Occasionally, you may find yourself writing a script or paper to explain a concept using mathematical models. Personally, I don’t follow a strict process, but I strive to be as systematic as possible. In hindsight, when reviewing research, you might uncover a previous article that contains a significant and unexpected correlation to what you’ve just written.
This is exactly what happened to me with my first arXiv preprint. According to OpenAI's new paid Deep Research feature, I built upon a widely popularized model based on one of the early articles by former IMF Chief Economist Olivier Blanchard. To be clear, my preprint focuses on oligopolistic pricing and the regulation of signaling by competition authorities during economic downturns.
Blanchard has been an influential figure for some time, not because he always represents the voice of reason, but because his views often challenge the prevailing consensus in contemporary thought. One particular article of his resonated with me deeply, such that I have seemingly inadvertently reiterated the key points from his 1987 paper with Kiyotaki. Specifically, his use of Ackerlof and Yellen's (1985) efficiency wages and the menu cost model. The similarities are striking.
There is sometimes unwarranted hype around menu costs, which refer to the costs associated with altering the price of a firm’s products. These costs are closely related to the concept of 'sticky' wages. Blanchard supports this view, acknowledging that there are macroeconomic effects associated with switching costs. I argue a similar point from the perspective of the switching costs related to wage changes. I introduce the switching cost as a variable, R(t), which forms a residual term and encapsulates this aspect of Blanchard and Kiyotaki’s framework within the bargaining process.
References
Blanchard, O.J., & Kiyotaki, N. (1987) 'Monopolistic Competition and the Effects of Aggregate Demand', American Economic Review, 77(4), pp. 647-666.
Mayaki, A. A. B. (2024) 'Pareto-Nash Reversion Strategies: Three Period Dynamic Co-operative Signalling with Sticky Efficiency Wages', arXiv pre-print, pp. 1-12