Pour faciliter le
financement des entreprises en croissance, les gouvernements
mettent en place ou financent indirectement des societes de
capital de risque. Celles-ci interviennent dans un contexte
d’asymetrie informationnelle ou les couts d’agence sont
potentiellement tres eleves. L’encadrement strict de ces
societes est donc une condition essentielle a leur performance.
Nous analysons le cadre de reddition de comptes mis en place
pour les Small Business Investment Companies (SBICs) par la Small
Business Administration americaine, puis les normes
d’evaluation des placements preconises par les associations
et organismes de capital de risque dans plusieurs pays. Les SBICs
sont soumises a un cadre uniforme strict de reddition de comptes
et d’evaluation, qui explique probablement en partie leur
bonne performance dans les annees recentes. Nous montrons
egalement les efforts deployes par divers organismes pour
developper un cadre d’evaluation des placements de capital de
risque. Les methodes les plus rigoureuses demanderaient
l’archivage des conditions initiales du placement, ce qui
contribuerait a un controle plus efficace du processus de
selection des investissements. Les initiatives quebecoises
gagneraient tres certainement a disposer d’un cadre de
reddition de comptes et d’evaluation plus strict que celui qui
semble actuellement prevaloir.
Keywords: public policy, venture capital, governance, reporting
guidelines, valuation guidelines , politique publique,
capital de risque, gouvernance, normes comptables,
normes d’evaluation
Date: 2005-03-01
URL: http://d.repec.org/n?u=RePEc:cir:cirpro:2005rp-07&r=all
9. Le dosage des impots au sein de la structure fiscale
quebecoise
Le deplacement de la taxation des revenus
vers la consommation
Luc Godbout
Matthieu Arseneau
This paper analyses the effect of a tax mix modification. More
precisely, the authors assess the relevance of increasing
consumption taxes and at the same time decreasing income taxes.
Several arguments in favour of modifying the tax mix are analysed
such as its impacts on savings, on labour supply and on tax
compliance. While the Quebec government has recently modified its
tax mix, the authors observe that it still relies more on income
taxes, compared to the OECD countries average. However,
comparative analysis data does not show any tendencies concerning
the modification of the tax mix in developed countries. In fact,
the reduction of income taxes observed in the analyzed countries
is much more the consequence of a desire to decrease the tax
burden rather than a desire for a modification of the tax mix. In
this context, if the Quebec government is going to go forward
with a tax mix reform, the authors suggest a moderate reform
since the consumption tax rate is already one the highest in the
region. Thus, they recommend the abolition of the tax exemptions
concerning particular goods and services adopted coupled with an
increase of the tax credit so as to compensate for the negative
impact on the personal finances of2 poorer taxpayers.
Les
auteurs analysent les incidences d’une reduction de
l’utilisation d’un impot au profit d’un autre, qu’ils
nomment la revision du dosage des impots. Ils evaluent la
pertinence d’un usage accru de la taxe a la consommation au
detriment de l’impot sur le revenu. Les arguments souvent
invoques en faveur d’une revision du dosage des impots sont
analyses, a savoir les incitatifs au travail, a l’epargne
et a la conformite fiscale. Meme s’il s’avere que le
Quebec a legerement revu le dosage de ses impots au cours des
dernieres annees, les auteurs observent qu’il utilise encore
beaucoup plus l’impot sur le revenu comparativement a la
moyenne des pays de l’OCDE. Toutefois, l’analyse comparative
ne permet de degager aucune tendance quant a une telle
revision du dosage des impots dans les pays industrialises. En
fait, la reduction du poids des impots sur le revenu au sein
des pays analyses parait davantage correlee a une reduction
de la pression fiscale qu’a une revision du dosage des
impots. Dans ce contexte, si le gouvernement du Quebec entend
revoir le dosage des impots, les auteurs suggerent qu’il le
fasse moderement puisque le taux de la taxe a la consommation
figure deja parmi les plus eleves de la region. A cet
egard, ils preconisent plutot un elargissement des biens et
services vises par la taxe a la consommation jumele a une
hausse du credit de la taxe de vente pour compenser son impact
sur les finances personnelles des moins nantis.
Keywords: Quebec, international comparison, income tax,
consumption tax, household taxation, tax reform, tax
policy, tax mix, Quebec, comparaison internationale,
impot sur le revenu, taxe a la consommation, impot
des particuliers, politique fiscale, reforme fiscale,
dosage des impots
JEL: H24 H31
Date: 2005-03-01
URL: http://d.repec.org/n?u=RePEc:cir:cirwor:2005s-11&r=all
10. Programme de recherche sur le role des gouvernements dans
le financement des entreprises
Initiatives
gouvernementales en capital de risque : les lecons des
experiences europeennes
Cecile Carpentier
Jean-Marc Suret
Most countries have set up structures and programs for new
business creation and financing. We analyze strategies
implemented in France, Germany and United Kingdom, where the
proportion of government funds in venture capital financing is
significantly smaller than in the Quebec, yet the rate of
creation and growth of tech start-ups is comparable. In these
countries, intervention is based on R&D, transfer, incubation and
start-up, in high technology industries exclusively. Except in
France, universities are pivotal to new business creation.
Internal or subordinated divisions of ministries are created to
manage and evaluate governmental programs, define priorities and
avoid financing non-crucial industries. Often of limited duration,
government programs must abide by rigorous performance and
accreditation criteria. Tax incentives are generally not
associated with these initiatives.
La plupart des pays ont instaure des institutions et des mecanismes dedies a la creation de nouvelles entreprises et au financement de leur croissance. Nous analysons les strategies mises en place par la France, l’Allemagne et le Royaume-Uni. Dans ces pays, la part de l’Etat dans le financement par capital de risque est significativement inferieure a celle du Quebec sans que la performance en termes de creation et de croissance d’entreprises technologiques ne semble inferieure. Ces pays ont privilegie une action ciblee, axee sur les stades de R&D, transfert, incubation et demarrage, clairement restreinte aux technologies. Les universites sont, a l’exception de la France, au centre de l’effort de creation de nouveaux projets d’entreprises. Des structures internes ou directement subordonnees aux ministeres sont mises en place pour gerer et evaluer les programmes, etablir les priorites et eviter les derapages vers des secteurs en demande de fonds mais non prioritaires. Les programmes, dont la duree de vie est souvent limitee, sont tres largement soumis a des criteres de performance et d’accreditation rigoureux. Les modes d’intervention autres que les deductions fiscales sont privilegies. Keywords: small business, public policy, business creation, financing, start-ups, petite entreprise, politiques publiques, creation d'entreprises, financement, Europe Date: 2005-03-01 URL: http://d.repec.org/n?u=RePEc:cir:cirwor:2005s-12&r=all 11. On the Usefulness of Tax Incentives for Business Angels and SME Owners: An Empirical Analysis Cecile Carpentier Jean-Marc Suret Several governments have designed tax incentive programs to promote small business finance, yet evidence of their efficiency is very scarce. This article analyzes the QBIC program, introduced in Quebec to help capitalize SME. Individual investors in holding companies that finance one or more small corporations receive substantial tax credits. First, the functioning of the program is analyzed in light of the fundamentals of the small business finance paradigm, in particular the adverse selection, agency cost and control aversion problems. Because the program design does not consider these dimensions, it putatively cannot fulfill its primary objective of attracting angels. Rather, it should mainly serve mediocre quality firms, whose subsequent performance should be weak. We analyze the ownership of all the QBICs accredited between 1998 and 2003, and the operating performance of the 83 financed companies for which accounting data were available. Our tests confirm each of our hypotheses. The program can hardly be considered as a success. In terms of public policy, the study concludes that poorly designed programs cannot attain the objective of promoting small business capitalization.
De nombreux gouvernements ont instaure des programmes fiscaux destines a promouvoir le financement des petites et moyennes entreprises. Il existe toutefois tres peu d’etudes de l’efficacite de ces initiatives. Nous analysons le programme de Societe de placements dans l’entreprise quebecoise (SPEQ), instaure au Quebec pour ameliorer la capitalisation des petites et moyennes entreprises. Les actionnaires de societes de portefeuille obtiennent d’importants credits d’impot lorsque ces societes financent des entreprises admissibles. Nous analysons en premier lieu le programme a la lumiere des principes de base du financement des entreprises : l’asymetrie informationnelle, les problemes d’anti-selection et d’agence et la reticence a partager le controle. Comme le programme ne tient aucun compte de ces diverses dimensions, nous posons l’hypothese qu’il ne permettra pas l’atteinte de l’objectif premier, qui etait d’attirer des investisseurs providentiels dans l’actionnariat des entreprises. Nous supposons egalement que le programme devrait attirer principalement des entreprises de qualite mediocre, dont la performance apres le placement sera faible. L’analyse de l’ensemble des SPEQ agreees entre 1998 et 2003 et des 83 societes financees pour lesquelles des donnees comptables sont accessibles permet de confirmer chacune de ces hypotheses. Le programme n’atteint pas ses objectifs et ne peut pas etre considere comme un succes. L’etude met en evidence l’importance de dessiner tres soigneusement les programmes d’aide au financement des petites entreprises. Keywords: public policy, small business finance, tax incentives, business angels, politiques publiques, financement des petites entreprises, incitatifs fiscaux, investisseurs providentiels Date: 2005-03-01 URL: http://d.repec.org/n?u=RePEc:cir:cirwor:2005s-13&r=all 12. The Costs of Issuing Private Versus Public Equity Cecile Carpentier Jean-Francois L'Her Jean-Marc Suret Canadian listed firms issue private offerings more often than public offerings. Yet the issuing cost of private investments in public equity (PIPEs) has neither been analyzed nor compared with the cost of conventional seasoned equity offerings (SEOs). We examine a sample of 2,108 PIPEs and 1,990 SEOs completed between 1993 and 2003, and show that, as expected, PIPEs are discounted more than SEOs, although the commissions paid to investment bankers are lower. When we control for size and other characteristics of the issuers, the difference between the total costs is 4%. Although this figure is significant, if the PIPE process allows firms to obtain financing four or six months earlier than via SEOs, the price gap may be economically justifiable. This finding may explain the rapid growth of the Canadian PIPE market.
Les societes canadiennes inscrites en Bourse se financent de plus en plus frequemment par placement prive, les PIPES. Le cout de ce type d’emission n’a jamais ete compare a celui des emissions publiques subsequentes ( SEO). Nous analysons un echantillon de 2018 PIPES et 1990 emissions publiques, effectuees entre 1993 et 2003. Nous montrons que l’escompte est superieur dans le cas des PIPEs, ce qui correspond aux attentes, mais les commissions payees aux courtiers sont inferieures. Lorsque la taille et les autres caracteristiques des emissions sont prises en compte, la difference entre les deux categories d’emissions est de l’ordre de 4 %. Cet ecart est statistiquement significatif. Toutefois, dans la mesure ou l’emission privee peut permettre a l’entreprise d’obtenir les fonds six mois plus tot que l’appel public, il peut etre economiquement justifie de supporter ce cout supplementaire. Cette situation pourrait expliquer la croissance des emissions privees. Keywords: private equity, issuing costs, seasoned equity, placement prive, cout d’emission, emission subsequente JEL: G24 G32 Date: 2005-03-01 URL: http://d.repec.org/n?u=RePEc:cir:cirwor:2005s-14&r=all 13. Economics and Language Ariel Rubinstein Date: 2005-03-17 URL: http://d.repec.org/n?u=RePEc:cla:levrem:666156000000000654&r=all 14. Pay for Short-Term Performance: Executive Compensation in Speculative Patrick Bolton Jose Scheinkman Wei Xiong Date: 2005-03-18 URL: http://d.repec.org/n?u=RePEc:cla:levrem:666156000000000673&r=all 15. Trust, Reciprocity, and Contract Enforcement: Experiments on Satisfaction Guaranteed James Andreoni Date: 2005-03-18 URL: http://d.repec.org/n?u=RePEc:cla:levrem:666156000000000679&r=all 16. Threshold Phenomena and Influence Gil Kalai Muli Safra Date: 2005-03-18 URL: http://d.repec.org/n?u=RePEc:cla:levrem:666156000000000683&r=all 17. Introduction to Economic Analysis R. Preston McAfee Date: 2005-03-25 URL: http://d.repec.org/n?u=RePEc:cla:levrem:172782000000000011&r=all 18. Competition and Efficiency in Congested Markets Daron Acemoglu Asuman E. Ozdaglar Date: 2005-03-27 URL: http://d.repec.org/n?u=RePEc:cla:levrem:172782000000000025&r=all 19. Information Transmission with Cheap and Almost-Cheap Talk Navin Kartik Date: 2005-03-17 URL: http://d.repec.org/n?u=RePEc:cla:najeco:666156000000000650&r=all 20. Art and the Internet: Blessing the Curse? Patrick Legros Date: 2005-03-21 URL: http://d.repec.org/n?u=RePEc:cla:najeco:172782000000000001&r=all 21. The Folk Theorem for Games with Private, Almost-Perfect Monitoring Johannes Horner Wojciech Olszewski Date: 2005-03-25 URL: http://d.repec.org/n?u=RePEc:cla:najeco:172782000000000006&r=all 22. Simultaneous Search Hector Chade Lones Smith Date: 2005-03-29 URL: http://d.repec.org/n?u=RePEc:cla:najeco:172782000000000033&r=all 23. Consistent Representative Democracy Chambers, Christopher P. We study axioms which define "representative democracy" in an environment in which agents vote over a finite set of alternatives. We focus on a property that states that whether votes are aggregated directly or indirectly make no difference. We call this property 'representative consistency'. 'Representative consistency' formalizes the idea that a voting rule should be immune to gerrymandering. We characterize the class of rules satisfying 'unanimity, anonymity,' and 'representative consistency'. We call these rules "partial priority rules." A partial priority rule can be interpreted as a rule in which each agent can "veto" certain alternatives. We investigate the implications of imposing other axioms to the list specified above. We also study the partial priority rules in the context of specific economic models. Keywords: social choice, representative systems, majority rule, gerrymandering Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:clt:sswopa:1217&r=all 24. An axiomatic theory of political representation Chambers, Christoper P. We discuss the theory of voting rules which are immune to gerrymandering. Our approach is axiomatic. We show that any rule that is unanimous, anonymous, and representative consistent must decide a social alternative as a function of the proportions of agents voting for each alternative, and must either be independent of this proportion, or be in one-to-one correspondence with the proportions. In an extended model in which voters can vote over elements of the unit interval, we introduce and characterize the quasi-proportional rules based on unanimity, anonymity, representative consistency, strict monotonicity, and continuity. We show that we can always ( pointwise) approximate a single-member district quota rule with a quasi-proportional rule. We also establish that upon weakening strict monotonicity, the generalized target rules emerge. Keywords: gerrymandering, representative systems, proportional representation, social choice, quasi-arithmetic means Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:clt:sswopa:1218&r=all 25. Social Games: Matching and the play of finitely repreated games Jackson, Matthew O. Watts, Alison We examine a new class of games, which we call social games, where players not only choose strategies but also choose with whom they play. A group of players who are dissatisfied with the play of their current partners can join together and play a new equilibrium. This imposes new refinements on equilibrium play, where play depends on the relative populations of players in different roles, among other things. We also examine finite repetitions of games where players may choose to rematch in any period. Some equilibria of fixed-player repeated games cannot be sustained as equilibria in a repeated social game. Conversely, the set of repeated matching (or social) equilibria also includes some plays that are not part of any subgame perfect equilibrium of the corresponding fixed-player repeated games. We explore existence under different equilibrium definitions, as well as the relationship to renegotiation-proof equilibrium. It is possible for repeated matching equilibria to be completely distinct from renegotiation-proof equilibria, and even to be Pareto inefficient. Keywords: Social Games, Matching, Games, Repeated Games, Renegotiation Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:clt:sswopa:1212&r=all 26. PRECAUTIONARY BALANCES AND THE VELOCITY OF CIRCULATION OF MONEY Miquel Faig Belen Jerez Inflation, as a tax on money, gives buyers an incentive to reduce their money balances. Sellers are aware of this incentive and try to attract buyers by announcing price offers that induce buyers to spend a larger fraction of their money. We examine the effect of inflation on equilibrium price offers and associated trades in a competitive search environment where buyers experience preference shocks after they are matched with a seller. With full information,equilibrium price offers consist of a flat fee applied equally to all buyers independently of the quantities they purchase. If buyers'preferences are private information, sellers must charge more to buyers who purchase larger quantities due to incentive compatibility restrictions. In this case, equilibrium price offers consist of a non-linear price schedule. However, as inflation rises, price schedules become relatively flat. This implies that buyers with a low desire to consume purchase higher quantities and spend their cash more rapidly. Buyers with a high desire to consume purchase lower quantities because, as their money balances fall, they become liquidity constrained. This is in contrast with the full information benchmark where inflation reduces the quantities purchased by all buyers. The equilibrium is efficient at the Friedman rule and inflation reduces welfare both with full and private information. Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:cte:werepe:we051406&r=all 27. WHEN DID LATIN AMERICA FALL BEHIND?.EVIDENCE FROM LONG-RUN INTERNATIONAL INEQUALITY Leandro Prados de la Escosura When did Latin America fall behind?. Has the gap between developed countries and Latin America widened over time?. This paper addresses these recurrent questions with the tools provided by the inequality literature. Long-run inter-country inequality is assessed in terms of real (purchasing power-adjusted) GDP per head and of an ‘improved’ human development index as an indicator of welfare for present-day OECD and Latin America. A long term rise in income inequality is observed for this sample of countries with the deepening gap between OECD and Latin America as its main determinant. Contrary to a widespread view, in terms of income, Latin America fell behind in the late twentieth century. Inequality in terms of human development declined over time, but the gap between OECD and Latin America remained largely unchanged. Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:cte:whrepe:wh046604&r=all 28. FORECASTING INFLATION IN THE EURO AREA USING MONTHLY TIME SERIES MODELS AND QUARTERLY ECONOMETRIC MODELS Rebeca Albacete Antoni Espasa Economic agents and financial authorities require frequent updates to a path of accurate inflation forecasts and need forecasts to include an explanation of the factors by which they are determined. This paper studies how to approach this need, developing a method for analysing inflation in the euro area, measured according to HICP. Time series models using the most recent information on prices and an important functional and geographically disaggregation can provide monthly forecasts which are reasonably accurate, but they do not provide an explanation of the factors by which the forecast is determined. In this respect, it is important to enlarge the data set used considering explanatory variables and build congruent econometric models including variables which, following previous works by D. Hendry, capture disequilibria on different markets, goods and services, labour, monetary and international. The final result of this work shows that combining the forecasts from a monthly time series vector model, constructed on price subindexes from a disaggregation of the HICP by countries and sectors, with the forecasts derived from a quarterly econometric vector model on aggregate inflation and other economic variables, very accurate forecasts are obtained. Both vector models are specified including empirical cointegration restrictions, which in the first case capture the constrains necessary present between the trends of the price subindexes and in the second approximate the long-run restrictions postulated by economic theory. Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:cte:wsrepe:ws050401&r=all 29. Exactly Distribution-free Inference in Instrumental Variables Regression with Possibly Weak Instruments Donald W.K. Andrews (Cowles Foundation, Yale University) Vadim Marmer This paper introduces a rank-based test for the instrumental variables regression model that dominates the Anderson-Rubin test in terms of finite sample size and asymptotic power in certain circumstances. The test has correct size for any distribution of the errors with weak or strong instruments. The test has noticeably higher power than the Anderson-Rubin test when the error distribution has thick tails and comparable power otherwise. Like the Anderson-Rubin test, the rank tests considered here perform best, relative to other available tests, in exactly- identified models. Keywords: Aligned ranks, Anderson-Rubin statistic, categorical covariates, exact size, normal scores, rank test, weak instruments, Wilcoxon scores JEL: C13 C30 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:cwl:cwldpp:1501&r=all 30. Sparse Estimators and the Oracle Property, or the Return of Hodges' Estimator Hannes Leeb (Dept. of Statistics, Yale University) Benedikt M. Poetscher (Dept. of Statistics, University of Vienna) We point out some pitfalls related to the concept of an oracle property as used in Fan and Li (2001, 2002) and Fan and Peng ( 2004), which are reminiscent of the well-known pitfalls related to Hodges' estimator. In particular, we show that any estimator satisfying a certain sparsity property, and hence an oracle property, has maximal risk that diverges to infinity whenever the loss function is unbounded. For ease of presentation the result is set in the framework of a linear regression model, but generalizes far beyond that setting. Keywords: Oracle property, Sparsity, Penalized maximum likelihood, Penalized least squares, Hodges' estimator, SCAD, Lasso, Bridge estimator, Hard thresholding, Maximal risk, Maximal absolute bias, Non-uniform limits Date: 2005-02 URL: http://d.repec.org/n?u=RePEc:cwl:cwldpp:1500&r=all 31. Time to complete and research joint ventures : a differential game approach Navas,Jorge Kort,Peter M. (Tilburg University, Center for Economic Research) In this paper we analyze cooperation in R&D in the form of RJVs. We show that the optimal size of an RJV does not only depend on the degree of spillovers, as literature suggests, but also on the cost function of R&D activities. Moreover, the explicit consideration of the fact that R&D projects take time to complete shows that benefits from cooperation in R&D not only allow RJVs to carry out larger R&D projects, but also to reduce the time to completion for projects with a given size and, consequently, to accelerate the acquisition of the benefits associated with the innovation. JEL: C73 L13 O31 Date: 2005 URL: http://d.repec.org/n?u=RePEc:dgr:kubcen:200529&r=all 32. How changes in benefits entitlement affect the duration of unemployment Ours,Jan C. van Vodopivec,Milan (Tilburg University, Center for Economic Research) This paper investigates the disincentive effects of the potential duration of unemployment insurance (UI) benefits. The disincentive effects are identified by exploiting changes in the UI system in Slovenia, which involved substantial reductions in the potential benefit duration and had characteristics of a "natural experiment". We find that the change had a positive effect on the exit rate out of unemployment - both to employment and to other destinations - at various durations of unemployment spells and for many categories of unemployed workers. JEL: C41 H55 J64 J65 Date: 2005 URL: http://d.repec.org/n?u=RePEc:dgr:kubcen:200530&r=all 33. Prebisch-Singer: Debates, Growth Model and Estimates Mutz,Christine Ziesemer,Thomas (MERIT) Prebisch and Singer (henceforth PS) have initiated several debates in economics, which have generated much research. Some of these debates may have converged to a compromise, whereas others are much less researched. We briefly summarize them in the next section in order to point out that the implications for growth theory have been largely neglected. Then we will present a growth model and estimate which show that income and price elasticities matter for long-run growth. Keywords: Economics ; Date: 2005 URL: http://d.repec.org/n?u=RePEc:dgr:umamer:2005007&r=all 34. The Environmental Porter Hypothesis as a Technology Adoption Problem? Kriechel,Ben Ziesemer,Thomas (MERIT) The Porter Hypothesis postulates that the costs of compliance with environmental standards may be offset by adoption of innovations they trigger. We model this hypothesis using a game of timing of technology adoption. We show that times of adoption are earlier the higher the non-adoption tax. The environmental tax turns the preemption game with low profits into a game with credible precommitment yielding high profits (pro-Porter). If there is a precommitment game without environmental taxes, the introduction of a tax leads to lower profits (anti-Porter). Keywords: economics of technology ; Date: 2005 URL: http://d.repec.org/n?u=RePEc:dgr:umamer:2005008&r=all 35. Malthus irrelevant? Ziesemer,Thomas (MERIT) We estimate and make population forecasts with Foley’s (2000) model in three different ways. The population forecasts for high, middle and low-income countries are quite good and suggest that the omitted variable bias from its simplicity is small. Estimation of the model as a system shows that indeed Malthusian behaviour - defined as increasing population growth through increasing per capita income - cannot be found for any of the income groups of the Worldbank classification nor for Sub-Saharan Africa, and also not for countries with per capita income below $1200 in a panel estimate. For world aggregate data and for the low-income countries we find increasing returns to scale, but for the other groups decreasing returns (outweighed by a positive time trend except for Sub-Saharan Africa and the u1200 group). For the panel of countries with income below $1200, per capita income is stagnant for the period 1970-2002 in spite of the positive growth rates of the period 1991-2002. The time trend is as strong as the population growth in connection with decreasing returns to scale. Together with the absence of Malthusian behaviour this seems to suggest a strong role for the population growth problem as seen by David Ricardo. Keywords: economic development and growth ; Date: 2005 URL: http://d.repec.org/n?u=RePEc:dgr:umamer:2005009&r=all 36. Education and Training in a Model of Endogenous Growth with Creative Destruction Zon,Adriaan ,van Antonietti,Roberto (MERIT) By formulating an endogenous growth model that combines elements from Romer (1990), Aghion and Howitt (1992), and van Zon and Yetkiner (2003), the present paper studies the contribution of education and training on economic growth through their impact on the rate of innovation. The article addresses two main issues. The first is the optimum provision of on-the-job training necessary to be able to adopt, and adapt to new technologies. The second is the impact of both formal education and on-the-job training on the innovative capacity of an economic system that is the ultimate cause of output growth. In our set-up, education enhances R&D activities and lowers adjustment costs to new technologies, thus facilitating their adoption, while on the other hand on-the-job training ensures the possibility to implement the new coming technologies and reap all the related future profits. We assume that the adoption of a new technology consists of two periods, i.e. the training phase during which newly hired workers acquire the right amount of know how in order to become familiar with the specific new technology, and the implementation or production phase in which profit flows arise for firms and in which the cost savings that can be realized arise from productivity increases in the previous phase. By extending the training phase, entrepreneurs run a greater risk of shortening the production phase for a given arrival rate of new technologies that progressively erode the profit flows obtained from existing technologies. The paper shows first that it is possible to find a profit-maximizing, endogenously determined, amount of training that depends on the workers’ educational attainment. Thus, a situation in which better educated workers may be disproportionately selected for training issues is possible, especially in times of rapid technological change. However, the paper also shows that a non-linear relationship between education and technological change (and growth) exists, so that an increase in the formal level of education can even result in a reduction in the rate of growth. The reason for this is the increase in creative destruction that raises ‘technology adoption costs’ in terms of output foregone during re-training spells that arrive at a faster rate. The results offer some insights that are interesting from an education policy perspective. Keywords: labour economics ; Date: 2005 URL: http://d.repec.org/n?u=RePEc:dgr:umamer:2005010&r=all 37. General Purpose Technologies and Energy Policy Zon,Adriaan,van Kronenberg,Tobias (MERIT) We employ a general purpose technology model with endogenous stochastic growth to simulate the effects of different energy policy schemes. An R&D sector produces endogenous growth by developing radical and incremental technologies. These innovations result in blueprints for capital intermediates, which require raw capital and either carbon or non-carbon-based fuels. A carbon tax therefore affects not only the final production sector but also the R&D sector by making the development of non- carbon-based technologies more attractive. Due to path dependencies and possible lock-in situations, policy can have a significant long-term impact on the energy structure of the economy. Allowing for different elasticities of substitution between consumption and environmental quality, we examine the effects of different carbon policies on growth, environmental quality, and welfare. We find that an anti-carbon policy may reduce welfare initially, but in the long run there is a strong potential for a ‘double dividend’ due to faster growth and reduced pollution. Keywords: research and development ; Date: 2005 URL: http://d.repec.org/n?u=RePEc:dgr:umamer:2005011&r=all 38. Consistent House Allocation Ehlers,Lars Klaus,Bettina (METEOR) In practice we often face the problem of assigning indivisible objects (e.g., schools, housing, jobs, offices) to agents (e.g., students, homeless, workers, professors) when monetary compensations are not possible. We show that a rule that satisfies consistency, strategy-proofness, and efficiency must be an efficient generalized priority rule; i.e., it must adapt to an acyclic priority structure, except - maybe - for up to three agents in each object''s priority ordering. Keywords: microeconomics ; Date: 2005 URL: http://d.repec.org/n?u=RePEc:dgr:umamet:2005007&r=all 39. The Agents-are-Substitutes Property in Continuous Generalized Assignment Problems Lok,Reinder B. Romero Morales,Dolores Vermeulen,Dries (METEOR) The VCG mechanism has some nice properties if the agents-are- substitutes property holds.For example, for combinatorial auctions the property assures that the VCG mechanism is supported by a pricing equilibrium. The existence of such a pricing equilibrium is a necessary condition for the existence of ascending auctions that are equivalent to the VCG mechanism. Although it is known that the agents-are-substitutes property is important in several settings few problems or subclasses of problems are proven to have the property.In this paper we show for a class of problems that the agents-are-substitutes property holds. Moreover we give two rather natural and small extensions that do not have this property in general.Furthermore we show that in our simple problem class we need the possibility of price discrimination. Keywords: operations research and management science; Date: 2005 URL: http://d.repec.org/n?u=RePEc:dgr:umamet:2005008&r=all 40. Student time allocation, the learning environment and the acquisition of competencies Meng,Christoph Heijke,Hans (ROA rm) This paper investigates the significance of the higher education learning environment and the student’s time allocation over study related activities for the acquisition of generic and discipline-specific competencies. We discern four learning environments according to the emphasis placed on activating learning methods and the emphasis placed on the teacher as main source of information. Time used is measured for attention of formal education, self-study, extra-curricula activities and paid work. Using a unique data set on European higher education graduates, providing detailed information, we investigate the competencies acquisitions process by stochastic frontier production function methods. The results suggest that activating learning methods are effective in both, the acquisition of generic competencies and the acquisition of discipline-specific competencies. Moreover, the results show that discipline-specific competencies are acquired by attending formal education, by self- study and by paid work, as long as there is a strong link between the work and the study. Generic competencies are acquired by self- study and paid work that is related to the study. Keywords: labour market entry and occupational careers; Date: 2005 URL: http://d.repec.org/n?u=RePEc:dgr:umaror:2005001&r=all 41. People People: Social Capital and the Labor-Market Outcomes of Underrepresented Groups Borghans,Lex Weel,Bas,ter Weinberg,Bruce (ROA rm) Despite indications that interpersonal interactions are important for understanding individual labor-market outcomes and have become more important over the last decades, there is little analysis by economists. This paper shows that interpersonal interactions are important determinants of labor-market outcomes, including occupations and wages. We show that technological and organizational changes have increased the importance of interpersonal interactions in the workplace. We particularly focus on how the increased importance of interpersonal interactions has affected the labor-market outcomes of underrepresented groups. We show that the acceleration in the rate of increase in the importance of interpersonal interactions between the late 1970s and early 1990s can help explain why women’s wages increased more rapidly, while the wages of blacks grew more slowly over these years relative to earlier years. Keywords: education, training and the labour market; Date: 2005 URL: http://d.repec.org/n?u=RePEc:dgr:umaror:2005002&r=all 42. On Committees of Experts Bauke Visser (Faculty of Economics, Erasmus Universiteit Rotterdam) Otto H. Swank (Faculty of Economics, Erasmus Universiteit Rotterdam) We consider a committee that makes a decision on a project on behalf of 'the public'. Members of the committee agree on the a priori value of the project, and hold additional private information about its consequences. They are experts who care both about the value of the project and about being considered well informed. Before voting on the project, members can exchange their private information simultaneously (so no herding). We show that reputational concerns make the a priori unconventional decision more attractive and lead committees to show a united front. These results hold irrespective of whether information can be manipulated or not. Next, we show that reputational concerns induce members to manipulate information and vote strategically if their preferences differ considerably from those of the member casting the decisive vote. Our last result is that the optimal voting rule balances the quality of information exchange and the alignment of interests of the decisive voter with those of the public. Keywords: Committees; communication; reputational concerns; strategic voting JEL: D71 D72 D82 Date: 2005-03-10 URL: http://d.repec.org/n?u=RePEc:dgr:uvatin:20050028&r=all 43. Friendship Relations in the School Class and Adult Economic Attainment Andrea Galeotti (University of Essex, UK) Gerrit Muller (Erasmus Universiteit Rotterdam) We analyze the impact of adolescents' friendship relations in their final-year class of high school on subsequent labor market success. Based on a typology of network positions we locate each student within the social system of the school class as either: an isolate, a sycophant, a broker or a receiver. These positions identify individuals' social standing within the group of classmates and proxy for their interpersonal behavior and social competencies. We offer empirical evidence that differential social standing in adolescence predicts large and persistent earnings disparities over the entire life course. The estimated wage premia and penalties do not appear to be substantially confounded by measures of family and school resources, and materialize largely independent of differences in cognitive abilities, grade rank in class or friends' characteristics. A moderate share of the earnings inequalities is mediated by differential post-secondary human and social capital investment. From a conceptual point of view, we contribute an application of egocentered network methods within conventional labor economic survey research. Keywords: friendship ties; social capital; earnings JEL: A14 I21 J31 Date: 2005-03-23 URL: http://d.repec.org/n?u=RePEc:dgr:uvatin:20050032&r=all 44. Capital Market Frictions, Business Cycle and Monetary Transmission Olivier Pierrard Empirical evidence shows that some firms may be capital constraintbecause of capital market imperfections. We therefore extend the business cycle models with frictions `a la Pissarides on the labour market by also introducing symmetric frictions on the capital market. We show that the capital market frictions ( and their interactions with the labour market frictions) improve the statistical properties of the model and generate a financial accelerator. Keywords: capital market frictions; business cycle; monetary transmission JEL: E13 E24 E51 Date: 2005-02 URL: http://d.repec.org/n?u=RePEc:dnb:dnbwpp:029&r=all 45. Disclosure and determinants studies : an extension using the divisive clustering method (DIV) DING, Yuan STOLOWY, Herve FU, Linghui (Beihang University) WANG, Huiwen (Beihang University) The objective of this paper is to introduce a divisive ( descendant) clustering method which splits the sample into homogeneous sub-groups corresponding to disclosure patterns (or profiles), for clearer determination of the financial characteristics of each group. This methodology is illustrated by a study of disclosure on provisions by large French firms. The results show that the disclosure pattern is related to provision intensity, size, leverage, profit and maket expectation, but not to return and industry. This new research method is a valuable complement to expand on disclosure and determinants studies, moving from disclosure levels to disclosure patterns. Keywords: disclosure; determinants; provisions; France; size; clustering method JEL: M41 Date: 2004-12-01 URL: http://d.repec.org/n?u=RePEc:ebg:heccah:0798&r=all 46. Dynamic modeling of web purchase behavior and e-mailing impact by Petri net BALAGUE, Christine LEE, Janghyuk In this article, the authors introduce Petri nets to model the dynamics of web site visits and purchase behaviors in the case of wish list systems. They describe web site activities and their transition with probability distributions and model the sequential impact of influential factors through links that better explain web purchase behavior dynamics. The basic model, which analyzes site connections and purchases to explain visit and purchase behavior, performs better than a classical negative binomial regression model. To demonstrate its flexibility, the authors extend the wish list Petri net model to measure the impact of e-mailing intervals on visit frequency and purchase. Keywords: internet; wish list; e-mail; Petri net; dynamic model JEL: D12 M31 Date: 2004-12-01 URL: http://d.repec.org/n?u=RePEc:ebg:heccah:0804&r=all 47. Innovation, new market and governance choices of entry : the internet brokerage market case QUELIN, Bertrand V. CLAUDE-GAUDILLAT, Valerie (CERAM) This paper investigates the case of market entry strategies following the introduction of a disruptive innovation. Recognizing that market entry strategies have been envisioned in the literature as a discrete phenomenon, we develop an empirical framework that portrays these strategies as a capability building process. These organizational modes are integrated into our model acquisition, alliance, and market transaction. We compare the first two with the third one and we test our model in the setting of the online brokerage industry by using a sample of 897 moves made by 98 firms over a seven-year period (1994 to 2000). We built this dataset by collecting secondary data.By suggesting that the entry into a new industry is not a discrete phenomenon, our research should lead the path to additional research on this topic. Keywords: innovation; market entry; capabilities; firm's boundaries JEL: L22 L86 M10 Date: 2004-12-01 URL: http://d.repec.org/n?u=RePEc:ebg:heccah:0805&r=all 48. Internet media planning : an optimization model LEE, Janghyuk KERBACHE, Laoucine Of the various media vehicles available for advertising, the internet is the latest and the most rapidly growing, emerging as the ideal medium to promote products and services in the global market. In this article, the authors propose an internet media planning model whose main objective is to help advertisers determine the return they obtain from spending on internet advertising. Using available data such as internet page view and advertising performance data, the model contributes to attempts not only to optimize the internet advertising schedule but also to fix the right price for internet advertisements on the basis of the characteristics of the exposure distribution of sites. The authors test the model with data provided by KoreanClick, a Korean market research company that specializes in internet audience measurement. The optimal durations for the subject sites provide some useful insights. The findings contrast with current web media planning practices, and the authors demonstrate the potential savings that could be achieved if their approach were applied. Keywords: media planning; optimization; advertising repeat exposure; probability distribution; internet JEL: L86 M37 Date: 2004-12-01 URL: http://d.repec.org/n?u=RePEc:ebg:heccah:0806&r=all 49. Quelles relations entre science de l'organisation et management ? Penser la contribution de H.A. Simon FIOL, Michel SOLE, Andreu The importance of H.A. Simon's contribution to understand the relations between organization science and management. Keywords: organizational science; managerial theory JEL: L20 M10 Date: 2004-07-01 URL: http://d.repec.org/n?u=RePEc:ebg:heccah:0797&r=all 50. Les grands auteurs du controle de gestion - Mary P. Follet : Le controle pour penser FIOL, Michel Information on the activity of Mary P. Follet, her theory on business management and her contribution to the understanding of control concept. Keywords: management; control JEL: B31 M40 Date: 2004-04-01 URL: http://d.repec.org/n?u=RePEc:ebg:heccah:0796&r=all 51. Le developpement d'offres de services dans les PMI BAGLIN, Gerard MALLERET, Veronique The development of services in the manufacturing sector. A study was conducted in european small industries to know the services offered, the difficulties encountered. Keywords: services; small industry; Europe JEL: L11 L84 Date: 2004-07-01 URL: http://d.repec.org/n?u=RePEc:ebg:heccah:0800&r=all 52. La deformation continue des managers FIOL, Michel de GEUSER, Fabien (HEC Lausanne) This paper analyzes the way of thinking of the managers when they have to take a decision on a complex situation. Keywords: managers; thinking; reasoning JEL: B31 M10 Date: 2004-12-01 URL: http://d.repec.org/n?u=RePEc:ebg:heccah:0801&r=all 53. Why do firms opt for Alternative-Format Financial Statements Some Evidence from France DING, Yuan JEANJEAN, Thomas STOLOWY, Herve Historically, the format of financial statements has varied from one country to another. Recently, due to the attractiveness of their capital markets, the strength of their accounting professions and the influence of their institutional investors, Anglo-American countries have seen the impact of their accounting practices on other nations increase steadily, even influencing the actual format of financial statements. Given that French accounting regulations allow a certain degree of choice in consolidated balance sheet format (‘by nature’ or ‘by term’) and income statement format (‘by nature’ or ‘by function’), this study examines a sample of 199 large French listed firms in an attempt to understand why some of these firms do not use the traditional French formats (‘by nature’ for the balance sheet and ‘by nature” for the income statement), instead preferring Anglo-American practices (‘by term’ format for the balance sheet and ‘by function’ format for the income statement). We first analyze the balance sheet and income statement formats separately using a logit model, then combine the two and enrich the research design with a generalized ordered logit model and a multinomial logit regression. Our results confirm that the major driving factor behind the adoption of one or two alternative formats is the firm’s degree of internationalization, not only financial (auditor type, foreign listing and the decision to apply alternative accounting standards) but also commercial (company size and the internationalization of sales). Keywords: Disclosure; Determinants; Financial Statements; Alternative format; France; Logit; Generalized ordered logit; Multinomial logit JEL: M41 Date: 2005-01-30 URL: http://d.repec.org/n?u=RePEc:ebg:heccah:0808&r=all 54. Does Analyst Following Curb Earnings Management? DEGEORGE, Francois (University of Lugano) DING, Yuan JEANJEAN, Thomas STOLOWY, Herve We investigate the role of analyst following as a monitoring device reducing earnings management. We find strong evidence that analysts are more effective monitors in transparent environments than in opaque environments. In a sample of 51,401 observations for 10,866 non-financial firms in 26 countries from 1994 to 2002, we find that the more transparent the country, the stronger the reduction in earnings management activity associated with analyst following. We also find that firms in transparent countries use short-term earnings management techniques to reach the consensus analyst forecast. Taken together, our findings suggest that while analyst following acts as a curb on the most visible forms of earnings management in transparent countries, it also encourages more subtle, short-term forms of earnings management to reach the analyst consensus. In transparent countries monitoring effectiveness more than offsets consensus fixation. In opaque countries, analyst following does not act as a curb on total earnings management, but neither does it create any short-term pressure to manage earnings. Our results are robust to (1) our measure of transparency, (2) reverse causality checks and (3) our choice of measure of earnings management. Keywords: analyst following; earnings management; international comparison JEL: G31 Date: 2005-03-11 URL: http://d.repec.org/n?u=RePEc:ebg:heccah:0810&r=all 55. Fair Wages and the Co-Employment of Hired and Rented Hands - An Experimental Study Dorothea Alewell Wiebke Kuklys Colette Friedrich Werner Guth A firm with stochastic demand can rely on hired hands when demand is low and rent additional labour when demand is higher. For high demand this implies the co-employment of hired hands, paid directly by the firm, and of rented hands who are paid by a rental agency. This may cause severe problems if wages differ systematically between hired and rented hands. Will rented hands accept lower wages than hired hands? Or will rented hands demand higher wages as a compensation for flexibility? Fairness norms might play an important role in wage-setting decisions. We will explore theoretically and experimentally possible fairness considerations of the involved parties. Keywords: Principal-agent problem, rented labour, fairness, wage discrimination, outsourcing JEL: C7 C91 D23 URL: http://d.repec.org/n?u=RePEc:esi:discus:2005-08&r=all 56. Implementation in WTO Dispute Settlement: An Introduction to the Problems and Possible Solutions William J. DAVEY To assess the effectiveness of the dispute settlement system of the World Trade Organization (WTO), it is necessary to evaluate whether WTO members promptly take the actions required to bring themselves into compliance with their WTO obligations, as those obligations have been defined or clarified in the dispute settlement reports issued by WTO panels and the Appellate Body. In this paper, the operation of the WTO dispute settlement system is briefly outlined, with particular emphasis on the overall time taken by the various stages. This is followed by an analysis of the implementation record for disputes brought under the WTO - both overall and on a member-by-member and agreement-by-agreement basis, with consideration of the types and disputes that have proved problematic. The conclusion of this paper is as follows: while overall record of implementation is relatively good, there are problem areas. Those problems could be mitigated with the modification of remedies provided for in the WTO dispute settlement so that (i) money payments could be substituted for the right to suspend concessions; (ii) such payments or suspension of concessions could be calculated on a retrospective basis; and (iii) such payments or suspension of concessions could be increased periodically over time in the event of continued non- implementation. Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:eti:dpaper:05013&r=all 57. The Asian Crisis Reconsidered Takashi Shiraishi Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:eti:dpaper:05014&r=all 58. Relationship Banking in post Bubble Japan: Co-existence of soft-and hard budget constraint Arikawa Yasuhiro Miyajima Hideaki The purpose of this paper is to provide an overview of the relationship banking in Japan in the 1990s. We show the increasing dependence on bank borrowing in spite of the deregulation of bond market in the mid 1990s in terms of the debt composition, and we confirm the loan from main-bank also increases among the firms with higher bank borrowing. Then, we examine the effects of these facts on borrowing firm behavior. By estimating the employment adjustment function, we present that main bank did not discipline effectively firms that were required the corporate restructuring, while it encouraged the restructuring of the firm with relatively better performance. Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:eti:dpaper:05015&r=all 59. Live with a Quiet but Uneasy Status Quo? -An Evolutionary Role the Appellate Body Can Play in Resolution of "Trade and Environment" Disputes- Satoru Taira Whether a trade ban on a product imposed because of the fact that the process-and-production-method (PPM) of that product is harmful to the environment can be consistent with the WTO law? The purpose of this paper is to trace what the panels and the Appellate Body of the WTO have done in settlement of disputes concerning this problem and especially to think about a possible 'evolutionary' role the Appellate Body can play in resolution of 'trade and environment' disputes. This paper begins first to consider generally the essential characteristics of the problem of so called 'trade and environment' and then to identify a special problem which is raised by these characteristics in the context of the dispute settlement system of the WTO. Second, in a more substantial level, this paper will consider what a trade related environmental measure (TREM) based on a PPM is and then identify the issues of its possible inconsistency with the WTO law. Third, we will trace how the panels and the Appellate Body have disposed of these issues in practice and also make some analysis of a new approach adopted by the Appellate Body in interpreting the WTO law in recent two cases. In conclusion, this paper will affirmatively evaluate this new approach and remark that the Appellate Body does not need to 'live with a quiet but uneasy status quo' in the 'trade and environment' disputes. Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:eti:dpaper:05016&r=all 60. A Deviation Measurement for Coordinated Exchange Rate Policies in East Asia Eiji Ogawa Junko Shimizu The monetary authorities in East Asian countries have been strengthening their regional monetary cooperation since the Asian Currency Crisis in 1997. In this paper, we propose a deviation measurement for coordinated exchange rate policies in East Asia to enhance the monetary authorities' surveillance process for their regional monetary cooperation. We estimate an AMU (Asian Monetary Unit) as a weighted average of East Asian currencies according to the method to calculate the ECU used under the EMS before introducing the euro into some EU countries. We consider four types of AMU, which are based on trade volume, nominal GDP, GDP measured at PPP, and international reserves. After choosing both the AMUs based on GDP measured at PPP weight and trade weight from a viewpoint of stability of the AMU value in terms of a currency basket composed of the US dollar and the euro, we calculate the deviation indicators from the benchmark rates for each of the East Asian currencies. We compare both nominal and real deviation indicators by taking into account inflation rate differentials. The real deviation indicator should be adequate for surveillance over effects of exchange rate policy on real economy while the nominal one can be frequently watched in real time. Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:eti:dpaper:05017&r=all 61. Why Lying Pays: Truth Bias in the Communication with Conflicting Interests Toshiji Kawagoe Hirokazu Takizawa We conduct experiments of a cheap-talk game with incomplete information in which one sender type has an incentive to misrepresent her type. Although that Sender type mostly lies in the experiments, the Receiver tends to believe the Sender's messages. This confirms "truth bias" reported in communication theory in a oneshot, anonymous environment without nonverbal cues. These results cannot be explained by existing refinement theories, while a bounded rationality model explains them under certain conditions. We claim that the theory for the evolution of language should address why truthful communication survives in the environment in which lying succeeds. Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:eti:dpaper:05018&r=all 62. An empirical examination of exchange-rate credibility determinants in the EMS Francisco Ledesma-Rodriguez Jorge Perez-Rodriguez Simon Sosvilla-Rivero URL: http://d.repec.org/n?u=RePEc:fda:fdadef:04-01&r=all 63. Price-Cost Margins and Economic Integration: How Important is the Pro-Competitive Effect? Oscar Bajo-Rubio Carmen Diaz-Roldan Antonio G. Gomez-Plana URL: http://d.repec.org/n?u=RePEc:fda:fdadef:04-02&r=all 64. Is the foreign capital leaving industrialized countries? The case of Spain Carlos M. Fernandez-Otheo Rafael Myro URL: http://d.repec.org/n?u=RePEc:fda:fdadef:04-03&r=all 65. Some critics to the contagion correlation test Sarai Criado Nuevo URL: http://d.repec.org/n?u=RePEc:fda:fdadef:05-01&r=all 66. Testing the BalassA-Samuelson hypothesis in two different groups of countries: OECD and Latin America Jose Garcia Solanes Fernando Torrejon Flores URL: http://d.repec.org/n?u=RePEc:fda:fdadef:05-02&r=all 67. Regimenes cambiarios de iure y de facto. El caso de la Peseta/Dolar, 1965-1998 Francisco J. Ledesma-Rodriguez Manuel Navarro-Ibanez Jorge V. Perez-Rodriguez Simon Sosvilla-Rivero URL: http://d.repec.org/n?u=RePEc:fda:fdadef:05-03&r=all 68. Estimating the Stochastic Discount Factor without a Utility Function Fabio Araujo Joao Victor Issler (EPGE/FGV) Marcelo Fernandes (EPGE/FGV) Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:fgv:epgewp:583&r=all 69. What Happens After the Central Bank of Brazil Increases the Target Interbank Rate by 1%? Rubens Penha Cysne (EPGE/FGV) Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:fgv:epgewp:584&r=all 70. Omstrukturering, omstallning och kompetensvaxling Edstrom, Anders (Gothenburg Research Institute) Sabel, Ola (Gothenburg Research Institute) Svenska foretag har under 90-talet omstrukturerat sin verksamhet i snabbt tempo. Det finns manga orsaker till detta. Avreglering av marknader, teknikutveckling, globalisering, varderingsforskjutningar hos kunder ar nagra forandringsfaktorer som driver omstruktureringar. I rapporten analyseras omstruktureringar och omstallning inom ABB Sverige, AstraZeneca Sverige, ICA, Volvo Lastvagnar, Telia och Posten. Fragor om omstallningsorganisation, omstallningsprocessen, atgardsrepertoar samt erfarenheter har penetrerats med berorda personalansvariga, linjechefer och fackliga foretradare. I den sammanfattande analysen konstateras att utvecklingen har gatt fran enstaka neddragningar till kontinuerliga omstallningar och att omstallning blivit en strategisk fraga bade for foretag och anstallda. Under det senaste 10-15 aren har det vuxit upp en betydande marknad for foretag som erbjuder tjanster i samband med omstallningar. Foretagen agerar numera mera proaktivt och identifierar behov av omstallning tidigt. Dock kommer vissa omstruktureringar utan langre forvarning. Erfarenheter fran de studerade foretagen visar stora svarigheter att kompetensvaxla anstallda inom det egna foretaget. Besvarliga och kansliga avvagningar maste hanteras sasom tydlighet i kommunikation och regelverk for att reducera osakerhet utan att sara enskilda medarbetare. Frivillighet att deltaga i olika omstallningsprogram dampas av att individer ofta utsatts for socialt tryck. Betydelsen av god ”coaching” av anstallda ar stor. Rapporten har finansierats av TRR och varit underlag for deras rapport ”Ansvarstagarna” Keywords: Omstrukturering; omstallning; kompetensvaxling; omstallningsstrategi Date: 2005-03-23 URL: http://d.repec.org/n?u=RePEc:hhb:gungri:2005_002&r=all 71. Endogenous Institutional Change After Independence Congdon Fors, Heather (Department of Economics, School of Economics and Commercial Law, Goteborg University) Olsson, Ola (Department of Economics, School of Economics and Commercial Law, Goteborg University) A key event in economic history was the independence of nearly ninety former colonies after World War II. On the basis of qualitative and quantitative evidence, we argue that independence often constituted an institutional disequilibrium that the new regimes reacted to in very different ways. We present a model of endogenous changes in property rights institutions where an autocratic post-colonial ruler faces a basic trade-off between stronger property rights, which increases his dividends from the modern sector, and weaker property rights that increases his ability to appropriate resource rents. The model predicts that revenuemaximizing regimes in control of an abundance of resource rents and with insignificant interests in the modern sector will rationally install weak institutions of private property, a prediction which we argue is well in line with actual developments in for instance DR Congo, Ghana, and Zambia.
Keywords: institutions; property rights; independence; resource rents; rent seeking JEL: O17 O57 P14 Date: 2005-03-22 URL: http://d.repec.org/n?u=RePEc:hhs:gunwpe:0163&r=all 72. Trust, Trust Games and Stated Trust: Evidence from Rural Bangladesh Johansson-Stenman, Olof (Department of Economics, School of Economics and Commercial Law, Goteborg University) Mahmud, Minhaj (Department of Economics, School of Economics and Commercial Law, Goteborg University) Martinsson, Peter (Department of Economics, School of Economics and Commercial Law, Goteborg University) Levels of trust are measured by asking standard survey questions on trust and by observing the behaviour in a trust game using a random sample in rural Bangladesh. Follow-up questions and correlations between the sent amount in the trust game and stated expectations reveal that the amount sent in the trust game is a weak measure of trust. The fear of future punishment, either within or after this life, for not being sufficiently generous to others, was the most frequently stated motive behind the respondents’ behaviour, highlighting the potential importance of motives that cannot be inferred directly from people’s behaviour.
Keywords: Trust; trust game; social capital; field experiment; Bangladesh JEL: C93 Z13 Date: 2005-03-31 URL: http://d.repec.org/n?u=RePEc:hhs:gunwpe:0166&r=all 73. Trust and Religion: Experimental Evidence from Bangladesh Johansson-Stenman, Olof (Department of Economics, School of Economics and Commercial Law, Goteborg University) Mahmud, Minhaj (Department of Economics, School of Economics and Commercial Law, Goteborg University) Martinsson, Peter (Department of Economics, School of Economics and Commercial Law, Goteborg University) Trust is measured using both survey questions and a standard trust experiment using a random sample of individuals in rural Bangladesh. We found no significant effect of the social distance between Hindus and Muslims in the trust experiment in terms of fractions sent or returned, but the responses to the survey questions indicate significant differences: Hindus, the minority, trust other people less in general, and Hindus trust Muslims more than the other way around.
Keywords: social capital; trust; social distance; religion; trust game; field experiment; Bangladesh JEL: C93 Z13 Date: 2005-03-31 URL: http://d.repec.org/n?u=RePEc:hhs:gunwpe:0167&r=all 74. Aggregate Savings When Individual Income Varies Floden, Martin (Dept. of Economics, Stockholm School of Economics) This paper examines aggregate savings in a general equilibrium model where infinitely lived households face volatile (and possibly uncertain) income paths, hold a risk-free asset, and face a liquidity constraint. I first show that the equilibrium capital stock in an economy without uncertainty, but where individual income varies, can be larger than in an economy where each household's income is constant. When income is stochastic, the equilibrium capital stock is always larger than when income is constant. This additional capital accumulation has sometimes been interpreted as precautionary savings, but I demonstrate that it is mostly generated by permanent-income motives. Keywords: equilibrium interest rate; aggregate savings; precautionary saving; infinite horizon; general equilibrium JEL: D52 D91 E21 Date: 2005-03-23 URL: http://d.repec.org/n?u=RePEc:hhs:hastef:0591&r=all 75. Reciprocal dumping with Bertrand competition Friberg, Richard (Dept. of Economics, Stockholm School of Economics) Ganslandt, Mattias (IUI) This paper examines if international trade can reduce total welfare in an international oligopoly with differentiated goods. We show that welfare is a U-shaped function in the transport cost as long as trade occurs in equilibrium. With a Cournot duopoly trade can reduce welfare compared to autarchy for any degree of product differentiation. Under Bertrand competition we show that trade may reduce welfare compared to autarchy, if firms produce sufficiently close substitutes and the autarchy equilibrium is sufficiently competitive. Otherwise it can not. Keywords: Reciprocal dumping; intra-industry trade; oligopoly; product differentiation; transport costs JEL: F12 F15 L13 Date: 2005-03-23 URL: http://d.repec.org/n?u=RePEc:hhs:hastef:0592&r=all 76. Univariate nonlinear time series models Terasvirta, Timo (Dept. of Economic Statistics, Stockholm School of Economics) In this paper developments in the analysis of univariate nonlinear time series are considered. First a number of commonly used nonlinear models are presented. The next section is devoted to methods of testing linearity, which is an important part of nonlinear model building. Techniques of modelling nonlinear series within a predetermined family of models are discussed thereafter. Forecasting with nonlinear models also has its own section. A brief set of final remarks closes the chapter. Keywords: Hidden Markov model; linearity test; neural network; nonlinear model building; threshold autoregressive model; smooth transition autoregressive model JEL: C22 C52 Date: 2005-03-29 URL: http://d.repec.org/n?u=RePEc:hhs:hastef:0593&r=all 77. Social Democracy Lost - The Social Democratic Party in Sweden and the Politics of Pension Reform, 1978-1998 Lundberg, Urban (Institute for Futures Studies) In this paper, the latter-day Swedish pension reform of the 1990s is studied from a power-political perspective focusing on the involvement of the Social Democratic Party.
Few episodes in the history of Swedish social democracy have been as widely celebrated as the struggles of the 1950s over the development of the pension system. The debates strengthened the collective affiliations of those involved and eased the task of explaining to voters how the political parties differed from one another at a time when social welfare was beginning to be viewed as political public property.
In perspective, and as much research indicates, the institutional design of the Swedish pension system in terms of the so-called "income security principle" was to have far-reaching power-strategic consequences. By limiting the scope for insurance alternatives offered by the financial markets, and by guaranteeing the living standard of a broader stratum of wage earners, it contributed to the middle class's integration into the emerging welfare state. In addition, it strengthened the Social Democratic Party's standing with its electoral base, thereby helping to ensure the party's its long- term incumbency.
Despite the heritage, a broad consensus of the social democrat submitted to the Swedish Parliament in 1994 guidelines for a pension system reformed in a different direction. Keywords: pension reform; Social Democratic Party JEL: J26 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:hhs:ifswps:2005_001&r=all 78. The Employers in the Swedish Model The Importance of Labour Market Competition and Organisation Lundqvist, Torbjorn (Institute for Futures Studies) The way the labour market functions is a crucial factor in any analysis of the Swedish model. Full employment contributed to the growth of what were probably the two most important institutions in this model: centralised negotiations between the social partners and, secondly, the Rehn-Meidner model, involving pay policies based on solidarity with the low-paid. Here, we have examined the role of the employers in the rise, application and fall of the centralised bargaining model. In this respect, the Swedish Metal Trades Employers' Association (VF), the largest and most important employer organisation in the peak association SAF, was the actor whose interests eventually led to the model's demise. The principal cause was discontent over the way this bargaining model worked in practice. The engineering industries felt their interests were being neglected in the giant employer collective.
This empirical investigation into an employer organisations's internal actions, combining economic history with organisation theory, shows the importance of the market mechanism for employer policy during full employment. They sought a solution to the problem of wage drift. Significantly, it began by helping to push through centralised bargaining in the 1950s. When wage drift subsequently showed a tendency to decline towards the end of the 1970s, this was seen as a result of more extensive local and regional organisation. Competition and wage drift, it was felt, could be handled better through local collaboration than through large-scale collective action. One of the institutions of the Swedish model had thereby met its end. Keywords: Employers Swedish Model; Labour Market Competition and Organisation JEL: J51 Date: 2005-02 URL: http://d.repec.org/n?u=RePEc:hhs:ifswps:2005_002&r=all 79. Income Inequality and Growth: a Panel Study of Swedish Counties 1960-2000 Nahum, Ruth-Aida (Institute for Futures Studies) This paper explores the relationship between income inequality and growth using panel data on Swedish counties from 1960-2000. Compared to standard methods of estimating this relationship yearly regional level data are used, and inequality is allowed to be endogenous. We find a significant positive impact of inequality on growth, but the magnitude of the effect decreases with the length of the growth period studied. When allowing income inequality to be endogenous, using a panel 2SLS IV estimation, we find positive effect of inequality on 1 to 5-year growth rates, when significant, whereas the effect on 10-year growth rates are not clear cut. Keywords: Income inequality; regional economic growth; panel data JEL: D31 O15 O40 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:hhs:ifswps:2005_003&r=all 80. Transition Variables in the Markov-switching Model: Some Small Sample Properties Erlandsson, Ulf (Department of Economics, Lund University) This paper researches small-sample properties of the Markov- switching model with time-varying transition probabilities. By means of simulation, it is shown that the likelihood ratio statistic is over-sized for sample sizes relevant in many empirical applications. The number of regime switches occurring in the sample rather than the total number of observations is central to the magnitude of the distortion, with other factors such a persistence in transition equation variables and the precision at which states are inferred being influential on size. In an application to possible predictors of switches to recessions in U.S. data, it is shown that critical values for the likelihood ratio statistic need to be adjusted far upwards to reflect true confidence levels. Keywords: regime switching; transition probability; small-sample JEL: C13 C32 E32 Date: 2005-03-21 URL: http://d.repec.org/n?u=RePEc:hhs:lunewp:2005_025&r=all 81. Call Options and Accruals Quality Francis, Jennifer (Fuqua School of Business, Duke University) Olsson, Per (Fuqua School of Business, Duke University) Schipper, Katherine (Financial Accounting Standards Board) We analyze the link between financial reporting choices that affect accruals quality and firms' use of call options. We argue that call options used in compensation arrangements (employee stock options or ESOs) create countervailing incentives for managers to affect accruals quality. On the one hand, poorer accruals quality is associated with greater returns volatility ( which leads to an increase in ESO value); on the other hand, better accruals quality is associated with a lower cost of capital (and, therefore, higher share price, which leads to an increase in ESO value). We confirm both effects on accruals quality, and we show that the net effect is for ESOs to worsen accruals quality. We provide additional evidence on this main result by showing that in two settings where the returns volatility incentive to worsen accruals quality is muted or absent (cases where managers hold employer shares and cases where the firm uses call options for financing purposes, such as preferred stock and convertible debt), the overall incentive is for managers to increase accruals quality. Keywords: Options; Information Quality; Compensation JEL: G30 M40 Date: 2005-02-15 URL: http://d.repec.org/n?u=RePEc:hhs:sifrwp:0034&r=all 82. Optimal Mix of Price and Quantity Regulation under Uncertainty Mandell, Svante (Dept. of Economics, Stockholm University) This paper takes on the issue of ‘Prices vs. Quantities’, see Weitzman (1974), applied to environmental regulations under uncertainty. It is shown that, from an efficiency point of view, it is generally preferable to divide the economy into two parts, one regulated through a tax and the other through cap-and-trade, rather than letting it be subject to either of these regulation mechanisms. This may be so even when the latter alternatives are cost effective while the former is not. Particular interest is devoted to determining the optimal size of each sector. Generally, a steeper marginal abatement cost function relative to the marginal abatement benefit function implies that a larger part of the economy should be taxed. Keywords: regulation; uncertainty; emissions tax; tradable permits JEL: H23 L51 Q28 Q58 Date: 2004-09 URL: http://d.repec.org/n?u=RePEc:hhs:sunrpe:2004_0012&r=all 83. How Do Drug Lords in Final Destination Countries Respond to Anti-Drug Policies? Jacobsson, Adam (Dept. of Economics, Stockholm University) Naranjo, Alberto (Dept. of Economics, Stockholm University) This paper models how drug lords in final destination countries respond to two types of government anti-drug policies: demand and supply oriented. Supply policies (crop eradication, interdiction, etcetera) are modeled in line with the previous literature, that is, they increase production costs. Demand policies (domestic law enforcement, demand reduction programs, etcetera) are modeled within a conflict framework with drug lords over the control of distribution channels for illegal drugs, which is novel. The model predicts drug use, price and indirectly drug related violent crime. These predictions appear to be consistent with the data. Keywords: drug policy; conflict; violent crime JEL: D74 I18 Date: 2004-09-20 URL: http://d.repec.org/n?u=RePEc:hhs:sunrpe:2004_0013&r=all 84. Drug Lords, Rebel Movements and Anti-Drug policies in Source Contries Naranjo, Alberto (Dept. of Economics, Stockholm University) U.S. strategy against the production and distribution of illegal drugs in and from source countries uses both supply and demand side anti-drug policies with the aim of increasing drug prices. In source countries, the trends for potential drug production (or area cultivated with coca and opium poppy leaves) and trafficking activities, together with wholesale prices for cocaine (and heroin) in the U.S, show no clear results supporting the success of the strategy. Moreover, the existence of these illegal industries has been an important factor in the development of rebel movements. This paper presents a possible explanation for the correlations between both anti-drug policies and these trends, by analyzing the illicit drug production and distribution together with the existence of rebel movements. By accounting for the interaction between a rebel movement, a drug lord, and a government, is possible to explain the effects of each of these two anti-drug policies, their relative effectiveness, and the reasons behind their use. The analysis suggests that demand oriented anti-drug policies can produce better results than supply oriented policies. Keywords: illegal behavior; conflict; law enforcement JEL: D78 K42 L20 Date: 2004-08-23 URL: http://d.repec.org/n?u=RePEc:hhs:sunrpe:2004_0014&r=all 85. Cost-Benefit Analysis and the Marginal Cost of Public Funds Lundholm, Michael (Dept. of Economics, Stockholm University) The marginal cost of public funds defined as the ratio between the shadow price of tax revenues and the population average of the social marginal utility of income, is analysed within an explicit cost–benefit context. It is shown that for an optimal tax system the measure is always equal to one. Benefit and cost measures congruent with this definition are derived. Under optimal taxes a positive net social benefit is a necessary and sufficient condition for a project that passes the cost–benefit test. Under non–optimal taxes this is not the case: If taxes are too low a positive net social benefit is a necessary but not sufficient condition and if taxes are too high a sufficient but not necessary condition for an accepted project. Keywords: Cost–benefit; optimal taxation; marginal cost of public funds JEL: H21 H43 Date: 2005-03-31 URL: http://d.repec.org/n?u=RePEc:hhs:sunrpe:2005_0003&r=all 86. Myopic Loss Aversion, the Equity Premium Puzzle, and GARCH Agren, Martin (Department of Economics) This paper concerns the distributional assumptions made on stock returns in the myopic loss aversion (MLA) proposed explanation to the equity premium puzzle. While Benartzi and Thaler (1995) assume temporal independence in these returns, we introduce a more realistic assumption incorporating conditional heteroskedasticity. This involves the work on temporal aggregation of GARCH processes of Drost and Nijman (1993). Using Swedish data, our estimation method produces an overall larger evaluation period than the one originally obtained by Benartzi and Thaler, e.g., over the sample period July 1961 through December 2003 the evaluation period increases from 12 to 17. This shows that MLA indeed can explain a large equity premium but, also, that the model is sensitive to the distributional assumption made on stock returns. Keywords: Prospect theory; loss aversion; equity premium; GARCH JEL: C22 G11 Date: 2005-01-21 URL: http://d.repec.org/n?u=RePEc:hhs:uunewp:2005_011&r=all 87. Numerical Calculation of an Asymmetric Supply Function Equilibrium with Capacity Constraints Holmberg, Par (Department of Economics) Producers submit committed supply functions to a procurement auction, e.g. an electricity auction, before the uncertain demand has been realized. In the Supply Function Equilibrium(SFE), every firm chooses the bid maximizing his expected profit given the bids of the competitors. In case of asymmetric producers with general cost functions, previous work has shown that it is very difficult to find valid SFE. This paper presents a new numerical procedure that can solve the problem. It comprises numerical integration and an optimization algorithm that searches an end- condition. The procedure is illustrated by an example with three asymmetric firms. Keywords: Supply function equilibrium; uniform-price auction; numerical integration; oligopoly; asymmetry; capacity constraint; wholesale electricity market JEL: C61 D43 D44 L11 L13 L94 Date: 2005-03-29 URL: http://d.repec.org/n?u=RePEc:hhs:uunewp:2005_012&r=all 88. Winners and Losers from a Demographic Shock under Different Intergenerational Transfer Schemes Zamac , Jovan (Department of Economics) This study investigates the general equilibrium effects of a fertility shock under different intergenerational transfer schemes. The effects on lifetime income and utility for different generations, as well as the effects on factor prices, are analyzed in a three-period overlapping generations model where the workers provide for the young and the retired under different tax schemes. The economic effects of a fertility shock vary substantially with different intergenerational transfer schemes. How wages, interest rate and savings will evolve differs not only quantitatively but also qualitatively. To minimize the effects from a fertility shock it is vital that the effects on human capital are minimized. For a baby boom shock this implies that a higher fraction of output must be devoted to human capital accumulation, during the educational years of the baby boom generation. With respect to transfers to the old, the tax rate should not be fixed. Keywords: Intergenerational transfers; demography; social security; education JEL: H52 H55 J13 Date: 2005-03-01 URL: http://d.repec.org/n?u=RePEc:hhs:uunewp:2005_013&r=all 89. Higher Education, Localization and Innovation: Evidence from a Natural Experiment Andersson, Roland (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology) John M. Quigley, John M. (University of CaliforniaBerkeley, CA, USA) Wilhelmsson, Mats (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology) During the past fifteen years, government policy has decentralized post-secondary education in Sweden. We investigate the economic effects of this decentralization policy on the level of innovation and its spatial distribution in the Swedish economy. We rely upon micro data on patent activity over time, which records the home address of each patent awardee during the past eight years. These measures of innovation, together with data documenting the decentralization of university-based researchers and students, permit us to estimate the effects of exogenous changes in educational policy upon the extent and locus of innovative activity. We find important and significant effects of this policy upon the locus of knowledge production, suggesting that the decentralization has affected regional development through local innovation and increased creativity. We also find some evidence that this policy has affected the aggregate output of “knowledge industries.” Keywords: Higher Education; Localization; Innovation; Natural Experiment JEL: N34 O31 R11 Date: 2005-03-18 URL: http://d.repec.org/n?u=RePEc:hhs:cesisp:0026&r=all 90. Innovation Behaviour and Productivity Performance in the Nordic Region Does Foreign Ownership Matter? Ebersberger, Bernd (Technology Analysis & Innovation Strategies, Fraunhofer Institute for Systems and Innovation) Loof, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology) This paper addresses the involvement of foreign companies in domestic economies; the relative engagement of foreign-owned companies in R&D-activities; the relative embeddedness in various national innovation systems and the relative output performance from R&D and innovation. A comparison is made between the innovation and productivity of foreign owned enterprises, of different corporate styles, (Nordic, Anglo-Saxon and Continental European) and the different corporate structures of domestically owned firms (multinational and uninational). Using 5 186 firm level observations from Denmark, Finland, Norway and Sweden, and based on the international harmonized Community Innovation Survey and uniform econometric approaches; the study confirms previous findings, presents new results and identifies country, corporate style and corporate governance differences. Some new lights is also shed on a seemingly paradoxical relationship between R&D and innovation, and between R&D and productivity. Keywords: Multinational enterprises; Take-Over; Corporate governance; Cross-country comparison; Spillovers; R&D; Innovation; Productivity JEL: C31 D21 F23 G34 L22 O31 O33 Date: 2005-03-18 URL: http://d.repec.org/n?u=RePEc:hhs:cesisp:0027&r=all 91. Interdependencies in the Dynamics of Firm Entry and Exit Nystrom, Kristina (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology) This paper investigates the dynamics of firm entry and exit with a focus on differences between industrial sectors. The paper discusses how entry and exit rates in industrial sectors are affected by previous exit and entry rates. Economic theory presents two different approaches to how entry and exit of firms are interrelated to each other, the multiplier effect and the competition effect. This paper intends to investigate which force that is the predominant one. The empirical analysis is based on data for 25 Swedish manufacturing industries at the 2-digit SIC- level, for firms with more than five employees during the period 1991-2000. A dynamic panel data approach as suggested by Anderson and Hsio (1981) and Arellano and Bond (1991) are used in estimating the relationships. The empirical results find some evidence of the multiplier effect being the predominant effect explaining entry while competition effects are more important for explaining exit patterns. Keywords: Entry; exit; dynamic panel data JEL: C33 L10 Date: 2005-03-18 URL: http://d.repec.org/n?u=RePEc:hhs:cesisp:0028&r=all 92. Quantile regression methods for recursive structural equation models Lingjie Ma Roger Koenker Two classes of quantile regression estimation methods for the recursive structural equation models of Chesher (2003) are investigated. A class of weighted average derivative estimators based directly on the identification strategy of Chesher is contrasted with a new control variate estimation method. The latter imposes stronger restrictions achieving an asymptotic efficiency bound with respect to the former class. An application of the methods to the study of the effect of class size on the performance of Dutch primary school students shows that (i.) reductions in class size are beneficial for good students in language and for weaker students in mathematics, (ii) larger classes appear bene cial for weaker language students, and (iii.) the impact of class size on both mean and median performance is negligible. Date: 2004-02 URL: http://d.repec.org/n?u=RePEc:ifs:ifsewp:wp01/04&r=all 93. Necessary and sufficient conditions for latent separability Ian Crawford (Institute for Fiscal Studies and University of Surrey) This paper extends the nonparametric methods developed by Samuelson (1948), Houthakker (1950), Afriat (1973), Diewert (1973) and Varian (1982, 1983) to latently separable models. It presents necessary and sufficient empirical conditions under which data on the market behaviour of a price-taking consumer, and a hypothesised allocation across latent groups are nonparametrically consistent with latent separability (Gorman ( 1968, 1978), Blundell and Robin (2000)). It considers homothetic latent separability and weak separability as special cases. Date: 2004-02 URL: http://d.repec.org/n?u=RePEc:ifs:ifsewp:wp02/04&r=all 94. Estimating average partial effects under conditional moment independence assumptions Jeffrey M. Wooldridge I show how to identify and estimate the average partial effect of explanatory variables in a model where unobserved heterogeneity interacts with the explanatory variables and may be unconditionally correlated with the explanatory variables. To identify the populationaveraged effects, I use extensions of ignorability assumptions that are used for estimating linear models with additive heterogeneity and for estimating average treatment effects. New stimators are obtained for estimating the unconditional average partial effect as well as the average partial effect conditional on functions of observed covariates. Date: 2004-03 URL: http://d.repec.org/n?u=RePEc:ifs:ifsewp:wp03/04&r=all 95. On the robustness of fixed effects and related estimators in correlated random coefficient panel data models. Jeffrey M. Wooldridge I show that a class of fixed effects estimators is reasonably robust for estimating the population-averaged slope coefficients in panel data models with individual-specific slopes, where the slopes are allowed to be correlated with the covariates. In addition to including the usual fixed effects estimator, the results apply to estimators that eliminate individual-specific trends. Further, asymptotic variance matrices are straightforward to estimate. I apply the results, and propose alternative estimators, to estimation of average treatment in a general class of unobserved effects models. Date: 2004-06 URL: http://d.repec.org/n?u=RePEc:ifs:ifsewp:wp04/04&r=all 96. Inverse probability weighted estimation for general missing data problems Jeffrey M. Wooldridge I study inverse probability weighted M-estimation under a general missing data scheme. The cases covered that do not previously appear in the literature include M-estimation with missing data due to a censored survival time, propensity score estimation of the average treatment effect for linear exponential family quasi-log-likelihood functions, and variable probability sampling with observed retainment frequencies. I extend an important result known to hold in special cases: estimating the selection probabilities is generally more efficient than if the known selection probabilities could be used in estimation. For the treatment effect case, the setup allows for a simple characterization of a “double robustness” result due to Scharfstein, Rotnitzky, and Robins (1999): given appropriate choices for the conditional mean function and quasi-log- likelihood function, only one of the conditional mean or selection probability needs to be correctly specified in order to consistently estimate the average treatment effect. JEL: C13 C21 C23 Date: 2004-04 URL: http://d.repec.org/n?u=RePEc:ifs:ifsewp:wp05/04&r=all 97. Nonparametric inference for unbalance time series data Oliver Linton (Institute for Fiscal Studies and London School of Economics) Estimation of heteroskedasticity and autocorrelation consistent covariance matrices (HACs) is a well established problem in time series. Results have been established under a variety of weak conditions on temporal dependence and heterogeneity that allow one to conduct inference on a variety of statistics, see Newey and West (1987), Hansen (1992), de Jong and Davidson (2000), and Robinson (2004). Indeed there is an extensive literature on automating these procedures starting with Andrews (1991). Alternative methods for conducting inference include the bootstrap for which there is also now a very active research program in time series especially, see Lahiri (2003) for an overview. One convenient method for time series is the subsampling approach of Politis, Romano, andWolf (1999). This method was used by Linton, Maasoumi, andWhang (2003) (henceforth LMW) in the context of testing for stochastic dominance. This paper is concerned with the practical problem of conducting inference in a vector time series setting when the data is unbalanced or incomplete. In this case, one can work only with the common sample, to which a standard HAC/bootstrap theory applies, but at the expense of throwing away data and perhaps losing effciency. An alternative is to use some sort of imputation method, but this requires additional modelling assumptions, which we would rather avoid.1 We show how the sampling theory changes and how to modify the resampling algorithms to accommodate the problem of missing data. We also discuss effciency and power. Unbalanced data of the type we consider are quite common in financial panel data, see for example Connor and Korajczyk (1993). These data also occur in cross-country studies. Date: 2004-04 URL: http://d.repec.org/n?u=RePEc:ifs:ifsewp:wp06/04&r=all 98. Nonparametric estimation of an additive quantile regression model Joel Horowitz (Institute for Fiscal Studies and Northwestern University) Simon Lee (Institute for Fiscal Studies and University College London) This paper is concerned with estimating the additive components of a nonparametric additive quantile regression model. We develop an estimator that is asymptotically normally distributed with a rate of convergence in probability of n-r/(2r+1) when the additive components are r-times continuously differentiable for some r = 2. This result holds regardless of the dimension of the covariates and, therefore, the new estimator has no curse of dimensionality. In addition, the estimator has an oracle property and is easily extended to a generalized additive quantile regression model with a link function. The numerical performance and usefulness of the estimator are illustrated by Monte Carlo experiments and an empirical example. Date: 2004-04 URL: http://d.repec.org/n?u=RePEc:ifs:ifsewp:wp07/04&r=all 99. Endogeneity in quantile regression models: a control function approach Simon Lee (Institute for Fiscal Studies and University College London) This paper considers a linear triangular simultaneous equations model with conditional quantile restrictions. The paper adjusts for endogeneity by adopting a control function approach and presents a simple two-step estimator that exploits the partially linear structure of the model. The first step consists of estimation of the residuals of the reduced-form equation for the endogenous explanatory variable. The second step is series estimation of the primary equation with the reduced-form residual included nonparametrically as an additional explanatory variable. This paper imposes no functional form restrictions on the stochastic relationship between the reduced-form residual and the disturbance term in the primary equation conditional on observable explanatory variables. The paper presents regularity conditions for consistency and asymptotic normality of the two- step estimator. In addition, the paper provides some discussions on related estimation methods in the literature and on possible extensions and limitations of the estimation approach. Finally, the numerical performance and usefulness of the estimator are illustrated by the results of Monte Carlo experiments and two empirical examples, demand for fish and returns to schooling. Date: 2004-10 URL: http://d.repec.org/n?u=RePEc:ifs:ifsewp:wp08/04&r=all 100. Pessimistic portfolio allocation and Choquet expected utility Gilbert W. Bassett Jr Roger Koenker Gregory Kordas Recent developments in the theory of choice under uncertainty and risk yield a pessimistic decision theory that replaces the classical expected utility criterion with a Choquet expectation that accentuates the likelihood of the least favorable outcomes. A parallel theory has recently emerged in the literature on risk assessment. It is shown that a general form of pessimistic portfolio optimization based on the Choquet approach may be formulated as a problem of linear quantile regression. Date: 2004-06 URL: http://d.repec.org/n?u=RePEc:ifs:ifsewp:wp09/04&r=all 101. Identification of sensitivity to variation in endogenous variables Andrew Chesher (Institute for Fiscal Studies and University College London) This lecture explores conditions under which there is identification of the impact on an outcome of exogenous variation in a variable which is endogenous when data are gathered. The starting point is the Cowles Commission linear simultaneous equations model. The parametric and additive error restrictions of that model are successively relaxed and modifications to covariation,order and rank conditions that maintain identifiability are presented. Eventually a just-identifying, non- falsifiable model permitting nonseparablity of latent vari-ates and devoid of parametric restrictions is obtained. The model requires the endogenous variable to be continuously distributed. It is shown that relaxing this restriction results in loss of point identification but set identification is possible if an additional covariation restriction is introduced. Relaxing other restrictions presents significant challenges. Date: 2004-07 URL: http://d.repec.org/n?u=RePEc:ifs:ifsewp:wp10/04&r=all 102. Identification in additive error models with discrete endogenous variables Andrew Chesher (Institute for Fiscal Studies and University College London) In additive error models with a discrete endogenous variable identification cannot be achieved under a marginal covariation condition when the support of instruments is sparse relative to the support of the endogenous variable. An iterated covariation condition with a weak montonicity restriction is shown to have set identifying power. Date: 2004-09 URL: http://d.repec.org/n?u=RePEc:ifs:ifsewp:wp11/04&r=all 103. The Bootstrap and the Edgeworth Correction for Semiparametric Averaged Derivatives Y. Nishiyama P. M. Robinson In a number of semiparametric models, smoothing seems necessary in order to obtain estimates of the parametric component which are asymptotically normal and converge at parametric rate. However, smoothing can inflate the error in the normal approximation, so that refined approximations are of interest, especially in sample sizes that are not enormous. We show that a bootstrap distribution achieves a valid Edgeworth correction in case of density-weighted averaged derivative estimates of semiparametric index models. Approaches to bias-reduction are discussed. We also develop a higher order expansion, to show that the bootstrap achieves a further reduction in size distortion in case of two-sided testing. The finite sample performance of the methods is investigated by means of Monte Carlo simulations froma Tobit model. JEL: C23 Date: 2004-10 URL: http://d.repec.org/n?u=RePEc:ifs:ifsewp:wp12/04&r=all 104. On the identification of the effect of smoking on mortality Jerome Adda (Institute for Fiscal Studies and University College London) Valerie Lechene (Institute for Fiscal Studies and Wadham College, Oxford) This paper considers the identification of the effect of tobacco on mortality. If individuals select into smoking according to some unobserved health characteristic, then estimates of the effect of tobacco on health that do not account for this are biased. We show that using information on mortality, morbidity and smoking, it is possible to control for this selection effect and obtain consistent estimates of the effect of smoking on mortality. We implement our method on Swedish data. We show that there is selection into smoking, and considerable dispersion around the average effect, so that health policies that aim at decreasing smoking prevalence and quantities smoked might have less effect in terms of average number of years of life gained than previously estimated. We also empirically show that selection into smoking has increased over the last fifty years with the availability of information on the dangers of smoking, so that future studies comparing smokers and non smokers will spuriously reveal a worsening effect of tobacco on health if they fail to control for selection. Keywords: Health, Duration, Smoking, Selection, Mortality, Life Expectancy, Causality. JEL: I12 Date: 2004-02 URL: http://d.repec.org/n?u=RePEc:ifs:ifsewp:wp13/04&r=all 105. Testing a parametric model against a nonparametric alternative with identification through instrumental variables Joel Horowitz (Institute for Fiscal Studies and Northwestern University) This paper is concerned with inference about a function g that is identified by a conditional moment restriction involving instrumental variables. The paper presents a test of the hypothesis that g belongs to a finite-dimensional parametric family against a nonparametric alternative. The test does not require nonparametric estimation of g and is not subject to the illposed inverse problem of nonparametric instrumental variables estimation. Under mild conditions, the test is consistent against any alternative model and has asymptotic power advantages over existing tests. Moreover, it has power arbitrarily close to 1 uniformly over a class of alternatives whose distance from the null hypothesis is O(n-1/2), where n is the sample size. Date: 2004-09 URL: http://d.repec.org/n?u=RePEc:ifs:ifsewp:wp14/04&r=all 106. A nonparametric test of exogeneity Richard Blundell (Institute for Fiscal Studies and University College London) Joel Horowitz (Institute for Fiscal Studies and Northwestern University) This paper is concerned with inference about a function g that is identified by a conditional moment restriction involving instrumental variables. The function is nonparametric. It satisfies mild regularity conditions but is otherwise unknown. The paper presents test of the hypothesis that g is the mean of a random variable Y conditional on a covariate X . The need to test this hypothesis arises frequently in economics. The test does not require nonparametric instrumental-variables (IV) estimation of g and is not subject to the ill-posed inverse problem that nonparametric IV estimation entails. The test is consistent whenever g differs from the conditional mean function of Y on a set of non-zero probability. Moreover, the power of the test is arbitrarily close to 1 uniformly over a set of functions g whose distance from the conditional mean function is O(n-1/2), where is the sample size. Keywords: Hypothesis test, instrumental variables, specification testing, consistent testing Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:ifs:ifsewp:wp15/04&r=all 107. Spatial design matrices and associated quadratic forms: structure and properties Grant Hillier Federico Martellosio The paper provides significant simplifications and extensions of results obtained by Gorsich, Genton, and Strang (J. Multivariate Anal. 80 (2002) 138) on the structure of spatial design matrices. These are the matrices implicitly defined by quadratic forms that arise naturally in modelling intrinsically stationary and isotropic spatial processes. We give concise structural formulae for these matrices, and simple generating functions for them. The generating functions provide formulae for the cumulants of the quadratic forms of interest when the process is Gaussian, second- order stationary and isotropic. We use these to study the statistical properties of the associated quadratic forms, in particular those of the classical variogram estimator, under several assumptions about the actual variogram. Keywords: Cumulant, Intrinsically Stationary Process, Kronecker Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:ifs:ifsewp:wp16/04&r=all 108. Automatic positive semi-definite HAC covariance matrix and GMM estimation Richard Smith (Institute for Fiscal Studies and University of Warwick) This paper proposes a new class of HAC covariance matrix estimators. The standard HAC estimation method re-weights estimators of the autocovariances. Here we initially smooth the data observations themselves using kernel function based weights. The resultant HAC covariance matrix estimator is the normalised outer product of the smoothed random vectors and is therefore automatically positive semi-definite. A corresponding efficient GMM criterion may also be defined as a quadratic form in the smoothed moment indicators whose normalised minimand provides a test statistic for the over-identifying moment conditions. Keywords: GMM, HAC Covariance Matrix Estimation, Overidentifying Moments JEL: C13 C30 Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:ifs:ifsewp:wp17/04&r=all 109. Nonparametric methods for the characteristic model Laura Blow (Institute for Fiscal Studies) Martin Browning (Institute for Fiscal Studies and University of Copenhagen) Ian Crawford (Institute for Fiscal Studies and University of Surrey) Characteristics models have been found to be useful in many areas of economics. However, their empirical implementation tends to rely heavily on functional form assumptions. In this paper we develop a revealed preference-based nonparametric approach to characteristics models. We derive the minimal necessary and sufficient empirical conditions under which data on the market behaviour of individual, heterogeneous, pricetaking consumers are nonparametrically consistent with the consumer characteristics model. Where these conditions hold, we show how information may be recovered on individual consumer’s marginal valuations of product attributes. In some cases marginal valuations are point identi- fied and in other cases we can only recover bounds. Where the conditions fail we highlight the role which the introduction of unobserved product attributes can play in rationalising the data. We implement these ideas using consumer panel data on the Danish milk market. Keywords: Product characteristics, revealed preference JEL: C43 D11 Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:ifs:ifsewp:wp18/04&r=all 110. GEL Criteria for Moment Condition Models Richard Smith (Institute for Fiscal Studies and University of Warwick) GEL methods which generalize and extend previous contributions are defined and analysed for moment condition models specified in terms of weakly dependent data. These procedures offer alternative one-step estimators and tests that are asymptotically equivalent to their efficient two-step GMM counterparts. The basis for GEL estimation is via a smoothed version of the moment indicators using kernel function weights which incorporate a bandwidth parameter. Examples for the choice of bandwidth parameter and kernel function are provided. Efficient moment estimators based on implied probabilities derived from the GEL method are proposed, a special case of which is estimation of the stationary distribution of the data. The paper also presents a unified set of test statistics for over-identifying moment restrictions and combinations of parametric and moment restriction hypotheses. Keywords: GMM, Generalized Empirical Likelihood, Efficient Moment Estimation, JEL: C13 C30 Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:ifs:ifsewp:wp19/04&r=all 111. Urban Health Status in Ahmedabad city: GIS based study of Baherampura, Kubernagar, and Vasna wards Ramani K V Mehandiratta Sweta Patel Amit Joshi Diptesh Patel Nina Urbanization is an important demographic shift worldwide. Today, nearly half the world population is urban. In the 1991-2001 decade, Indian population grew by 2 %, urban India by 3 %, mega cities at 4 %, and slum population by 5 % (2-3-4-5 syndrome). Slum growth in future is expected to surpass the capacities of civic authorities to respond to health and infrastructure needs of this population group. Managing urban health, thus assumes critical importance to achieve better health outcomes in the country. Historically, Government of India’s focus has been on development of rural health system. However, since the 9th Five year Plan, Government has started giving priority to urban health as well, but hardly any progress has been achieved in this area. In this working paper, we discuss our initiatives in a pilot study of urban health management in Ahmedabad city, the seventh largest mega city in India with a population of 3.5 million consisting of 1.5 million people living in slums and slum-like conditions. Our objective is to understand the nature, magnitude, and complexity of issues in the management of urban health. Towards this, our pilot study focuses on three wards, in three different parts (zones) of Ahmedabad. Our GIS based analysis provides some very interesting insights into the status of health in the selected wards. Our next task is to understand private health care in Ahmedabad, analyze existing public private partnerships in the city, and thereby build a Model Urban Health Centre with Public private Participation. Keywords: Urban health, management, Public-private partnership Date: 2005-03-29 URL: http://d.repec.org/n?u=RePEc:iim:iimawp:2005-03-05&r=all 112. Gender, Affect and Upward Influence Kaul Asha Ansari Mahfooz A Rai Himanshu Upward influence tactics affect the attitude, perceptions and behavior of the supervisors towards their subordinates. This influence may be used both for organizational and personal purposes. With more and more women joining the work place, gender becomes a significant construct given that upward influence tactics may have nuances different for men and women, especially in the Indian context. The hypotheses that made an attempt to understand gender differences in terms of use of upward influence tactics and the moderating effect of the positive and the negative affect, were tested with a sample of employees (N=107) working in a large bank in Western India. The study employed both in-depth exploratory interviews and a survey methodology. While the interview data was subjected to rigorous content analysis techniques, regression analysis was performed on survey data. Results indicated that the gender of the agent and the supervisor, as well as the interaction of gender and affective styles, influenced the choice of upward influence tactics. Date: 2005-03-30 URL: http://d.repec.org/n?u=RePEc:iim:iimawp:2005-03-06&r=all 113. Incorporacion del Fondo de Estabilizacion de Precios del Azucar en Colombia. Tatiana Prada Owen Este documento presenta un analisis del recientemente creado Fondo de Estabilizacion de Precios del Azucar -FEPA- en Colombia, el cual surge de la demanda del sector por un mecanismo que proteja al gremio frente a la incertidumbre en los precios, que alcanzo su nivel critico en 1999. Para entonces, la caida del precio externo del azucar llevo al incumplimiento del pacto que regia las decisiones de produccion y venta al mercado domestico, con el consecuente deterioro del precio interno, de las rentas de los agentes economicos y de la economia regional del suroccidente colombiano, en donde se concentra dicha actividad. El FEPA opera como un sistema de compensacion que obliga a ceder parte de los ingresos que los ingenios obtienen de la venta 'excesiva' de azucar en los mercados de altos precios, mientras compensa a aquellos que orientan sus ventas hacia mercados con precios menos favorables. Para evaluar el Fondo se formulo un modelo para la industria azucarera, donde debido a la falta de informacion estadistica para estimar la estructura de mercado, se simularon las soluciones del modelo bajo competencia perfecta e imperfecta (colusion y modelo lider seguidor). Al comparar las diferentes estructuras de mercado y la forma como el FEPA actua, se concluye que el modelo que genera una menor perdida para los productores de azucar, es aquel de competencia perfecta. El operar con un precio de equilibrio, genera un alejamiento de los beneficios desde los niveles actuales. En este caso el FEPA aparece como el mecanismo que menos castiga, y el modelo en si es el que mas se acerca a las condiciones que prevalecen en el modelo base. El equilibrio para dos tipos de ingenio que deciden hacer un pacto de produccion (colusion) genera pagos que son inferiores a los de competencia perfecta y, a su vez, un arreglo del tipo lider-seguidor, trae las mayores consecuencias en terminos de perdida en el excedente del productor. De igual manera, los pagos hechos al FEPA siguen el mismo patron, yendo de la situacion menos onerosa como aquella de mercado competitivo, hasta la mayor carga de transferencias en la situacion de lider-seguidor (reconociendo que para la evaluacion del Fondo, la solucion de colusion se corresponde con la no existencia de contribuciones al mismo). Keywords: Colombia, Politica Agricola, Analisis de la Oferta y Demanda Agregada Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:ila:ilades:inv158&r=all 114. Testing for Market Power under the Two-Price System in the U.S. Copper Industry Claudio Agostini (ILADES-Georgetown University, Universidad Alberto Hurtado) Before 1978, most of the U.S. domestic copper production and an important fraction of the imports were traded at a price set by the major U.S. producers. Simultaneously, the rest of the world was trading copper at prices determined in auction markets. This two-price system ended in 1978, when the largest U.S. producers began using the Comex price of refined copper as a benchmark for setting their prices. Using this regime shift I test empirically the competitive behavior of the US copper industry before 1978. The results show that copper prices were close to the ones predicted by a competitive model of the industry. Keywords: Copper Industry, Market Power JEL: D40 D43 L13 L61 L72 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:ila:ilades:inv159&r=all 115. Household Income Composition and Household Goods Voynov, Ivan (Department of Sociology, Sofia University "St. Kliment Ohridski", Sofia, Bulgaria) The paper focuses on the change in household income composition and the factors that determine it. The results bring additional knowledge about household poverty dynamics. Based on the collective approach to the family and the cooperative game theory it is constructed theoretical model of household income composition change. The change in income composition is a result from bargaining between household members in attempt to defend the most suitable for them income source. Decisive influence in the household income pattern bargaining have specific set of household goods. Through empirical analysis of European Community Household Panel 2003 data it is proved that the adoption of definite income compositions (with prevailing wages and salaries share and with prevailing social transfers share) is a result from the availability of specific set of household goods. Keywords: household income pattern; household goods ; cooperative game theory JEL: D D Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:irs:iriswp:2005-02&r=all 116. Gender, Cohabitation and Martial Dissolution: Are changes in Irish family composition typical of European countries? Heffernan, Catherine Mary (University of Oxford) In the early 1990s, the Irish Republic experienced a watershed in sexual morality with the introduction of legalisation on divorce, contraceptives, right to information on abortion and the decriminalisation of homosexuality. This was accompanied by decreasing family sizes and an increase in non-martial births and cohabitation. The aim of this paper is to examine Irish family practices since the instigation of this demographic transition in order to determine whether Irish family practices have become typical of European patterns. Using the European Community Household Panel for waves 1 to 7 (1994 to 2000), Irish family compositions are firstly described and compared with four other European countries: Belgium, France, Italy and the Netherlands. Secondly, a life event approach is used to clarify what factors affect marital dissolution for women in these countries such as martial duration, employment, presence of children and age at first marriage. While Irish households had larger family sizes, there were no significant differences for the risk of marital separation for Irish women relative to women in other European countries. Despite Irish demographic changes occuring much later than in other western European countries, by the turn of the 21st century, Irish family composition was similar to the rest of Europe. Keywords: marital dissolution; family composition ; cohabitation Ireland Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:irs:iriswp:2005-03&r=all 117. Designation of Co-benefits and Its Implication for Policy: Water Quality versus Carbon Sequestration in Agricultural Soils, The Secchi, Silvia Jha, Manoj Kurkalova, Lyubov Feng, HongLi Gassman, Philip W. Kling, Catherine L. This study investigates the implications of treating different environmental benefits as the primary target of policy design. We focus on two scenarios, estimating for both of them in-stream sediment, nutrient loadings, and carbon sequestration. In the first, we assess the impact of a program designed to improve water quality in Iowa on carbon sequestration, and in the second, we calculate the water quality impact of a program aimed at maximizing carbon sequestration. In both cases, the policy instrument is the retirement of land from agricultural production. Our results, limited to the state of Iowa, and to the case of set-aside for water quality or carbon sequestration purposes, indicate that the amount of co-benefits depends on what indicators are used to measure water quality. In general, this study shows that improving “water quality” in the sense of reducing nutrient or sediment loadings is too vague. Even if it is taken to refer to in-stream nutrients, because the responses of nitrogen and phosphorus to conservation efforts are not well correlated, this terminology may not provide much guidance. Date: 2005-03-23 URL: http://d.repec.org/n?u=RePEc:isu:genres:12264&r=all 118. U.S. Financial Transmission Rights: Theory and Practice Sun, Junjie This paper reviews both theoretical and empirical studies of financial transmission rights (FTRs) in the major U.S. wholesale power markets. Although the current literature hold more negative views about FTRs, this paper presents a simple illustrative 2- stage model to study the competitive behaviors of electricity generators and load serving entities (LSEs) and analyzes the welfare effects of FTRs in the restructuring U.S. wholesale power market framework. The analysis focuses on a competitive two-node electricity network model where there is one generator and one LSE in each node with linear marginal cost and demand function, supervised by an independent system operator (ISO). In the first- stage of modelling, a no-rights benchmark model is developed to solve for the optimal quantity of power production and consumption and derive the locational marginal price for each node, which serve as the building blocks to solve for the optimal FTR hedge positions in the second-stage model. Once a stochastic parameter shock is introduced, the second-stage model shows that the acquisition of optimal FTRs by the risk averse generators and LSEs increases and in general strictly increases the social welfare compared with the case where there is no FTRs available. This result provides a counterexample to the somewhat negative views about FTRs held by other economists in the literature and provides some economic explanations to the fact that FTRs are widely adopted as a financial hedge instrument in the major U.S. wholesale power markets. Date: 2005-03-24 URL: http://d.repec.org/n?u=RePEc:isu:genres:12266&r=all 119. Are Intellectual Property Rights Detrimental to Innovation? Crampes, Claude Langinier, Corinne Intellectual property rights are legal constraints that limit entry in industries where incumbents are innovators. The set of legal constraints is the same for all industries, without considering that the externalities created by entry are not necessarily negative for the incumbent or that the incumbent's R&D expenditures can be detrimental to entrants. We show that one unique set of legal rules can foster innovation and increase total R&D expenditures in some industries and be detrimental in others. The model is illustrated by case studies from the information and communication technologies industry (software, hardware, music and videogame industries). JEL: L1 Date: 2005-03-25 URL: http://d.repec.org/n?u=RePEc:isu:genres:12267&r=all 120. Consequences of Co-benefits for the Efficient Design of Carbon Sequestration Programs, The Feng, HongLi Kling, Catherine L. In this paper, we study the social efficiency of private carbon markets that include trading in agricultural soil carbon sequestration when there are significant co-benefits (positive environmental externalities) associated with the practices that sequester carbon. Likewise, we investigate the efficiency of government-run conservation programs that are designed to promote a broad array of environmental attributes (both carbon sequestration and its co-benefits) for the supply of carbon. Finally, policy design and efficiency issues associated with the potential interplay between a private carbon market and a government conservation program are studied. Empirical analyses for an area that represents a significant potential source of carbon sequestration and its associated co-benefits illustrate the magnitude and complexity of these issues in real-world policy design. Date: 2005-03-29 URL: http://d.repec.org/n?u=RePEc:isu:genres:12269&r=all 121. The Age of Discontent: Italian Households at the Beginning of the Decade Boeri, Tito (Bocconi University, CEPR and IZA Bonn) Brandolini, Andrea (Bank of Italy) In the Italian public debate growing attention has been recently paid to “household impoverishment”. Subjective indicators of economic condition show that this concern reflects a common sentiment of the Italian population. On the other hand, estimates based on the Bank of Italy’s Survey of Household Income and Wealth reveal a surprising stability of income distribution in the period 1993-2002, after the sharp widening amid the 1991-92 recession. A number of possible reasons that can account for this apparent inconsistency are investigated: data deficiencies; disappointed expectations; significant distributive changes across socio-economic groups which have cancelled out at the aggregate level; higher income mobility not captured by static inequality indices. Keywords: household confidence, income inequality, poverty, income mobility JEL: D31 I3 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1530&r=all 122. The Economics of Migrants’ Remittances Rapoport, Hillel (Bar-Ilan University, SCID, Stanford University and CADRE, Universite de Lille 2) Docquier, Frederic (CADRE, Universite de Lille 2 and IZA Bonn) This chapter reviews the recent theoretical and empirical economic literature on migrants' remittances. It is divided between a microeconomic section on the determinants of remittances and a macroeconomic section on their growth effects. At the micro level we first present in a fully harmonized framework the various motivations to remit described so far in the literature. We show that models based on different motives share many common predictions, making it difficult to implement truly discriminative tests in the absence of sufficiently detailed data on migrants and receiving households' characteristics and on the timing of remittances. The results from selected empirical studies show that a mixture of individualistic and familial motives explains the likelihood and size of remittances. At the macro level we first briefly review the standard (Keynesian) and the trade-theoretic literature on the short-run impact of remittances. We then use an endogenous growth framework to describe the growth potential of remittances and present the evidence for different growth channels. We then explore the relationship between remittances and inequality. This relationship appears to be non-monotonic. This is consistent with different theoretical arguments regarding the role of migration networks and/or the dynamics of wealth transmission between successive generations. Keywords: remittances, migration, income distribution, private transfer JEL: J61 D31 O15 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1531&r=all 123. Moral Hazard and Cash Benefits in Long-Term Home Care van den Berg, Bernard (University of Technology, Sydney) Hassink, Wolter H.J. (Utrecht University and IZA Bonn) This paper tests empirically for ex-post moral hazard in a system based on demand-side subsidies. In the Netherlands, demand- side subsidies were introduced in 1996. Clients receive a cash benefit to purchase the type of home care (housework, personal care, support with mobility, organisational tasks or social support) they need from the care supplier of their choice ( private care provider, regular care agency, commercial care agency or paid informal care provider). Furthermore, they negotiate with the care supplier about price and quantity. Our main findings are the following. 1) The component of the cash benefit a client has no residual claimant on, has a positive impact on the price of care. 2) In contrast, the components of the cash benefit a client has residual claimant on, have no or a negative impact on the price of care. Both results point at the existence of ex-post moral hazard in a system of demand-side subsidies. Keywords: long-term care, cash benefits, consumer directed services, demand-side subsidies, direct payments, moral hazard JEL: I10 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1532&r=all 124. The Struggle over Migration Policy Epstein, Gil S. (Bar-Ilan University, CEPR and IZA Bonn) Nitzan, Shmuel (Bar-Ilan University) In this paper we analyze the endogenous determination of migration quota viewing it as an outcome of a two-stage political struggle between two interest groups: those in favor and those against the proposed migration quota. We first compare the proposed policies of the two interest groups under random behavior of the government, with and without lobbying. The paper proceeds with the examination of the effect of government intervention in the proposal of the quota on its nature, assuming that, with and without government intervention, the uncertain approval of the proposal is the outcome of a lobbying contest between the two interest groups. Finally, we examine the effect that the status-quo policy has on the proposed government's policy. Keywords: migration quota, interest groups, government intervention JEL: J61 J81 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1533&r=all 125. The Health Status of Indigenous and Non-Indigenous Australians Booth, Alison (RSSS, Australian National University and IZA Bonn) Carroll, Nick (RSSS, Australian National University) We use unique survey data to examine the determinants of self- assessed health of Indigenous and non-Indigenous Australians. We explore the degree to which differences in health are due to differences in socio-economic factors, and examine the sensitivity of our results to the inclusion of ‘objective’ health measures. Our results reveal that there is a significant gap in the health status of Indigenous and non-Indigenous Australians, with the former characterised by significantly worse health. These findings are robust to alternative estimation methods and measures of health. Although between one third and one half of the health gap can be explained by differences in socio-economic status - such as income, employment status and education - there remains a large unexplained component. These findings have important policy implications. They suggest that, in order to reduce the gap in health status between Indigenous and non-Indigenous Australians, it is important to address disparities in socio-economic factors such as education. The findings also suggest that there are disparities in access to health services and in health behaviour. These issues need to be tackled before Australia can truly claim to have 100% health-care coverage and high levels of health and life expectancy for all of its population. Keywords: self-assessed health, Indigenous health JEL: I1 I12 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1534&r=all 126. The Persistent Segregation of Girls into Lower-Paying Jobs while in School Kooreman, Peter (University of Groningen and IZA Bonn) This paper analyzes gender differences in jobs while in high school. The availability of school class based samples with detailed information on teenage jobs allows for a comparison of the behavior of boys and girls who are in the same school class, and thus have virtually identical education levels. Even within these highly homogeneous groups, boys earn substantially more than girls. The earnings gap cannot be explained by differences in participation rates and hours of work, nor by gender wage gaps within job types. It is entirely due to the fact that girls work more in job types with relatively low wages, in particular babysitting. During the period considered, 1984-2001, the gender patterns of jobs while in school largely remained unchanged. Keywords: labor market, gender differences, teenage behavior JEL: J16 J22 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1535&r=all 127. Ethnic Enclaves and Welfare Cultures: Quasi-Experimental Evidence Olof Aslund (IFAU) Peter Fredriksson (Uppsala University, CESIfo, IFAU and IZA Bonn) We examine peer effects in welfare use among immigrants to Sweden by exploiting a governmental refugee placement policy. We distinguish between the quantity of contacts – the number of individuals of the same ethnicity – and the quality of contacts – welfare use among members of the ethnic group. OLS regressions suggest that both these factors are positively related to individual welfare use. Instrumental variables estimations yield the conclusion that only the quality of contacts matter. An increase of the fraction of the ethnic group on welfare by 10 percent raises the individual probability of welfare use by almost 7 percent. Keywords: immigrants, welfare use, ethnic concentration, welfare cultures JEL: I38 J15 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1536&r=all 128. Pension Incomes in the European Union: Policy Reform Strategies in Comparative Perspective Daniela Mantovani (University of Cambridge and Prometeia) Fotis Papadopoulos (Athens University of Economics and Business) Holly Sutherland (ISER, University of Essex) Panos Tsakloglou (Athens University of Economics and Business and IZA Bonn) This paper considers the effects on current pensioner incomes of reforms designed to improve the long-term sustainability of public pension systems in the European Union. We use EUROMOD to simulate a set of common illustrative reforms for four countries selected on the basis of their diverse pension systems and patterns of poverty among the elderly: Denmark, Germany, Italy and the UK. The variations in fiscal and distributive effects on the one hand suggest that different paths for reform are necessary in order to achieve common objectives across countries, and on the other provide indications of the appropriate directions for reform in each case. Keywords: pensions, European Union, microsimulation JEL: C81 I30 H55 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1537&r=all 129. Limited Attention as the Scarce Resource in an Information- Rich Economy Josef Falkinger (University of Zurich and IZA Bonn) This paper uses basic empirical facts from attention and perception psychology for a behavioral approach to equilibrium analysis at the industry and the macroeconomic level. The paper endogenously determines whether an economy is information-rich and whether scarcity of attention complements economic scarcity. A conventional economic equilibrium results if subjects have free attention capacity. At the positive level, the impacts of ITprogress, international integration and media on equilibrium diversity and level of attentionseeking activities are shown. At the normative level, welfare, efficiency and optimal policy interventions are characterized. Finally, behavioral effects of intensified attention-seeking on market power, sectoral economic structure and work-leisure choice are considered. Keywords: limited attention, information-equilibrium analysis JEL: D50 D80 L10 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1538&r=all 130. Returns to Skills and Personnel Management: U.S. DoD Scientists and Engineers Michael Gibbs (University of Chicago GSB and IZA Bonn) Personnel records are used to examine compensation, recruitment, and retention of a group of very highly skilled workers: civilian scientists and engineers in U.S. Department of Defense laboratories. In contrast to the private sector, returns to skills were largely flat for this group from 1982-1996. Despite this, quality and performance of recruits relative to earlier cohorts, and of those retained relative to those who left, remained stable. One explanation is the importance of defense- industry-specific human capital. These results hold for three different pay plans, including the federal government’s primary plan and two intended to introduce greater flexibility in personnel management. Keywords: returns to skills, personnel, workforce quality JEL: J24 J31 J44 J45 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1539&r=all 131. Unemployment and Right-Wing Extremist Crime Armin Falk (IZA Bonn and University of Bonn) Josef Zweimuller (University of Zurich and IZA Bonn) Right-wing extremism is a serious problem in many societies. A prominent hypothesis states that unemployment plays a crucial role for the occurrence of right-wing extremist crime. In this paper we empirically test this hypothesis. We use a previously not used data set which includes all officially recorded right- wing criminal acts in Germany. These data are recorded by the German Federal Criminal Police Office on a monthly and state level basis. Our main finding is that there is in fact a significant positive relation between unemployment and rightwing criminal activities. We show further that the big difference in right-wing crime between East and West German states can mostly be attributed to differences in unemployment. This finding reinforces the importance of unemployment as an explanatory factor for right-wing crime and questions explanations based solely on the different socialization in former communist East Germany and the liberal West German states. Our data further allow us to separate violent from non-violent right-wing crimes. We show that unemployment is closely related to both types of crimes, but that the association with non-violent crimes is much stronger. Since right-wing crime is committed particularly by relatively young males, we also explore whether the youth unemployment rate is a better predictor for right-wing crime than total unemployment. This hypothesis can be rejected: given total unemployment, a higher share of youth unemployment does not affect right-wing extremist crime rates. Keywords: hate crime, right-wing extremism, unemployment, cost of unemployment JEL: K14 J60 J15 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1540&r=all 132. Returns to Computer Use and Organizational Practices of the Firm Benoit Dostie (HEC Montreal, CREF, CIRPEE , CIRANO and IZA Bonn) Mathieu Trepanier (Kellogg School of Management, Northwestern University) In this paper, we test the hypothesis that computer use will lead to productivity gains only if the firm uses an appropriate set of organizational practices. Detailed data on organizational practices and workers’ compensation are obtained through a Canadian longitudinal linked employer-employee database called the Workplace and Employee Survey (WES). Linked data allow us to take into account both worker and firm unobserved heterogeneity through the estimation of a linear mixed model of wage determination. Our results suggest a small but positive computer- wage premium whose size is related to a set of organizational practices. Keywords: wage determination, human capital, computers, mixed models, linked employer-employee data, organizational practices of the firm JEL: D21 J30 J31 O33 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1541&r=all 133. Skills, Workforce Characteristics and Firm-Level Productivity: Evidence from the Matched ABI/Employer Skills Survey Fernando Galindo-Rueda (CEP, London School of Economics, CeRiBA and IZA Bonn) Jonathan Haskel (Queen Mary, University of London, AIM, CeRiBA, CEPR and IZA Bonn) We construct firm-level data set with matched productivity and qualification data by linking the Annual Business Inquiry and Employer Skills Survey for England. We first examine the effect of workplace skills and other characteristics such as part-time status and gender on both productivity and wages in English firms. We also investigate how productivity-implied returns to worker characteristics compare with wage-implied returns, therefore providing information on how rents are distributed between employers and employees. We find that firms with a higher share of college-educated, full-time and male workers also tend to be more productive, with considerable variations across sectors. The only robust difference in implied returns follows from part- timers, who tend to work for firms that pay too low wages for the observed productivity differences. Second, we study the effect of local skills on productivity controlling for skills at the firm. We find a positive and robust association, which is consistent with positive human capital externalities. Keywords: productivity, wages, skills, workforce characteristics, spillovers JEL: J2 J3 J7 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1542&r=all 134. The Interaction of Tax Exemptions and Individual Tax Reform Preferences Salvatore Barbaro (University of Mainz) Jens Sudekum (University of Konstanz and IZA Bonn) The individual voting behavior on the abolishment of single income-tax exemptions crucially depends on how strongly agents are affected by other deduction possibilities that are not at stake in the reform plans of the government. The interactions depend (i) on the shape of the tax schedule, and (ii) on how the government wants to use the revenue that is generated by the cut of tax privileges. If government plans to increase redistribution in form of lump-sum transfers, then the political chances of a tax reform increase with the existence of other deduction possibilities under progressive taxation. With proportional taxation and a budgetenlargement policy, the voting decision depends only on the particular tax privileges at stake. Matters are different if the government wants to adopt a revenue-neutral tax-cut-cum-basebroadening policy. Except for strong progression, it is less likely that an agent supports the elimination of tax privileges the stronger she is affected by other exemptions in the back. Keywords: income tax reform, public choice JEL: D72 D74 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1543&r=all 135. Should We Extend the Role of Private Social Expenditure? Mark Pearson (OECD) John P. Martin (OECD and IZA Bonn) Some people make great claims about the advantages to be gained from greater reliance on the private sector for the provision of social protection. Many of the claims for great macroeconomic advantages do not stand up to scrutiny. However, there is some reason hope that private provision might promote microeconomic efficiency and services which are more responsive to consumer preferences than those provided by a single monopoly public sector provider. Drawing on examples from recent OECD country experiences with private health insurance, care for children and the elderly, and private pension provision, three main conclusions can be drawn. First, opening provision to a diversity of providers has often promoted more choice and innovation. Second, however, efficiency gains have often been limited. This is due to a number of inter-related reasons: (a) Individualisation of packages services is expensive. (b) In order to ensure adequate coverage of the population, crosssubsidisation of particular groups of people is often mandated on providers, reducing costcompetition and diversity of choice. (c) Informational asymmetries (how good is this childcare which I cannot personally monitor, or this health care package which I am not technically able to assess?) cannot be overcome without extensive regulation, which has the effect of limiting innovation and competition. (d) The fiscal incentives necessary to stimulate private provision are high, and have welfare costs of their own. Third, and related to this last point, the distributional effects of private provision raise significant social problems. Private financing and provision of social benefits is not a magic wand; waving it in the social protection field will not mean that the economy and voters will be freed from some great deadweight that has been dragging them down. Nevertheless, the private sector can sometimes deliver either slightly cheaper, slightly more varied or slightly more flexible system of social protection. Keywords: private social protection, private health insurance, child care, long-term care for the frail elderly, private pensions, efficiency, choice. JEL: H11 H42 H51 H53 L33 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1544&r=all 136. Union Strategy and Optimal Income Taxation Sebastian G. Kessing (Free University of Berlin) Kai A. Konrad (WZB, Free University of Berlin and IZA Bonn) Restrictions on work hours are more important in countries with a large welfare state. We show that this empirical observation is consistent with the strategic effects of such restrictions in a welfare state in the context of optimal direct taxation in the tradition of Mirrlees (1971). Our results also apply to non- welfarist states which have income redistribution, but not in purely extortionary states. Keywords: optimal income taxation, labor unions, work hours JEL: H21 H23 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1545&r=all 137. Extending Health Care Coverage to the Low-Income Population: The Influence of the Wisconsin BadgerCare Program on Labor Market Outcomes Barbara Wolfe (University of Wisconsin-Madison and IZA Bonn) Thomas Kaplan (University of Wisconsin-Madison) Robert Haveman (University of Wisconsin-Madison and IZA Bonn) Yoon Young Cho (University of Wisconsin-Madison) The Wisconsin BadgerCare program, which became operational in July 1999, expanded public health insurance eligibility to families with incomes below 185 percent of the U.S poverty line ( 200 percent for those already enrolled). This eligibility expansion was part of a federal initiative known as the State Children’s Health Initiative Program (SCHIP). In this paper, we investigate the effect of Wisconsin’s BadgerCare on the labor market outcomes of low-income single mothers. Using a coordinated set of administrative databases, we track three cohorts of mother- only families: those who were receiving cash assistance under the Wisconsin AFDC and TANF programs in September 1995, 1997, and 1999, and who subsequently left welfare. We follow the 19,201 single mothers heading these “welfare leaver” families on a quarterly basis from two years before they left welfare through the end of 2001. We use information on the labor market and welfare history of these women and their household characteristics and macroeconomic environment to analyze the effect of the availability of additional public health coverage on their employment and earnings. We apply multiple methods to investigate these outcomes, comparing across- and within- individual differences. The core finding is that labor earnings increased with the introduction of BadgerCare. This increase was small in absolute dollar value but sizeable in percentage terms. Keywords: health care coverage JEL: I18 J21 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1546&r=all 138. Suicidal Behavior and the Labor Market Productivity of Young Adults Erdal Tekin (Georgia State University, NBER and IZA Bonn) Sara Markowitz (Rutgers University, Newark and NBER) This paper provides a comprehensive analysis of the link between suicidal behaviors and labor market productivity of young adults in the United States. Using data from the National Survey of Adolescent Health (Add Health), we estimate the effects of suicide thoughts and suicide attempts on the work and schooling activities of young adults as well as on their hourly wage rates. The richness of the data set allows us to implement several strategies to control for unobserved heterogeneity and the potential reverse causality. These include using a large set of control variables that are likely to be correlated with both the suicidal behavior and the outcome measures, an instrumental variables method, and a twin fixed effects analysis from the subsample of twin pairs contained in the data. The longitudinal nature of the data set also allows us to control for past suicide thoughts and attempts of the individuals from their high school years as well as the suicide behaviors of the members of their family. Results from the different identification strategies consistently indicate that both suicide thoughts and suicide attempts decrease the hourly wage rate and the probability that a young adult individual works and/or attends school. The results are found to be robust to various specification tests. Keywords: suicide, wage, employment JEL: I1 J24 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1547&r=all 139. The Impact of Employment Protection Mandates on Demographic Temporary Employment Patterns: International Microeconomic Evidence Lawrence M. Kahn (Cornell University, CESifo and IZA Bonn) Using 1994-98 International Adult Literacy Survey (IALS) microdata, this paper investigates the impact of employment protection laws on the incidence of temporary employment by demographic group. More stringent employment protection for regular jobs is predicted to increase the relative incidence of temporary employment for less experienced and less skilled workers. I test this reasoning using IALS data for Canada, Finland, Italy, the Netherlands, Switzerland, the United Kingdom and the United States, countries with widely differing levels of mandated employment protection. Across these countries, the strength of such mandates (as measured by the OECD) is positively associated with the relative incidence of temporary employment for young workers, native women, immigrant women and those with low cognitive ability. These effects largely hold up when I adjust for the possible sample selection due to the fact that employment to population ratios differ across countries. Moreover, the effects of protection on the young, women, and immigrants are stronger in countries with higher levels of collective bargaining coverage, suggesting a connection between binding wage floors and the allocative effects of employment protection mandates. Keywords: employment protection, temporary jobs JEL: J21 J23 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1548&r=all 140. Mehr ist nicht genug: Wirksame Entwicklungshilfe fur Afrika? Peter Nunnenkamp Die meisten afrikanischen Lander laufen Gefahr, die Millennium Development Goals weit zu verfehlen. Die Vereinten Nationen fordern deshalb, die Entwicklungshilfe massiv aufzustocken, und der Afrika-Aktionsplan der G8 verspricht eine Konzentration der Hilfe auf Afrika. Vor diesem Hintergrund stellt sich zum einen die Frage, in welchem Ma? die lokalen Voraussetzungen fur eine produktive Verwendung der Entwicklungshilfe in den afrikanischen Empfangerlandern gegeben sind. Zum anderen ist die Versicherung der Geber zu hinterfragen, dass sich die Verteilung der Hilfe fur Afrika an Effizienzkriterien orientiert. In beiderlei Hinsicht klaffen zwischen Worten und Taten immer noch erhebliche Lucken. Insbesondere zeigt sich, dass die Vergabepraxis bisher kaum durch veranderte wirtschaftspolitische und institutionelle Rahmenbedingungen in den afrikanischen Empfangerlandern gepragt worden ist. Keywords: Millennium Development Goals, Afrika, Entwicklungshilfe, Selektivitat, Armutsorientierung, wirtschaftspolitische und institutionelle Rahmenbedingungen JEL: F35 Date: 2005-02 URL: http://d.repec.org/n?u=RePEc:kie:kieliw:1239&r=all 141. US Monetary Police 1988-2004: An Empirical Analysis Anders Moller Christensen (Danmarks Nationalbank) Heino Bohn Nielsen (Institute of Economics, University of Copenhagen) Relationships between the Federal funds rate, unemployment, inflation, and the long-term government-bond rate are investigated with cointegration techniques. We find a stable long- term relationship between the Federal funds rate, unemployment, and the bond rate. This relationship is interpretable as a policy target because deviations are corrected primarily via the Federal funds rate. A traditional Taylor-type rule is clearly rejected by the data. Inflation does thus only influence the instrument indirectly via the bond rate, but we find that inflation is controllable with the Federal funds rate. The results are in accordance with recent developments in monetary theory stressing management of expectations as an important transmission channel. Keywords: cointegration; equilibrium correction; monetary policy; Taylor rule; Bond rate JEL: C32 E52 Date: 2005-02 URL: http://d.repec.org/n?u=RePEc:kud:kuiefr:200501&r=all 142. Static Replication and Model Risk: Razor's Edge or Trader's Hedge? Morten Nalholm (Department of Finance, Copenhagen Business School) Rolf Poulsen (Institute for Mathematical Sciences, University of Copenhagen) We investigate how sensitive a variety of dynamic and static hedge strategies for barrier options are to model risk. We find that using plain vanilla options to hedge barrier options offers considerable improvements over usual ?-hedges. Further, we show that the hedge portfolios involving options are relatively more sensitive to model risk, the Devil is in the detail, but that the degree of misspecification sensitivity is quite robust across commonly used models. Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:kud:kuiefr:200502&r=all 143. Bijural services as factors of production. SALMON, Pierre (LEG - CNRS UMR 5118 - Universite de Bourgogne) BRETON, Albert (Department of economics. University of Toronto) This study is primarily concerned with the security of transactions and contracts in contexts in which there is more than one legal system - in bijural (or multijural) societies - and with the contribution that bijural lawyers can make to the security of transactions and contracts, that is with the productivity of bijural lawyers. It is, as a consequence, focused on the demand for bijural lawyers as factor inputs in the production of contractual security and, at one remove, transaction security. We test the usefulness of the approach by analyzing several cases of change that have or are taking place in the world today. Though the analysis is qualitative, it appears to confirm the usefulness of treating bijural services as factors of production. Keywords: legal systems; lawyers; legal education; contractual security JEL: K20 I20 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:lat:legeco:2005-01&r=all 144. Horizontal competition among governments. SALMON, Pierre (LEG - CNRS UMR 5118 - Universite de Bourgogne) Governments situated on the same level of a multi-level governmental system compete with each other as well as with those placed higher or lower. This paper is concerned with horizontal competition only. It discusses both competition based on the mobility of agents (individuals, business firms, or factors) and competition related to the circulation of information. With regard to the first kind, it focuses on the capacity that governments keep to decide their policies and compete in spite of the mobility of agents. Some attention is also given to the implications of some non-standard assumptions about the underlying political set-up. The discussion of information-based competition includes that of "laboratory federalism" (whether decentralization favours innovation) and of "yardstick competition" (what are the effects of comparisons of governments' comparative performance across jurisdictions). Some questions pertaining to the relationship between the different forms of horizontal competition and to their normative and empirical dimensions are addressed briefly. Keywords: decentralization; federalism; intergovernmental competition; yardstick competition JEL: D72 H7 Date: 2005-02 URL: http://d.repec.org/n?u=RePEc:lat:legeco:2005-02&r=all 145. The buyer's option in multi-unit ascending auctions : the case of wine auctions at Drouot Fevrier Philippe Roos William Visser Michael This paper studies multi-unit ascending (English) auctions with a buyer’s option. The buyer’s option gives the winner of an auction the right to purchase any number of units at the winning price. We develop a theoretical model and derive the optimal strategies for the bidders. The model predicts various behavioral implications (e.g., the winner never exercises the option, the price declines...) that are tested using a unique data set on wine auctions held at the Paris-based auction house Drouot. We also analyze why the buyer’s option is used. Estimating the model in a structural econometric way, and using counterfactual comparisons, we find that the buyer’s option does not affect the seller’s revenue (relative to a system where the units are auctioned sequentially without the option). Drouot, however, saves a lot of time with the option and this effect represents a considerable amount of money. The time saving effect seems thus to be the primary purpose of the buyer’s option. Keywords: buyer's option, multi-unit ascending auctions, wine auctions JEL: D44 Date: 2004-06 URL: http://d.repec.org/n?u=RePEc:lea:leawpi:0409&r=all 146. Buy or wait, that is the option : the buyer's option in sequential laboratory auctions Fevrier Philippe Linnemer Laurent Visser Michael This paper reports the results from an experiment on two-unit sequential auctions with and without a buyer’s option (which gives the winner of the first auction the right to buy the second unit at the winning price). The demand for the two items is either decreasing, flat, or increasing. The 4 main auction institutions (first-price, Dutch, second-price, English) are studied. We find that observed bidding behavior is close to Nash equilibrium bidding in the auctions for the second unit, but there are substantial deviations in the auctions for the first unit. Despite these deviations, the buyer’s option is correctly used in most cases. The revenue-ranking of the 4 auction institutions is the same as in single-unit experiments. Finally, successive prices are declining when the buyer’s option is available. The last 2 results are used to compare real-life auctions and to discuss the findings in related field-data studies. Keywords: experimental economics, sequential auctions, buyer's option JEL: C91 D44 Date: 2004-10 URL: http://d.repec.org/n?u=RePEc:lea:leawpi:0410&r=all 147. Evaluations prospective et restrospective d'allocations scolaires conditionnees au Mexique Gignoux Jeremie Cette etude examine dans quelle mesure les estimations retrospectives (ex-ante) des effets du revenu familial sur la scolarisation et le travail des enfants permettent de faire des previsions des impacts des programmes d’allocations scolaires conditionnees dans les pays en developpement. Nous utilisons les donnees d’une experience sociale d’evaluation du programme mexicain Progresa. Nous comparons les impacts estimes par l’evaluation prospective (ex-post) aux previsions basees sur l’estimation ex-ante des effets d’un programme de transferts de revenus sur la scolarisation et la participation au travail des enfants. L’estimation des effets du revenu familial est basee sur une methode instrumentale utilisant les biens possedes et les caracteristiques du logement comme indicateurs du revenu permanent du menage. Nos resultats indiquent que l’evaluation ex-ante mesure des impacts du meme ordre de grandeur que ceux mesures avec les donnees experimentales. Ceci tend a valider les methodes de prevision ex-ante basees sur des estimateurs a variables instrumentales. Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:lea:leawpi:0501&r=all 148. Acces a l'emploi, segregation residentielle et chomage : le cas de l'Ile-de-France Laurent Gobillon Harris Selod Cet article regroupe une synthese theorique de la litterature economique, des faits stylises, et une etude empirique portant sur les determinants locaux du chomage urbain en Ile-de-France. La synthese montre que la deconnexion physique aux opportunites d’emploi et la segregation residentielle peuvent conduire a une augmentation du chomage. La deconnexion aux emplois peut etre a l’origine d’une prospection d’emploi couteuse et inefficace. La segregation residentielle peut quant a elle diminuer l’employabilite des individus, deteriorer la qualite des reseaux sociaux intervenant dans l’obtention d’un emploi, et permettre la discrimination territoriale par les employeurs. Les faits stylises montrent l’ampleur des phenomenes de segregation et de deconnexion domicile-emploi en l’ Ile-de-France. L’etude micro-econometrique suggere que la segregation a un effet negatif sur le retour a l'emploi des chomeurs. Keywords: spatial mismatch, segregation residentielle, reseaux sociaux, chomage urbain JEL: J64 R14 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:lea:leawpi:0502&r=all 149. How Do Alternative Minimum Wage Variables Compare? Sara Lemos Several minimum wage variables have been suggested in the literature. Such a variety of variables makes it difficult to compare the associated estimates across studies. One problem is that these estimates are not always calibrated to represent the effect of a 10% increase in the minimum wage. Another problem is that these estimates measure the effect of the minimum wage on the employment of different groups of workers. In this paper we critically compare employment effect estimates using five minimum wage variables common in the literature: real minimum wage, "Kaitz index", "fraction affected", "fraction at" and " fraction below" the minimum wage. Our principal finding is that the sign of this effect is robust across minimum wage variables, but its magnitude and significance are sensitive to the minimum wage variable used. Keywords: minimum wage; labour cost; employment; hours; Brazil JEL: J38 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:lec:leecon:05/6&r=all 150. "Ethical Tourism" or Self-Preservation? An Empirical Analysis of the Effect of Political Violence on Tourism in Egypt in the 1990s David Fielding Anja Shortland This paper uses a new database of political violence in Egypt to study the effects of political violence on the monthly arrival of tourists from the EU and the US in Egypt in the 1990s. We use time series analysis to study the impact of different aspects of political violence and counter-violence. We find that both US and EU tourists respond negatively to attacks on tourists, but do not appear to be influenced by casualties arising in confrontations between domestic groups. However, European tourists are sensitive to the counter-violence measures implemented by the Egyptian government. There is also evidence of tourism in Egypt being affected by the Israeli / Palestinian conflict, with arrivals of US tourists into Egypt rising when fatalities in Israel increase, while European tourists reduce their demand for Egyptian holidays. Keywords: Tourism; Political Violence; Egypt JEL: L83 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:lec:leecon:05/7&r=all 151. Closing International Real Business Cycle Models with Restricted Financial Markets Martin Boileau Michel Normandin Several authors argue that international real business cycle ( IRBC) models with incomplete financial markets offer a good explanation of the ranking of cross-country correlations. Unfortunately, this conclusion is suspect, because it is commonly based on an analysis of the near steady state dynamics using a linearized system of equations. The baseline IRBC model with incomplete financial markets does not possess a unique deterministic steady state and, as a result, its linear system of difference equations is not stationary. We show that the explanation of the ranking of cross-country correlations is robust to modifications that ensure a unique steady state and a stationary system of linear difference equations. We find, however, that the modifications affect the quantitative predictions regarding key macroeconomic variables. Keywords: Incomplete markets, stationarity, cross-country correlations, wealth effects JEL: F32 G15 Date: 2005 URL: http://d.repec.org/n?u=RePEc:lvl:lacicr:0506&r=all 152. Career Choice, Marriage-Timing, and the Attraction of Unequals Sylvain Dessy Habiba Djebbari Both men and women wish to have a family and a rewarding career. In this paper, we show that the under-representation of women in high profile profession may reflect a coordination failure in young women's marriage-timing decisions. Since investing in a high-powered career imposes time strain, it precludes early participation in the marriage market. Delayed participation in the marriage market has a higher cost for women than for men because women have shorter fecundity horizons. Marriage prospects of high-powered women depend on the marriage-timing decisions of younger women. Under these assumptions, we show that women's marriage-timing decisions exhibit strategic complementarities. Coordination failures in women's marriage-timing decisions lead to persisting gender differences in career choices. Yet, differential fecundity is only necessary, but not sufficient to obtain gender inequality in high profile professions. We stress out social changes that solve the coordination failure while achieving a Pareto-improvement in the society at large. Keywords: Marriage-timing, high-powered career, supermodular game, strategic complementarities, multiple equilibria, coordination failure JEL: J12 J16 J24 Date: 2005 URL: http://d.repec.org/n?u=RePEc:lvl:lacicr:0507&r=all 153. Low-fee ($5/day/child) Regulated Childcare Policy and the Labor Supply of Mothers with Young Children: a Natural Experiment from Canada Pierre Lefebvre Philip Merrigan On September 1st, 1997, a new childcare policy was initiated by the provincial government of Quebec, the second most populous province in Canada. Childcare services licensed by the Ministry of the Family (not-for-profit centres, family-based childcare, and for-profit centres under the agreement) began offering day care spaces at the reduced parental contribution of $5 per day child for children aged 4 years. In successive years, the government reduced the age requirement and engaged in a plan to create new childcare facilities and pay for the cost of additional $5 per day childcare spaces. By September 2000, the low-fee policy applied to all children aged 0 to 59 months (not in kindergarten) and the number of partly subsidized spaces increased from 77,000 in 1998 to 163,000 spaces, totally subsidized by the end of year 2002, while the number of eligible children, zero to four years old, declined from 428,000 to 369, 000 over the same period. Using annual data (1993 to 2002), drawn from Statistics Canada's Suvey of Labour and Income Dynamics ( SLID), this study attempts to estimate the effect of the policy on the labor supply behavior of Quebec mothers with pre-school children, aged from 0 to 5 years old. The analysis examines the impact of the policy on the following outcomes: labor force participation, annual number of weeks and hours at work, annual earned income and whether the job was full-time for mothers who declared having a job during the reference year. A non- experimental evaluation framework based on multiple pre- and post- treatment periods is used to estimate the effect of the childcare regime. The econometrics results support the hypothesis that the childcare policy, together with the transformation of public kindergarten from a part-time to a full-time basis, had a large and statistically significant impact on the labor supply of Quebec's mothers with pre-school children. The estimates also suggest, though less convincingly, that the size of the impact increased concurrently with the positive growth in the number of low-fee spaces. Keywords: Mother's labor supply, preschool children, childcare subsidy, natural experiment JEL: H42 J21 J22 Date: 2005 URL: http://d.repec.org/n?u=RePEc:lvl:lacicr:0508&r=all 154. Business Cycle Linkages for the G7 Countries:Does the US Lead the World? D R Osborn P J Perez M Sensier This paper empirically models the relationship between quarterly business cycle movements in the US and the other G7 countries, including an analysis of the US with a European (E15) aggregate. By using a nonlinear smooth transition vector autoregressive framework, the possibility of asymmetric business cycle linkages is explored. Statistical testing almost always rejects linearity, with the nonlinearity in the VAR generally associated with lagged annual US growth. To represent different types of possible business cycle linkages, three nonlinear VAR models are estimated for each country with the US, where these represent common business cycle regimes, US-led (but not common) regimes and country-specific (or idiosyncratic) regimes. In general, high annual US growth is found to lead to a distinct business cycle regime in other G7 countries compared with average or low US growth. Tests indicate that quarterly US growth patterns are important for other countries primarily in the lower regime, with domestic autoregressive lags then sometimes insignificant. Date: 2005 URL: http://d.repec.org/n?u=RePEc:man:cgbcrp:50&r=all 155. Rating Forecasts for Television Programs Denny Meyer Rob J. Hyndman This paper investigates the effect of aggregation and non- linearity in relation to television rating forecasts. Several linear models for aggregated and disaggregated television viewing have appeared in the literature. The current analysis extends this work using an empirical approach. We compare the accuracy of population rating models, segment rating models and individual viewing behaviour models. Linear and non-linear models are fitted using regression, decision trees and neural networks, with a two- stage procedure being used to model network choice and viewing time for the individual viewing behaviour model. The most accurate forecast results are obtained from the non-linear segment rating models. Keywords: Decision Trees, Disaggregation, Discrete Choice Models, Neural Networks, Rating Benchmarks JEL: C53 C51 C35 M37 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:msh:ebswps:2005-1&r=all 156. Systemic Risk and Hedge Funds Nicholas Chan Mila Getmansky Shane M. Haas Andrew W. Lo Systemic risk is commonly used to describe the possibility of a series of correlated defaults among financial institutions--- typically banks---that occur over a short period of time, often caused by a single major event. However, since the collapse of Long Term Capital Management in 1998, it has become clear that hedge funds are also involved in systemic risk exposures. The hedge-fund industry has a symbiotic relationship with the banking sector, and many banks now operate proprietary trading units that are organized much like hedge funds. As a result, the risk exposures of the hedge-fund industry may have a material impact on the banking sector, resulting in new sources of systemic risks. In this paper, we attempt to quantify the potential impact of hedge funds on systemic risk by developing a number of new risk measures for hedge funds and applying them to individual and aggregate hedge-fund returns data. These measures include: illiquidity risk exposure, nonlinear factor models for hedge-fund and banking-sector indexes, logistic regression analysis of hedge- fund liquidation probabilities, and aggregate measures of volatility and distress based on regime-switching models. Our preliminary findings suggest that the hedge-fund industry may be heading into a challenging period of lower expected returns, and that systemic risk is currently on the rise. JEL: G12 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11200&r=all 157. Competition and Efficiency in Congested Markets Daron Acemoglu Asuman Ozdaglar We study the efficiency of oligopoly equilibria in congested markets. The motivating examples are the allocation of network flows in a communication network or of traffic in a transportation network. We show that increasing competition among oligopolists can reduce efficiency, measured as the difference between users' willingness to pay and delay costs. We characterize a tight bound of 5/6 on efficiency in pure strategy equilibria. This bound is tight even when the number of routes and oligopolists is arbitrarily large. We also study the efficiency properties of mixed strategy equilibria. JEL: D43 C62 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11201&r=all 158. Did Iraq Cheat the United Nations? Underpricing, Bribes, and the Oil for Food Program Chang-Tai Hsieh Enrico Moretti >From 1997 through early 2003, the United Nations Oil for Food Program allowed Iraq to export oil in exchange for humanitarian supplies. We measure the extent to which this program was corrupted by Iraq's attempts to deliberately set the price of its oil below market prices in an effort to solicit bribes, both in the form of direct cash bribes and in the form of political favors, from the buyers of the underpriced oil. We infer the magnitude of the potential bribe by comparing the gap between the official selling price of Iraq's two crude oils (Basrah Light and Kirkuk) and the market price of several comparison crude oils during the Program to the gap observed prior to the Program. We find consistent evidence that underpricing of Basrah Light averaged $1 per barrel from 1997 through 1999 and reaches a peak ( almost $3 per barrel) from May 2000 through September 2001. The estimated underpricing quickly declines after the UN introduced a retroactive pricing scheme that reduced Iraq's ability to set the price of its oil. The evidence on whether Kirkuk was underpriced is less clear. Notably, we find that episodes of underpricing of Basrah Light are associated with a decline in the share of major oil multinationals among the oil buyers, and an increase in the share of obscure individual traders. The observed underpricing of Iraqi oil suggests that Iraq generated $5 billion in rents through its strategic underpricing. Of this amount, we estimate that Iraq collected $0.7 to $2 billion in bribes (depending on Iraq's share of the rents implied by the price gap), which is roughly 1 to 3 percent of the total value of oil sales under the Program. Finally, we find little evidence that underpricing was associated with increases in the relative supply or declines in the relative demand of Iraqi oil. JEL: J0 K4 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11202&r=all 159. Financing Cities Robert Inman The macro-economic and micro-economic evidences makes a persuasive case for cities as important centers for productive efficiency, innnovation, and economic growth. For cities to achieve their full economic potential, however, complementary public services are required. This paper reviews the arguments and the evidence for the efficient financing and governance of city public services. Against the criterion of efficiency, city services should be limited to those services valued by city residents; financing should assign residential taxes to residential services and business land taxes and fees to business services; and city governance should foster competition and choice. JEL: H11 H7 R38 R51 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11203&r=all 160. From Education to Democracy? Daron Acemoglu Simon Johnson James A. Robinson Pierre Yared The conventional wisdom views high levels of education as a prerequisite for democracy. This paper shows that existing evidence for this view is based on cross-sectional correlations, which disappear once we look at within-country variation. In other words, there is no evidence that countries that increase their education are more likely to become democratic. JEL: O10 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11204&r=all 161. Income and Democracy Daron Acemoglu Simon Johnson James Robinson Pierre Yared We revisit one of the central empirical findings of the political economy literature that higher income per capita causes democracy. Existing studies establish a strong cross-country correlation between income and democracy, but do not typically control for factors that simultaneously affect both variables. We show that controlling for such factors by including country fixed effects removes the statistical association between income per capita and various measures of democracy. We also present instrumental-variables using two different strategies. These estimates also show no causal effect of income on democracy. Furthermore, we reconcile the positive cross-country correlation between income and democracy with the absence of a causal effect of income on democracy by showing that the long-run evolution of income and democracy is related to historical factors. Consistent with this, the positive correlation between income and democracy disappears, even without fixed effects, when we control for the historical determinants of economic and political development in a sample of former European colonies. JEL: P16 O10 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11205&r=all 162. Industrialization and Urbanization: Did the Steam Engine Contribute to the Growth of Cities in the United States? Sukkoo Kim Industrialization and urbanization are seen as interdependent processes of modern economic development. However, the exact nature of their causal relationship is still open to considerable debate. This paper uses firm-level data from the manuscripts of the decennial censuses between 1850 and 1880 to examine whether the adoption of the steam engine as the primary power source by manufacturers during industrialization contributed to urbanization. While the data indicate that steam-powered firms were more likely to locate in urban areas than water-powered firms, the adoption of the steam engine did not contribute substantially to urbanization. JEL: N60 N90 R38 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11206&r=all 163. Health, Information, and Migration: Geographic Mobility of Union Army Veterans, 1860-1880 Chulhee Lee This paper explores how injuries, sickness, and geographical mobility of Union Army veterans while in service affected their post-service migrations. Wartime wounds and illnesses significantly diminished the geographical mobility of veterans after the war. Geographic moves while carrying out military missions had strong positive effects on their post-service geographic mobility. Geographic moves while in service also influenced the choice of destination among the migrants. The farther into the South a veteran had traveled while in service, the higher the probability that he would migrate to the South. Furthermore, these migrants to the South were more likely to settle in a state they had entered while in service. Increased general knowledge about geographical transfer itself, greater information on distant lands and labor markets, and reduced psychological cost of moving were probably important mechanisms by which prior mobility affected subsequent migration. I discuss some implications of the results for the elements of self- selection in migration, the roles of different types of information in migration decisions, and the overall impact of the Civil War on geographic mobility. Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11207&r=all 164. Belief in a Just World and Redistributive Politics Roland Benabou Jean Tirole International surveys reveal wide differences between the views held in different countries concerning the causes of wealth or poverty and the extent to which people are responsible for their own fate. At the same time, social ethnographies and experiments by psychologists demonstrate individuals' recurrent struggle with cognitive dissonance as they seek to maintain, and pass on to their children, a view of the world where effort ultimately pays off and everyone gets their just deserts. This paper offers a model that helps explain: i) why most people feel such a need to believe in a "just world"; ii) why this need, and therefore the prevalence of the belief, varies considerably across countries; iii) the implications of this phenomenon for international differences in political ideology, levels of redistribution, labor supply, aggregate income, and popular perceptions of the poor. The model shows in particular how complementarities arise endogenously between individuals' desired beliefs or ideological choices, resulting in two equilibria. A first, "American" equilibrium is characterized by a high prevalence of just-world beliefs among the population and relatively laissez-faire policies. The other, "European" equilibrium is characterized by more pessimism about the role of effort in economic outcomes and a more extensive welfare state. More generally, the paper develops a theory of collective beliefs and motivated cognitions, including those concerning "money" (consumption) and happiness, as well as religion. JEL: D31 D72 D80 E62 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11208&r=all 165. Equivalence Results for Optimal Pass-Through, Optimal Indexing to Exchange Rates, and Optimal Choice of Currency for Export Pricing Charles Engel Firms sometimes write price lists or catalogs for their exports, so they set prices for a period of time and do not adjust prices during that interval in response to changes in their environment. The firm sets the price either in its own currency or the importer's currency. This paper draws a simple link between the choice of currency, and the pricing decision of a firm that changes prices in response to all shocks. Specifically, if the latter firm's price has a lower variance in terms of its own currency than the importer's currency, then the firm with a price list will set the price in its own currency (and otherwise it will set price in the foreign currency.) This relationship is established by consideration of the firm with a price list as a special case of a firm that indexes its export price to the exchange rate. JEL: F1 F4 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11209&r=all 166. Asymmetric Crime Cycles H. Naci Mocan Turan G. Bali Recent theoretical models based on dynamic human capital formation, or social influence, suggest an inverse relationship between criminal activity and economic opportunity and between criminal activity and deterrence, but predict an asymmetric response of crime. In this paper we use three different data sets and three different empirical methodologies to document this previously-unnoticed regularity. Using nonparametric methods we show that the behavior of property crime is asymmetric over time, where increases are sharper but decreases are gradual. Using aggregate time-series U.S. data as well as data from New York City we demonstrate that property crime reacts more (less) strongly to increases (decreases) in the unemployment rate, to decreases (increases) in per capita real GDP and to decreases ( increases) in the police force. The same result is obtained between unemployment and property crime in annual state-level panel data. These results suggest that it may be cost effective to implement mechanisms to prevent crime commission rates from rising in the first place. JEL: K4 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11210&r=all 167. Attention, Demographics, and the Stock Market Stefano DellaVigna Joshua M. Pollet Do investors pay enough attention to long-term fundamentals? We consider the case of demographic information. Cohort size fluctuations produce forecastable demand changes for age- sensitive sectors, such as toys, bicycles, beer, life insurance, and nursing homes. These demand changes are predictable once a specific cohort is born. We use lagged consumption and demographic data to forecast future consumption demand growth induced by changes in age structure. We find that demand forecasts predict profitability by industry. Moreover, forecasted demand changes 5 to 10 years in the future predict annual industry returns. One additional percentage point of annualized demand growth due to demographics predicts a 5 to 10 percentage point increase in annual abnormal industry stock returns. However, forecasted demand changes over shorter horizons do not predict stock returns. The predictability results are more substantial for industries with higher barriers to entry and with more pronounced age patterns in consumption. A trading strategy exploiting demographic information earns an annualized risk- adjusted return of 5 to 7 percent. We present a model of underreaction to information about the distant future that is consistent with the findings. JEL: G1 J1 D0 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11211&r=all 168. Fluctuating Macro Policies and the Fiscal Theory Troy Davig Eric M. Leeper This paper estimates regime-switching rules for monetary policy and tax policy over the post-war period in the United States and imposes the estimated policy process on a calibrated dynamic stochastic general equilibrium model with nominal rigidities. Decision rules are locally unique and produce a stationary long- run rational expectations equilibrium in which (lump-sum) tax shocks always affect output and inflation. Tax non-neutralities in the model arise solely through the mechanism articulated by the fiscal theory of the price level. The paper quantifies that mechanism and finds it to be important in U.S. data, reconciling a popular class of monetary models with the evidence that tax shocks have substantial impacts. Because long-run policy behavior determines existence and uniqueness of equilibrium, in a regime- switching environment more accurate qualitative inferences can be gleaned from full-sample information than by conditioning on policy regime. JEL: E1 E5 E6 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11212&r=all 169. Affirmative Action in Hierarchies Suzanne Scotchmer If promotion in a hierarchy is based on a random signal of ability, rates of promotion will be affected by risk-taking. Further, the numbers and abilities of risk-takers and non-risk- takers will be different at each stage of the hierarchy, and the ratio will be changing. I show that, under mild conditions, more risk-takers than non-risk-takers will survive at early stages, but they will have lower ability. At later stages, this will be reversed: Fewer risk-takers than non-risk-takers survive, but they will have higher ability. I give several interpretations for how these theorems relate to affirmative action, in light of considerable evidence that males are more risk-taking than females. JEL: J7 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11213&r=all 170. Pitfalls of a State-Dominated Financial System: The Case of China Genevieve Boyreau-Debray Shang-Jin Wei State-owned financial institutions have been proposed as a way to address market failure, but the recent literature has also highlighted their pathological problems. This paper studies the case of China for pitfalls of a state-dominated financial system, including possible segmentation of the internal capital market due to local government interference and mis-allocation of capital. Even without formal legal prohibition to capital movement across regions, we find that capital mobility within China is low. Furthermore, to the extent some capital moves around the country, the government (as opposed to the private sector) tends to allocate capital systematically away from more productive regions toward less productive ones. In this context, a smaller role of the government in the financial sector might increase economic efficiency and the rate of economic growth. JEL: G1 F3 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11214&r=all 171. Does Competition Among Public Schools Benefit Students and Taxpayers? A Comment on Hoxby (2000) Jesse Rothstein In an influential paper, Hoxby (2000) studies the relationship between the degree of so-called "Tiebout choice" among local school districts within a metropolitan area and average test scores. She argues that choice is endogenous to school quality, and instruments with the number of larger and smaller streams. She finds a large positive effect of choice on test scores, which she interprets as evidence that school choice induces greater school productivity. This paper revisits Hoxby's analysis. I document several important errors in Hoxby's data and code. I also demonstrate that the estimated choice effect is extremely sensitive to the way that "larger streams" are coded. When Hoxby's hand count of larger streams is replaced with any of several alternative, easily replicable measures, there is no significant difference between IV and OLS, each of which indicates a choice effect near zero. There is thus little evidence that schools respond to Tiebout competition by raising productivity.
A data appendix for this paper is available online JEL: H7 I2 R5 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11215&r=all 172. Competition Among Schools: A Reply to Rothstein (2004) Caroline M. Hoxby Rothstein has produced two comments, Rothstein (2003) and Rothstein (2004), on Hoxby "Does Competition Among Public Schools Benefit Students and Taxpayers," American Economic Review, 2000. In this paper, I discuss every claim of any importance in the comments. I show that every claim is wrong. I also discuss a number of Rothstein's innuendos--that is, claims that are made by implication rather than with the support of explicit arguments or evidence. I show that, when held up against the evidence, each innuendo proves to be false. One of the major points of Rothstein 2003) is that lagged school districts are a valid instrumental variable for today's school districts. This is not credible. Another major claim of Rothstein (2003) is that it is better to use highly non-representative achievement data based on students' self-selecting into test-taking than to use nationally representative achievement data. This claim is wrong for multiple reasons. The most important claim of Rothstein (2004) is that the results of Hoxby (2000) are not robust to including private school students in the sample. This is incorrect. While Rothstein appears merely to be adding private school students to the data, he actually substitutes error-prone data for error-free data on all students, generating substantial attenuation bias. He attributes the change in estimates to the addition of the private school students, but I show that the change in estimates is actually due to his using erroneous data for public school students. Another important claim in Rothstein (2004) that the results in Hoxby (2000) are not robust to associating streams with the metropolitan areas through which they flow rather than the metropolitan areas where they have their source. This is false: the results are virtually unchanged when the association is shifted from source to flow. Since 93.5 percent of streams flow only in the metropolitan area where they have their source, it would be surprising if the results did change much. The comments Rothstein (2003) and Rothstein (2004) are without merit. All of the data and code used in Hoxby (2000) are available to other researchers. An easy-to-use CD provides not only extracts and estimation code, but all of the raw data and the code for constructing the dataset. JEL: H70 I20 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11216&r=all 173. The Labor Market Impact of High-Skill Immigration George J. Borjas The rapid growth in the number of foreign students enrolled in American universities has transformed the higher education system, particularly at the graduate level. Many of these newly minted doctorates remain in the United States after receiving their doctoral degrees, so that the foreign student influx can have a significant impact in the labor market for high-skill workers. Using data drawn from the Survey of Earned Doctorates and the Survey of Doctoral Recipients, the study shows that a foreign student influx into a particular doctoral field at a particular time had a significant and adverse effect on the earnings of doctorates in that field who graduated at roughly the same time. A 10 percent immigration-induced increase in the supply of doctorates lowers the wage of competing workers by about 3 percent. JEL: J1 J4 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11217&r=all 174. Scioeconomic Differences in the Adoption of New Medical Technologies Dana Goldman James P. Smith New medical technologies hold tremendous promise for improving population health, but they also raise concerns about exacerbating already large differences in health by socioeconomic status (SES). If effective treatments are more rapidly adopted by the better educated, SES health disparities may initially expand even though the health of those in all groups eventually improves. Hypertension provides a useful case study. It is an important risk factor for developing cardiovascular disease, the condition is relatively common, and there are large differences in rates of hypertension by education. This paper examines the short and long- term diffusion of two important classes of anti-hypertensives - ACE inhibitors and calcium channel blockers - over the last twenty-five years. Using three prominent medical surveys, we find no evidence that the diffusion of these drugs into medical practice favored one education group relative to another. The findings suggest that - at least for hypertension - SES differences in the adoption of new medical technologies are not an important reason for the SES health gradient. JEL: D6 H0 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11218&r=all 175. Rural Windfall or a New Resource Curse? Coca, Income, and Civil Conflict in Colombia Joshua D. Angrist Adriana Kugler Natural and agricultural resources for which there is a substantial black market, such as coca, opium, and diamonds, appear especially likely to be exploited by the parties to a civil conflict. On the other hand, these resources may also provide one of the few reliable sources of income in the countryside. In this paper, we study the economic and social consequences of a major shift in the production of coca paste from Peru and Bolivia to Colombia, where most coca leaf is now harvested. This shift, which arose in response to the disruption of the "air bridge" that previously ferried coca paste into Colombia, provided an exogenous boost in the demand for Colombian coca leaf. Our analysis shows this shift generated economic gains in rural areas, primarily in the form of increased self- employment earnings and increased labor supply by teenage boys. There is little evidence of widespread economic spillovers, however. The results also suggest that the rural areas which saw accelerated coca production subsequently became much more violent. Taken together, these findings support the view that the Colombian civil conflict is fueled by the financial opportunities that coca provides. This is in line with a recent literature which attributes the extension of civil conflicts to economic rewards and an environment that favors insurgency more than to the persistence of economic or political grievances. JEL: O1 R0 Q0 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11219&r=all 176. An Information Approach to International Currencies Richard K. Lyons Michael J. Moore This paper addresses currency competition from an information perspective. Transactions in traditional models do not convey information, so transaction costs %u2013 the driver of competition outcomes %u2013 are driven by market size. In our model transactions do convey information (consistent with recent empirical findings). Several important departures arise. First, adding the information dimension resolves the traditional indeterminacy of currency trade patterns (by mitigating the concentrating force of market-size economies). Second, whether transactions are executed directly or through a vehicle actually affects prices (because these trading methods do not in general reveal the same information). Third, our model provides a new rationale for why some currency pairs never trade directly ( information is not sufficiently symmetric to support trading). Fourth, our model formalizes the arbitrage process and shows that arbitrage transaction quantities and price levels are jointly determined. Empirically, the paper provides a first integrated analysis of transactions in a triangle of markets: ?/$, $/ %u20AC, and ?/ %u20AC. Data for the full triangle permits comparison of direct, indirect and arbitrage transactions, for each pair. The information model predicts that transactions should affect prices across markets (e.g., flow in the ?/$ market should convey information relevant to $/ %u20AC and ?/ %u20AC prices), which is borne out. JEL: F3 F4 G1 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11220&r=all 177. The Structure of Factor Content Predictions Daniel Trefler Susan Chun Zhu The last decade witnessed an explosion of research into the impact of international technology differences on the factor content of trade. Yet the literature has failed to confront two pivotal issues. First, with international technology differences and traded intermediate inputs there does not exist a Vanek- consistent definition of the factor content of trade. Restated, we do not know what we are trying to explain! We fill this gap by providing the correct definition. Second, as Helpman and Krugman ( 1985) showed, many models beyond Heckscher-Ohlin imply the Vanek prediction. So what model is being tested? We completely characterize the class of models being tested by providing a familiar `consumption similarity' condition that is necessary and sufficient for the Vanek prediction. We illustrate with a unique dataset containing input-output tables for 41 rich and poor countries. We find modest support for the strong version of the Vanek prediction and impressive support for weaker versions of the prediction. JEL: F1 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11221&r=all 178. The Tactical and Strategic Value of Commodity Futures Claude B. Erb Campbell R. Harvey Historically, commodity futures have had excess returns similar to those of equities. But what should we expect in the future? The usual risk factors are unable to explain the time-series variation in excess returns. In addition, our evidence suggests that commodity futures are an inconsistent, if not tenuous, hedge against unexpected inflation. Further, the historically high average returns to a commodity futures portfolio are largely driven by the choice of weighting schemes. Indeed, an equally weighted long-only portfolio of commodity futures returns has approximately a zero excess return over the past 25 years. Our portfolio analysis suggests that the a long-only strategic allocation to commodities as a general asset class is a bet on the future term structure of commodity prices, in general, and on specific portfolio weighting schemes, in particular. In contrast, we provide evidence that there are distinct benefits to an asset allocation overlay that tactically allocates using commodity futures exposures. We examine three trading strategies that use both momentum and the term structure of futures prices. We find that the tactical strategies provide higher average returns and lower risk than a long-only commodity futures exposure. JEL: G11 G12 G13 E44 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11222&r=all 179. The Competitive Effects of Drug Withdrawals John Cawley John A. Rizzo In September 1997, the anti-obesity drugs Pondimin and Redux, ingredients in the popular drug combination fen-phen, were withdrawn from the market for causing potentially fatal side effects. That event provides an opportunity for studying how consumers respond to drug withdrawals. In theory, remaining drugs in the therapeutic class could enjoy competitive benefits, or suffer negative spillovers, from the withdrawal of a competing drug. Our findings suggest that, while the withdrawal of a rival drug may impose negative spillovers in the form of higher patient quit rates, on the whole non-withdrawn drugs in the same therapeutic class enjoy competitive benefits in the form of higher utilization. JEL: I1 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11223&r=all 180. SMEs, Growth, and Poverty Thorsten Beck Asli Demirguc-Kunt Ross Levine This paper explores the relationship between the relative size of the Small and Medium Enterprise (SME) sector, economic growth, and poverty alleviation using a new database on the share of SME labor in the total manufacturing labor force. Using a sample of 45 countries, we find a strong, positive association between the importance of SMEs and GDP per capita growth. The data do not, however, confidently support the conclusions that SMEs exert a causal impact on growth. Furthermore, we find no evidence that SMEs alleviate poverty or decrease income inequality. JEL: O1 O2 L11 L25 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11224&r=all 181. Pricing Capital Under Mandatory Unbundling and Facilities Sharing Robert S. Pindyck The regulation of telecommunications, railroads, and other network industries has been based on mandatory unbundling and facilities sharing - entrants have the option to lease part or all of incumbents' facilities if and when they desire, at rates determined by regulators. This flexibility is of great value to entrants, but because investments are largely irreversible, it is costly to supply by incumbents. However, pricing formulas used by regulators to set lease rates for capital do not compensate incumbents for this flexibility, so that incumbents are effectively forced to subsidized entrants, discouraging further investments. This paper shows how pricing formulas used to set lease rates can be adjusted to account for the transfer of option value from incumbents to entrants, and estimates the average size of the adjustment for land-based local voice telecommunications in the U.S. JEL: L51 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11225&r=all 182. The Effects of Competition on Variation in the Quality and Cost of Medical Care Daniel P. Kessler Jeffrey J. Geppert We estimate the effects of hospital competition on the level of and the variation in quality of care and hospital expenditures for elderly Medicare beneficiaries with heart attack. We compare competition's effects on more-severely ill patients, whom we assume value quality more highly, to the effects on less-severely ill, low-valuation patients. We find that low-valuation patients in less-competitive markets receive more intensive treatment than in more-competitive markets, but have statistically similar health outcomes. In contrast, high-valuation patients in less- competitive markets receive less intensive treatment than in more- competitive markets, and have significantly worse health outcomes. Since this competition-induced increase in variation in expenditures is, on net, expenditure-decreasing and outcome- beneficial, we conclude that it is welfare-enhancing. These findings are inconsistent with conventional models of vertical differentiation, although they can be accommodated by more recent models. JEL: I1 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11226&r=all 183. A Damage-Revelation Rationale for Coupon Remedies A. Mitchell Polinsky Daniel L. Rubinfeld This article studies optimal remedies in a setting in which damages vary among plaintiffs and are difficult to determine. We show that giving plaintiffs a choice between cash and coupons to purchase units of the defendant%u2019s product at a discount -- a "coupon-cash remedy" -- is superior to cash alone. The optimal coupon-cash remedy offers a cash amount that is less than the value of the coupons to plaintiffs who suffer relatively high harm. Such a remedy induces these plaintiffs to choose coupons, and plaintiffs who suffer relatively low harm to choose cash. Sorting plaintiffs in this way leads to better deterrence because the costs borne by defendants (the cash payments and the cost of providing coupons) more closely approximate the harms that they have caused. JEL: D18 D82 D83 H23 K19 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11227&r=all 184. Globalization and Taste Convergence: The Case of Wine and Beer Joshua Aizenman Eileen L. Brooks This paper investigates changes in cultural consumption patterns for a low concentration industry: wine and beer. Using data on 38 countries from 1963-2000, there is clear convergence in the consumption of wine relative to beer between 1963 and 2000. Convergence occurs even more quickly within groups of countries that have a higher degree of integration. A key prediction of international trade is confirmed in the data: greater trade integration weakens the association between production and consumption patterns -- although the relative consumption of wine can be explained well in 1963 by grape production and latitude, these variables are much less significant in 2000. Despite these "scientific" explanations for the consumption of wine, there is also a cultural angle to wine consumption. While the relative wine consumption of France and Germany is converging, several Latin American countries fail to converge. The patterns of convergence are consistent with dynamics of adjustment in an overlapping generation habit formation model. JEL: F13 F15 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11228&r=all 185. Pharmaceutical Stock Reactions to Price Constraint Threats and Firm-Level R&D Spending Joseph Golec Shantaram Hegde John Vernon Political pressure in the United States is again building to constrain pharmaceutical prices either directly or through legalized reimportation of lower-priced pharmaceuticals from foreign countries. This study uses the Clinton Administration's Health Security Act (HSA) of 1993 as a natural experiment to show how threats of price constraints affect firm-level R&D spending. We link events surrounding the HSA to pharmaceutical company stock price changes and then examine the cross-sectional relation between the stock price changes and subsequent unexpected R&D spending changes. Results show that the HSA had significant negative effects on firm stock prices and R&D spending. Conservatively, the HSA reduced R&D spending by $1.6 billion, even though it never became law. If the HSA had passed, and had many small firms not raised capital just prior to the HSA, the R&D effects could have been much larger. JEL: G31 O32 L65 I1 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11229&r=all 186. Changes in the Labor Supply Behavior of Married Women: 1980- 2000 Francine D. Blau Lawrence M. Kahn Using March Current Population Survey (CPS) data, we investigate married women's labor supply behavior from 1980 to 2000. We find that their labor supply function for annual hours shifted sharply to the right in the 1980s, with little shift in the 1990s. In an accounting sense, this is the major reason for the more rapid growth of female labor supply observed in the 1980s, with an additional factor being that husbands' real wages fell slightly in the 1980s but rose in the 1990s. Moreover, a major new development was that, during both decades, there was a dramatic reduction in women's own wage elasticity. And, continuing past trends, women's labor supply also became less responsive to their husbands' wages. Between 1980 and 2000, women's own wage elasticity fell by 50 to 56 percent, while their cross wage elasticity fell by 38 to 47 percent in absolute value. These patterns hold up under virtually all alternative specifications correcting for: selectivity bias in observing wage offers; selection into marriage; income taxes and the earned income tax credit; measurement error in wages and work hours; and omitted variables that affect both wage offers and the propensity to work; as well as when education groups and mothers of small children are analyzed separately. JEL: J1 J2 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11230&r=all 187. Time on the Ladder: Career Mobility in Agriculture, 1890- 1938 Lee J. Alston Joseph P. Ferrie We explore the dynamics of the agricultural ladder (the progression from laborer to cropper to renter) in the U.S. before 1940 using individual-level data from a survey of farmers conducted in 1938 in Jefferson County, Arkansas. Using information on each individual%u2019s complete career history ( their tenure status at each date, in some cases as far back as 1890), their location, and a variety of their personal and farm characteristics, we develop and test hypotheses to explain the time spent as a tenant, sharecropper, and wage laborer. The pessimistic view of commentators who saw sharecropping and tenancy as a trap has some merit, but individual characteristics played an important role in mobility. In all periods, some farmers moved up the agricultural ladder quite rapidly while others remained stuck on a rung. Ascending the ladder was an important route to upward mobility, particularly for blacks, before large-scale migration from rural to urban places. JEL: N3 N5 J6 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11231&r=all 188. Beyond Goods and Services: Competition Policy, Investment, Mutual Recognition, Movement of Persons, and Broader Cooperation Provisions of Recent FTAs involving ASEAN Countries O G Dayaratna Banda John Whalley We discuss recent bilateral, regional, and country trade, partnership, and economic agreements involving both ASEAN as a single entity and individual ASEAN countries (Singapore, Thailand, Malaysia) focusing on their reach beyond conventional trade in goods and services issues. These agreements are recent, but they are numerous and more are under negotiation. We separately synthesize and evaluate provisions in five areas; competition policy, investment, mutual recognition, movement of persons, and broader cooperation. What emerges is of a picture of ill defined general commitments and precise undertaking, which vary from element to element and country pair to country pair, but there can be little doubt as to the presence of substance, which in turn, seemingly grows in complexity and form in more recent agreements. JEL: F00 F02 F11 F15 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11232&r=all 189. Changes in the Physiology of Aging during the Twentieth Century Robert W. Fogel One way to demonstrate how remarkable changes in the process of aging have been is to compare health over the life cycles of 3 cohorts. For the first cohort, born between 1835 and 1845 (the Civil War cohort), life was short and disabilities were common even at young ages. Other factors contributing to lifelong poor health were widespread exposure to severely debilitating diseases and chronic malnutrition. Fewer of the World War II cohort, born between 1920 and 1930, died in infancy and most of the survivors have lived past age 60 without developing severe chronic diseases. Members of this cohort have experienced better health throughout their lives largely due to their lower exposure to environmental hazards before birth and throughout their infancy and early childhood. Members of the cohort born between 1980 and 1990 have a 50-50 chance of living to age 100. The average age at onset of disabilities has continued to rise, so members of this cohort can expect to remain healthy at later ages. Adopting a healthy life style early can help to prevent or postpone disability at older ages. JEL: I11 I12 J11 J14 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11233&r=all 190. The Economic Winners and Losers of Legalized Gambling Melissa S. Kearney This paper reviews the government role in the legalized gambling sector and addresses some of the major issues relevant to any normative analysis of what the government role should be. In particular, the paper reviews evidence identifying the economic "winners" and "losers" associated with the three largest sectors of the industry: commercial casinos, state lotteries, and Native American casinos. The paper also includes a discussion of the growing internet gambling industry. In addition to reviewing existing literature and evidence, the paper raises relevant questions and policy issues that have not yet been adequately addressed in the economics literature. JEL: H2 H3 H7 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11234&r=all 191. Constitutions, Politics and Economics: A Review Essay on Persson and Tabellini's "The Economic Effect of Constitutions" Daron Acemoglu In this essay I review the new book by Torsten Persson and Guido Tabellini, The Economic Effects of Constitutions, which investigates the policy and economic consequences of different forms of government and electoral rules. I also take advantage of this opportunity to discuss the advantages and disadvantages of a number of popular empirical strategies in the newly emerging field of comparative political economy. JEL: P16 O10 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11235&r=all 192. FDI Penetration and Net Trade in the EU Accession Countries Dawn Holland Olga Pomerantz This paper explores the link between foreign direct investment and trade in a panel of four countries that will accede to the European Union in 2004: Poland, Hungary, the Czech Republic and Slovenia. We augment standard demand-side export and import equations with a measure of FDI penetration. We compare results based on a panel mean-group estimator with a fixed-effects panel model that allows variation across slope parameters where necessary. We find that FDI penetration has a broadly neutral impact on the trade balance. However, the trade intensity of foreign firms differs significantly across countries. Date: 2004-01 URL: http://d.repec.org/n?u=RePEc:nsr:niesrd:226&r=all 193. Taxation, Reranking and Equivalence Scales Justin van de Ven John Creedy This paper considers whether an equivalence scale implicit in transfer policy can be inferred from summary measures of reranking. It is conjectured that, if the government has a distributional objective and formulates tax policy with a view to equitable treatment of income units, then adopting the scale that is implicit in government transfer policy should only identify reranking that has no equity foundation. This motivates the question: Is the incidence of reranking associated with a transfer system minimised by the equivalence scale that is implicit in the transfer system? The analysis presented in this paper suggests that the equivalence scale which minimises reranking, while not necessarily equal to the closest approximation to the one that is implicit in transfer policy, is nevertheless in its vicinity Date: 2004-01 URL: http://d.repec.org/n?u=RePEc:nsr:niesrd:227&r=all 194. Patent Licensing from High-Cost Firm to Low-Cost Firm Sougata Poddar (National University of Singapore) Uday Bhanu Sinha (Indian Statistical Institute) In the literature of patent licensing, most of the studies are done where new technology is transferred from a cost-efficient firm (patentee) to a less efficient firm (licensee). However, R&D intensive firms are usually based in high wage countries whereas the cost-efficient firms are based in low wage countries. As a result R&D intensive firms are not necessarily the most cost - efficient firms in the industry, although in most cases they are the patentee firms. Given this backdrop, we study a situation of patent licensing where the technology transfer takes place from an innovative firm, which is relatively inefficient in terms of cost of production to its cost-efficient rival. We look for optimal licensing arrangements in this environment. This framework also provides a platform to bridge the literature on external and internal patentees. Keywords: licensing, fixed fee, royalty, two-part tariff, quantity competition, Innovation JEL: D43 D45 L13 URL: http://d.repec.org/n?u=RePEc:nus:nusewp:wp0503&r=all 195. The Contributions from Firm Entry, Exit and Continuation to Labour Productivity Growth in New Zealand David Law Nathan McLellan (New Zealand Treasury) This paper evaluates the contributions from firm entry, exit and continuation to labour productivity growth in New Zealand over the period 1995 to 2003. Decomposition techniques developed by Griliches and Regev (1995) and by Foster, Haltiwanger and Krizan ( 1998) are employed. Results suggest significant heterogeneity across both industries and firms. Most entering firms’ initial level of labour productivity is below the industry average but grows rapidly thereafter. Continuing firms generally add to industry labour productivity growth. On average exiting firms experience stagnant or declining labour productivity in the years leading up to their death, and when they eventually die most have below average labour productivity compared to their industry. This pattern persists even at a highly disaggregated industry level and indicates that firm turnover has positively contributed to labour productivity growth in New Zealand. Keywords: Firm Performance; Entry; Exit; Turnover; Mobility; Labour Productivity; New Zealand JEL: D21 Date: 2005-04 URL: http://d.repec.org/n?u=RePEc:nzt:nztwps:05/01&r=all 196. Taxes vs Permits: Options for Price-Based Climate Change Regulation Isabelle Sin Suzi Kerr Joanna Hendy (New Zealand Treasury) This paper provides an overview of key issues involved in the choice among market-based instruments for climate change policy. Specifically, it examines the potential net benefits from shifting to a permit system for emission reduction, and the preconditions necessary for this change. It also draws out the implications of New Zealand’s specific circumstances and current climate policies for future policy development. Keywords: climate change; emissions trading; permits; taxation; New Zealand JEL: Q28 Q48 Date: 2005-04 URL: http://d.repec.org/n?u=RePEc:nzt:nztwps:05/02&r=all 197. Empirical Assessment of Sustainability and Feasibility of Government Debt: The Philippines Case Duo Qin (Queen Mary, University of London) Marie Anne Cagas (Asian Development Bank) Geoffrey Ducanes (Asian Development Bank) Nedelyn Magtibay-Ramos (Asian Development Bank) Pilipinas F. Quising (Asian Development Bank) This paper develops empirical methods of assessing the sustainability and feasibility of public debt using the No Ponzi Game criterion, using the Philippines as the testing case. Both historical data and forecasts generated by a quarterly macro- econometric model are used in the assessment. Stochastic simulations are carried out to mimic future uncertainty. The test results show that, up to the end of the present administration in 2010, the Philippine government debt is not sustainable but weakly feasible, that the feasibility is vulnerable to major adverse shocks, and that simple budgetary deficit control policy is inadequate for achieving debt sustainability or strengthening feasibility. Keywords: Government debt, Ponzi game, Rollover bond portfolio. JEL: H62 H63 E62 F34 C53 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:qmw:qmwecw:wp527&r=all 198. Suicidal Behavior and the Labor Market Productivity of Young Adults Erdal Tekin Sara Markowitz This paper provides a comprehensive analysis of the link between suicidal behaviors and labor market productivity of young adults in the United States. Using data from the National Survey of Adolescent Health (Add Health), we estimate the effects of suicide thoughts and suicide attempts on the work and schooling activities of young adults as well as on their hourly wage rates. The richness of the data set allows us to implement several strategies to control for unobserved heterogeneity and the potential reverse causality. These include using a large set of control variables that are likely to be correlated with both the suicidal behavior and the outcome measures, an instrumental variables method, and a twin fixed effects analysis from the subsample of twin pairs contained in the data. The longitudinal nature of the data set also allows us to control for past suicide thoughts and attempts of the individuals from their high school years as well as the suicide behaviors of the members of their family. Results from the different identification strategies consistently indicate that both suicide thoughts and suicide attempts decrease the hourly wage rate and the probability that a young adult individual works and/or attends school. The results are found to be robust to various specification tests. Keywords: suicidal behaviors, labor market choices, wages JEL: I0 J2 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:run:wpaper:2005-003&r=all 199. Recent trends in the sources of finance for Japanese firms: has Japan become a 'high internal finance' country? Kenichiro Suzuki David Cobham Keywords: financial systems, corporate finance, bank-industry relationships, main bank, firm size, Japan. JEL: G1 G3 URL: http://d.repec.org/n?u=RePEc:san:wpecon:0501&r=all 200. Revisiting the one type permanent shocks hypothesis: Aggregate fluctuations in a multi-sector economy Antonio Acconcia (Universita di Napoli Federico II and CSEF) Saverio Simoneli (Universita di Napoli Federico II and ECARES) We use data for the US manufacturing sectors to revisit recent explanations of aggregate fluctuations in labor productivity and employment. The two main findings are: (a) the common working hypothesis that a single source of shocks is responsible for the long-run persistence of labor productivity is difficult to reconcile with the behavior of this variable across sectors; (b) the near zero correlation between the aggregate productivity and employment growth rates can be explained as the outcome of strong positive and negative correlations within, respectively, the durable and non-durable goods sectors. Within the durable goods sector, investment specific innovations have positive effects on both labor productivity and hours worked at short- as well as long-run horizons. The effect on labor productivity, however, is not detected with aggregate data. Keywords: Technology shock, Dynamic Factor Model, Long-Run Restrictions, Sectors JEL: C10 E32 O41 Date: 2005-04-01 URL: http://d.repec.org/n?u=RePEc:sef:csefwp:137&r=all 201. "Institutional and Financial Determinants of Development: New Evidence from Advanced and Emerging Markets" Juan Pineiro Chousa (University of Santiago de Compostela) Haider Ali Khan (GSIS, University of Denver) Davit N. Melikyan (Institute of Management and Economic Reforms and AEPLAC) Artur Tamazian (University of Santiago de Compostela) The paper tests the democratization-development hypothesis, namely that democratization has a positive impact on growth, economic development and changes in well-being. We employ a probit model to estimate the probabilistic indicator for democracy for a large sample of countries. Panel regressions are applied to explain the impact on growth of democratic political institutions, economic institutions and efficiency of financial management, along with other more "traditional" factors. The empirical findings support the hypothesis of the decisive role of democratic political and efficient economic institutions in stimulating economic growth. The main results also highlight the importance of effective allocation of financial resources. In addition to the growth regression results, it is argued, consistently with the capabilities approach to development by Sen, that many of the explanatory variables in the growth regression are positively related to development as capabilities enhancement. This is particularly true for democratic freedoms. Finally the problem of 'optimal' institutional development is discussed within the context of resource allocation, migration flows and political decision making. Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:tky:fseres:2005cf326&r=all 202. "International Consumption Patterns among High-income Countries: Evidence from the OECD Data" Istvan Konya (Department of Economics, Magyar Nemzeti Bank) Hiroshi Ohashi (Faculty of Economics, University of Tokyo) The paper analyzes product-level consumption patterns among countries in the OECD in the period from 1985 to 1999. Estimation results find robust evidence of strong convergence in cross- country consumption patterns. The paper also finds a relationship between openness and the cross-country consumption pattern. Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:tky:fseres:2005cf327&r=all 203. "Saving and Interest Rates in Japan: Why They Have Fallen and Why They Will Remain Low" R. Anton Braun (Faculty of Economics, University of Tokyo) Daisuke Ikeda (Bank of Japan) Douglas H. Joines (Marshall School of Business, University of Southern California) This paper quantifies the role of alternative shocks in accounting for the recent declines in Japanese saving rates and interest rates and provides some projections about their future course. We consider four distinct sources of variation in saving rates and real interest rates: changes in fertility rates, changes in survival rates, changes in technology and changes in uninsurable labor income risk. The emprical relevance of these factors is explored using a computable dynamic OLG model. We find that the combined effects of demographics and slower total factor productivity growth successfully explain both the levels and the magnitudes of the declines in the saving rate and the after-tax real interest rate during the 1990s. Model simulations indicate that the Japanese savings puzzle is over. Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:tky:fseres:2005cf328&r=all 204. "Foreign Technology Acquisition Policy and Firm Performance in Japan, 1957-1970: Micro-aspects of Industrial Policy" Kozo Kiyota (International Graduate School of Social Sciences, Yokohama National University and RIETI) Tetsuji Okazaki (Faculty of Economics, University of Tokyo) We examine the determinants and effects of technology acquisition licensing, using firm-level data between 1957 and 1970. Our results indicate that in technology acquisition licensing, the government screened a firm's application based on ( i) the industry that the firm belonged to and (ii) its past experience of technology acquisition. As a result, inefficient firms with considerable experience tended to acquire more technologies before deregulation. Despite this screening process, the technology acquisition policy contributes to improve a firm performance: The firms with acquired technology succeeded in capital accumulation, which results in much faster growth of labor productivity. Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:tky:fseres:2005cf329&r=all 205. "Bank Health and Investment: An Analysis of Unlisted Companies in Japan" Shin-ichi Fukuda (Faculty of Economics, University of Tokyo) Munehisa Kasuya (Research and Statistics Department, The Bank of Japan) Jouchi Nakajima (Graduate School of Economics, University of Tokyo) To the extent that a borrower faces switching costs in a relationship with an individual bank, bank-specific financial health might affect a borrower's cost of funds. The costs would be particularly large for firms that have a close relationship with limited number of banks. The purpose of this paper is to investigate whether weakened financial conditions of banks reduced investment of small and medium firms in Japan. Estimating Tobin's Q investment functions, we examine the determinants of investment for unlisted Japanese companies in the late 1990s and the early 2000s. We find that several measures on bank-specific financial health have significantly large impacts on borrower's investment, even when observable characteristics relating to Tobin's Q, cash-flow, and leverage are controlled for. We also find that multiple banking relationships, which tend to have a negative impact on investment in general, may be beneficial in relieving a hold up problem when deteriorated bank health does matter. Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:tky:fseres:2005cf330&r=all 206. "Governance and Effectiveness of Japanese Aid: Towards Optimality" Haider A. Khan (GSIS, University of Denver) In this paper I have tried to pursue two related objectives. First, I have tried to gauge the impact of Japanese aid on South and Southeast Asia. My second objective in this paper is to offer an approach to relate governance and aid-effectveness that could be applied to the aid and macroeconomic time-series data from the region. Using a bounded rationality format presented in a model that allows to progress towards optimality over time invites thinking along the lines of inductive learning to improve both governance and aid-effectiveness. Although Japan comes out ahead of many western donors, particularly, large ones such as the US and UK, there is still much room for improving aid-effectiveness. Both model-based and qualitative interview-based investigations in this paper point to donor and recipient policies that can be geared towards improving democratic governance, openness and grassroots empowerment in order to promote further aid- effectiveness. Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:tky:fseres:2005cf331&r=all 207. "Inflexibility as a Stabilisation Device" Nobuo Akai (School of Business Administration, University of Hyogo and CIRJE) Dan Sasaki (Institute of Social Science, University of Tokyo) A possible rationale for institutional conservatism, i.e., reluctance to adjust actions in accordance with external environmental changes, may be found in the payoff stabilisation effect it strategically affords. Suppose, for example, that one of the duopolists is capable of adjusting its action, either price or quantity, in response to unexpected demand fluctuations. Then the other duopolist, if incapable of such adjustments, recuperates some of the meager opportunities when the shock is negative whilst forgoing lucrative profit opportunities when the demand shock is positive, thereby "smoothes" its profits across varying states of demand in exchange for a small loss in expected profits, as opposed to when being as adjustable as its competitor. Similar qualitative results hold true both in Cournot and in Bertrand, and by extension, in a larger class of situations where economic decision makers interact through either strategic substitution or strategic complementarity. Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:tky:fseres:2005cf332&r=all 208. "Action Timing as a Collusive Common Good" Nobuo Akai (School of Business Administration, University of Hyogo and CIRJE) Dan Sasaki (Institute of Social Science, University of Tokyo) Frequent revision of firms' actions facilitates to sustain tacit collusion. Even when some, not all, firms revise their actions with enhanced frequency, the change contributes positively to collusive sustainability, i.e., lowering the critical discount factor. In this sense, the added frequency in revising actions can be viewed as a common good shared among oligopolists. Particularly noteworthy is the fact that, in a large class of environments, a firm's deviation can be deterred by no more than one punisher, implying that at most two firms need to invest in frequent revision in order to sustain collusion. Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:tky:fseres:2005cf333&r=all 209. Price Discimination and Efficient Matching Damiano, Ettore Li, Hao This paper considers the problem of a monopoly matchmaker that uses a schedule of entrance fees to sort different types of agents on the two sides of a matching market into exclusive meeting places, where agents randomly form pairwise matches. We make the standard assumption that the match value function exhibits complementarities, so that matching types at equal percentiles maximizes total match value and is efficient. We provide necessary and sufficient conditions for the revenue- maximizing sorting to be efficient. These conditions require the match value function, modified to incorporate the incentive cost of eliciting private type information, to exhibit complementarities along the efficient path of matching types at equal percentiles. Date: 2005-03-21 URL: http://d.repec.org/n?u=RePEc:ubc:pmicro:damiano-05-03-21-12-21-58&r=all 210. Internet Auctions with Many Traders Peters, Michael Severinov, Sergei We study a multi-unit auction environment similar to eBay. Sellers, each with a single unit of a homogenous good, set reserve prices at their own independent second-price auctions. Each buyer has a private value for the good and wishes to acquire a single unit. Buyers can bid as often as they like and move between the sellers' auctions in a dynamic environment. We characterize a perfect Bayesian equilibrium for this decentralized trading mechanism in which, conditional on reserve prices, an efficient set of trades occurs at a uniform trading price. When the number of buyers and sellers is large but finite, the sellers set reserve prices equal to their true costs under a very mild distributional assumption, so ex-post efficiency is achieved. The buyers' strategies in this equilibrium are very simple and do not depend on their beliefs about the other buyers' valuations, or the number of buyers and sellers. They bid almost myopically. Their only `sophisticated' choice is where to bid when they are indifferent between several sellers. Date: 2005-03-30 URL: http://d.repec.org/n?u=RePEc:ubc:pmicro:peters-05-03-30-03-06-03&r=all 211. Integration and The Well-Being of Children in The Transition Economies Simon Commander Fabian Bornhorst This paper looks at the well-being of children in transition economies in the light of greater economic integration. The different stages of integration of the transition economies into the world economy are marked by substantial variations in trade and capital flows. International labour mobility remains limited, and unemployment has been high since the beginning of transition. Because employment is the main determinant of household income, this has had a negative effect on the well-being of children. At the national level, a high degree of variation in regional unemployment rates has emerged which is symptomatic of the lack of integration of labour markets. High regional unemployment rates are further associated with increases in non-participation, while adjustments via wages and migration have been largely absent, or insufficient. Indicators of child well-being – such as infant mortality rates – are positively correlated with unemployment rates, suggesting that public service provision is, in general, not sufficient to offset the negative effect of unemployment on child well-being. A closer look at unemployment benefit schemes reveals not only large differences between countries but also scope for broader coverage and better targeting of programmes in order to reduce the risk of families falling into poverty when parents become unemployed. Keywords: Child Welfare; Transition; Keywords: Central Europe; CIS; Eastern Europe; JEL: E24 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ucf:inwopa:inwopa05/30&r=all 212. The Economic Case for Fiscal Federalism in Scotland Ronald MacDonald (University of Glasgow) Paul Hallwood (University of Connecticut) In this paper we consider the case for assigning tax revenues to Scotland, by which we mean that taxes levied on Scottish tax bases should be returned to the Scottish budget. The budget, however, would continue to be supplemented by transfers from the Westminster budget. This arrangement differs from the current situation whereby public spending is largely financed by a bloc grant from Westminster. Our suggestion falls short of full fiscal federalism for Scotland . meaning that Scotland had control over choice of tax base and of tax rates, and fiscal transfers from Westminster would be minimal. We use propositions drawn from the theory of fiscal federalism to argue for a smaller vertical imbalance between taxes retained in Scotland and public spending in Scotland. A closer matching of spending with taxes would better signal to beneficiaries the true costs of public spending in terms of taxes raised. It would also create more complete incentives for politicians to provide public goods and services in quantities and at qualities that voters are actually willing to pay for. Under the current bloc grant system, the marginal tax cost of spending does not enter into political agents. calculations as spending is out of a fixed total budget. Moreover, the Scottish electorate is hindered in signaling its desire for local public goods and services since the size of the total budget is determined by a rigid formula set by Westminster. At the present time we reject proposals for full fiscal federalism because in sharply reducing vertical imbalance in the Scottish budget, it is likely to worsen horizontal balance between Scotland and the other UK regions. Horizontal balance occurs where similarly situated regions enjoy the same per capita level of public goods and services at the same per capita tax cost. The complete removal of the bloc grant under full fiscal federalism would remove the mechanism that currently promotes horizontal equity in the UK. Variability in own-source tax revenues creates other problems with full fiscal federalism. Taxes derived from North Sea oil would constitute a large proportion of Scottish taxes, but these are known to be volatile in the face of variable oil prices and the pound-dollar exchange rate. At the present time variability in oil tax revenue is absorbed by Westminster. Scotland is insulated through the bloc grant. This risk sharing mechanism would be lost with full fiscal federalism. It is true that Scotland could turn to financial markets to tide itself over oil tax revenue downturns, but as a much smaller and less diversified financial entity than the UK as a whole it would probably have to borrow on less favorable terms than can Westminster. Scotland would have to bear this extra cost itself. Also, with full fiscal federalism it is difficult to see how the Scottish budget could be used as a macroeconomic stabilizer. At present, tax revenue downturns in Scotland - together with the steady bloc grant - are absorbed through an increase in vertical imbalance. This acts as an automatic stabilizer for the Scottish economy. No such mechanism would exist under full fiscal federalism. The borrowing alternative would still exist but on the less favorable terms - as with borrowing to finance oil tax shortfalls Keywords: Barnett formula, bloc grants, devolution, fiscal federalism, local public goods, oil taxes, regional economics, Scottish economy, soft budget constraint, tax assignment, UK economy, UK fiscal system. JEL: E62 H1 H61 H7 H87 Date: 2004-07 URL: http://d.repec.org/n?u=RePEc:uct:uconnp:2004-42&r=all 213. Labor-Use Efficiency in Indian Banking: A Branch Level Analysis Abhiman Das (Reserve Bank of India) Subhash C. Ray (University of Connecticut) Ashok Nag (Reserve Bank of India) This paper uses Data Envelopment Analysis to measure labor use efficiency of individual branches of a large public sector bank with several thousand branches across India. We find considerable variation in the average levels of efficiency across the four metropolitan regions considered in this study. In this context, we introduce the concept of area or spatial efficiency for each region relative to the nation as a whole. Our findings suggest that the policies, procedures, and incentives handed down from the corporate level cannot fully neutralize the influence of the local work culture in the different regions. Most of the potential reduction in labor cost appears to be coming from possible downsizing the clerical and subordinate staff. Our analysis identifies branches that operate at very low levels of efficiency and may be gainfully merged with other branches wherever possible. Keywords: Bank, Efficiency, Branch, Cost JEL: G21 G28 L11 L89 C33 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:uct:uconnp:2005-04&r=all 214. Technical Efficiency and Stock Market Reaction to Horizontal Mergers Yanna Wu (PricewaterhouseCooper LLP) Subhash C. Ray (University of Connecticut) This study examines the relationship between stock market reaction to horizontal merger announcements and technical efficiency levels of the participating firms. The analysis is based on data pertaining to eighty mergers between firms in the U. S. manufacturing industry during the 1990s. We employ Data Envelopment Analysis (DEA) to measure technical efficiency, which capture the firms. competence to produce the maximum output given certain productive resources. Abnormal returns related to the merger announcements provide the investor.s re-evaluation on the future performance of the participating firms. In order to avoid the problem of nonnormality, heteroskedasticity in the regression analysis, bootstrap method is employed for estimations and inferences. We found that there is a significant relationship between technical efficiency and market response. The market apparently welcomes the merger as an arrangement to improve resource utilizations. JEL: G14 C61 C15 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:uct:uconnp:2005-05&r=all 215. Consumption Asymmetry and the Stock Market: Empirical Evidence Nicholas Apergis (University of Macedonia, Greece) Stephen M. Miller (University of Connecticut and University of Nevada, Las Vegas) This paper examines whether U.S. stock-market wealth asymmetrically affects consumption. After identifying asymmetric behavior for consumption and stock market wealth, the results confirm that stock-market wealth asymmetrically affects real per capita consumption. Negative 'news' affects consumption more than positive 'news'. Keywords: Consumption; Stock market; Wealth effect; Asymmetry JEL: E21 E44 Date: 2004-10 URL: http://d.repec.org/n?u=RePEc:uct:uconnp:2004-43&r=all 216. The Value of Waiting: Foreign Direct Investment with Uncertainty and Imperfect Local Knowledge Yongil Jeon (Central Michigan University) Taekwon Kim (Yonsei University) Stephen M. Miller (University of Connecticut and University of Nevada, Las Vegas) This paper examines the role of uncertainty and imperfect local knowledge in foreign direct investment. The main idea comes from the literature on investment under uncertainty, such as Pindyck ( 1991) and Dixit and Pindyck (1994). We empirically test .the value of waiting. with a dataset on foreign direct investment ( FDI). Many factors (e.g., political and economic regulations) as well as uncertainty and the risks due to imperfect local knowledge, determine the attractiveness of FDI. The uncertainty and irreversibility of FDI links the time interval between permission and actual execution of such FDI with explanatory variables, including information on foreign (home) countries and domestic industries. Common factors, such as regulatory change and external shocks, may affect the uncertainty when foreign investors make irreversible FDI decisions. We derive testable hypotheses from models of investment under uncertainty to determine those possible factors that induce delays in FDI, using Korean data over 1962 to 2001. Keywords: Foreign Direct Investment, Irreversibility, Uncertainty, Imperfect information, Investment Delay JEL: F21 G31 O16 Date: 2004-07 URL: http://d.repec.org/n?u=RePEc:uct:uconnp:2004-44&r=all 217. Exchange rate depreciation and exports: The case of Singapore revisited WenShwo Fang (Feng Chia University) Stephen M. Miller (University of Connecticut and University of Nevada, Las Vegas) This paper revisits the weak relationship between exchange rate depreciation and exports for Singapore, using a bivariate GARCH-M model that simultaneously estimates time-varying risk. The evidence shows that depreciation does not significantly improve exports, but that exchange rate risk significantly impedes exports. In sum, Singaporean policy makers can better promote export growth by stabilizing the exchange rate rather than generating its depreciation. Keywords: depreciation, exchange rate risk, exports, bivariate GARCH-M model JEL: F14 F31 Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:uct:uconnp:2004-45&r=all 218. Inflation Targeting and Output Growth: Evidence from Aggregate European Data Nicholas Apergis (University of Macedonia, Greece) Stephen M. Miller (University of Connecticut and University of Nevada, Las Vegas) Alexandros Panethimitakis (University of Athens) Athanassios Vamvakidis (International Monetary Fund) This paper evaluates inflation targeting and assesses its merits by comparing alternative targets in a macroeconomic model. We use European aggregate data to evaluate the performance of alternative policy rules under alternative inflation targets in terms of output losses. We employ two major alternative policy rules, forward-looking and spontaneous adjustment, and three alternative inflation targets, zero percent, two percent, and four percent inflation rates. The simulation findings suggest that forward-looking rules contributed to macroeconomic stability and increase monetary policy credibility. The superiority of a positive inflation target, in terms of output losses, emerges for the aggregate data. The same methodology, when applied to individual countries, however, suggests that country-specific flexible inflation targeting can improve employment prospects in Europe. JEL: E31 E32 E37 E52 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:uct:uconnp:2005-06&r=all 219. Export Promotion through Exchange Rate Policy: Exchange Rate Depreciation or Stabilization? WenShwo Fang (Feng Chia University) YiHao Lai (Deng Chia University) Stephen M. Miller (University of Connecticut and University of Nevada, Las Vegas) Exchange rate movements affect exports in two ways -- its depreciation and its variability (risk). A depreciation raises exports, but the associated exchange rate risk could offset that positive effect. The present paper investigates the net effect for eight Asian countries using a dynamic conditional correlation bivariate GARCH-M model that simultaneously estimates time varying correlation and exchange rate risk. Depreciation encourages exports, as expected, for most countries, but its contribution to export growth is weak. Exchange rate risk contributes to export growth in Malaysia and the Philippines, leading to positive net effects. Exchange rate risk generates a negative effect for six of the countries, resulting in a negative net effect in Indonesia, Japan, Singapore, Taiwan and a zero net effect in Korea and Thailand. Since the negative effect of exchange rate risk may offset, or even dominate, positive contributions from depreciation, policy makers need to reduce exchange rate fluctuation along with and possibly before efforts to depreciate the currency. Keywords: exports, exchange rate policy, net effect, DCC bivariate GARCH-M model JEL: F14 F31 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:uct:uconnp:2005-07&r=all 220. Consumption asymmetry and the stock market: New evidence through a threshold adjustment model Nicholas Apergis (University of Macedonia, Greece) Stephen M. Miller (University of Connecticut and University of Nevada, Las Vegas) This paper investigates whether stock market wealth affects real consumption asymmetrically through a threshold adjustment model. The empirical findings for the US show that wealth produces an asymmetric effect on real consumption, with negative 'news' affecting consumption less than positive 'news.' Thus, policy makers may want to focus more attention on preventing asset 'bubbles' than on responding to negative asset shocks. Keywords: Consumption; Stock market; Wealth effect; Asymmetry JEL: E21 E44 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:uct:uconnp:2005-08&r=all 221. Does Exchange Rate Risk Affect Exports Asymmetrically? Asian Evidence WenShwo Fang (Feng Chia University) YiHao Lai (Feng Chia University) Stephen M. Miller (University of Connecticut and University of Nevada Las Vegas) The effects of exchange rate risk have interested researchers, since the collapse of fixed exchange rates. Little consensus exists, however, regarding its effect on exports. Previous studies implicitly assume symmetry. This paper tests the hypothesis of asymmetric effects of exchange rate risk with a dynamic conditional correlation bivariate GARCH(1,1)-M model. The asymmetry means that exchange rate risk (volatility) affects exports differently during appreciations and depreciations of the exchange rate. The data include bilateral exports from eight Asian countries to the US. The empirical results show that real exchange rate risk significantly affects exports for all countries, negative or positive, in periods of depreciation or appreciation. For five of the eight countries, the effects of exchange risk are asymmetric. Thus, policy makers can consider the stability of the exchange rate in addition to its depreciation as a method of stimulating export growth. Keywords: depreciation, exchange rate risk, exports, bivariate GARCH-M model JEL: C32 F14 F31 F41 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:uct:uconnp:2005-09&r=all 222. Buying Less, But Shopping More: Changes In Consumption Patterns During A Crisis David McKenzie y Ernesto Schargrodsky Market research data are utilized to examine the use of changes in shopping behavior as a method of mitigating the effects of the 2002 Argentine economic crisis. Although the total quantity and real value of goods purchased fell during the crisis, consumers are found to be spending more days shopping. This increase in shopping frequency occurs through consumers purchasing lower- quality goods from a wider variety of shopping channels. This paper provides the first estimates of the magnitude of such effects during a recession, and suggests that this increase in shopping frequency can be an important coping mechanism for households. Shopping more often is shown to enable households to seek out lower prices and locate substitutes, allowing a given level of expenditure to buy more goods. Date: 2005 URL: http://d.repec.org/n?u=RePEc:udt:wpbsdt:buyinglessshop&r=all 223. A (New) Country Insurance Facility Tito Cordella y Eduardo Levy Yeyati To cope with the self-fulfilling liquidity runs that triggered many recent financial crises, we propose the creation of a country insurance facility. The facility, which we envisage as complementary to the existing multilateral lending facilities, would provide eligible countries with automatic access to a credit line at a predetermined interest rate. Eligibility criteria should be easily verifiable, focus on debt sustainability, and take into account the currency and maturity composition of the debt. Other critical design issues considered here include the size of the facility, its duration and charges, and the exit costs for a country that loses eligibility. Date: 2005 URL: http://d.repec.org/n?u=RePEc:udt:wpbsdt:newcountryins&r=all 224. Analisi delle caratteristiche socio-culturali dei laureati e diplomati all’Universita' degli Studi di Foggia Corrado Crocetta Gaetano Marrone Il passaggio dal mondo dell’Universita' a quello del lavoro e' influenzato da un insieme di variabili quali la congiuntura economica, la domanda di competenze specialistiche, la preparazione acquisita, il livello di specializzazione o professionalizzazione, la flessibilita' e le precedenti esperienze lavorative. Scopo del presente lavoro e' analizzare i laureati presso l’Ateneo foggiano a partire dall’istituzione delle sue cinque facolta': Agraria, Economia, Giurisprudenza, Lettere e Filosofia, Medicina e Chirurgia. Nella prima parte analizzeremo le principali caratteristiche socio-demografiche e culturali dei 3.513 laureati e diplomati all’Universita' di Foggia, attraverso l’analisi dei dati amministrativi a nostra disposizione. Nella seconda parte del lavoro tali dati sono stati integrati con quelli ottenuti mediante delle interviste telefoniche. Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:ufg:qdsems:09-2005&r=all 225. A Note on the Bias of using Futures Rates as a Proxy for the Instantaneous Forward Rate Thuy-Duong To (School of Finance and Economics, University of Technology, Sydney) The note shows that there is a non-negligible bias in using the futures rates as a proxy for the instantaneous forward rates in the estimation of forward rate models. It is therefore desirable to derive the evolution of observable rates, then use the distributional properties of this evolution to do the estimation. In a general case where these properties are hard to obtained, a filtering technique is required. Keywords: Heath-Jarrow-Morton; forward rate; futures; estimation bias JEL: C51 E43 G12 G13 Date: 2004-12-01 URL: http://d.repec.org/n?u=RePEc:uts:rpaper:149&r=all 226. RECLAIM (Regional Clean Air Incentives Market) - Ein Emissionshandelsprogramm als marktbasiertes politisches Instrument zur Losung des Smogproblems im Gro?raum Los Angeles? Iris Sager Date: 2005-03-31 URL: http://d.repec.org/n?u=RePEc:wiw:wiwneu:neurusp33&r=all 227. Business Improvement Districts - An Approach for Retail- Area Revitalization in American Downtowns Michael Ruscher Date: 2005-03-31 URL: http://d.repec.org/n?u=RePEc:wiw:wiwneu:neurusp35&r=all 228. Unemployment and Right-Wing Extremist Crime Armin Falk Josef Zweimuller Right-wing extremism is a serious problem in many societies. A prominent hypothesis states that unemployment plays a crucial role for the occurrence of right-wing extremist crime. In this paper we empirically test this hypothesis. We use a previously not used data set which includes all officially recorded right- wing criminal acts in Germany. These data are recorded by the German Federal Criminal Police Office on a monthly and state level basis. Our main finding is that there is in fact a significant positive relation between unemployment and right-wing criminal activities. We show further that the big difference in right-wing crime between East and West German states can mostly be attributed to differences in unemployment. This finding reinforces the importance of unemployment as an explanatory factor for right-wing crime and questions explanations based solely on the different socialization in former communist East Germany and the liberal West German states. Our data further allow us to separate violent from non-violent right-wing crimes. We show that unemployment is closely related to both types of crimes, but that the association with non-violent crimes is much stronger. Since right-wing crime is committed particularly by relatively young males, we also explore whether the youth unemployment rate is a better predictor for right-wing crime than total unemployment. This hypothesis can be rejected: given total unemployment, a higher share of youth unemployment does not affect right-wing extremist crime rates. Keywords: Hate crime, right-wing extremism, unemployment, cost of unemployment URL: http://d.repec.org/n?u=RePEc:zur:iewwpx:235&r=all 229. Fostering Within-Family Human Capital Investment: An Intragenerational Insurance Perspective of Social Security Martin Barbie Marcus Hagedorn Ashok Kaul We propose an extended PAYG social security system that conditions pension benefits on the aggregate wage sum and on the wage of one’s children. The latter increases parents’ incentives to provide their children with good within-family education. However, since wages depend stochastically on parents’ unobservable investment in their children’s human capital, some insurance against the productivity risk of one’s children is provided because retirement income still depends on aggregate wages. We analyze the effects of such a social security system on the endogenous distribution of human capital and compare it to real world systems which typically do not condition benefits on the wages of one’s children. Our approach suggests a novel role for a well-designed social security system: it can foster human capital accumulation and act as an intra- generational insurance against productivity risk. Keywords: Human Capital Formation, Social Security, Intragenerational Insurance, Heterogenous Households JEL: J24 H55 D61 URL: http://d.repec.org/n?u=RePEc:zur:iewwpx:236&r=all 230. An Adverse Selection Model of Optimal Unemployment Insurance Marcus Hagedorn Ashok Kaul Tim Mennel We ask whether offering a menu of unemployment insurance contracts is welfare improving in a heterogeneous population. We adopt a repeated moral-hazard framework as in Shavell/Weiss (1979) supplemented by unobserved heterogeneity about agents’ job opportunities. Our main theoretical contribution is an analytical characterization of the sets of jointly feasible entitlements that renders an efficient computation of these sets feasible. Our main economic result is that optimal contracts for ”bad” searchers tend to be upward-sloping due to an adverse-selection effect. This is in contrast to the well-known optimal decreasing time-profile of benefits in pure moral hazard environments that continue to be optimal for ”good” searchers in our model. Keywords: Unemployment Insurance, Recursive Contracts, Adverse Selection, Repeated Moral Hazard JEL: J65 J64 D82 C61 E61 URL: http://d.repec.org/n?u=RePEc:zur:iewwpx:237&r=all 231. Political Devolution without Fiscal Devolution Andrew Hughes Hallett (Vanderbilt University and CEPR) Using a conventional model, this paper examines the conditions under which it is possible to stabilise both the output ( inflation) cycle and the budget deficit/surplus of a regional economy in a wider currency union. We find that it is never possible. But we can approximate that result (for example, by limiting budgetary instability when the cycle is smoothed) if the product and labour markets are suitably flexible. Conversely, if fiscal policy is restricted, output and inflation volatility will be extended unless all shocks are supply shocks, compared to the case where there is some fiscal autonomy. Attempts at stabilisation in this situation would lead to an unstable political equilibrium. These results are important because they show what can be expected from fiscal restraints like the Stability Pact or tax harmonisation in the Eurozone; and from fiscal autonomy at the subnational level in older unions. Calibrating the results for the EU and UK respectively, we find that denying autonomy to the regions of the UK might be rather costly in terms of performance. But imposing tax harmonisation at the EU level would not. Keywords: Business cycle volatility, budget stability, regional autonomy, market flexibility JEL: E32 E63 R13 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:van:wpaper:0505&r=all 232. On the Long-Run Variance Ratio Test for a Unit Root Ye Cai (Graduate Student, Department of Economics, Vanderbilt University) Mototsugu Shintani (Department of Economics, Vanderbilt University) This paper investigates the effects of consistent and inconsistent long-run variance estimation on a unit root test based on the generalization of the von Neumann ratio. The results from the Monte Carlo experiments suggest that the tests based on an inconsistent estimator have less size distortion and more stability of size across different autocorrelation specifications as compared to the tests based on a consistent estimator. This improvement in size property, however, comes at the cost of a loss in power. The finite sample power, as well as the local asymptotic power, of the tests with an inconsistent estimator is shown to be much lower than that of conventional tests. This finding resembles the case of the autocorrelation robust test in the standard regression context. The paper also points out that combining consistent and inconsistent estimators in the long-run variance ratio test for a unit root is one possibility of balancing the size and power. Keywords: Bandwidth, local asymptotic power, von Neumann ratio JEL: C12 C22 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:van:wpaper:0506&r=all 233. Yes, Wall Street, There Is a January Effect! Evidence from Laboratory Auctions Lisa R. Anderson (Department of Economics, College of William and Mary) Jeffrey R. Gerlach (Department of Economics, College of William and Mary) Francis J. DiTraglia (Department of Economics, College of William and Mary) In the first experimental test of the January effect, we find an economically large and statistically significant result in two very different auction environments. After controlling for variables that could influence subjectsO bids such as differences in private values, cumulative earnings, and learning effects, the prices in the January markets were systematically higher than those in December. The results suggest that psychological factors may contribute to the well-documented January effect in empirical stock market data, a conclusion that clearly violates the efficient markets hypothesis. Date: 2005-03-28 URL: http://d.repec.org/n?u=RePEc:cwm:wpaper:15&r=all 234. Do Vertical Mergers Facilitate Upstream Collusion? Volker Nocke (Department of Economics, University of Pennsylvania) Lucy White (Harvard Business School) We investigate the impact of vertical mergers on upstream firms' ability to sustain tacit collusion in a repeated game. We identify several effects and show that the net effect of vertical integration is to facilitate collusion. Most importantly, vertical mergers facilitate collusion through the operation of an outlets effect: cheating unintegrated firms can no longer profitably sell to the downstream affiliates of their integrated rivals. However, vertical integration also gives rise to an opposing punishment effect: it is typically more difficult to punish an integrated structure, so that integrated firms are able to make more profits in the punishment phase than unintegrated upstream firms. When downstream firms can condition their prices or quantities on upstream firms' contract offers, two additional effects arise, both of which further facilitate upstream collusion. First, an unintegrated upstream firm's deviation profits are reduced by the reaction effect which arises since the downstream unit of the integrated firm will now react aggressively to upstream deviations. Second, an integrated firm's deviation profit is reduced by the lack-of-commitment effect as it cannot commit to its own downstream price when deviating upstream. Keywords: vertical merger, collusion, vertical restraint, vertical integration, repeated game, penal code JEL: L13 L42 D43 Date: 2005-03-08 URL: http://d.repec.org/n?u=RePEc:pen:papers:05-013&r=all 235. Coordination Failure in Repeated Games with Almost-Public Monitoring George J. Mailath (Department of Economics, University of Pennsylvania) Stephen Morris (Cowles Foundation, Yale University) Some private-monitoring games, that is, games with no public histories, can have histories that are almost public. These games are the natural result of perturbing public monitoring games towards private monitoring. We explore the extent to which it is possible to coordinate continuation play in such games. It is always possible to coordinate continuation play by requiring behavior to have bounded recall (i.e., there is a bound L such that in any period, the last L signals are sufficient to determine behavior). We show that, in games with general almost- public private monitoring, this is essentially the only behavior that can coordinate continuation play. Keywords: repeated games, private monitoring, almost-public monitoring, coordination, bounded recall JEL: C72 C73 D82 Date: 2004-08-20 Date: 2005-03-23 URL: http://d.repec.org/n?u=RePEc:pen:papers:05-014&r=all 236. Research Note: Athletic Graduation Rates and Simpson’s Paradox Victor Matheson (Department of Economics, College of the Holy Cross) Graduation rates for male athletes overall as well as men’s football and basketball players lag behind those of male non- athletes at Division I colleges and universities. Scholarship athletes, however, are much more likely to be drawn from racial and ethnic groups with lower average graduation rates. After accounting for differences in racial composition, graduation rates for male athletes overall as well football players match or exceed those of their peers, and racial differences account for over one-quarter of the shortfall in men’s basketball graduation rates. This is a classic example of Simpson’s Paradox. Keywords: college sports, sports economics, graduation rates JEL: L83 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:hcx:wpaper:0506&r=all 237. Striking Out? The Economic Impact of Major League Baseball Work Stoppages on Host Communities Victor Matheson (Department of Economics, College of the Holy Cross) Robert Baade (Department of Economics and Business, Lake Forest College) Major League Baseball teams have used the lure of economic riches as an incentive for cities to construct new stadiums at considerable public expense. Estimates of the economic impact of a MLB on host communities have typically been in the vicinity of $300 million. Our analysis suggest these numbers are wildly inflated. Using the baseball strikes of 1981, 1994, and 1995 as test cases, we find the net economic impact for a MLB team on a host city of $16.2 million under one model and $132.3 million under a second modeLength: 34 pages Keywords: impact analysis, sports, baseball, strikes, sports economics JEL: L83 R53 Date: 2005-04 URL: http://d.repec.org/n?u=RePEc:hcx:wpaper:0507&r=all 238. Strategic Substitutabilities versus Strategic Complementarities: Towards a General Theory of Expectational Coordination? Roger Guesnerie This paper contrasts the views of expectational coordination in a stylised economic model under two polar assumptions: Strategic Complementarities (StCo) dominate or on the contrary are dominated by Strategic Substitutabilities (StSu). Although in the StCo case, "uniqueness" often "buys" "eductive stability", the two issues are strikingly different in the second case. Furthermore if, in the first case, incomplete information often improves "expectational coordination", it may have the converse effect in the StSu case. It is finally argued that, in macroeconomic contexts, StSu often unambiguously dominate StCo, even in a large class of models with Keynesian features, and even in an aggregate framework that magnifies the StCo effects. The "remains" of StCo in general cases are discussed. Date: 2005 URL: http://d.repec.org/n?u=RePEc:pse:psecon:2005-07&r=all 239. The Void at the Heart of Rules: Routines in the Context of Rule-Following. Benedicte Reynaud This paper is an attempt to understand how rules operate in organisations. I focus on the links between organisational routines and rules that are defined as incomplete when they come to their application. I analyse the role of routines in managing the incompleteness of rules. I present a case study where management introduced a productivity bonus in the middle of 1992. This allows to study in what extent the new rule modifies the prevailing routines of work organisation. Based on team observations, interviews, and statistics that I carried out over a period of nine years (1992-2000), I show that in an initial period, the productivity bonus has partially biased the tasks selec-tion process. In a second period - "the normal period"- our observations indicate that following the rules consists in translating the abstract rules into concrete reference points, and adding in what the rules have not specified. The first activity becomes a routine when the interpretation is stabi-lised. Routines provide a pragmatic, local, and temporary solution to the incompleteness of rules. Since routines emerge only in the course of action, they come with no guarantee of success. That constitutes their dynamic. Date: 2005 URL: http://d.repec.org/n?u=RePEc:pse:psecon:2005-08&r=all 240. Dynamic analysis of bankruptcy and economic waves. Irina Peaucelle Date: 2005 URL: http://d.repec.org/n?u=RePEc:pse:psecon:2005-09&r=all 241. Monetary Aggregation William Barnett (Department of Economics, The University of Kansas) This entry on monetary aggregation will appear under that title in The New Palgrave Dictionary of Economics, 2nd edition, edited by Steven Durlauf and Lawrence Blume. The entry provides an up-to- date overview of state-of-the-art research on monetary aggregation and index number theory, from its origins in 1980 to the current time. At the end of this dictionary entry, emphasis is placed on ongoing research on extensions to risk and to multilateral aggregation within multicountry areas, such as the euro area. Research on monetary aggregation theory has been especially successful in solving the 'puzzles' that have appeared in the monetary economics literature over the past 35 years. Keywords: monetary aggregation, Divisia index, money demand, monetary policy, dictionary, Divisia monetary aggregates JEL: E41 G12 C43 C22 Date: 2005-03 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:kan:wpaper:200510&r=all 242. Foreign Exchange Interventions Under Inflation Targeting: The Czech Experience Tomas Holub This paper discusses the role of foreign exchange interventions in the inflation-targeting regime, focusing on the Czech experience since 1998. It proposes criteria for assessing whether the interventions are consistent with the inflation targeting. While the CNB’s interventions in mid- 1998 and in 2002 pass these criteria easily, the judgement might be more uncertain concerning the interventions in early-1998 and in 1999/2000. It is also stressed that the literature on managed floating usually ignores the difficulty in defining clear procedural rules for the interventions. This contrasts with the procedures guiding the interest rate decisions under the inflation targeting regime, which may occasionally create tensions in the policy regime, as demonstrated by the Czech experience, too. The interventions’ effectiveness in the Czech Republic is also discussed. It seems that sometimes they might have had an immediate impact lasting up to 2 or 3 months, but no strategy can be identified that would work in all episodes. Moreover, even many of the “successful” interventions were not able to prevent quite prolonged periods of exchange rate overvaluation in 1998 and in 2002. It is concluded that the signalling role of foreign exchange interventions is more important than their “market-equilibrating effect”, implying a rather unstable transmission between the central bank actions and the market reactions. Finally, the paper analyses the sterilisation costs, which are shown to have been quite substantial in the Czech Republic. It is argued that the financial sustainability of the interventions is quite important for their credibility and effectiveness. Keywords: Exchange rate, foreign exchange interventions, inflation targeting, sterilisation. JEL: E42 E44 E52 E58 E65 F31 URL: http://d.repec.org/n?u=RePEc:cnb:rpnrpn:1/2004&r=all 243. The CNB’s Policy Decisions – Are They Priced in by the Markets? David Navratil Viktor Kotlan This paper asks to what extent the market prices in the future monetary policy decisions of the Czech National Bank (CNB), how this policy predictability has evolved over time, and whether the change in the central bank’s forecasting methodology in mid- 2002 had any impact. Using a sample up to mid-2004, the results are threefold. First, three-quarters of the CNB’s decisions were in line with medium-term money market expectations. Notwithstanding this relatively high predictability of CNB policy, the average mistake in the expectations was biased upwards: over the entire IT period the market has priced in a higher repo rate than has actually turned out to be the case. Second, our analysis shows that the period in which forecasts with an active monetary policy (unconditional forecasts) have been used is characterized by smaller “surprises” of the money market. On the one hand, this may be connected with a change in the CNB’s communication of the forecast, including releases of verbal comments on the interest rate trajectory that is consistent with the outlook. On the other hand, it may reflect a different economic environment in the second stage of IT in the Czech Republic. Third, we analyze whether there is convergence or divergence between the central bank’s forecast-consistent interest rate trajectory and market forward rates. We show that in most cases market rates converged toward the CNB’s interest rate trajectory after the publication of the forecast. Keywords: Financial market reaction, inflation targeting, monetary policy predictability, term structure of interest rates. JEL: E43 E44 E52 URL: http://d.repec.org/n?u=RePEc:cnb:rpnrpn:1/2005&r=all 244. Stress Testing: A Review of key Concepts Martin Cihak The note is a review of the literature on the quantitative methods used to assess the vulnerabilities of financial systems to risks. In particular, the author focuses on the role of system- wide stress testing. He summarizes the recent developments in the literature, highlighting topics relevant for the Czech case. He presents the key concepts relating to systemwide stress tests, overviews the stress tests performed by central banks and international financial institutions, and discusses conceptual issues relating to modeling of individual risk factors. Keywords: Financial soundness, macroprudential analysis, stress tests. JEL: G21 G28 E44 URL: http://d.repec.org/n?u=RePEc:cnb:rpnrpn:2/2004&r=all 245. Designing Stress Tests for the Czech Banking System Martin Cihak The note discusses key issues involved in designing a suitable set of stress tests for the Czech banking system. The aim of the note is to propose stress tests that could be used by the Czech National Bank on a regular basis to assess the soundness of domestic banks, both for purposes of macroprudential surveillance and for banking supervision. The author suggests that the exercise be broadly based on the stress tests conducted during the 2001 IMF-World Bank Financial Sector Assessment Program (FSAP) mission to the Czech Republic. He summarizes the FSAP stress tests, and proposes a number of extensions and modifications. The key recommendations are presented in a table that covers also data requirements and a suggested timeframe for implementation. The note includes results of a replication of the Czech FSAP stress tests for mid-2003 data. Keywords: Banking system, stress tests. JEL: G21 G28 E44 URL: http://d.repec.org/n?u=RePEc:cnb:rpnrpn:3/2004&r=all 246. External and Fiscal Sustainability of the Czech Economy: A Quick Look Through the IMF’s Night-Vision Goggles Ales Bulir The paper presents the rationale for spreadsheet-based debt sustainability assessments. Policymakers can use these exercises in two ways. First, assessments of possible debt developments provide “reality checks” of macroeconomic projections. Second, the financial stability exercise may indicate vulnerability to crises. Empirically, using the IMF debt sustainability template, the paper finds that the external position of the Czech Republic appears sustainable under most plausible history-based scenarios. However, a deep, two-year recession coupled with fiscal indiscipline might double the 2002 stock of foreign debt by the end of the decade. The fiscal position is significantly more fragile and the fiscal debt-to-GDP ratio quickly approaches 60 percent under some of the more pronounced shocks. Keywords: Debt sustainability, Macroeconomic projections, Vulnerability. JEL: F34 H63 Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:cnb:rpnrpn:4/2004&r=all 247. Exchange Rates in the New EU Accession Countries: What Have We Learned from the Forerunners Ales Bulir Katerina Smidkova Estimation and simulation of sustainable real exchange rates in some of the new EU accession countries point to potential difficulties in sustaining the ERM2 regime if entered too soon and with weak policies. According to the estimates, the Czech, Hungarian, and Polish currencies were overvalued in 2003. Simulations, conditional on large-model macroeconomic projections, suggest that under current policies those currencies would be unlikely to stay within the ERM2 stability corridor during 2004- 2010. In-sample simulations for Greece, Portugal, and Spain indicate both a much smaller misalignment of national currencies prior to ERM2, and a more stable path of real exchange rates over the medium term than can be expected for the new accession countries. Keywords: ERM2, Foreign direct investment, Sustainable real exchange rates. JEL: F31 F33 F36 F47 Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:10/2004&r=all 248. Predicting Bank CAMELS and S&P Ratings: The Case of the Czech Republic Alexis Derviz Jiri Podpiera In this paper we investigate the determinants of the movements in the long-term Standard & Poors and CAMELS bank ratings in the Czech Republic during the period when the three biggest banks, representing approximately 60% of the Czech banking sector’s total assets, were privatized (i.e., the time span 1998–2001). The same list of explanatory variables corresponding to the CAMELS rating inputs employed by the Czech National Bank’s banking sector regulators was examined for both ratings in order to select significant predictors among them. We employed an ordered response logit model to analyze the monthly long-run S&P rating and a panel data framework for the analysis of the quarterly CAMELS rating. The predictors for which we found significant explanatory power are: Capital Adequacy, Credit Spread, the ratio of Total Loans to Total Assets, and the Total Asset Value at Risk. Models based on these predictors exhibited a predictive accuracy of 70%. Additionally, we found that the verified variables satisfactorily predict the S&P rating one month ahead. Keywords: Bank rating, CAMELS, ordered logit model, panel data analysis. JEL: C53 E58 G21 G33 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:1/2004&r=all 249. EU Enlargement and Endogeneity of some OCA Criteria: Evidence from the CEECs Ian Babetskii There are two opposite points of view on the link between economic integration and business cycle synchronization. De Grauwe (1997) classifies these competing views as “The European Commission View” and “The Krugman View”. According to the European Commission (1990), closer integration leads to less frequent asymmetric shocks and to more synchronized business cycles between countries. On the other hand, for Krugman (1993) closer integration implies higher specialization and, thus, higher risks of idiosyncratic shocks. Drawing on the evidence from a group of transition countries which have experienced a notable increase in trade openness and economic integration with the European Union during the past decade, this paper tries to determine whose argument is supported by the data. This is done by confronting estimated time-varying coefficients of supply and demand shock asymmetry with indicators of trade intensity and exchange rates. We find that (i) an increase in trade intensity leads to higher symmetry of demand shocks; the effect of integration on supply shock asymmetry varies from country to country; (ii) a decrease in exchange rate volatility has a positive effect on demand shock convergence. The results for demand shocks can be interpreted in favor of “The European Commission View”, also known as the endogeneity argument by Frankel and Rose (1998) in the OCA criteria discussion, according to which trade links reduce asymmetries between countries. Overall, our results support Kenen’s (2001) argument that the impact of trade integration on shock asymmetry depends on the type of shock. Keywords: EU enlargement, business cycle, trade, OCA (optimal currency area) JEL: E32 F30 F42 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:2/2004&r=all 250. The Role of Banks in the Czech Monetary Policy Transmission Mechanism Anca Pruteanu With this work, we aim to enrich the knowledge about the monetary policy transmission mechanism in the Czech Republic with empirical evidence on the impact of monetary policy on bank lending. Using a panel of quarterly time series for Czech commercial banks for the period 1996–2001, we study the overall effect of monetary policy changes on the growth rate of loans and the characteristics of the supply of loans. The characterization of the credit market’s supply side allows us to make inferences on the operativeness of the credit channel (the bank lending channel and the broad credit channel) of the monetary transmission mechanism. We find that changes in monetary policy alter the growth rate of loans with considerably stronger magnitude in the period 1999–2001 than in the period 1996–1998. From the analysis intended to capture the characteristics of the supply of loans, we conclude that the lending channel was operative in the period 1996–1998: we find cross-sectional differences in the lending reactions to monetary policy shocks due to degree of capitalization and liquidity. For the subsequent period 1999– 2001, the results also show distributive effects of monetary policy due to bank size and a bank’s proportion of classified loans. In the context of steadily decreasing interest rates, this bolsters the supposition of credit rationing and hence that of an operative broad credit channel. At the same time, we find evidence of linear relationships between bank characteristics and the growth rate of loans, and again these relationships change between the two time periods. This bodes well with the changes in the structure and attitude towards lending of the Czech commercial banks. Keywords: Bank lending channel, broad credit channel, credit rationing, monetary transmission mechanism. JEL: E52 E51 E58 G21 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:3/2004&r=all 251. Consumers, Consumer Prices and the Czech Business Cycle Identification Jiri Podpiera In this paper we propose an alternative method for deriving the business cycle. We interpret the varying inflationary responses to a constant demand shock in a partial equilibrium model. An above-average inflationary response indicates a boom phase and a below-average response shows an economic slowdown. Our model uses data for prices and household budget shares which are not subject to revisions and are consistent with the inflation measure. Hence, it mitigates the common drawbacks of usually applied techniques, such as real-time data mismeasurement or end-point bias of univariate filters. It follows that the results are altered neither by GDP data revisions, labor share determination and NAIRU estimation and total productivity smoothing, nor by the end- point bias of data filtering. The proposed method is thus preferred to other complementary methods such as GDP series filtering or the production function approach in showing truly the inflation environment. It is applied to the Czech quarterly data during 1994- 2003 and compared to other available business cycle estimates for the Czech economy. Comparing our business cycle estimation method with the production function method, used by the Economic Intelligence Unit and the Czech Ministry of Finance, and the Kalman filter, used by the Czech National Bank, we found the highest correlation between our measure and the Economic Intelligence Unit’s indicator. Keywords: Business cycle, inflation environment, simultaneous model. JEL: E31 E32 E37 C30 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:4/2004&r=all 252. Identification and Measurement of Relationships Concerning Inflow of FDI: The Case of the Czech Republic Petr Kral The main goal of the paper is to obtain quantitative evidence describing determinants of FDI in the case of the Czech economy in order to empirically support the decision-making process within the Czech National Bank. The paper builds on the recent economic literature and at the same time examines FDI inflows from the perspective of a multinational company. Furthermore, the microeconomic and macroeconomic characteristics of a potential host country which are crucial for multinational companies’ investment decisions are examined. Since government investment incentives seem to play a role in attracting foreign direct investors the paper provides some details on the Czech economic environment regarding this issue. To reach those objectives a cointegration analysis and error-correction model is used to identify the most important determinants of FDI inflows in the Czech Republic by developing an econometric model for analytic purposes. The empirical results presented in the paper support the hypothesis that the most significant determinants of FDI inflow into the Czech economy correspond to the theoretically considered and empirically tested factors. The paper, therefore, provides some basis for analysing the character of foreign investment and assessing the role of the government in attracting FDI inflows to the Czech Republic. More specifically, the empirical results suggest that establishing and maintaining macroeconomic stability and external equilibrium, offering a consistent and competitive package of investment incentives and promotion, and an efficient financing infrastructure, public governance regime and social system are the key factors promoting foreign direct investment inflows. Keywords: Determinants, empirical analysis, foreign direct investment, incentives JEL: F21 F23 C22 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:5/2004&r=all 253. Credit Risk and Bank Lending in the Czech Republic Narcisa Kadlcakova Joerg Keplinger This project undertakes an empirical analysis in credit risk modeling using a data sample representative of bank lending to the Czech corporate sector. A rating system is constructed using a proprietary database (Creditreform) that provides a solvency index for a large number of Czech firms. Several methods for the calibration and validation of a rating system are described and tested in practice. On the basis of a representative portfolio for Czech industries, systemic predictions of regulatory and economic capital are obtained and compared. The methodologies formulated by the latest Consultative Document of the NBCA (April 2003) and by the Credit Metrics and CreditRisk+ models are applied. The main contributions of this project can be briefly summarized as follows: (a) it shows in an applied manner that input data problems in credit risk modeling can be overcome, (b) it sheds light on regulatory issues that are gaining increasing relevance, and (c) it outlines the most important features of two credit risk models. Keywords: Credit Risk, Economic Capital, Exchange Rate Exposure, Rating System. JEL: G21 G28 G23 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:6/2004&r=all 254. Anatomy of the Czech Labour Market:From Over-Employment to Under-Employment in Ten Years? Vladislav Flek Kamil Galuscak Jaromir Gottvald Jaromir Hurnik Stepan Jurajda David Navratil Petr Mares Daniel Munich Tomas Sirovatka Jiri Vecernik In this volume we investigate the macroeconomic aspects of labour market behaviour and its microfoundations. In the first part we deal with aggregate labour market trends and issues relevant to macroeconomic policy. The second part analyses in more detail labour flexibility, namely labour market flows, long- term unemployment and labour force deprivation. The third part addresses wage flexibility and relative wages, with special attention paid to regional unemployment elasticity of wages and returns to education. Worsening labour market performance can be seen especially in a rising NAIRU, declining labour mobility, labour deprivation due to long-term unemployment, skill mismatch and emerging signs of inflexibility in wage structures. Our conclusions are of use for both macroeconomic and labour market policies, signalling, among other messages, limitations on potential output growth stemming from deteriorated labour market performance and a need for institutional and structural changes rather than counter-cyclical policies to solve the unemployment problem in the Czech Republic. Keywords: Employment, labour flows, labour force marginalisation, NAIRU, returns to education, unemployment, wage curve, wage differentials, wage inflation. JEL: E24 J21 J30 J31 J44 J61 J62 J63 J64 J65 Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:7/2004&r=all 255. Beyond Balassa - Samuelson: Real Appreciation in Tradables in Transition Countries Martin Cincibuch Jiri Podpiera Using the simple arbitrage model, we decompose real appreciation in tradables in three Central European countries between the pricing-to-market component (disparity) and the local relative price component (substitution ratio). Appreciation is only partially explained by local relative prices. The rest is absorbed by disparity, depending on the size of the no-arbitrage band. The observed disparity fluctuates in a wider band for differentiated products than for a commodity like goods. Keywords: Purchasing power parity, pricing-to-market, transition, real appreciation, exchange rates JEL: F12 F15 Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:cnb:wpaper:9/2004&r=all 256. Market valuation and employee stock options Zhang, Ge This paper investigates a market-valuation-based hypothesis for employee stock options (ESOs). It examines how market valuation has affected the decision to grant ESOs, the amount of options granted, and the distribution of options among executives and rankand- file employees. I find strong empirical evidence that firms with high market valuation and high probability of future overvaluation are more likely to adopt ESOs and grant more options to their employees. Furthermore, when top executives perceive that the current market valuation is high, they grant a smaller portion of options to themselves relative to rank-and- file employees. All these results are consistent with the market- valuation rationale for ESOs, which argues that firms use ESOs as a method to sell overvalued equity. Keywords: Market valuation, Stock options Date: 2004-01-27 URL: http://d.repec.org/n?u=RePEc:uno:wpaper:2003-13&r=all 257. Heterogeneous beliefs and employee stock options Jung, Wan Zhang, Ge This paper uses a market valuation model to explore why firms grant employee stock options. When insider managers and outside investors have different opinions about the future prospects of the firm, employee stock options can be used to capture future investor overvaluation and to save employee compensation costs. Options can enhance the stock value for existing shareholders if the difference in opinion is highly volatile. The equilibrium option grant is positively correlated with both the perception error of investors, and the volatility of this error, as well as the correlation between investors 19 error and firm fundamental value. The model provides implications on the cross-sectional differences in option grants, and these implications can be examined empirically. 1 Introduction An employee stock option is an agreement between a firm and its employees under which the employees can buy a specified number of shares of stock at a specified price. Over the past decade, the use of employee stock options has been rising. Keywords: Stock options, Market valuation Date: 2003-10-15 URL: http://d.repec.org/n?u=RePEc:uno:wpaper:2003-14&r=all 258. Gains and losses from tax competition with migration Honkapohja, Seppo Turunen-Red, Arja H. We consider international labor (entrepreneur) mobility in a two- country overlapping-generations model. Interactions of decreasing and increasing returns in production yield multiple equilibria that are stable under adaptive learning. Governments have an unilateral incentive to reduce income taxes at the joint optimum. We compare the Nash equilibrium in taxes under full labor mobility to the closed economy with no mobility. Despite strategic tax setting, the free mobility outcome is often better in welfare terms. Large, discrete gains in welfare may be attained because of the tax competition. Expectational barriers for discrete welfare improvements can be overcome through tax competition. Keywords: Tax policy, Mobility of labor, Multiple equilibria, Expectation traps JEL: H87 F22 H21 Date: 2004-02-17 URL: http://d.repec.org/n?u=RePEc:uno:wpaper:2004-01&r=all 259. The value of interest rate stabilization polices when agents are learning Duffy, John Xiao, Wei We examine the expectational stability (E—stability) of rational expectations equilibrium under optimal interest rate rules in the context of the standard, “New Keynesian” model of the monetary transmission mechanism. We focus on the case where the monetary authority adds interest rate stabilization to its other objectives of inflation and output stabilization. We consider both the case where the monetary authority lacks a commitment technology and as well as the case of full commitment. We show that for both cases, optimal interest rate rules yield rational expectations equilibria that are E-stable for a wide range of empirically plausible parameter values. This finding stands in contrast to the findings of Evans and Honkapohja (2002, 2003ab) for optimal monetary policy rules in environments where interest rate stabilization is not part of the central bank’s objective function. Keywords: Expectational stability (E-stability), Rational expectations equilibrium, Monetary transmission mechanism Date: 2004-06 URL: http://d.repec.org/n?u=RePEc:uno:wpaper:2004-02&r=all 260. Does futures exhibit maturity effect? New evidence from an extensive set of US and foreign futures contracts Daal, Elton Farhat, Joseph Basheer Wei, Peihwang P. In a seminal article, Samuelson (1965) proposes the maturity effect that volatility of futures prices should increase as futures contract approaches maturity. This study provides new evidence on the maturity effect by examining a more extensive set of futures contracts than previous studies and analyzing each contract separately. Using 6805 futures contracts drawn from 61 commodities, including some data from non-US markets, we find that the maturity effect is absent in the majority of contracts. In addition, the maturity effect tends to be stronger in agricultural and energy commodities than in financial futures. We also examine the hypothesis in Bessembinder, Coughenour, Seguin, and Smoller (1996), which states that negative covariance between the spot price and net carry cost causes the maturity effect in futures. Our results provide very weak evidence in favor of this hypothesis. Keywords: Maturity effect, Futures prices volatility, Futures markets JEL: C32 G12 G13 Q14 Date: 2004 URL: http://d.repec.org/n?u=RePEc:uno:wpaper:2004-03&r=all 261. Quadratic term structure models with jumps in incomplete currency markets Daal, Elton We propose a multi-currency quadratic term structure model that allows for several sources of market incompleteness. A new feature of the model is the jump-quadratic dynamics of the exchange rates that simultaneously generate greater flexibility in the time-varying risk premium and excessive currency volatility. Our model empirically outperforms the complete market quadratic and affine multi-currency diffusion models. It accounts for the forward premium anomaly with reasonable market price of risks. The market incompleteness consists of idiosyncratic diffusion-like innovations and jump discontinuities. We find that the jumps dominate the variations in the currency returns and produce most of the excessive currency volatility. Keywords: Quadratic term structure, Incomplete markets, Jumps, Excess volatility JEL: F31 E43 D52 C14 Date: 2004-09-29 URL: http://d.repec.org/n?u=RePEc:uno:wpaper:2004-04&r=all 262. Volatility clustering, leverage effects, and jumps dynamics in emerging Asian equity markets Daal, Elton Naka, Atsuyuki Yu, Jung-Suk This paper proposes a mixed GARCH-Jump model that is tailored to the specific circumstances arising in emerging equity markets. Our model accommodates lagged currency returns as a local information variable in the autoregressive jump intensity function, incorporates jumps in the returns and volatility, and allows volatility to respond asymmetrically to both normal innovations and jump shocks. The model captures the distinguishing features of the Asian index returns and significantly improves the fit for those markets that were affected by the 1997 Asian crisis. Our proposed model yields higher levels of conditional kurtosis and superior forecasts of the expected arrival rate of jumps. Keywords: Jumps, Volatility, Leverage effects, Emerging markets, Asia, Equity markets Date: 2004-09-30 URL: http://d.repec.org/n?u=RePEc:uno:wpaper:2004-05&r=all 263. Re-examining inflation and inflation uncertainty in developed and emerging countries Daal, Elton Naka, Atsuyuki Sanchez, Benito This study examines the relationship between inflation and inflation uncertainty for both developed and emerging countries using the asymmetric power GARCH model. We find new evidence that suggests that positive inflationary shocks have stronger impacts on inflation uncertainty for mainly Latin American countries. We also find that inflation causes inflation uncertainty for most countries but the evidence for causality of the opposite direction is mixed. Keywords: Inflation, Emerging nations, Latin America JEL: C22 E31 Date: 2004 URL: http://d.repec.org/n?u=RePEc:uno:wpaper:2004-06&r=all 264. Distributing excess cash: the role of specially designated dividends Baker, H. Kent Mukherjee, Tarun K. Powell, Gary E. This study explores why firms distribute excess cash as specially designated dividends (SDDs) instead of using regular dividends or repurchasing shares. We survey top managers of NASDAQ, AMEX, and NYSE firms issuing at least one SDD between 1994 and 2001. The results show that firms tend to pay SDDs when they experience strong earnings and cash flows and want to increase at least temporarily the yield to shareholders. Having strong earnings and cash flows also provide an impetus for regular dividend increases, but paying regular dividends is part of a firm’s standard dividend policy. The primary motives for repurchasing shares are to take advantage of perceived market undervaluation of the firm’s shares and to improve performance measures, especially. Overall, the results lend support to the signaling explanation for the disbursement of excess funds, but not the free cash flow or wealth transfer explanations. Keywords: Dividends, Payout policy, Specially designated dividends, Share repurchases JEL: G35 Date: 2004-10-19 URL: http://d.repec.org/n?u=RePEc:uno:wpaper:2004-07&r=all 265. Factors explaining the results of job search by the 2002 FMA job applicants--a survey Mukherjee, Tarun K. Farhat, Joseph Basheer Cotei, Carmen We perform an online survey of candidates, who listed their resume on the 2002 FMA website, seeking finance faculty positions. The response rate is approximately 50 percent. Consistent with Bertin, Prather, and Zivney (1999), we find that the new hire market for finance professors continues to shrink and salary range continues to widen. The factors significantly affecting the success rate in the job market are: having Ph.D./DBA in Finance/Financial Economics, having dissertation defended, having worked as a GA, being a female, and being a US citizen/permanent resident. Being a female candidate or an appointment at an accredited college are associated with higher salaries. The number of FMA interviews and the number of campus visits too have positive relation with salaries. It appears that the market condition has changed since the Bertin, Prather, and Zivney (1999) study, as we find that US citizens and permanent residents have more success (than non-US citizens) in obtaining jobs and a female candidate has greater chances in securing a job with higher salary than her male counterpart. Keywords: Finance professors, New hires, Academic job market Date: 2004 URL: http://d.repec.org/n?u=RePEc:uno:wpaper:2004-08&r=all 266. The impact of the dividend tax cut and managerial stock holdings on corporate dividend policy Nam, Jouahn Wang, Jun Zhang, Ge We examine the impact of the May 2003 dividend tax cut and managerial stock holdings on corporate dividend initiation decision. We find that managers who hold sizable stakes in their companies are more likely to initiate dividends following this tax cut. This positive relation is stronger for firms with higher growth opportunities. These results are consistent with the hypothesis that managers initiate dividends to maximize their own wealth. Moreover, the market reacts negatively (most positively) to dividend initiation announcements by firms with higher (lower) growth opportunities and higher (lower) managerial share holdings. Keywords: Dividend tax cut, Managerial stock holdings, Dividend payout JEL: G30 G35 Date: 2004 URL: http://d.repec.org/n?u=RePEc:uno:wpaper:2004-09&r=all 267. The weekend trading profitability: evidence from international mutual funds Mazumder, M. Imtiaz Miller, Edward M. Varela, Oscar Albert The weekend effect is described as the tendency for Monday security returns to be low (or negative) compared to other days of the week. The weekend effect may not be exploited by trading individual stocks because of transactions costs. However, the institutional characteristics of the US-based international open- end mutual funds may allow investors to exploit the weekend effect because mutual funds lack much of the transactions costs associated with individual stocks. This paper extends the study of Compton and Kunkel (1999), Varela (2002), and Miller, Prather and Mazumder (2003) by examining the weekend predictability and profitable trading opportunities for international mutual funds. The rationale behind the weekend predictability and profitability of international funds lies on the fact that the Net Asset Values NAVs) of international funds are computed from stale prices of the underlying assets of these funds. The sample of international funds is divided into two sub-samples and the initial sub-sample is used to test the weekend effect and develop trading strategies. Returns of trading strategies are then evaluated out-of-sample and compared with the returns of a buy-and-hold strategy. Empirical findings suggest that smart investors may earn higher risk-adjusted returns by following daily dynamic trading strategies. Results also document that trading strategies based on the weekend effect produce higher risk-adjusted returns. Finally market timing models are also tested for trading strategy returns and Treynor-Mazuy and Henriksson-Merton timing measures are positive and statistically significant. Moreover, the trading rules of this study may be useful in future if fair value pricing or other institutional regularities eliminate any profitable trading opportunity based on the US market signals. Keywords: Mutual funds, Weekend effect, Trading rule, Market efficiency JEL: G12 G14 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:uno:wpaper:2004-10&r=all 268. Strategic trading against retail investors with disposition effects Nam, Jouahn Wang, Jun Zhang, Ge In this paper, we study a model incorporating the retail trader’s reluctance to sell into losses. We show that in this setup the informed trader always buys the asset when he receives a favorable signal. However, when the informed trader receives an unfavorable signal, he may not always sell the asset if the signal is moderately bad and the retail trader is reluctant to realize losses. Hence the good news travels faster than the bad news and the asset price exhibits steady climbs with sharp and sudden drops. Keywords: Disposition effect, Retail investors, Strategic trading JEL: G10 Date: 2004 URL: http://d.repec.org/n?u=RePEc:uno:wpaper:2004-11&r=all 269. Informational externalities of going public decisions: evidence from industrial sector Cotei, Carmen Farhat, Joseph Basheer Mukherjee, Tarun K. Theoretical models predict that going public firms generate positive externalities, creating a spillover effect for other firms to go public. In this paper, we posit that venture backed IPOs convey positive informational externalities for the publicly traded rival firms in the same industry and test three related hypotheses. The hypotheses are: 1) Venture backed IPOs convey positive information about industry and this information is transferred to rival firms; 2) Intra-industry information transfer varies with rivals’ characteristics; 3) IPO price revisions generate additional information that affects rivals’ valuation. The results show that rivals have positive valuation effects only in response to venture backed IPOs and no significant reaction in response to non-venture backed IPOs. We also find evidence that the effect on rival firms is stronger if they operate in low concentrated industries (i.e. high competition) and have low growth opportunities. The relative size of IPO firm seems to play an important role in the direction and magnitude of industry rivals' valuation effects. Negative information revealed in the form of downward price revisions adversely affect rival firms’ valuation. Keywords: Initial public offering (IPO), Venture backing, Positive externalities Date: 2004 URL: http://d.repec.org/n?u=RePEc:uno:wpaper:2004-12&r=all 270. Limits to Modularity: A Review of the Literature and Evidence from Chip Design Dieter Ernst (Economics Study Area, East-West Center) This working paper has been prepared as part of the East-West Center's research project on Globalization of Knowledge Work: Why is Chip Design Moving to Asia. In this paper, Dieter assesses what we know about the limits to modularity and their impact on firm organization and industry structure. He focuses on evidence form chip design, drawing on interview on 2002 and 2003 with a sample of 60 companies and 15 research institutions that are involved in chip design in the US, Taiwan, Korea, China and Malaysia. It is summarized "stylized" propositions of the modularity literature that are well-established, as well as predictions that are controversial. In addition, important limits to modularity and relevant management responses were reviewed. Date: 2004-09 URL: http://d.repec.org/n?u=RePEc:ewc:wpaper:wp71&r=all 271. Growth and Inequality: Model Evaluation Based on an Estimation-Calibration Strategy Hyeok Jeong Robert M. Townsend This paper evaluates two well-known models of growth with inequality that have explicit micro underpinnings related to household choice. With incomplete markets or transactions costs, wealth can constrain investment in business and the choice of occupation and also constrain the timing of entry into the formal financial sector. Using the Thai Socio-Economic Survey, we estimate the distribution of wealth and the key parameters that best fit cross-sectional data on household choices and wealth. We then simulate the model economies for two decades at the estimated initial wealth distribution and analyze whether the model economies at those micro-fit parameter estimates can explain the observed macro and sectoral aspects of income growth and inequality change. Both models capture important features of Thai reality. Anomalies and comparisons across the two distinct models yield specific suggestions for improved research on the micro foundations of growth and inequality. Keywords: Model Evaluation, Growth and Inequality, Wealth- Constrained Self-Selection JEL: C52 D31 O41 Date: 2003-09 URL: http://d.repec.org/n?u=RePEc:scp:wpaper:05-10&r=all 272. Aggregate vs Disaggregate Data Analysis — A Paradox in the Estimation of a Money Demand Function of Japan Under the Low Interest Rate Policy Cheng Hsiao Yan Shen Hiroshi Fujiki We use Japanese aggregate and disaggregate money demand data to show that conflicting inferences can arise. The aggregate data appears to support the contention that there was no stable money demand function. The disaggregate data shows that there was a stable money demand function. Neither was there any indication of the presence of a liquidity trap. Possible sources of discrepancy are explored and the diametrically opposite results between the aggregate and disaggregate analysis are attributed to the neglected heterogeneity among micro units. We provide necessary and sufficient conditions for the existence of cointegrating relations among aggregate variables when heterogeneous cointegration relations among micro units exist. We also conduct simulation analysis to show that when such conditions are violated, it is possible to observe stable micro relations, but unit root phenomenon among macro variables. Moreover, the prediction of aggregate outcomes, using aggregate data is less accurate than the prediction based on micro equations and policy evaluation based on aggregate data ignoring heterogeneity in micro units can be grossly misleading. Date: 2004-02 URL: http://d.repec.org/n?u=RePEc:scp:wpaper:04-1&r=all 273. Random Coefficient Panel Data Models Cheng Hsiao M. Hashem Pesaran This paper provides a review of linear panel data models with slope heterogeneity, introduces various types of random coe. cients models and suggest a common framework for dealing with them. It considers the fundamental issues of statistical inference of a random coe.cients formulation using both the sampling and Bayesian approaches. The paper also provides a review of heterogeneous dynamic panels, testing for homogeneity under weak exogeneity, simultaneous equation random coe.cient models, and the more recent developments in the area of cross- sectional dependence in panel data models. Keywords: Random coeffcient models, Dynamic heterogeneous panels, Classical and Bayesian approaches, Tests of slope heterogeneity, Cross section dependence JEL: C12 C13 C33 Date: 2004-06 URL: http://d.repec.org/n?u=RePEc:scp:wpaper:04-2&r=all 274. Model Averaging and Value-at-Risk based Evaluation of Large Multi Asset Volatility Models for Risk Management M. Hashem Pesaran Paolo Zaffaroni This paper considers the problem of model uncertainty in the case of multi-asset volatility models and discusses the use of model averaging techniques as a way of dealing with the risk of inadvertently using false models in portfolio management. In particular, it is shown that under certain conditions portfolio returns based on an average model will be more fat-tailed than if based on an individual underlying model with the same average volatility. Evaluation of volatility models is also considered and a simple Value-at-Risk (VaR) diagnostic test is proposed for individual as well as 'average' models and its exact and asymptotic properties are established. The model averaging idea and the VaR diagnostic tests are illustrated by an application to portfolios of daily returns based on twenty two of Standard & Poor's 500 industry group indices over the period January 2, 1995 to October 13, 2003, inclusive. Keywords: Model Averaging, Value-at-Risk, Decision Based Evaluations JEL: C32 C52 C53 G11 Date: 2004-10 URL: http://d.repec.org/n?u=RePEc:scp:wpaper:04-3&r=all 275. The Market for Sweekstakes Chew Soo Hong Guofu Tan This paper studies the market for monopolistically supplied sweepstakes. We derive equilibrium demands for fixed-prize and variable-prize sweepstakes and determine the profit maximizing prize level and payout ratio respectively. It can be profitable to offer each type of sweepstake when there are large enough number of weighted utility consumers who have constant absolute risk attitudes, are strictly averse to small as well as symmetric risks, and display longshot preference behavior. Moreover, for the variable-prize sweepstake, the supplier will generally find it profitable to combine sweepstakes from two populations, o? ering a single sweepstake to the combined population. This corroborates the recent spate of mergers of smaller state lotteries into larger ones. Keywords: Sweepstakes, risk aversion, longshot preference behavior, weighted utility model, Nash equilibrium JEL: D40 D80 L1 H40 Date: 2004-10 URL: http://d.repec.org/n?u=RePEc:scp:wpaper:04-4&r=all 276. Reducing Bias of MLE in a Dynamic Panel Model Jinyong Hahn Hyungsik Roger Moon This paper investigates a simple dynamic linear panel regression model with both fixed effects and time effects. Using "large n and large T " asymptotics, we approximate the distribution of the fixed effect estimator of the autoregressive parameter in the dynamic linear panel model and derive its asymptotic bias. We find that the same higher order bias correction approach proposed by Hahn and Kuersteiner (2002) can be applied to the dynamic linear panel model even when time specifc effects are present. Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:scp:wpaper:04-5&r=all 277. Exploring the International Linkages of the Euro Area: A Global VAR Analysis Stephane Dees Filippo di Mauro M. Hashem Pesaran L. Vanessa Smith This paper presents a global model linking individual country vector error-correcting models in which the domestic variables are related to the country-specific variables as an approximate solution to a global common factor model. This global VAR is estimated for 26 countries, the euro area being treated as a single economy. This paper proposes two important extensions of previous research (see Pesaran, Schuermann and Weiner, 2004). First, it provides a theoretical framework where the GVAR is derived as an approximation to a global unobserved common factor model. Also using average pair-wise cross-section error correlations, the GVAR approach is shown to be quite effective in dealing with the common factor interdependencies and international comovements of business cycles. Second, in addition to generalised impulse response functions, we propose an identification scheme to derive structural impulse responses. We focus on identification of shocks to the US economy, particularly the monetary policy shocks, and consider the time profiles of their effects on the euro area. To this end we include the US model as the first country model and consider alternative orderings of the US variables. Further to the US monetary policy shock, we also consider oil price, US equity and US real output shocks. Keywords: Global VAR (GVAR), Global interdependencies, global macroeconomic modeling, impulse responses JEL: C32 E17 F47 Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:scp:wpaper:04-6&r=all 278. Optimal Partnership Contracts: Foundation and Duality Harrison Cheng We use the duality in linear programming to solve the problem of optimal contracts with moral hazards. We show the importance of allowing the partners to throw away outputs under some contingencies. A two-step procedure is used to find the optimal contracts. The first step minimizes the loss from undistributed outputs, and in the second step, a second best solution is found. A characterization of the optimal contracts in 2-by-2-by-2 partnership games is o?ered. Such contracts implement an optimal strategy profile which either has no incentive cost to implement or is near a pure strategy profile. Keywords: optimal sharing contracts, partnership games, moral hazards, duality, linear programming JEL: D23 D8 Date: 2004-08 URL: http://d.repec.org/n?u=RePEc:scp:wpaper:05-11&r=all 279. Inefficiency in Repeated Cournot Oligopoly Games Harrison Cheng A widely accepted view says that Folk Theorem holds in the repeated Cournot oligopoly games with imperfect price signals satisfying generic conditions. We show that this view is not justi- fied. We argue that maintaining asymptotic joint monopoly outcome is not possible with noisy price signals. When firms have the choice of increasing outputs at equilibrium as a deviation strategy, it is not possible to maintain such collusive outcome, even if the discount rate is close to 1. Keywords: Oligopoly, ineffciency, repeated games, imperfect price signal, Folk Theorem JEL: D23 D8 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:scp:wpaper:05-12&r=all 280. Propensity Score Matching, a Distance-Based Measure of Migration, and the Wage Growth of Young Men John C. Ham Xianghong Li Patricia B. Reagan Our analysis of migration differs from previous research in three important aspects. First, we exploit the confidential geocoding in the NLSY79 to obtain a distance-based measure. Second, we let the effect of migration on wage growth differ by schooling level. Third, we use propensity score matching to measure the effect of migration on the wages of those who move. We develop an economic model and use it to (i) assess the appropriateness of matching as an econometric method for studying migration and (ii) choose the conditioning variables used in the matching procedure. Our data set provides a rich array of variables on which to match. We find a significant effect of migration on the wage growth of college graduates of 10 percent, and a marginally significant effect for high school dropouts of –12 percent. If we use either a measure of migration based on moving across county lines or state lines, the significant effects of migration for college graduates and dropouts disappear. Keywords: Propensity score matching, distance-based migration, wage growth JEL: J6 J3 C4 Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:scp:wpaper:05-13&r=all 281. Testing Slope Homogeneity in Large Panels M. Hashem Pesaran Takashi Yamagata This paper proposes a modi?ed version of Swamy’s test of slope homogeneity for panel data models where the cross section dimension (N) could be large relative to the time series dimension (T). The proposed test exploits the cross section dispersion of individual slopes weighted by their relative precision. In the case of models with strictly exogenous regressors and normally distributed errors, the test is shown to have a standard normal distribution as (N, T) j ? 8. Under non- normal errors and in the case of stationary dynamic models, the condition on the relative expansion rates of N and T for the test to be valid is given by vN/T ? 0, as (N, T) j ? 8. Using Monte Carlo experiments, it is shown that the test has the correct size and satisfactory power in panels with strictly exogenous regressors for various combinations of N and T. For autoregressive (AR) models the proposed test performs well for moderate values of the root of the autoregressive process. But for AR models with roots near unity a bias-corrected bootstrapped version of the test is proposed which performs well even if N is large relative to T. The proposed cross section dispersion tests are applied to testing the homogeneity of slopes in autoregressive models of individual earnings using the PSID data. The results show statistically signi?cant evidence of slope heterogeneity in the earnings dynamics, even when individuals with similar educational backgrounds are considered as sub-sets. Keywords: Testing Slope Homogeneity, Hausman Type Tests, Cross Section ispersion Tests, Monte Carlo Results, PSID Earnings Dynamics JEL: C12 C33 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:scp:wpaper:05-14&r=all 282. Ratifiability of Efficient Collusive Mechanisms in Second- Price Auctions with Participation Costs Guofu Tan Okan Yilankaya We investigate whether efficient collusive bidding mechanisms are affected by potential information leakage from bidders’ decisions to participate in them within the independent private values setting. We apply the concept of ratifiability introduced by Cramton and Palfrey (1995) and show that when the seller uses a second-price auction with participation costs, the standard efficient cartel mechanisms such as preauction knockouts analyzed in the literature will not be ratified by cartel members. A high- value bidder benefits from vetoing the cartel mechanism since doing so sends a credible signal that she has high value, which in turn discourages other bidders from participating in the seller’s auction. Keywords: Auctions, collusion, ratifiability JEL: C72 D44 D82 Date: 2005-02 URL: http://d.repec.org/n?u=RePEc:scp:wpaper:05-15&r=all 283. U.S. Real Exchange Rate Fluctuations and Relative Price Fluctuations Caroline M. Betts Timothy J. Kehoe This paper studies the relation between the United States’ bilateral real exchange rate and the associated bilateral relative price of nontraded goods for five of its most important trade relationships. Traditional theory attributes fluctuations in real exchange rates to changes in the relative price of nontraded goods. We find that this relation depends crucially on the choice of price series used to measure relative prices and on the choice of trade partner. The relation is stronger when we measure relative prices using producer prices rather than consumer prices. The relation is stronger the more important is the trade relationship between the United States and a trade partner. Even in cases where there is a strong relation between the real exchange rate and the relative price of nontraded goods, however, a large fraction of real exchange rate fluctuations is due to deviations from the law of one price for traded goods. Keywords: Risk management, correlated defaults, credit loss distributions, heterogeneity, diversification JEL: C33 G13 G21 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:scp:wpaper:05-16&r=all 284. Regulation or Markets? The Case of Employment Contract W. Bentley MacLeod Regulation of the employment contract is both wide spread and diverse. The diversity of regulation is surprising because it suggests that there is little consensus regarding optimal intervention into the labor market. This paper discusses several economic reasons why it may be efficient for employers and employees to enter into long term contracts that make employee dismissal expensive. This analysis suggests that employment contracts can be expected to be complex in practice, and hence can be viewed as part of the technology of exchange. Given that knowledge of a technology requires skill and know-how, one cannot expect all employee-employer matches to discover and use the most efficient contract terms possible. It is suggested that the regulation of the employment relationship might be improved with the creation of a market for contracts, similar to the one that currently exists in the United States for construction projects. JEL: J30 J41 K31 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:scp:wpaper:05-17&r=all 285. Scope for Credit Risk Diversification Samuel Hanson M. Hashem Pesaran Til Schuermann This paper considers a simple model of credit risk and derives the limit distribution of losses under different assumptions regarding the structure of systematic risk and the nature of exposure or firm heterogeneity. We derive fat-tailed correlated loss distributions arising from Gaussian (i.e. non-fat-tailed) risk factors and explore the potential for (and limit of) risk diversification. Where possible the results are generalized to non-Gaussian distributions. The theoretical results indicate that if the firm parameters are heterogeneous but come from a common distribution, for suffciently large portfolios there is no scope for further risk reduction through active portfolio management. However, if the firm parameters come from different distributions, say for different sectors or countries, then further risk reduction is possible, even asymptotically, by changing the portfolio weights. In either case, neglecting parameter heterogeneity can lead to underestimation of expected losses. But, once expected losses are controlled for, neglecting parameter heterogeneity can lead to overestimation of risk, whether measured by unexpected loss or value-at-risk. We examine the impact of sectoral and geographic diversification on credit losses empirically using returns for firms in the U.S. and Japan across seven sectors and find that ignoring this heterogeneity results in far riskier credit portfolios. Risk, is reduced significantly when parameter heterogeneity is properly taken into account. Keywords: Risk management, correlated defaults, credit loss distributions, heterogeneity, diversification JEL: C33 G13 G21 Date: 2005-02 URL: http://d.repec.org/n?u=RePEc:scp:wpaper:05-18&r=all 286. Equilibria in Second Price Auctions with Participation Costs Guofu Tan Okan Yilankaya We investigate equilibria of sealed-bid second price auctions with bidder participation costs in the independent private values environment. We focus on equilibria in cutoff strategies ( participate and bid the valuation iff it is greater than the cutoff), since if a bidder finds it optimal to participate, she cannot do better than bidding her valuation. When bidders are symmetric, concavity (strict convexity) of the cumulative distribution function from which the valuations are drawn is a sufficient condition for uniqueness (multiplicity) within this class. We also study a special case with asymmetric bidders and show that concavity/convexity plays a similar role. Keywords: Second price auctions; participation cost; entry fee; multiplicity of equilibria JEL: C62 C72 D44 D82 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:scp:wpaper:05-7&r=all 287. Is There an "Iron Law of Happiness"? Richard A. Easterlin Contrary to the setpoint model of some psychologists, individual happiness does not tend to fluctuate around a constant level. Although the personality and genetic factors emphasized by setpoint theorists are important in explaining individual differences in happiness at a point in time, survey evidence demonstrates that over the life cycle economic circumstances, family life, health, and work are important in determining the course of happiness. However, life events do not necessarily dominate life cycle satisfaction in different domains, and economic theories of well-being would benefit from following psychologists’ lead by incorporating goals and adaptation. Keywords: Happiness, Aspirations, Adaptation JEL: D60 I31 A12 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:scp:wpaper:05-8&r=all 288. A Theory of Influence: The Strategic Value of Public Ignorance Isabelle Brocas Juan D. Carillo We analyze an agency model where one individual decides how much evidence he collects. We assume that he has free access to information, but all the news acquired become automatically public. Conditional on the information disclosed, a second individual with conflicting preferences undertakes an action that a ects the payo of both agents. In this game of incomplete but symmetric information, we show that the first individual obtains rents due to his superior ability to decide whether to collect or forego evidence, i.e., due to his control in the generation of ( public) information. We provide an analytical characterization of these rents, that we label “rents of public ignorance”. They can be interpreted as, for example, the degree of influence that a chairman can exert on a committee due exclusively to his capacity to decide whether to keep discussions alive or terminate them and call a vote. Last, we show that similar insights are obtained if the agent decides first how much private information he collects and then how much of this information he transmits to the other agent. Keywords: principal-agent, incomplete and symmetric information, learning, experimentation, optimal stopping rule, informational rents, information control, public ignorance Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:scp:wpaper:05-9&r=all 289. Discovering the Sources of TFP Growth: Occupational Choice and Financial Deepening Hyeok Jeong Robert M. Townsend Total factor productivity (TFP) growth is measured as a residual and its sources typically remain unknown inside the residual. This paper aims to identify the underlying sources of this residual growth, being explicit about both micro underpinnings and transitional growth. The key forces are occupational choice and limited access to credit. We develop a method of growth accounting that decomposes not only the overall growth but also TFP growth into four components: occupational shifts, financial deepening, capital heterogeneity, and sectoral Solow residuals. Thus we explicitly evaluate the quantitative importance of micro impediments to trade such as credit constraint on aggregate growth dynamics, in particular the TFP dynamics. Applying this method to Thailand, which experienced rapid growth with enormous structural changes for the two decades between 1976 and 1996, we find that 73 percent of TFP growth can be explained on average by occupational shifts and financial deepening, without presuming exogenous technical progress. Expansion of credit is a major part of this explained TFP growth. The remainder TFP growth is related to the sectoral Solow residuals, which are determined by the endogenous interaction between the price dynamics of wage, interest rate, and profits and the evolution of wealth distribution. The nature of this interaction between price dynamics and wealth distribution depends on access to credit, and the di¤erences in measured TFP growth across subgroups di¤erentiated by any specific characteristics may reflect the varying degrees of limited access to credit rather than subgroup- specific technical changes. The above key forces of TFP also provide a micro foundation of the relationship between growth and inequality. The inequality among the non-intermediated a¤ects the growth of the intermediated. The growth of the intermediated trickles down to the non-intermediated and reduces inequality among them. Keywords: Total Factor Productivity, Occupation Choice, Financial Deepening JEL: O47 O16 J24 D24 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:scp:wpaper:05-19&r=all 290. Assessment of Relationship between Growth and Inequality: Micro Evidence from Thailand Hyeok Jeong This paper shows that growth and income distribution dynamics are closely linked through occupation, financial intermediation, and education. We use the micro data from Thailand for 1976-1996. The compositional changes across these characteristics account for half of the Thai inequality increase and forty percent of the Thai growth and poverty reduction. Financial deepening and educational expansion contributed to increasing inequality while occupational transformation contributed to poverty alleviation. The changes in income gaps across the income-status groups, that is, divergence and then convergence, give rise to inverted- U inequality dynamics. These two growth-related components of inequality dynamics, composition and income-gap dynamics, explain virtually all the change in overall inequality, except its initial rise. Thus, inequality dynamics can be viewed as integral part of wider process of growth as Kuznets speculated. Keywords: Kuznets Dynamics, Growth, Inequality, Poverty JEL: D31 O41 I32 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:scp:wpaper:05-20&r=all 291. God and the Global Economy: Religion and Attitudes Toward Trade and Immigration in the United States Joseph Daniels (Department of Economics, Marquette University) Marc von der Ruhr (Department of Economics, Saint Norbert College) Using the results of a national identity survey, we test the impact of religious affiliation on trade and immigration-policy preferences of U.S. residents while controlling for individual level of skill, political ideology, and other important demographic characteristics. Our results show that religion is an important determinant of international-policy preferences as individuals who are pre-Vatican II Catholic or members of fundamentalist Protestant are more likely to prefer policies that restrict imports and immigration. Religiosity, in contrast, has a seperate efect on moderating attitudes toward immigration. In addition, we find evidence of denominational effects among African Americans in that members of fundamentalist denominations tend to favor policies that restrict imports while others do not, implying that statistical results commonly attributed to racial effects may actually be a religious effect. JEL: F0 H0 URL: http://d.repec.org/n?u=RePEc:mrq:wpaper:0501&r=all 292. Critical Realism in Economics and Open-Systems Ontology: A Critique Andrew Mearman (School of Economics, University of the West of England) This paper examines the treatment of ontology offered by Critical Realism. Three main criticisms are made of the Critical Realist treatment of open systems. It is argued that Critical Realism, particularly in the project in economics emanating from Cambridge, UK, tends to define systems in terms of events. This is shown to be problematic. The exemplar of a closed system provided by Critical Realism of the solar system is shown to be flawed in that it is not closed according to the closure conditions identified by Critical Realism. Second, the negativity of the definitions adopted is problematic for heterodox traditions attempting to build positive programs. The dualism of the definitions is also inconsistent with Dow’s approach. This has ramifications for the coherence of Post Keynesianism. Third, the definitions tend to polarize open and closed systems and ignore the degrees of openness evident in reality. This polarization of systems leads to polarized methodology and unsustainable arguments to reject so-called closed-systems methods. Keywords: open systems, closed systems, Critical Realism, Post- Keynesianism, dualism Date: 2004-01 URL: http://d.repec.org/n?u=RePEc:uwe:wpaper:0401&r=all 293. 'Open-Systems' and Economic Methodology Andrew Mearman (School of Economics, University of the West of England) This paper discusses some of the methodological implications of an ‘open-systems’ reality. It presents a possible ontology of open systems which draws on various literatures including, but not limited to, Critical Realism. The paper then extrapolates from the ontology to a set of methodological arguments. Many methods in economics presuppose a degree of closure in their operation. Deductive logic is discussed in this context. This constitutes a disjuncture with reality. It could be argued, therefore, that these methods should be rejected. However, an open-systems methodology is also an open system and it will reflect the impact of other literatures. Thus, based on fallibilism and an avoidance of dualism (in Dow’s terms) rejection of so-called ‘closed-systems methods’ is not an option. Also, given the preponderance of closures in available methods, this would leave little scope for investigation. Thus, a strategy of triangulation should be adopted. Keywords: methodology, open-systems, triangulation, Critical Realism, deduction, dualism JEL: B4 B5 P0 Z0 Date: 2004-02 URL: http://d.repec.org/n?u=RePEc:uwe:wpaper:0402&r=all 294. Gender Specific Peer Groups and Choice at 16 Don J Webber (School of Economics, University of the West of England) The UK government’s aim of achieving a 50% staying on rate in higher education at the age of 16 might not be achievable because it is demandconstrained: not all students want to stay on in education at 16. Peer groups are known to be stronger for boys than for girls and often influence choice at 16. The purpose of this paper is to examine the influence of gender-specific peer groups on students’ intentions and realisations to stay-on into post-compulsory education at the age of 16. The results suggest that boys’ intentions and realisations are influenced by their male peers. However, girls’ intentions are influenced by their whole peer group while their realisations are influenced by their female peer group. Policy targeted to increase participation rates should recognise these gender differences. Keywords: Education economics, School choice. JEL: J24 J31 I2 Date: 2004-03 URL: http://d.repec.org/n?u=RePEc:uwe:wpaper:0403&r=all 295. Convergence across Spanish Provinces:Cross-section and Pairwise Evidence Don J Webber (School of Economics, University of the West of England) Paul White (Faculty of Computing, Engineering and Mathematical Sciences, University of the West of England) Asier Minondo (Faculty of Economic and Business Administration Sciences, Universidad de Deusto, San Sebastian, Spain) David O Allen (School of Economics, University of the West of England) Distribution free statistics are employed to investigate biennial income per capita convergence across 52 Spanish provinces over the period 1955-1997. Based upon ideas of concordance and discordance that capture convergence and divergence properties, the paper presents results that suggest convergence is dominant for the full sample over the entire period, swings in this trend between convergence and divergence are present and switching in rank does take place. When provinces are analysed in pairs some show strong evidence of divergence. Keywords: Convergence; Steady state; Average UK regional male wages JEL: C1 O4 Date: 2004-04 URL: http://d.repec.org/n?u=RePEc:uwe:wpaper:0404&r=all 296. Monetary Policy Transparency:Too Good to be True? Iris Biefang-Frisancho Mariscal (School of Economics, University of the West of England) Peter Howells (School of Economics, University of the West of England) In the last fifteen years or so the conduct of monetary policy in developed economies has converged in a number of ways which include an increasing emphasis on ‘openness’ and ‘transparency’ in policy-making. There is a widespread belief that transparency in the conduct of UK monetary policy has increased substantially since, and because of, the introduction of inflation targeting and associated institutional reforms in 1992. A large measure of this belief is based upon studies which reveal the increased ability of money market agents to anticipate accurately the change in official rates. In this paper, we have updated one of those studies and show that the findings are largely unaffected by events of the last five years. More interestingly, perhaps, we have floated the possibility that this improved anticipation may be the result of developments other than institutional reforms. For example, it is notable that the Bank of England has made fewer and smaller interest changes since 1992. It is also widely believed (and the behaviour of many macro variables suggests this) that economies have generally become more stable since 1992. If this is true, then macroeconomic forecasts in general should have improved and the increased anticipation would be, partly at least, due to this rather than institutional changes. We test both theses hypotheses with negative results. JEL: E58 Date: 2004-05 URL: http://d.repec.org/n?u=RePEc:uwe:wpaper:0405&r=all 297. Environmental Kuznets Curves: Mess or Meaning? Don J Webber (School of Economics, University of the West of England) David O Allen (School of Economics, University of the West of England) The shape of the relationship between the rate of environmental degradation and income per capita has been the subject of much empirical examination. When test results based around this so- called ‘environmental Kuznets curve’ are compared, the empirical evidence is neither consistently supportive of its traditional inverted-U shape nor uniform across pollutants. A deeper understanding of the characteristics of pollutants and of the derived demand and derived supply of pollutants needs to be achieved if environmental Kuznets curves are to be useful. Keywords: Environmental Kuznets Curves, Empirical Evidence JEL: O49 Q20 Date: 2004-06 URL: http://d.repec.org/n?u=RePEc:uwe:wpaper:0406&r=all 298. An Examination of Alternative Approaches to Measuring Congestion in British Universities Tony Flegg (School of Economics, University of the West of England) David O Allen (School of Economics, University of the West of England) Date: 2004-07 URL: http://d.repec.org/n?u=RePEc:uwe:wpaper:0407&r=all 299. Models of Military Expenditure and Growth: A Critical Review J Paul Dunne (School of Economics, University of the West of England) Ron Smith (Birkbeck College) Dirk Willenbockel (Middlesex University Business School) This paper reviews some of the theoretical and econometric issues involved in estimating growth models that include military spending. While the mainstream growth literature has not found military expenditure to be a significant determinant of growth, much of the defence economics literature has found significant effects. The paper argues that this is largely the product of the particular specification, the Feder- Ram model, that has been used in the defence economics literature but not in the mainstream literature. The paper critically evaluates this model, detailing its problems and limitations and suggests that it should be avoided. It also critically evaluates two alternative theoretical approaches, the Augmented Solow and the Barro models, suggesting that they provide a more promising avenue for future research. It concludes with some general comments about modelling the links between military expenditure and growth. Keywords: Military expenditure; models; growth Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:uwe:wpaper:0408&r=all 300. Student Participation in Sporting Activities Don J Webber Andrew Mearman (School of Economics, University of the West of England) Given that many universities spend large sums of money supplying sports facilities for student use, comparatively little is known about the factors that influence the quantity of student sporting participation. This paper presents evidence which suggests that the quantity of student sports participation is adversely affected by greater hours of work and increased by greater sports literacy and the decision to augment social capital. Effective investment in sports facilities by Universities would meet students’ demands and not simply increase the range of sports facilities available to students. Keywords: Sport; Participation; Time; Social capital; Students JEL: L83 I12 J22 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:uwe:wpaper:0501&r=all 301. Convergence towards a Steady State Distribution Don J Webber (School of Economics, University of the West of England) Paul White (Faculty of Computing, Engineering and Mathematical Sciences, University of the West of England) The convergence literature frequently presupposes some unidentified steady state distribution. This paper presents a new method to identify the presence and rate of convergence to a steady state distribution. The method is illustrated with application to UK regional male wages. Keywords: Convergence; Steady state; Average UK regional male wages JEL: C1 O4 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:uwe:wpaper:0502&r=all