Volume 214, Issue 1

This paper examines the factors underlying the growth of manufacturing employment in East Germany. The effects of rationalization predominate in the short run. The long-run outlook for a complete revival is not promising. Although regional subsidies are high, they cannot bring about such a result unaided, and endogenous growth factors are weak. It is shown that an economic-base approach, with manufacturing as base factor, is appropriate for East Germany.

The purpose of this paper is to estimate and analyse the technical efficiency of the manufactoring industry in the ‘labour market regions’ of the Federal Republic of Germany. Using Farrell’s definition of technical efficiency different econometric methods are used to estimate the ‘frontier production function’ from a cross-section of time series. The econometric analysis indicates considerable technical inefficiency in several regions. The estimated results point out that an improvement of technical efficiency can contribute to both convergence and regional economic growth.

Current European double-digit unemployment rates justify another look at the “natural” rate of employment. The first half of the paper simulates the mechanics of a short-run static macroeconomic equilibrium. Hee labor can raise its real wage rate by accepting a lower natural rate of employment. The second half of the paper dynamizes such an equilibrium by treating capital stock as a variable - accumulating as a result of investment. Then labor can no longer raise its real wage rate by accepting a lower natural rate of employment. A lower natural rate will merely lower the scale on which the economy is accumulating and producing

First, it is shown that by means of incorporating bequest motives the aversion against large physical risks is covered by the von Neumann/Morgenstern framework; both in terms of the unlikeliness of the hazard and its “catastrophiness”. This finding challenges a good part of the relevant literature. (Furthermore, the structural resemblence of the preference pattern of physically threatened individuals and the under-writing behaviour of industrial liability insurers is demonstrated.) Second, it is argued that from a pragmatic point of view standard liability rules may be a powerful risk-regulatory tool if they are combined with certain fiscal and insuranceregulative instruments.

Almost all research in the field of principal-agent-theory is done in the expected utility framework. A more general approach to decision making under risk has been provided by Machina (1982), in which the crucial independence axiom is replaced by a much weaker differentiability assumption. Risk aversion can than be described by the characteristics of a “local” utility function. This paper provides a corresponding generalization of the approach of Holmström (1979) to principal-agent-problems. First it is shown that an optimal risk allocation implies that the marginal rates of substitution, now expressed in terms of the “local” utility function, are identical for both principal and agent. In the presence of Moral Hazard, a deviation from an optimal risk allocation is necessary in order to set better incentives. A solution to this problem is derived, which contains the result of Holmström as a special case.

The Economic Theory of Alliances allows an inside look into the basic idea of alliance behavior, especially into its formation, operation and cohesion. To explain the behavioral change of the Federal Republic of Germany concerning the alliance, theoretically and empirically, the joint-product-model is introduced and applied. Major findings are presented concerning the impact of threat and income on defense spending. The impression is confirmed, that the policy of internal compensation collides more and more with defense spending. The adaptation of flexible response reduced Germany’s free-riding behavior and induced complementarity. The hypothesis was supported that the French spillin facilitates a change towards an alliance in the alliance.