficient level.
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This paper considers whether countries might mutually agree a policy of allowing free movement of workers. For the countries to agree, the short run costs must outweighed by the long term benefits that result from better labor market... more
This paper considers whether countries might mutually agree a policy of allowing free movement of workers. For the countries to agree, the short run costs must outweighed by the long term benefits that result from better labor market flexibility and income smoothing. We show that such ...