---------------------------------------------------------------------------- NEP: New Economics Papers All new papers ---------------------------------------------------------------------------- Edited by: Marco Novarese http://ideas.repec.org/e/pno2.html Universita del Piemonte Orientale Date: 2005-07-18 Papers: 204 This document is in the public domain, feel free to circulate it. +++++++++++++++++++++++++++++++++++++++++++++++++++ + Note: Access to full contents may be restricted + +++++++++++++++++++++++++++++++++++++++++++++++++++ 1. Endogenous Central Bank Credibility in a Small Forward- Looking Model of the U.S. Economy Rene Lalonde The linkages between inflation and the economy's cyclical position are thought to be strongly affected by the credibility of monetary authorities. The author complements existing research by estimating a small forward-looking model of the U.S. economy with endogenous central bank credibility. His work differs from the existing literature in several ways. First, he endogenizes and estimates credibility parameters, allowing inflation expectations to be a mix of backward- and forward-looking agents. Second, his models include both outcome- and action-based credibility. Third, he estimates a non-linear relation between policy credibility and divergences of inflation from target, which is also assumed to change over history. Finally, the author's non-linear time-varying credibility indexes do not rely on a two-regime definition, but on a continuum of credibility regimes. The author finds strong, stable, and statistically significant outcome- and action-credibility effects that generate important inflation inertia. According to his results, the value of the endogenous credibility indexes has risen steadily across the different monetary policy regimes. Keywords: Transmission of monetary policy; Econometric and statistical methods; Inflation and prices JEL: E52 C32 Date: 2005 URL: http://d.repec.org/n?u=RePEc:bca:bocawp:05-16&r=all 2. Lines of Credit and Consumption Smoothing: The Choice between Credit Cards and Home Equity Lines of Credit Shubhasis Dey The author models the choice between credit cards and home equity lines of credit (HELOCs) within a framework where consumers hold lines of credit as instruments of consumption smoothing across state and time. Flexible repayment schemes for lines of credit induce risk-averse consumers with sufficiently high discount rates to underinsure and hold lines of credit instead as a buffer, even when they have access to full and fair insurance markets. Weighing the fixed upfront fees and higher default costs of HELOCs against the advantages of low and income- tax-deductible interest payments, the author finds a threshold level of potential borrowing belowwhich consumers prefer to use credit cards exclusively. Above that threshold, consumers decide touse HELOCs and consolidate all outstanding credit card debt into them; however, a rising probability of default and the resulting loss of equity in the home will put an upper bound on the potential HELOC borrowing that will prevent full debt consolidation. Keywords: Credit and credit aggregates JEL: D1 D81 Date: 2005 URL: http://d.repec.org/n?u=RePEc:bca:bocawp:05-18&r=all 3. Bank Failures and Bank Fundamentals: A Comparative Analysis of Latin America and East Asia during the Nineties using Bank- Level Data Marco Arena The author develops the first comparative empirical study of bank failures during the nineties between East Asia and Latin America using bank-level data, in order to address the following two questions: (i) To what extent did individual bank conditions explain bank failures? (ii) Did mainly the weakest banks, in terms of their fundamentals, fail in the crisis countries? The main results for East Asia and Latin America show that bank-level fundamentals not only significantly affect the likelihood of bank failure, but also account for a significant proportion of the likelihood of failure for failed banks. Systemic shocks ( macroeconomic and liquidity shocks) that triggered the banking crises mainly destabilized the weakest banks ex ante, particularly in East Asia. This finding raises questions about regional asymmetries in the degree of banking sector resilience to systemic shocks. Keywords: Financial institutions JEL: G2 N2 Date: 2005 URL: http://d.repec.org/n?u=RePEc:bca:bocawp:05-19&r=all 4. Estimating the natural interest rate for the euro area and Luxembourg Ladislav Wintr Paolo Guarda Abdelaziz Rouabah Le taux d?interet naturel est le taux d?interet reel compatible a la fois avec l?absence d?ecart de production (le PIB est a son niveau potentiel) et avec la stabilite des prix. Cette etude fournit des estimations du taux d?interet naturel pour la zone euro et pour le Luxembourg. Theoriquement, le taux d?interet naturel est susceptible de servir de reference pour la politique monetaire. Quand le taux d?interet reel est plus eleve que le taux d?interet naturel, la politique monetaire est restrictive. A l?oppose, la politique monetaire est expansive quand le taux d?interet reel est inferieur au taux d?interet naturel. Ainsi, la banque centrale pourrait fixer le taux d?interet nominal de maniere a faire evoluer les taux d? interet reels a court terme vers un niveau inferieur ou superieur au taux d?interet naturel selon la nature des chocs destabilisateurs. En pratique, le taux d?interet naturel est estime avec un degre d?incertitude important et il est sujet a de multiples revisions dues a la publication de nouvelles donnees. Ces limitations reduisent l?utilite du taux d? interet naturel dans la conduite de la politique monetaire. Cependant, le taux d?interet naturel peut fournir une indication sur l?orientation de la politique monetaire relative aux periodes anterieures. De plus, le taux d?interet naturel estime pour un pays a l?interieur de la zone euro peut fournir des renseignements sur l?impact de la politique monetaire commune sur l?economie nationale en question. Dans notre contribution, l?estimation du niveau du taux d?interet naturel pour la zone euro et pour le Luxembourg est basee sur l?approche semi-structurelle proposee par Laubach et Williams (2003). Cette approche s?appuie sur un petit modele macroeconomique combinant une equation d?offre agregee (courbe de Phillips) et une equation de demande agregee (courbe IS). Le filtre de Kalman sert a estimer les variables inobservables, tels que le taux d? interet naturel, l?ecart de production, et la croissance potentielle, en tenant compte de l?evolution des variables observees, en l?occurrence la production, l?inflation, et le taux d?interet reel. Ainsi, le taux d?interet naturel et la croissance potentielle sont estimes de maniere simultanee. Pour la zone euro, les resultants suggerent une certaine stabilite du taux d?interet naturel depuis 1970 et confirment qu?il a baisse au cours de la derniere decennie. Pour le Luxembourg, le taux d?interet naturel estime est beaucoup plus eleve, signe d?une croissance potentielle plus importante. Les resultats laissent presager que la politique monetaire commune a eu un impact expansif sur les periodes recentes, particulierement au Luxembourg. Date: 2005-06 URL: http://d.repec.org/n?u=RePEc:bcl:bclwop:cahier_etude_15&r=all 5. The Shock- Absorber Role of the Internal Public Debt in Colombia, 1923-2003. Mauricio Avella Gomez The hypothesis that the internal public debt has played the role of shock absorber in Colombia since 1923 is modelled. 1923 was an important landmark in the history of fiscal and monetary reforms in Colombia during the twentieth century. The econometric results offer a strong support for the hypothesized shock-absorber role of the internal debt. Keywords: Deficit, surplus, Debt, Latin America JEL: H62 H63 N16 URL: http://d.repec.org/n?u=RePEc:bdr:borrec:342&r=all 6. Medidas de Riesgo, Caracteristicas y Tecnicas de Medicion: Una Aplicacion del VAR y el ES a la Tasa Interbancaria de Colombia Luis Fernando Melo Velandia Oscar reinaldo Becerra Camargo En este documento se describen en detalle diversas metodologias que permiten calcular dos medidas utilizadas para cuantificar el riesgo de mercado asociado a un activo financiero: el valor en riesgo, VaR y el Expected Shortfall, ES. Los metodos analizados se dividen en dos grupos. En el primer grupo, compuesto por las metodologias de normalidad, simulacion historica y teoria del valor extremo (EVT), no se modelan las dependencias existentes en el primer y segundo momento condicional de la serie. En el segundo grupo, las metodologias ARMA-GARCH y ARMA-GARCH-EVT modelan los dos tipos de dependencias, mientras RiskMetrics® modela solo la segunda. Estas metodologias son aplicadas a las variaciones diarias de la tasa interbancaria para el periodo comprendido entre el 16 de abril de 1995 y el 30 de diciembre de 2004. El desempeno o backtesting del VaR calculado para diferentes metodologias en los anos 2003 y 2004 muestra que las mejores son aquellas que modelan la dependencia de la varianza condicional, tales como los modelos RiskMetrics®, ARMA-GARCH y ARMA-GARCH-EVT. Las tecnicas con el peor desempeno son la de simulacion historica, la EVT sin modelar dependencia y la basada en el supuesto de normalidad. Keywords: Riesgo de Mercado, valor en riesgo,Expected shortfall, teoria del valor extremo, modelos GARCH, backtesting JEL: C32 C52 G10 URL: http://d.repec.org/n?u=RePEc:bdr:borrec:343&r=all 7. Analysis of survey data and correlated data Jeff Pitblado (StataCorp LP) This talk discusses Stata's features for analyzing survey data and correlated data, and will explain how and when to use the three major variance estimators for survey and correlated data: the linearization estimator, balanced repeated replications, and the clustered jackknife (the latter two having been added in Stata 9). The talk will also discuss sampling designs and stratification, including Stata's new features for estimation with data from multistage designs and for applying poststratification. A theme of the seminar will be how you can make inferences with correct coverage from data collected by single stage or multistage surveys or from data with inherent correlation, such as data from longitudinal studies. Date: 2005-07-12 URL: http://d.repec.org/n?u=RePEc:boc:asug05:23&r=all 8. A No-Arbitrage Approach to Range-Based Estimation of Return Covariances and Correlations Michael W. Brandt (Department of Finance, University of Pennsylvania, and NBER) Francis X. Diebold (Departments of Economics, Finance and Statistics, University of Pennsylvania, and NBER) We extend the important idea of range-based volatility estimation to the multivariate case. In particular, we propose a range-based covariance estimator that is motivated by financial economic considerations (the absence of arbitrage), in addition to statistical considerations. We show that, unlike other univariate and multivariate volatility estimators, the range- based estimator is highly efficient yet robust to market microstructure noise arising from bid-ask bounce and asynchronous trading. Finally, we provide an empirical example illustrating the value of the high-frequency sample path information contained in the range-based estimates in a multivariate GARCH framework. Keywords: Range-based estimation, volatility, covariance, correlation, absence of arbitrage, exchange rates, stock returns, bond returns, bid-ask bounce, asynchronous trading Date: 2004-01-07 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200407&r=all 9. Financial Asset Returns, Direction-of-Change Forecasting, and Volatility Dynamics Peter F. Christoffersen (McGill University and CIRANO) Francis X. Diebold (University of Pennsylvania and NBER) We consider three sets of phenomena that feature prominently – and separately – in the financial economics literature: conditional mean dependence (or lack thereof) in asset returns, dependence (and hence forecastability) in asset return signs, and dependence (and hence forecastability) in asset return volatilities. We show that they are very much interrelated, and we explore the relationships in detail. Among other things, we show that: (a) Volatility dependence produces sign dependence, so long as expected returns are nonzero, so that one should expect sign dependence, given the overwhelming evidence of volatility dependence; (b) The standard finding of little or no conditional mean dependence is entirely consistent with a significant degree of sign dependence and volatility dependence; (c) Sign dependence is not likely to be found via analysis of sign autocorrelations, runs tests, or traditional market timing tests, because of the special nonlinear nature of sign dependence; (d) Sign dependence is not likely to be found in very high-frequency (e.g., daily) or very low-frequency (e.g., annual) returns; instead, it is more likely to be found at intermediate return horizons; (e) Sign dependence is very much present in actual U.S. equity returns, and its properties match closely our theoretical predictions; (f) The link between volatility forecastability and sign forecastability remains intact in conditionally non-Gaussian environments, as for example with time-varying conditional skewness and/or kurtosis. Date: 2004-01-08 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200408&r=all 10. Forecasting the Term Structure of Government Bond Yields Francis X. Diebold (University of Pennsylvania, and NBER) Canlin Li (University of California) Despite powerful advances in yield curve modeling in the last twenty years, comparatively little attention has been paid to the key practical problem of forecasting the yield curve. In this paper we do so. We use neither the no-arbitrage approach, which focuses on accurately fitting the cross section of interest rates at any given time but neglects time-series dynamics, nor the equilibrium approach, which focuses on time-series dynamics ( primarily those of the instantaneous rate) but pays comparatively little attention to fitting the entire cross section at any given time and has been shown to forecast poorly. Instead, we use variations on the Nelson-Siegel exponential components framework to model the entire yield curve, period-by-period, as a three- dimensional parameter evolving dynamically. We show that the three time-varying parameters may be interpreted as factors corresponding to level, slope and curvature, and that they may be estimated with high efficiency. We propose and estimate autoregressive models for the factors, and we show that our models are consistent with a variety of stylized facts regarding the yield curve. We use our models to produce term-structure forecasts at both short and long horizons, with encouraging results. In particular, our forecasts appear much more accurate at long horizons than various standard benchmark forecasts. Keywords: Term structure, yield curve, factor model, Nelson- Siegel curve JEL: G1 E4 C5 Date: 2004-01-09 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200409&r=all 11. Weather Forecasting for Weather Derivatives Sean D. Campbell (Brown University) Francis X. Diebold (University of Pennsylvania, and NBER) We take a simple time-series approach to modeling and forecasting daily average temperature in U.S. cities, and we inquire systematically as to whether it may prove useful from the vantage point of participants in the weather derivatives market. The answer is, perhaps surprisingly, yes. Time-series modeling reveals conditional mean dynamics, and crucially, strong conditional variance dynamics, in daily average temperature, and it reveals sharp differences between the distribution of temperature and the distribution of temperature surprises. As we argue, it also holds promise for producing the long-horizon predictive densities crucial for pricing weather derivatives, so that additional inquiry into time-series weather forecasting methods will likely prove useful in weather derivatives contexts. Keywords: Risk management; hedging; insurance; seasonality; temperature; financial derivatives Date: 2004-01-10 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200410&r=all 12. The Nobel Memorial Prize for Robert F. Engle Francis X. Diebold (University of Pennsylvania, and NBER) Engle’s footsteps range widely. His major contributions include early work on band-spectral regression, development and unification of the theory of model specification tests ( particularly Lagrange multiplier tests), clarification of the meaning of econometric exogeneity and its relationship to causality, and his later stunningly influential work on common trend modeling (cointegration) and volatility modelling (ARCH, short for Auto Regressive Conditional Heteroskedasticity). More generally, Engle’s cumulative work is a fine example of best- practice applied time-series econometrics: he identifies important dynamic economic phenomena, formulates precise and interesting questions about those phenomena, constructs sophisticated yet simple econometric models for measurement and testing, and consistently obtains results of widespread substantive interest in the scientific, policy, and financial communities. Keywords: Econometric Theory, Finance JEL: B31 C10 Date: 2004-01-11 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200411&r=all 13. Private equity-, stock- and mixed asset-portfolios: A bootstrap approach to determine performance characteristics, diversification benefits and optimal portfolio allocations Daniel Schmidt (CEPRES Center of Private Equity Research, VCM Venture Capital Management GmbH) In this article, we investigate risk return characteristics and diversification benefits when private equity is used as a portfolio component. We use a unique dataset describing 642 US- American portfolio companies with 3620 private equity investments. Information about precisely dated cash flows at the company level enables for the first time a cash flow equivalent and simultaneous investment simulation in stocks, as well as the construction of stock portfolios for benchmarking purposes. With respect to the methodology involved, we construct private equity, stock-benchmark and mixed-asset portfolios using bootstrap simulations. For the late 1990s we find a dramatic increase in the extent to which private equity outperforms stock investment. In earlier years private equity was underperforming its stock benchmarks. Within the overall class of private equity, returns on earlier private equity investment categories, like venture capital, show on average higher variations and even higher rates of failure. It is in this category in particular that high average portfolio returns are generated solely by the ability to select a few extremely well performing companies, thus compensating for lost investments. There is a high marginal diversifiable risk reduction of about 80% when the portfolio size is increased to include 15 investments. When the portfolio size is increased from 15 to 200 there are few marginal risk diversification effects on the one hand, but a large increase in managing expenditure on the other, so that an actual average portfolio size between 20 and 28 investments seems to be well balanced. We provide empirical evidence that the non- diversifiable risk that a constrained investor, who is exclusively investing in private equity, has to hold exceeds that of constrained stock investors and also the market risk. From the viewpoint of unconstrained investors with complete investment freedom, risk can be optimally reduced by constructing mixed asset portfolios. According to the various private equity subcategories analyzed, there are big differences in optimal allocations to this asset class for minimizing mixed-asset portfolio variance or maximizing performance ratios. We observe optimal portfolio weightings to be between 3% and 65%. Keywords: Venture Capital, Private Equity, Performance, Return, Risk, Portfolio, Fund, Diversification, Efficient Frontier, Allocation JEL: G11 Date: 2004-01-12 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200412&r=all 14. Optimal Monetary Policy under Commitment with a Zero Bound on Nominal Interest Rates Klaus Adam (CEPR, London, European Central Bank) Roberto M. Billi (Center for Financial Studies) We determine optimal monetary policy under commitment in a forwardlooking New Keynesian model when nominal interest rates are bounded below by zero. The lower bound represents an occasionally binding constraint that causes the model and optimal policy to be nonlinear. A calibration to the U.S. economy suggests that policy should reduce nominal interest rates more aggressively than suggested by a model without lower bound. Rational agents anticipate the possibility of reaching the lower bound in the future and this amplifies the effects of adverse shocks well before the bound is reached. While the empirical magnitude of U.S. mark-up shocks seems too small to entail zero nominal interest rates, shocks affecting the natural real interest rate plausibly lead to a binding lower bound. Under optimal policy, however, this occurs quite infrequently and does not require targeting a positive average rate of inflation. Interestingly, the presence of binding real rate shocks alters the policy response to (non-binding) mark-up shocks. Keywords: nonlinear optimal policy, zero interest rate bound, commitment, liquidity trap, New Keynesian JEL: C63 E31 E52 Date: 2004-01-13 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200413&r=all 15. Exchange-Rate Policy and the Zero Bound on Nominal Interest Gunter Coenen (Directorate General Research, European Central Bank) Volker Wieland (Professur fur Geldtheorie und -politik, Johann-Wolfgang-Goethe Universitat) In this paper, we study the effectiveness of monetary policy in a severe recession and deflation when nominal interest rates are bounded at zero. We compare two alternative proposals for ameliorating the effect of the zero bound: an exchange-rate peg and price-level targeting. We conduct this quantitative comparison in an empirical macroeconometric model of Japan, the United States and the euro area. Furthermore, we use a stylized micro-founded two-country model to check our qualitative findings. We find that both proposals succeed in generating inflationary expectations and work almost equally well under full credibility of monetary policy. However, price-level targeting may be less effective under imperfect credibility, because the announced price-level target path is not directly observable. Keywords: monetary policy rules, zero-interest-rate bound, liquidity trap, rational expectations, nominal rigidities, exchange rates JEL: E31 E52 E58 E61 Date: 2004-01-14 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200414&r=all 16. Are Stationary Hyperinflation Paths Learnable? Klaus Adam (CEPR, London, University of Frankfurt) George W. Evans (University of Oregon, United States) Seppo Honkapohja (Cambridge University, United Kingdom) Earlier studies of the seigniorage inflation model have found that the high-inflation steady state is not stable under adaptive learning. We reconsider this issue and analyze the full set of solutions for the linearized model. Our main focus is on stationary hyperinflationary paths near the high-inflation steady state. The hyperinflationary paths are stable under learning if agents can utilize contemporaneous data. However, in an economy populated by a mixture of agents, some of whom only have access to lagged data, stable inflationary paths emerge only if the proportion of agents with access to contemporaneous data is sufficiently high. Keywords: Indeterminacy, inflation, stability of equilibria, seigniorage JEL: C62 D83 D84 E31 Date: 2004-01-15 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200415&r=all 17. Realized Beta: Persistence and Predictability Torben G. Andersen (Department of Finance, Kellogg School, Northwestern University, and NBER) Tim Bollerslev (Departments of Economics and Finance, Duke University, and NBER) Francis X. Diebold (Departments of Economics, Finance and Statistics, University of Pennsylvania, and NBER) Jin Wu (Department of Economics, University of Pennsylvania) A large literature over several decades reveals both extensive concern with the question of time-varying betas and an emerging consensus that betas are in fact time-varying, leading to the prominence of the conditional CAPM. Set against that background, we assess the dynamics in realized betas, vis-a-vis the dynamics in the underlying realized market variance and individual equity covariances with the market. Working in the recently-popularized framework of realized volatility, we are led to a framework of nonlinear fractional cointegration: although realized variances and covariances are very highly persistent and well approximated as fractionally-integrated, realized betas, which are simple nonlinear functions of those realized variances and covariances, are less persistent and arguably best modeled as stationary I(0) processes. We conclude by drawing implications for asset pricing and portfolio management. Keywords: quadratic variation and covariation, realized volatility, asset pricing, CAPM, equity betas, long memory, nonlinear fractional cointegration, continuous- time methods. JEL: C1 G1 Date: 2004-01-16 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200416&r=all 18. Legality and Venture Governance Around the World Douglas Cumming (University of Alberta School of Business, Edmonton, Alberta, Canada) Daniel Schmidt (J.W. Goethe-Universitat Frankfurt/Main and CEPRES) Uwe Walz (J.W. Goethe-Universitat Frankfurt/Main and Center for Financial Studies) We analyze governance with a dataset on investments of venture capitalists in 3848 portfolio firms in 39 countries from North and South America, Europe and Asia spanning 1971-2003. We find that cross-country differences in Legality have a significant impact on the governance structure of investments in the VC industry: better laws facilitate faster deal screening and deal origination, a higher probability of syndication and a lower probability of potentially harmful co-investment, and facilitate board representation of the investor. We also show better laws reduce the probability that the investor requires periodic cash flows prior to exit, which is in conjunction with an increased probability of investment in high-tech companies. Keywords: Venture Capital, Corporate Governance, Syndication, Entrepreneurial Finance JEL: G24 G31 G32 Date: 2004-01-17 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200417&r=all 19. Multiple-bank lending: diversification and free-riding in monitoring Elena Carletti (Center for Financial Studies, Taunusanlage 6, D-60329 Frankfurt, Germany) Vittoria Cerasi (Universita degli Studi di Milano Bicocca, Statistics Department, Via Bicocca degli Arcimboldi 8, 20126 Milano, Italy) Sonja Daltung (Sveriges Riksbank, Research Department, 103 37 Stockholm, Sweden) This paper analyzes banks’ choice between lending to firms individually and sharing lending with other banks, when firms and banks are subject to moral hazard and monitoring is essential. Multiple-bank lending is optimal whenever the benefit of greater diversification in terms of higher monitoring dominates the costs of free-riding and duplication of efforts. The model predicts a greater use of multiple-bank lending when banks are small relative to investment projects, firms are less profitable, and poor financial integration, regulation and inefficient judicial systems increase monitoring costs. These results are consistent with empirical observations concerning small business lending and loan syndication. Keywords: individual-bank lending, multiple-bank lending, monitoring, diversification, free-riding problem JEL: D82 G21 G32 Date: 2004-01-18 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200418&r=all 20. Real-Time Price Discovery in Stock, Bond and Foreign Exchange Markets Torben G. Andersen (Department of Finance, Northwestern University and NBER) Tim Bollerslev (Departments of Economics and Finance, Duke University and NBER) Francis X. Diebold (Departments of Economics, Finance and Statistics, University of Pennsylvania and NBER) Clara Vega (Department of Economics, University of Rochester) We characterize the response of U.S., German and British stock, bond and foreign exchange markets to real-time U.S. macroeconomic news. Our analysis is based on a unique data set of high- frequency futures returns for each of the markets. We find that news surprises produce conditional mean jumps; hence high- frequency stock, bond and exchange rate dynamics are linked to fundamentals. The details of the linkages are particularly intriguing as regards equity markets. We show that equity markets react differently to the same news depending on the state of the economy, with bad news having a positive impact during expansions and the traditionally-expected negative impact during recessions. We rationalize this by temporal variation in the competing “cash flow” and “discount rate” effects for equity valuation. This finding helps explain the time-varying correlation between stock and bond returns, and the relatively small equity market news effect when averaged across expansions and recessions. Lastly, relying on the pronounced heteroskedasticity in the high-frequency data, we document important contemporaneous linkages across all markets and countries over-and-above the direct news announcement effects. Keywords: Asset Pricing; Macroeconomic News Announcements; Financial Market Linkages; Market Microstructure; High- Frequency Data; Survey Data; Asset Return Volatility; Forecasting. JEL: F3 F4 G1 C5 Date: 2004-01-19 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200419&r=all 21. The comovement of credit default swap, bond and stock markets: an empirical analysis Lars Norden (Department of Banking and Finance, University of Mannheim, L 5.2, 68131 Mannheim, Germany) Martin Weber (Department of Banking and Finance, University of Mannheim, L 5.2, 68131 Mannheim, Germany and Centre for Economic Policy Research (CEPR), London, United Kingdom) This paper analyzes the empirical relationship between credit default swap, bond and stock markets during the period 2000-2002. Focusing on the intertemporal comovement, we examine weekly and daily lead-lag relationships in a vector autoregressive model and the adjustment between markets caused by cointegration. First, we find that stock returns lead CDS and bond spread changes. Second, CDS spread changes Granger cause bond spread changes for a higher number of firms than vice versa. Third, the CDS market is significantly more sensitive to the stock market than the bond market and the magnitude of this sensitivity increases when credit quality becomes worse. Finally, the CDS market plays a more important role for price discovery than the corporate bond market. Keywords: Credit risk; Credit spreads; Credit derivatives; Lead- lag relationship JEL: G10 G14 C32 Date: 2004-01-20 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200420&r=all 22. The Basle Securitisation Framework Explained: The Regulatory Treatment of Asset Securitisation Andreas Jobst (Federal Deposit Insurance Corporation (FDIC), Center for Financial Research (CFR), 550 17th Street NW, Washington, DC 20429, USA; London School of Economics and Political Science (LSE), Dept. of Finance and Accounting and Financial Markets Group (FMG); J.W. Goethe-Universitat Frankfurt am Main, Dept. of Finance) The paper provides a comprehensive overview of the gradual evolution of the supervisory policy adopted by the Basle Committee for the regulatory treatment of asset securitisation. We carefully highlight the pathology of the new “securitisation framework” to facilitate a general understanding of what constitutes the current state of computing adequate capital requirements for securitised credit exposures. Although we incorporate a simplified sensitivity analysis of the varying levels of capital charges depending on the security design of asset securitisation transactions, we do not engage in a profound analysis of the benefits and drawbacks implicated in the new securitisation framework. Keywords: Banking Regulation, Asset Securitisation, Basle Committee, Basle 2 JEL: E58 G21 G24 K23 L51 Date: 2004-01-21 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200421&r=all 23. Monetary Discretion, Pricing Complementarity and Dynamic Multiple Equilibria Robert G. King (Boston University) Alexander L. Wolman (Federal Reserve Bank of Richmond) In a plain-vanilla New Keynesian model with two-period staggered price-setting, discretionary monetary policy leads to multiple equilibria. Complementarity between the pricing decisions of forward-looking firms underlies the multiplicity, which is intrinsically dynamic in nature. At each point in time, the discretionary monetary authority optimally accommodates the level of predetermined prices when setting the money supply because it is concerned solely about real activity. Hence, if other firms set a high price in the current period, an individual firm will optimally choose a high price because it knows that the monetary authority next period will accommodate with a high money supply. Under commitment, the mechanism generating complementarity is absent: the monetary authority commits not to respond to future predetermined prices. Multiple equilibria also arise in other similar contexts where (i) a policymaker cannot commit, and (ii) forward-looking agents determine a state variable to which future policy responds. Keywords: Monetary Policy, Discretion, Time-Consistency, Multiple Equilibria, Complementarity JEL: E5 E61 D78 Date: 2004-01-22 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200422&r=all 24. Understanding the Effects of Government Spending on Consumption Jordi Gali (CREI and Universitat Pompeu Fabra) J.David Lopez-Salidoz (Banco de Espana) Javier Valles (Banco de Espana) Recent evidence on the effect of government spending shocks on consumption cannot be easily reconciled with existing optimizing business cycle models. We extend the standard New Keynesian model to allow for the presence of rule-of-thumb (non-Ricardian) consumers. We show how the interaction of the latter with sticky prices and deficit financing can account for the existing evidence on the effects of government spending. Keywords: Rule-of-Thumb Consumers, Fiscal Multiplier, Government Spending, Taylor Rules JEL: E32 E62 Date: 2004-01-23 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200423&r=all 25. The Decline of Activist Stabilization Policy: Natural Rate Misperceptions, Learning, and Expectations Athanasios Orphanides (Federal Reserve Board, Washington, D. C. 20551) John C. Williams (Federal Reserve Bank of San Francisco, 101 Market Street, San Francisco, CA 94105) We develop an estimated model of the U.S. economy in which agents form expectations by continually updating their beliefs regarding the behavior of the economy and monetary policy. We explore the effects of policymakers' misperceptions of the natural rate of unemployment during the late 1960s and 1970s on the formation of expectations and macroeconomic outcomes. We find that the combination of monetary policy directed at tight stabilization of unemployment near its perceived natural rate and large real-time errors in estimates of the natural rate uprooted heretofore quiescent in inflation expectations and destabilized the economy. Had monetary policy reacted less aggressively to perceived unemployment gaps, in inflation expectations would have remained anchored and the stag inflation of the 1970s would have been avoided. Indeed, we find that less activist policies would have been more effective at stabilizing both in inflation and unemployment. We argue that policymakers, learning from the experience of the 1970s, eschewed activist policies in favor of policies that concentrated on the achievement of price stability, contributing to the subsequent improvements in macroeconomic performance of the U.S. economy. Keywords: Monetary Policy, Stagnation, Rational Expectations, Learning JEL: E52 Date: 2004-01-24 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200424&r=all 26. The Basel II Accord: Internal Ratings and Bank Differentiation Eberhard Feess (Aachen University (RWTH), Dept. of Economics, Templergraben 64, D-52056 Aachen) Ulrich Hege (HEC School of Management, Department of Finance and Economics, F-78351 Jouy-en-Josas Cedex, France) The Basel Committee plans to differentiate risk-adjusted capital requirements between banks regulated under the internal ratings based (IRB) approach and banks under the standard approach. We investigate the consequences for the lending capacity and the failure risk of banks in a model with endogenous interest rates. The optimal regulatory response depends on the banks’ inclination to increase their portfolio risk. If IRB-banks are well-capitalized or gain little from taking risks, then they will increase their market share and hold safe portfolios. As risk- taking incentives become more important, the optimal portfolio size of banks adopting intern rating systems will be increasingly constrained, and ultimately they may lose market share relative to banks using the standard approach. The regulator has only limited options to avoid the excessive adoption of internal rating systems. Keywords: Basel II Accord, risk-based capital, internal ratings based approach, bank capital, bank competition, risk- taking JEL: K13 H41 Date: 2004-01-25 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200425&r=all 27. The Reform of October 1979: How It Happened and Why David E. Lindsey (before his retirement in 2003: Division of Monetary Affairs at the Board of Governors of the Federal Reserve System) Athanasios Orphanides (Division of Monetary Affairs at the Board of Governors of the Federal Reserve System, Centre for Economic Policy Research, Center for Financial Studies) Robert H. Rasche (Federal Reserve Bank of St. Louis) This study offers a historical review of the monetary policy reform of October 6, 1979, and discusses the influences behind it and its significance. We lay out the record from the start of 1979 through the spring of 1980, relying almost exclusively upon contemporaneous sources, including the recently released transcripts of Federal Open Market Committee (FOMC) meetings during 1979. We then present and discuss in detail the reasons for the FOMC’s adoption of the reform and the communications challenge presented to the Committee during this period. Further, we examine whether the essential characteristics of the reform were consistent with monetarism, new, neo, or old-fashioned Keynesianism, nominal income targeting, and inflation targeting. The record suggests that the reform was adopted when the FOMC became convinced that its earlier gradualist strategy using finely tuned interest rate moves had proved inadequate for fighting inflation and reversing inflation expectations. The new plan had to break dramatically with established practice, allow for the possibility of substantial increases in short-term interest rates, yet be politically acceptable, and convince financial markets participants that it would be effective. The new operating procedures were also adopted for the pragmatic reason that they would likely succeed. Keywords: Federal Reserve, FOMC, Paul Volcker, monetary reform, operating procedures JEL: E52 E58 E61 E65 Date: 2005-01-01 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200501&r=all 28. Practical Volatility and Correlation Modeling for Financial Market Risk Management Torben G. Andersen (Department of Finance, Kellogg School of Management, Northwestern University, Evanston, IL 60208, and NBER) Tim Bollerslev (Department of Economics, Duke University, Durham, NC 27708, and NBER) Peter F. Christoffersen (Faculty of Management, McGill University, Montreal, Quebec, H3A 1G5, and CIRANO) Francis X. Diebold (Department of Economics, University of Pennsylvania, Philadelphia, PA 19104, and NBER) What do academics have to offer market risk management practitioners in financial institutions? Current industry practice largely follows one of two extremely restrictive approaches: historical simulation or RiskMetrics. In contrast, we favor flexible methods based on recent developments in financial econometrics, which are likely to produce more accurate assessments of market risk. Clearly, the demands of real-world risk management in financial institutions – in particular, real- time risk tracking in very high-dimensional situations – impose strict limits on model complexity. Hence we stress parsimonious models that are easily estimated, and we discuss a variety of practical approaches for high-dimensional covariance matrix modeling, along with what we see as some of the pitfalls and problems in current practice. In so doing we hope to encourage further dialog between the academic and practitioner communities, hopefully stimulating the development of improved market risk management technologies that draw on the best of both worlds. JEL: G10 Date: 2005-01-02 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200502&r=all 29. Modeling Bond Yields in Finance and Macroeconomics Francis X. Diebold (Department of Economics, University of Pennsylvania, Philadelphia, PA 19104) Monika Piazzesi (Graduate School of Business, University of Chicago, Chicago IL 60637) Glenn D. Rudebusch (Economic Research, Federal Reserve Bank of San Francisco, 101 Market Street, San Francisco CA 94105) >From a macroeconomic perspective, the short-term interest rate is a policy instrument under the direct control of the central bank. From a finance perspective, long rates are risk-adjusted averages of expected future short rates. Thus, as illustrated by much recent research, a joint macro-finance modeling strategy will provide the most comprehensive understanding of the term structure of interest rates. We discuss various questions that arise in this research, and we also present a new examination of the relationship between two prominent dynamic, latent factor models in this literature: the Nelson-Siegel and affine no- arbitrage term structure models. Keywords: Term structure, yield curve, Nelson-Siegel model, affine equilibrium model JEL: G1 E4 E5 Date: 2005-01-03 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200503&r=all 30. A Framework for Exploring the Macroeconomic Determinants of Systematic Risk Torben G. Andersen (Department of Finance, Kellogg School of Management, Northwestern University, Evanston, IL 60208, and NBER) Tim Bollerslev (Department of Economics, Duke University, Durham, NC 27708, and NBER) Francis X. Diebold (Department of Economics, University of Pennsylvania, Philadelphia, PA 19104, and NBER) Jin (Ginger) Wu (Department of Economics, University of Pennsylvania, Philadelphia, PA 19104) We selectively survey, unify and extend the literature on realized volatility of financial asset returns. Rather than focusing exclusively on characterizing the properties of realized volatility, we progress by examining economically interesting functions of realized volatility, namely realized betas for equity portfolios, relating them both to their underlying realized variance and covariance parts and to underlying macroeconomic fundamentals. Keywords: Realized volatility, realized beta, conditional CAPM, business cycle JEL: G12 Date: 2005-01-04 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200504&r=all 31. Der Handel von Kreditrisiken: Eine neue Dimension des Kapitalmarktes Jan Pieter Krahnen (Goethe-Universitat Frankfurt, Center for Financial Studies (CFS), und CEPR. Taunusanlage 6, D- 60329 Frankfurt) This paper makes an attempt to present the economics of credit securitization in a non-technical way, starting from the description and the analysis of a typical securitization transaction. The paper sketches a theoretical explanation for why tranching, or nonproportional risk sharing, which is at the heart of securitization transactions, may allow commercial banks to maximize their shareholder value. However, the analysis makes also clear that the conditions under which credit securitization enhances welfare, are fairly restrictive, and require not only an active role of the banking supervisiory authorities, but also a price tag on the implicit insurance currently provided by the lender of last resort. JEL: D82 G21 D74 Date: 2005-01-05 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200505&r=all 32. Default Risk Sharing Between Banks and Markets: The Contribution of Collateralized Debt Obligations Gunter Franke (Center for Finance and Econometrics at the University of Konstanz, and CFS Center for Financial Studies, Frankfurt) Jan Pieter Krahnen (Goethe-University Frankfurt and CFS Center for Financial Studies, Frankfurt, and CEPR. Correspondence: CFS, Taunusanlage 6, D-60329 Frankfurt(Main) This paper contributes to the economics of financial institutions risk management by exploring how loan securitization a.ects their default risk, their systematic risk, and their stock prices. In a typical CDO transaction a bank retains through a first loss piece a very high proportion of the expected default losses, and transfers only the extreme losses to other market participants. The size of the first loss piece is largely driven by the average default probability of the securitized assets. If the bank sells loans in a true sale transaction, it may use the proceeds to to expand its loan business, thereby incurring more systematic risk. We find an increase of the banks’ betas, but no significant stock price e.ect around the announcement of a CDO issue. Our results suggest a role for supervisory requirements in stabilizing the financial system, related to transparency of tranche allocation, and to regulatory treatment of senior tranches. JEL: D82 G21 D74 Date: 2005-01-06 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200506&r=all 33. Competitive Risk Sharing Contracts with One-Sided Commitment Dirk Krueger (Goethe University Frankfurt, Mertonstr. 17, PF 81, 60054 Frankfurt) Harald Uhlig (Humboldt University, Wirtschaftswissenschaftliche Fakultat, Spandauer Str. 1, 10178 Berlin) This paper analyzes dynamic equilibrium risk sharing contracts between profit-maximizing intermediaries and a large pool of ex- ante identical agents that face idiosyncratic income uncertainty that makes them heterogeneous ex-post. In any given period, after having observed her income, the agent can walk away from the contract, while the intermediary cannot, i.e. there is one-sided commitment. We consider the extreme scenario that the agents face no costs to walking away, and can sign up with any competing intermediary without any reputational losses. We demonstrate that not only autarky, but also partial and full insurance can obtain, depending on the relative patience of agents and financial intermediaries. Insurance can be provided because in an equilibrium contract an up-front payment e.ectively locks in the agent with an intermediary. We then show that our contract economy is equivalent to a consumption-savings economy with one- period Arrow securities and a short-sale constraint, similar to Bulow and Rogo. (1989). From this equivalence and our characterization of dynamic contracts it immediately follows that without cost of switching financial intermediaries debt contracts are not sustainable, even though a risk allocation superior to autarky can be achieved. Keywords: Long-term Contracts, Risk Sharing, Limited Commitment, Competition JEL: G22 E21 D11 D91 Date: 2005-01-07 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200507&r=all 34. Volatility Forecasting Torben G. Andersen (Department of Finance, Kellogg School of Management, Northwestern University, Evanston, IL 60208, and NBER) Tim Bollerslev (Department of Economics, Duke University, Durham, NC 27708, and NBER) Peter F. Christoffersen (Faculty of Management, McGill University, Montreal, Quebec, H3A 1G5, and CIRANO) Francis X. Diebold (Department of Economics, University of Pennsylvania, Philadelphia, PA 19104, and NBER) Volatility has been one of the most active and successful areas of research in time series econometrics and economic forecasting in recent decades. This chapter provides a selective survey of the most important theoretical developments and empirical insights to emerge from this burgeoning literature, with a distinct focus on forecasting applications. Volatility is inherently latent, and Section 1 begins with a brief intuitive account of various key volatility concepts. Section 2 then discusses a series of different economic situations in which volatility plays a crucial role, ranging from the use of volatility forecasts in portfolio allocation to density forecasting in risk management. Sections 3, 4 and 5 present a variety of alternative procedures for univariate volatility modeling and forecasting based on the GARCH, stochastic volatility and realized volatility paradigms, respectively. Section 6 extends the discussion to the multivariate problem of forecasting conditional covariances and correlations, and Section 7 discusses volatility forecast evaluation methods in both univariate and multivariate cases. Section 8 concludes briefly. JEL: C10 C53 G1 Date: 2005-01-08 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200508&r=all 35. Assessing Central Bank Credibility During the ERM Crises: Comparing Option and Spot Market-Based Forecasts Markus Haas (University of Munich) Stefan Mittnik (University of Munich) Bruce Mizrach (Rutgers University) Financial markets embed expectations of central bank policy into asset prices. This paper compares two approaches that extract a probability density of market beliefs. The first is a simulatedmoments estimator for option volatilities described in Mizrach (2002); the second is a new approach developed by Haas, Mittnik and Paolella (2004a) for fat-tailed conditionally heteroskedastic time series. In an application to the 1992-93 European Exchange Rate Mechanism crises, that both the options and the underlying exchange rates provide useful information for policy makers. Keywords: Options; Implied Probability Densities; GARCH; Fat- tails; Exchange Rate Mechanism JEL: G12 G14 F31 Date: 2005-01-09 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200509&r=all 36. On the Optimal Progressivity of the Income Tax Code Juan Carlos Conesa (Universitat Pompeu Fabra, CREA and CREB- UB) Dirk Krueger (Department of Business and Economics, Johann Wolfgang Goethe-University Frankfurt am Main, Mertonstr. 17, PF 81, 60054 Frankfurt am Main, Germany; and CFS, CEPR and NBER) This paper computes the optimal progressivity of the income tax code in a dynamic general equilibrium model with household heterogeneity in which uninsurable labor productivity risk gives rise to a nontrivial income and wealth distribution. A progressive tax system serves as a partial substitute for missing insurance markets and enhances an equal distribution of economic welfare. These beneficial effects of a progressive tax system have to be traded off against the efficiency loss arising from distorting endogenous labor supply and capital accumulation decisions. Using a utilitarian steady state social welfare criterion we find that the optimal US income tax is well approximated by a flat tax rate of 17:2% and a fixed deduction of about $9,400. The steady state welfare gains from a fundamental tax reform towards this tax system are equivalent to 1:7% higher consumption in each state of the world. An explicit computation of the transition path induced by a reform of the current towards the optimal tax system indicates that a majority of the population currently alive (roughly 62%) would experience welfare gains, suggesting that such fundamental income tax reform is not only desirable, but may also be politically feasible. Keywords: Progressive Taxation, Optimal Taxation, Flat Taxes, Social Insurance, Transition JEL: E62 H21 H24 Date: 2005-01-10 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200510&r=all 37. Pareto Improving Social Security Reform when Financial Markets are Incomplete!? Dirk Krueger (University of Frankfurt) Felix Kubler (University of Mannheim) This paper studies an overlapping generations model with stochastic production and incomplete markets to assess whether the introduction of an unfunded social security system leads to a Pareto improvement. When returns to capital and wages are imperfectly correlated a system that endows retired households with claims to labor income enhances the sharing of aggregate risk between generations. Our quantitative analysis shows that, abstracting from the capital crowding-out effect, the introduction of social security represents a Pareto improving reform, even when the economy is dynamically effcient. However, the severity of the crowding-out effect in general equilibrium tends to overturn these gains. Keywords: Social Security Reform, Aggregate Fluctuations, Intergenerational Risk Sharing, Incomplete Markets. JEL: E62 H55 H31 D91 D58 Date: 2005-01-12 URL: http://d.repec.org/n?u=RePEc:cfs:cfswop:wp200512&r=all 38. THE SHOCK ABSORBER ROLE OF THE INTERNAL PUBLIC DEBT IN COLOMBIA, 1923-2003 Mauricio Avella Gomez The hypothesis that the internal public debt has played the role of shock absorber in Colombia since 1923 is modelled. 1923 was an important landmark in the history of fiscal and monetary reforms in Colombia during the twentieth century. The econometric results offer a strong support for the hypothesized shock-absorber role of the internal debt. Keywords: Deficit, Surplus JEL: H62 Date: 2005-06-30 URL: http://d.repec.org/n?u=RePEc:col:000070:001098&r=all 39. MEDIDAS DE RIESGO, CARACTERISTICAS Y TECNICAS DE MEDICION: UNA APLICACION DEL VAR Y EL ES A LA TASA INTERBANCARIA DE COLOMBIA Luis Fernando Melo Velandia Oscar Reinaldo Becerra Camargo En este documento se describen en detalle diversas metodologias que permiten calcular dos medidas utilizadas para cuantificar el riesgo de mercado asociado a un activo financiero: el valor en riesgo, VaR y el Expected Shortfall, ES. Los metodos analizados se dividen en dos grupos. En el primer grupo, compuesto por las metodologias de normalidad, simulacion historica y teoria del valor extremo (EVT), no se modelan las dependencias existentes en el primer y segundo momento condicional de la serie. En el segundo grupo, las metodologias ARMA-GARCH y ARMA-GARCH-EVT modelan los dos tipos de dependencias, mientras RiskMetrics® modela solo la segunda. Estas metodologias son aplicadas a las variaciones diarias de la tasa interbancaria para el periodo comprendido entre el 16 de abril de 1995 y el 30 de diciembre de 2004. El desempeno o backtesting del VaR calculado para diferentes metodologias en los anos 2003 y 2004 muestra que las mejores son aquellas que modelan la dependencia de la varianza condicional, tales como los modelos RiskMetrics®, ARMA-GARCH y ARMA-GARCH-EVT. Las tecnicas con el peor desempeno son la de simulacion historica, la EVT sin modelar dependencia y la basada en el supuesto de normalidad. Keywords: Riesgo de Mercado, JEL: C32 Date: 2005-06-30 URL: http://d.repec.org/n?u=RePEc:col:000070:001099&r=all 40. EVOLUCION DEL SERVICIO DE ENERGIA ELECTRICA DURANTE LA ULTIMA DECADA. Pablo Medina Eduardo Uribe Este documento presenta un analisis de los efectos de las reformas introducidas por la Constitucion de 1991 y por la Ley 142 de 1994 sobre el desempeno del sector de energia electrica. Incluye una descripcion de esas reformas y del actual marco institucional y regulatorio del sector. El documento analiza la evolucion de las realidades institucionales y regulatorias del sector de energia y sus efectos sobre la financiacion, las tarifas, la cobertura y la calidad del servicio. Tambien presenta informacion relativa a la contribucion del sector de energia electrica a la economia nacional. Finalmente, se presentan una serie de conclusiones y de retos futuros del sector. Keywords: Servicios Publicos, JEL: L94 Date: 2005-03-25 URL: http://d.repec.org/n?u=RePEc:col:000138:001079&r=all 41. EVOLUCION DEL SERVICIO DE GAS DOMICILIARIO DURANTE LA ULTIMA DECADA Harold Coronado Eduardo Uribe Este documento presenta un analisis de los efectos de las reformas introducidas por la Constitucion de 1991 y por la Ley 142 de 1994 sobre el desempeno del sector de gas natural. Incluye una descripcion de esas reformas y del actual marco institucional y regulatorio del sector. El documento analiza la evolucion de las realidades institucionales y regulatorias del sector de gas natural y sus efectos sobre la financiacion, las tarifas, la cobertura y la calidad del servicio. Tambien presenta informacion relativa a la contribucion del sector de gas natural a la economia nacional. Finalmente, se presentan una serie de conclusiones y de retos futuros del sector. Keywords: Servicios publicos JEL: L97 Date: 2005-03-25 URL: http://d.repec.org/n?u=RePEc:col:000138:001080&r=all 42. EVOLUCION DEL SERVICIO DE TELECOMUNICACIONES DURANTE LA ULTIMA DECADA Eduardo Uribe Este documento presenta un analisis de los efectos de las reformas introducidas por la Constitucion de 1991 y por la Ley 142 de 1994 sobre el desempeno del sector de telecomunicaciones. Incluye una descripcion de esas reformas y del actual marco institucional y regulatorio del sector. El documento analiza la evolucion de las realidades institucionales y regulatorias del sector de telecomunicaciones y sus efectos sobre la financiacion, las tarifas, la cobertura y la calidad del servicio. Finalmente, se presentan una serie de conclusiones y de retos futuros del sector. Keywords: Servicios Publicos JEL: L96 Date: 2005-03-25 URL: http://d.repec.org/n?u=RePEc:col:000138:001081&r=all 43. LA ESTRUCTURA ECONOMICA ACTUAL DE CASANARE Y POSIBILIDADES FUTURAS DE CRECIMIENTO Y COMPETITIVIDAD. TOMO I Fabio Sanchez Mariana Martinez Carolina Mejia Durante los anos noventa, el auge de petroleo en el Casanare provoco una serie de cambios economicos, fiscales y demograficos acelerados en este departamento. En primer lugar, el departamento ha experimentado una profunda transformacion en su estructura economica, pasando de ser una economia agricola a ser una economia dependiente del petroleo. En segundo lugar, el departamento atraviesa una dificil situacion de seguridad y orden publico evidenciada en un aumento en homicidios, secuestro, extorsion, ataques terroristas y ataques a la poblacion civil. En tercer lugar, el petroleo mejoro notablemente las finanzas publicas tanto del departamento como de los municipios, gracias a las regalias transferidas. No obstante, la estructura del gasto publico existente no es sostenible en el largo plazo y en caso de una disminucion o agotamiento del recurso, el futuro economico del departamento es incierto. De igual forma, la explotacion de los yacimientos petroleros fomento altas tasas de crecimiento urbano y una mayor demanda de servicios publicos y de vivienda, especialmente en ciudades como Yopal, Aguazul y Tauramena. Tambien causo flujos migratorios significativos, debido tanto al diferencial de salarios entre el sector petrolero y el resto de sectores de la economia como al auge economico que tuvo el departamento precisamente como resultado del auge petrolero. Keywords: economia regional JEL: R11 Date: 2005-04-15 URL: http://d.repec.org/n?u=RePEc:col:000138:001082&r=all 44. AGGLOMERATION AND THE ADJUSTMENT OF THE SPATIAL ECONOMY Pierre Philippe Combes Gilles Duranton Henry G. Overman We consider the literatures on urban systems and New Economic Geography to examine questions concerning agglomeration and how areas respond to shocks to the economic environment. We first propose a diagrammatic framework to compare the two approaches. We then use this framework to study a number of extensions and to consider several policy relevant issues. Keywords: Urban systems JEL: R00 Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:col:000138:001084&r=all 45. THE UTILITARIAN FOUNDATIONS OF THE ECONOMIC APPROACH TO HUMAN BEHAVIOR. Jimena Hurtado The economic approach to the study of human behavior has been presented by its foremost representative as the most effective method of studying social phenomena. Gary Becker’s view supposes that, on the one hand, all social phenomena can be explained as a consequence of individual actions and, on the other, there is a stable pattern of individual behavior economics has been able to understand thoroughly. Hence, economics, according to this view, is no longer limited to the study of a certain domain of human actions or to the understanding of material wealth or the necessary conditions for the material reproduction of society. Economics is a method that gives the social scientist the necessary tools to understand and even transform the world that surrounds him/her. Becker clearly acknowledges the direct link between his approach and Jeremy Bentham’s theory. Beyond the apparent connections regarding their conception of human nature there is one central point that links the two authors: their view of economics as an attitude of the human mind, an inherent capacity to calculate that explains all human actions. This paper argues that Bentham provides the philosophical groundings for Becker’s theory. The application of the principle of utility to every aspect of human behavior justifies economic imperialism by transforming economics into a method of general analysis of human behavior. Indeed, economics is no longer defined according to its subject matter but according to its method, which means an increasing scope explaining Becker’s claim that the economic approach provides a rigorous framework for the analysis of all social phenomena. Keywords: Gary Becker, JEL: A12 Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:col:000138:001085&r=all 46. MEDICION DEL IMPACTO DE UN PROGRAMA DE REFORMA AGRARIA EN COLOMBIA. Karen Heshusius Desde los anos treinta Colombia ha hecho varios intentos de reforma agraria, con el objetivo de mejorar la distribucion de la tierra, disminuir la pobreza rural y mejorar la productividad agricola. Sin embargo, dichos objetivos no han sido alcanzados y el debate sobre si la reforma agraria es anacronica o indispensable, esta muy presente. En este estudio, se evalua el impacto de un programa de reforma agraria en Colombia, sobre el ingreso y la calidad de vida de los beneficiarios, utilizando una estimacion no parametrica. La estrategia empirica implementada es conocida como aproximacion Matching. Los resultados obtenidos indican que el impacto de una reforma agraria sobre el ingreso y la calidad de vida de los beneficiarios, es positivo si se cumplen condiciones de acceso a credito formal, capacitacion y educacion secundaria. Si la reforma solo consiste en redistribucion de la tierra, el efecto sobre la calidad de vida es negativo. Se concluye que la reforma agraria continua siendo una estrategia efectiva para mejorar la calidad de vida de los hogares rurales, siempre y cuando se satisfagan las condiciones mencionadas. Keywords: Colombia JEL: Q15 Date: 2005-05-15 URL: http://d.repec.org/n?u=RePEc:col:000138:001086&r=all 47. Randomized Sign Test for Dependent Observations on Discrete Choice under Risk Anat Bracha Jeremy Gray (Dept. of Psychology, Yale University) Rustam Ibragimov Boaz Nadler (Dept. of Mathematics, Yale University) Dmitry Shapiro Glena Ames (Cowles Foundation, Yale University) Donald J. Brown (Cowles Foundation, Yale University) This paper proposes nonparametric statistical procedures for analyzing discrete choice models of affective decision making. We make two contributions to the literature on behavioral economics. Namely, we propose a procedure for eliciting the existence of a Nash equilibrium in an intrapersonal, potential game as well as randomized sign tests for dependent observations on game- theoretic models of affective decision making. This methodology is illustrated in the context of a hypothetical experiment -- the Casino Game. Keywords: Behavioral economics, Affective decision making, Intrapersonal potential games, Randomized sign tests, Dependent observations, Adapted sequences, Martingale- difference sequences JEL: C12 C32 C35 C72 C91 D11 D81 Date: 2005-06 URL: http://d.repec.org/n?u=RePEc:cwl:cwldpp:1526&r=all 48. Robust Monopoly Pricing: The Case of Regret Dirk Bergemann (Cowles Foundation, Yale University) Karl Schlag (European University Institute) We consider a robust version of the classic problem of optimal monopoly pricing with incomplete information. The robust version of the problem is distinct in two aspects: (i) the seller minimizes regret rather than maximizes revenue, and (ii) the seller only knows that the true distribution of the valuations is in a neighborhood of a given model distribution. We characterize the robust pricing policy as the solution to a minimax problem for small and large neighborhoods. In contrast to the classic monopoly policy, which is a single deterministic price, the robust policy is always a random pricing policy, or equivalently, a multi-item menu policy. The responsiveness of the robust policy to an increase in risk is determined by the curvature of the static profit function. Keywords: Monopoly, Optimal Pricing, Regret, Robustness JEL: C79 D82 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:cwl:cwldpp:1527&r=all 49. What makes a Die-Hard Entrepreneur? Trying, or Persisting in, Self-Employment Andrew E. Burke Michael A. Nolan Felix R. FitzRoy The paper makes three contributions to the economics literature on entrepreneurship. We offer a new measure of entrepreneurship which accounts for variations in persistence in self-employment. We outline an econometric methodology to account for this approach and find that it is superior to probit/logit models which have dominated the literature. While our results indicate that this existing literature is good at explaining an individual's propensity to try self-employment, we find that entrepreneurial persistence is determined by a different model and unearth some new insights into the roles of early career experience, finance, role models, gender and the unemployment push effect. Keywords: Self-employment, entrepreneurial persistence, count data JEL: C25 J23 URL: http://d.repec.org/n?u=RePEc:esi:egpdis:2005-23&r=all 50. Latent and actual entrepreneurship in Europe and the US: some recent developments Roy Thurik Isabel Grilo This paper uses 2004 survey data from the 15 old EU member states and the US to explain country differences in latent and actual entrepreneurship. Other than demographic variables such as gender, age and education, the set of covariates includes the perception by respondents of administrative complexities, of availability of financial support and of risk tolerance as well as country-specific effects. A comparison is made with results using a similar survey in 2000. While a majority of the surveyed population identifies lack of financial support as an obstacle to starting a new business, the role of this variable in both latent and actual entrepreneurship appears to be even more counterintuitive in 2004 than in 2000: it has no impact on actual entrepreneurship and is positively related to latent entrepreneurship. Administrative complexities, also perceived as an obstacle by a large majority of the population, have the expected negative impact both for latent and actual entrepreneurship in both years. Country-specific effects are important both for latent and actual entrepreneurship and the comparison of 2000 and 2004 results suggests that, once all other factors are controlled for, an improvement in actual entrepreneurship in the EU relative to the US has taken place in the last four years. However, in terms of unweighted averages actual entrepreneurship remained about the same. Latent entrepreneurship dropped while this drop seems to have occurred evenly in the US and the EU member states. Keywords: entrepreneurship; latent entrepreneurship; nascent entrepreneurship; determinants; Europe JEL: M13 H10 J23 R12 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:esi:egpdis:2005-24&r=all 51. Determinants of entrepreneurial engagement levels in Europe and the US Roy Thurik Isabel Grilo Determinants from different streams of literature and spanning different disciplines are used to explain entrepreneurial decisions. A multinomial logit model and survey data from the old 15 EU member states, Norway, Iceland, Liechtenstein and the US are used to establish the effect of demographic and other variables on various entrepreneurial engagement levels. These engagement levels range from "never thought about starting a business" to "thinking about it", "taking steps for starting up", "having a young business", "having an older business" and "no longer being an entrepreneur". Data of two Entrepreneurship Flash Eurobarometer surveys (2002 and 2003) containing over 20,000 observations are used. Other than demographic variables, the set of explanatory variables used includes the perception by respondents of ad-ministrative complexities, of availability of financial support and of risk tolerance, the respondents' prefer- ence for self-employment and country specific effects. The most striking result is that the perception of lack of financial support has no discriminative effect across the various levels of entrepreneurial engagement. Keywords: entrepreneurship, determinants, nascent entrepreneurship, multinomial logit, barriers to entry, Europe JEL: M13 H10 J23 R12 Date: 2005-06 URL: http://d.repec.org/n?u=RePEc:esi:egpdis:2005-25&r=all 52. Delegation in inconsistency: the Lisbon strategy record as an institutional failure Jerome Creel (Observatoire Francais des Conjonctures Economiques) Eloi Laurent (Observatoire Francais des Conjonctures Economiques) Jacques Le Cacheux (Observatoire Francais des Conjonctures Economiques) In this paper, we develop an analysis of the reasons for the apparent failure of the “Lisbon strategy” (2000) so far. After having made the general case for a comprehensive “institutionalist perspective” on the European economy, we first try to formalise the objectives of “Lisbon” in order to present a mid-term review of the results attained. Since we find, like many others, that too little has been achieved, we then offer some possible explanations. Apart from an inconsistency problem between the different objectives set, we argue that the major reason for this failure appears to lie in the contradiction between the EU macroeconomic policy framework, based on the logic of delegation of power and control to independent authorities with conservative objectives, and the proactive policies required by the “Lisbon strategy”, which objectives the EU member states eventually find themselves accountable for (not) achieving individually. Keywords: European Union, “Lisbon strategy”, Institutions, Delegation, Inconsistency, Macroeconomic policy, Structural Reform JEL: N14 O11 Date: 2005 URL: http://d.repec.org/n?u=RePEc:fce:doctra:0507&r=all 53. Business Models and Stock Exchange Performance - Empirical Evidence Baris Serifsoy In recent years stock exchanges have been increasingly diversifying their operations into related business areas such as derivatives trading, post-trading services and software sales. This trend can be observed most notably among profit-oriented trading venues. While the pursuit for diversification is likely to be driven by the attractiveness of these investment opportunities, it is yet an open question whether certain integration activities are also efficient, both from a social welfare and from the exchanges' perspective. Academic contributions so far analyzed different business models primarily from the social welfare perspective, whereas there is only little literature considering their impact on the exchange itself. By employing a panel data set of 28 stock exchanges for the years 1999-2003 we seek to shed light on this topic by comparing the factor productivity of exchanges with different business models. Our findings suggest three conclusions: (1) Integration activity comes at the cost of increased operational complexity which in some cases outweigh the potential synergies between related activities and therefore leads to technical inefficiencies and lower productivity growth. (2) We find no evidence that vertical integration is more efficient and productive than other business models. This finding could contribute to the ongoing discussion about the merits of vertical integration from a social welfare perspective. (3) The existence of a strong in-house IT-competence seems to be beneficial to overcome JEL: F39 G32 C23 C24 C61 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:fra:franaf:158&r=all 54. Explaining the Trend and the Diversity in the Evolution of the Stock Market Niloy Bose Rebecca Neumann In an overlapping generations economy, lenders fund risky investment projects of firms by drawing up loan contracts in the presence of an informational asymmetry. An optimal contract entails the issue of only debt, only equity, or a mix of the two. The equilibrium choice of contract depends on the state of the economy, which in turn depends on the contracting regime. Based on this analysis, the paper provides a theory of the joint determination of real and financial development. The paper is able to explain both the endogenous emergence of the stock market along the path of economic development and the diversity in the mode of financing that is commonly observed in the intermediate stage of development. JEL: E13 E44 E50 O16 Date: 2005-07-11 URL: http://d.repec.org/n?u=RePEc:got:cegedp:47&r=all 55. Markets, models and planning: the Norwegian experience Bjerkholt, Olav (Dept. of Economics, University of Oslo) After World War II economic policy in Europe comprised considerable elements of planning. The paper discusses how this shift was related to the conceived failure of the free enterprise economy to provide full employment in the interwar period and to the war experience. The Norwegian post-war planning had a more integrated and comprehensive character and a more structured format than in most other countries in Western Europe. Some major aspects of the Norwegian planning system and the models developed to support it are discussed, with particular emphasis on the roles played by key economists Keywords: Economic planning; planning models; national budgeting; Marshall Plan JEL: A11 O21 P41 Date: 2005-07-11 URL: http://d.repec.org/n?u=RePEc:hhs:osloec:2005_014&r=all 56. Advertising on TV: Under- or Overprovision? Kind, Hans Jarle (Norwegian School of Economics and Business Administration) Nilssen, Tore (Dept. of Economics, University of Oslo) Sorgard, Lars (Norwegian Competition Authority) We consider a model where TV channels transmit advertising, and viewers dislike such commercials. We find that the less differentiated the TV channels’ programs are, the lower is the amount of advertising in equilibrium. Relative to the social optimum, there is underprovision of advertising if TV channels are sufficiently close substitutes. In such a situation, a merger between TV channels may lead to more advertising and thus improve welfare. A publicly owned TV channel can partly correct market distortions, in some cases by having a larger amount of advertising than a private TV channel. It may actually have advertising even in cases where it is wasteful per se Keywords: Television industry; Advertising; Public policy; Mixed oligopoly JEL: L82 M37 Date: 2005-05-22 URL: http://d.repec.org/n?u=RePEc:hhs:osloec:2005_015&r=all 57. Prioritizing public health expenditures when there is a private alternative Hoel, Michael (Dept. of Economics, University of Oslo) Cost-effectiveness analysis often plays an important role in prioritization among different types of public health expenditures. Cost-effectiveness is defined as the maximal health benefits for given expenditures on health care. With a private health sector as a supplement to the public sector, the socially optimal ranking of treatments to be included in the public health program is changed. The larger are the costs per treatment for a given benefit-cost ratio, the higher priority should the treatment be given. The more heterogeneous preferences for a particular treatment are, the lower priority should this treatment be given. If the health budget does not exceed the socially optimal size, treatments with sufficiently low costs should not be performed by the public health system if there is a private alternative Keywords: public health; prioritization; cost-effectiveness analysis JEL: H42 H51 I10 I18 Date: 2005-05-25 URL: http://d.repec.org/n?u=RePEc:hhs:osloec:2005_016&r=all 58. Young and Out: An Application of a Prospects-Based Concept of Social Exclusion Raaum, Oddbjorn (The Ragnar Frisch Centre for Economic Research) Rogstad, Jon (Institute for Social Research) Roed, Knut (The Ragnar Frisch Centre for Economic Research) Westlie, Lars (The Ragnar Frisch Centre for Economic Research) We develop a forward-looking empirical concept of social exclusion based on the estimated transition probabilities from a random effects multinominal logit-model. Youths are considered socially excluded if they are currently outside school/work and have a low predicted probability of re-entering in the near future. Implemented on extraordinary rich event history data of compulsory school graduates, we estimate social exclusion among Norwegian youths and find that social exclusion is (i) non- cyclical; (ii) rare among teen-agers, except for immigrant children and individuals with a disadvantaged family background; ( iii) more prevalent among young adults in their early twenties; and (iv) independent of gender Keywords: social exclusion; multinominal logit-model; Youths; JEL: I29 Date: 2005-05-30 URL: http://d.repec.org/n?u=RePEc:hhs:osloec:2005_017&r=all 59. The Effectiveness of Bank Recapitalization in Japan Heather Montgomery Satoshi Shimizutani This study examines the effectiveness of bank recapitalization policies in Japan. Based on a careful reading of the "business revitalization plan" submitted by banks requesting government funds, we identify four primary goals of the capital injection plan in Japan: 1) to increase the bank capital ratios 2) to increase lending, in particular to small and medium enterprises, and avoid a "credit crunch" 3) to increase write-offs of non- performing loans and 4) to encourage restructuring. Using a panel of individual bank data, we empirically estimate the effectiveness of the Japanese government policy of public fund injection in achieving the first three of these stated goals. Our empirical analysis of international and domestic banks reveals that the capital injections going to the larger international banks were more effective than those used toward regional banks in Japan. The first capital injection in 1997 was effective primarily in helping international banks to clear the 8% capital adequacy ratio (BIS ratio) required under the Basel Accord. The second round capital injections seem to have been even more effective, boosting capital adequacy ratios for the regional as well as international banks, and encouraging other policy objectives such as increased lending to small and medium enterprises. Date: 2005-06 URL: http://d.repec.org/n?u=RePEc:hst:hstdps:d05-105&r=all 60. The efficient moment estimation of the probit model with an endogenous continuous regressor Daiji Kawaguchi Hisahiro Naito We propose an efficient moment estimator for the probit model with a continuous endogenous regressor. The estimation can be readily implemented using a standard statistical package that can estimate a non-linear system two-stage least squares ( instrumental variable) estimator. Keywords: Probit, Continuous endogenous regressor, Moment estimation JEL: C25 Date: 2005-06 URL: http://d.repec.org/n?u=RePEc:hst:hstdps:d05-106&r=all 61. Health Status and Labour Force Status of Older Working-Age Australian Men Lixin Cai (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne) Guyonne Kalb (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne) The trend of declining labour force participation by older working-age men, combined with an ageing population, has led many industrialised nations to develop policies encouraging older male workers to remain in the labour force. A better understanding of how an individual’s health influences the labour force participation decision among this group of workers would facilitate the development of effective policies. The current research uses the Household, Income and Labour Dynamics in Australia (HILDA) survey to investigate the issue. The longitudinal nature of the three-wave HILDA data, which are currently available, allows for a better control for unobserved heterogeneity than was possible with earlier data. Therefore, more efficient estimates of the direct health effects on labour force participation can be obtained than in a cross-sectional analysis. Unobserved factors are likely to affect both health and labour force status, therefore we estimate a model that takes the correlation between the two error terms in the health and labour force status equations into account. The results show that controlling for unobserved heterogeneity and the correlation between the two equations is important. That is, the estimated variances of the unobserved heterogeneity terms are significantly different from zero in both equations and the two error terms are correlated. Any restriction on the correlation between the two equations appears to lead to underestimation of the direct health effects. Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:iae:iaewps:wp2005n09&r=all 62. The Effect of Financial Incentives on Labour Supply: Evidence for Sole Parents from Microsimulation and Quasi- Experimental Evaluation Lixin Cai (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne) Guyonne Kalb (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne) Yi-Ping Tseng (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne) Hong Ha Vu (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne) The aim of this paper is to analyse work incentive effects from a recent change in the Australian tax and transfer system on sole parents. Two approaches are used in the analysis: microsimulation and quasi-experimental evaluation. Both approaches examine the effects on the probability of employment and average working hours. The results from both approaches show that the combined changes introduced in July 2000 involving reduced withdrawal rates, changed family payments and lower income tax rates?have increased labour supply for sole parents to a small extent. The results from microsimulation are slightly smaller than those estimated from a quasi-experimental approach using matching techniques to control for alternative influences. In addition, using microsimulation, the separate effects of the components can be estimated. It was found that reduced benefit withdrawal rates, a reduction in the withdrawal rates and abolition of the sudden death for family payments, and lower income tax rates all increased labour supply. However, the replacement of tax rebates with additional non-income-tested family payments is estimated to have a negative effect on labour supply. Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:iae:iaewps:wp2005n10&r=all 63. New Keynesian or RBC Transmission? The Effects of Fiscal Policy in Labor Markets Evi Pappa We study the mechanics of transmission of fiscal shocks to labor markets. We characterize a set of robust implications following government consumption, investment and employment shocks in a RBC and a New-Keynesian model and use part of them to identify shocks in the data. In line with the New-Keynesian story, shocks to government consumption and investment increase real wages and employment contemporaneously both in US aggregate and in US state data. The dynamics in response to employment shocks are mixed, but in many cases are inconsistent with the predictions of the RBC model. URL: http://d.repec.org/n?u=RePEc:igi:igierp:293&r=all 64. The elusive costs and the immaterial gains of fiscal constraints Fabio Canova Evi Pappa We study whether fiscal restrictions affect volatilities and correlations of macrovariables and the probability of excessive debt for a sample of 48 US states. Fiscal constraints are characterized with a number of indicators and volatility and correlations are computed in several ways. The second moments of macroeconomic variables in states with different fiscal constraints are economically and statistically similar. Excessive debt and the mechanism linking budget deficit and excessive debts are independent of whether tight or loose fiscal constraints are in place. Creative budget accounting may account for the results. URL: http://d.repec.org/n?u=RePEc:igi:igierp:295&r=all 65. Gains from Coordination in a Multi-Sector Open Economy: Does it Pay to be Different? Zheng Liu Evi Pappa Do countries gain by coordinating their monetary policies if they have different economic structures? We address this issue in the context of a new open-economy macro model with a traded and a non-traded sector and more importantly, with a across-country asymmetry in the size of the traded sector. We study optimal monetary policy under independent and cooperating central banks, based on analytical expressions for welfare objectives derived from quadratic approximations to individual preferences. In the presence of asymmetric structures, a new source of gains from coordination emerges due to a terms-of-trade externality. This externality affects unfavorably the country that is more exposed to trade and its effects tend to be overlooked when national central banks act independently. The welfare gains from coordination are sizable and increase with the degree of asymmetry across countries and the degree of openness, and decrease with the within-country correlation of sectoral shocks. URL: http://d.repec.org/n?u=RePEc:igi:igierp:296&r=all 66. Growing Demand for Animal-Protein-Source Products in Indonesia: Trade Implications Fabiosa, Jacinto F. New elasticities were estimated from Indonesia’s 1996, 1999, and 2002 National Socio-Economic Survey, or SUSENAS, data using a double-hurdle demand specification. The estimates suggest that major changes in Indonesian household diets are expected in the coming years, as income growth is sustained and as urbanization proceeds at a fast pace. The consumption “trading-up” pattern for animal-protein source products observed in many countries may also occur in Indonesia. In this particular case, households will shift from fish to dairy and meat products. The trade impacts of this emerging consumption pattern will be determined by the cost of adjustment in Indonesia’s domestic productive capacity and the influence of the country’s predominantly Islamic tradition. Date: 2005-07-11 URL: http://d.repec.org/n?u=RePEc:isu:genres:12393&r=all 67. Estimated Returns to Iowa Farmland Duffy, Michael Holste, Ann This paper estimates the average return to Iowa farmland is approximately 3.9 percent. For the farmer with owned land, the returns are approximately five percent using an average price scenario. Government programs are estimated to have significant impacts on Iowa farmland values. Date: 2005-07-12 URL: http://d.repec.org/n?u=RePEc:isu:genres:12396&r=all 68. On the Use of Racial Profiling as a Law Enforcement Tool Bunzel, Helle Marcoul, Philippe The “End Racial Profiling Act of 2001” (ERPA) states that “no law enforcement agent or law enforcement agency shall engage in racial profiling” and mandates states to “collect detailed data on stops, searches, seizures, and arrests.” We develop a stylized dynamic model of highway policing to study the long-run consequences of ERPA. In the model, color-neutral police o?cers receive incentives to arrest criminals, but face a per stop cost which increases when the racial mix of the interdicted di?ers from the racial composition of the population. Incarceration rates are defined to be racially “fair” if the racial composition of the prison and criminal population is identical. The model predicts that the long-term racial composition of the prison population may not be fair and that ERPA may increase fairness. Ceteris paribus, however, ERPA may lower e?ciency (the number of criminals in jail). Finally, we characterize and compare the incentive schemes for crime fighting that a government would optimally set with and without ERPA. Date: 2005-07-14 URL: http://d.repec.org/n?u=RePEc:isu:genres:12397&r=all 69. Regional Dependencies in Job Creation: An Efficiency Analysis for Western Germany Rene Fahr (University of Cologne and IZA Bonn) Uwe Sunde (IZA Bonn) This paper investigates the efficiency of the matching process between job seekers and vacancy posting firms in West-Germany, using variation across labor market regions and across time. The results of a stochastic frontier analysis shed new light on extent and regional differences of search frictions, on potential determinants of frictional inefficiencies and on the consequences of German reunification for the matching process. The paper also presents novel evidence on the complex interactions between spatial contingencies among regional labor markets: matching efficiency decreases with spatial autocorrelation in hiring, implying indirect evidence for crowding externalities. Keywords: regional unemployment, stochastic frontier, matching function, spatial autocorrelation JEL: J61 J64 J21 R12 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1660&r=all 70. From Team Spirit to Jealousy: The Pitfalls of Too Much Transparency Alexander K. Koch (Royal Holloway, University of London and IZA Bonn) Albrecht Morgenstern (Federal Ministry of Finance and IZA Bonn) Free riding in team production arises because individual effort is not perfectly observable. It seems natural to suppose that greater transparency would enhance incentives. Therefore, it is puzzling that team production often lacks transparency about individual contributions despite negligible costs for providing such information. We offer a rationale for this by demonstrating that transparency can actually hurt incentives. In the presence of career concerns information on the quality of task execution improves incentives while sustaining a cooperative team spirit. In contrast, making the identity of individual contributors observable induces sabotage behavior that looks like jealousy but arises purely from signal jamming by less successful team members. Our results rationalize the conspicuous lack of transparency in team settings with strong career concerns (e.g., co-authorship, architecture, and patent applications) and contribute to explaining the popularity of group incentive schemes in firms. Keywords: teams, reputation, transparency, group incentives, sabotage JEL: D82 J30 L14 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1661&r=all 71. Family-Friendly Work Practices in Britain: Availability and Perceived Accessibility John W. Budd (University of Minnesota) Karen Mumford (University of York and IZA Bonn) Using linked data for British workplaces and employees we find a low base rate of workplacelevel availability for five family- friendly work practices - parental leave, paid leave, job sharing, subsidized child care, and working at home - and a substantially lower rate of individual-level perceived accessibility. Our results demonstrate that statistics on workplace availability drastically overstate the extent to which employees perceive that family-friendly are accessible to them personally. British workplaces appear to be responding slowly and perhaps disingenuously to pressures to enhance family-friendly work practices. Keywords: family friendly, perceived, access, availability JEL: J13 J32 J70 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1662&r=all 72. Unemployment and Transitions in the Turkish Labor Market: Evidence from Individual Level Data H. Mehmet Tasci (Middle East Technical University) Aysit Tansel (Middle East Technical University and IZA Bonn) This paper provides a systematic analysis of the determinants of transitions in the Turkish labor market by using the Household Labor Force Survey (HLFS) panel data of 2000 and 2001. We provide two types of evidence. First, we compute annual transition probabilities between the labor market states of employment, unemployment and out-of-the labor force under Markovian assumptions by gender and rural-urban residence and marital status. Transition probabilities are used to analyze the differences in unemployment rates of these groups. Second, we present estimates of gender-specific multinomial logit models to analyze the determinants of men’s and women’s transition probabilities across labor market states. We find that urban women have higher unemployment rates than urban men because they have lower probability of exiting unemployment for a job and higher probability of exiting employment for unemployment. Non- married men and women’s unemployment rates are higher than married men and women’s. This may be attributed to the higher probability of nonmarried men and women’s to lose a job. Increases in education level are found to decrease the probability of losing a job. University graduates of two-year and over are more likely to find employment compared to non-graduates. Younger individuals are more likely to lose a job but older individuals are less likely to find a job from unemployment. In provinces with high unemployment the probability of obtaining a job is lower from unemployment. The findings indicate negative duration dependence for women, but not for men. Men improve their chances of obtaining a job if they use newspapers or worker agents. Keywords: panel data, unemployment, transition probabilities, gender, Turkey JEL: J23 J64 J16 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1663&r=all 73. Inter-Regional Wage Dispersion in Portugal Jose Antonio Cabral Vieira (University of the Azores and IZA Bonn) Joao Pedro Almeida Couto (University of the Azores) Maria Teresa Borges Tiago (University of the Azores) This paper examines the size o inter-regional wage dispersion in Portugal. For this purpose, we estimate a Mincer-type human capital wage equation, including controls for a large number of regions, and calculate a weighted and adjusted standard deviation WASD) of inter-regional wage differentials. The value is high and quite stable over time. The highest wages are found in the region of Lisbon. Moreover, the results are quite sensitive to inclusion of human capital and industry controls. A decomposition analysis reveals that differences average years of education and in the return to education across regions account for a significant fraction of observed wage differentials. Keywords: regions, wages, human capital, Portugal JEL: J31 R10 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1664&r=all 74. The Wage Curve Reloaded David G. Blanchflower (Dartmouth College, NBER and IZA Bonn) Andrew J. Oswald (University of Warwick and IZA Bonn) This paper provides evidence for the existence of a wage curve - a micro-econometric association between the level of pay and the local unemployment rate - in modern U.S. data. Consistent with recent evidence from more than 40 other countries, the wage curve in the United States has a long-run elasticity of approximately - 01. In line with the paper’s theoretical framework: (i) wages are higher in states with more generous unemployment benefits, ( ii) the perceived probability of job-finding is lower in states with higher unemployment, and (iii) employees are less happy in states that have higher unemployment. We conclude that it is reasonable to view the wage curve as an empirical law of economics. Keywords: wages, unemployment, wage curves JEL: J3 E2 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1665&r=all 75. Actions and Beliefs: Estimating Distribution-Based Preferences Using a Large Scale Experiment with Probability Questions on Expectations Charles Bellemare (Universite Laval, CIRPEE and IZA Bonn) Sabine Kroger (University of Arizona) Arthur van Soest (RAND Corporation, Tilburg University and IZA Bonn) We combine the choice data of proposers and responders in the ultimatum game, their expectations elicited in the form of subjective probability questions, and the choice data of proposers ("dictators") in a dictator game to estimate a structural model of decision making under uncertainty. We use a large and representative sample of subjects drawn from the Dutch population. Our results indicate that there is considerable heterogeneity in preferences for equity in the population. Changes in preferences have an important impact on decisions of dictators in the dictator game and responders in the ultimatum game, but a smaller impact on decisions of proposers in the ultimatum game, a result due to proposer’s subjective expectations about responders’ decisions. The model which uses subjective data on expectations has better predictive power and lower noise level than a model which assumes that players have rational expectations. Keywords: ultimatum game, inequity aversion, subjective expectations JEL: C93 D63 D84 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1666&r=all 76. Low-Wage Employment in Portugal: A Mixed Logit Approach Carlos Pestana Barros (Technical University of Lisbon) Isabel Proenca (Technical University of Lisbon) Jose Cabral Vieira (University of the Azores and IZA Bonn) In this paper, we examine the determinants of low-wage employment in Portugal. For this purpose, we use a data file of the European Community Household Panel (ECHP) for the years 1998 and 1999. In order to take into account unobserved heterogeneity in the data, a random-parameter logit model is used to analyse the probability of a worker receiving a low wage. The results indicate that the consideration that the effects of the explanatory variables are the same across all individuals, such as is assumed in most of the literature may be misleading. From the policy perspective, this implies that the use of a single instrument in order to combat low-wage employment is inappropriate to satisfy the whole population. In view of this, policies tailored by clusters would be more appropriate. Keywords: low-wage employment, random-parameter logit model, public policy JEL: C25 J31 J38 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1667&r=all 77. Brain Drain in Developing Regions (1990-2000) Frederic Docquier (University of Lille 2, World Bank, IWEPS and IZA Bonn) Olivier Lohest (IWEPS (Regional Govt. of Wallonia, Belgium)) Abdeslam Marfouk (Free University of Brussels and IWEPS) In this paper, we analyze the distribution of the brain drain in the LAC region (Latin America and the Caribbean), Asia and Africa. We rely on an original data set on international migration by educational attainment for 1990 and 2000. Our analysis reveals that the brain drain is strong in Eastern, Middle and Western Africa, Central America and the Caribbean. However, the Kernel approach suggests that the dispersion and the intradistribution dynamics of skilled migration rates strongly differ across regions. We then tautologically disentangle the brain drain into two multiplicative components, the global migration rate and the selection bias. Among the most affected countries, LAC countries suffer from high migration rates whilst most African countries suffer from high selection biases. Finally, exploratory Moran’s tests reveal strong spatial, political and cultural autocorrelations in migration rates and selection biases. The latter result suggests that skilled workers react differently than unskilled workers to a large set of variables. JEL: F22 O15 J11 J24 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1668&r=all 78. Division of Labour and Directed Production Marisa Ratto (CMPO, University of Bristol) Wendelin Schnedler (University of Heidelberg and IZA Bonn) We examine a situation where efforts on different tasks positively affect production but are not separately verifiable and where the manager (principal) and the worker (agent) have different ideas about how production should be carried out: agents prefer a less efficient way of production. We show that by dividing labour (assigning tasks to different agents and verifying that agents do not carry out tasks to which they are not assigned), it is possible for the principal to implement the efficient way of production. Colluding agents can undermine this implementation. However, if agents have different abilities, collusion can be prevented by a specific assignment of agents to tasks. Keywords: hidden action, moral hazard, specialisation, job design JEL: L23 M52 D82 J24 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1669&r=all 79. Age-Specific Cyclical Effects in Job Reallocation and Labor Mobility Anne C. Gielen (Tilburg University, CentER) Jan C. van Ours (Tilburg University, CentER, CEPR and IZA Bonn) We present an empirical analysis of job reallocation and labor mobility using matched workerfirm data for the Netherlands to investigate how firms adjust their workforce over the cycle. Our data cover the period 1993-2002. We find that cyclical adjustments of the workforce occur mainly through fluctuations in job creation for young and prime-age workers while for old workers they occur mainly through fluctuations in job destruction. Moreover, we find that business cycle fluctuations are used to rejuvenate the workforce. Workforce reductions are most harmful for old workers; for them the flow out of employment is a one-way street. Keywords: job creation, job destruction, accessions, separations, matched worker-firm data JEL: J23 J62 J63 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1670&r=all 80. Moonlighting Behavior over the Business Cycle Catalina Amuedo-Dorantes (San Diego State University and IZA Bonn) Jean Kimmel (Western Michigan University and IZA Bonn) Using data from the 1979 National Longitudinal Survey of Youth, we examine the cyclicality by sex of moonlighting and moonlighting hours. We find that, once we account for the sample selection into employment, both men and women exhibit procyclical moonlighting probabilities. Likewise, moonlighting hours for male multiple job holders are procyclical. These findings contradict the frequent claim that moonlighting increases during economic downturns due to economic hardship. Instead, moonlighting appears responsive to growing employment opportunities during economic expansions. At any rate, the systematic variation of moonlighting over the business cycle may have implications for the procyclical nature of real wages. Keywords: moonlighting, multiple job holding, business cycles, U. S. JEL: J2 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1671&r=all 81. Exports and Labour Demand: Searching for Functional Structure in Multi-Output Multi-Skill Technologies Bertrand M. Koebel (BETA-Theme, Louis Pasteur University, Strasbourg and IZA Bonn) In order to simplify the representation of a technological relationship between inputs and outputs, a production unit’s technology must typically satisfy some restrictive conditions, some of them being well known in the literature. This paper presents new results for aggregating labour inputs and outputs, in terms of restrictions on elasticities of scale and substitution. These conditions are then empirically investigated, in a framework that is flexible and does not lose its flexibility after separability being imposed. The empirical findings of the exact approach to aggregation are found to be rather pessimistic on the possibility to provide a simplified representation. Keywords: aggregation, separability, flexibility, exports, labour demand, Box-Cox, system serial correlation JEL: C33 D24 E10 J23 L60 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1672&r=all 82. Maternal Employment and Adolescent Development Christopher J. Ruhm (University of North Carolina at Greensboro, NBER and IZA Bonn) This study investigates how maternal employment is related to the outcomes of 10 and 11 year olds, controlling for a wide variety of child, mother and family characteristics. The results suggest that limited amounts of work by mothers benefit youths who are relatively "disadvantaged" and even long hours, which occur relatively rarely, are unlikely to leave them much worse off. By contrast, maternal labor supply is estimated to have much more harmful effects on "advantaged" adolescents. Particularly striking are the reductions in cognitive test scores and increases in excess body weight predicted by even moderate amounts of employment. The negative cognitive effects occur partly because maternal labor supply reduces the time these children spend in enriching home environments. Some of the growth in obesity may be related to determinants of excess weight that are common to the child and mother. Work hours are also associated with relatively large (in percentage terms) increases in early substance use and small decreases in behavior problems; however, neither are statistically significant. Keywords: maternal employment, adolescent development, child obesity, socioeconomic status JEL: I20 J13 J18 J22 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1673&r=all 83. A Cure for Discrimination? Affirmative Action and the Case of California Proposition 209 Caitlin Knowles Myers (Middlebury College and IZA Bonn) Proposition 209, enacted in California in 1996 and made effective the following year, ended state affirmative action programs not only in education, but also for public employment and government contracting. This paper uses CPS data and triple difference techniques to take advantage of the natural experiment presented by this change in state law to gauge the labor market impacts of ending affirmative action programs. Employment among women and minorities dropped sharply, a change that was nearly completely explained by a decline in participation rather than by increases in unemployment. This decline suggests that either affirmative action programs in California had been inefficient or that they failed to create lasting change in prejudicial attitudes. Keywords: economics of gender and minorities, affirmative action, Proposition 209, discrimination JEL: J71 J78 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1674&r=all 84. Growth, Technological Interdependence and Spatial Externalities: Theory and Evidence. ERTUR, Cem (LEG - CNRS UMR 5118 - Universite de Bourgogne) KOCH, Wilfried (LEG - CNRS UMR 5118 - Universite de Bourgogne) This paper presents a theoretical model, based on the neoclassical growth literature, which explicitly takes into account technological interdependence among economies and examines the impact of location and neighborhood effects in explaining growth. Technological interdependence is supposed working through spatial externalities. The magnitude of the physical capital externalities at steady state, which is usually not identified in the literature, is estimated using a spatial econometric specification explaining the steady state income level. This spatially augmented Solow model yields a conditional convergence equation which is characterized by parameter heterogeneity. A locally linear spatial autoregressive specification is then estimated. Keywords: Conditional convergence ; technological interdependence ; spatial externalities ; spatial autocorrelation ; parameter heterogeneity ; locally linear estimation JEL: C14 C31 O4 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:lat:legeco:2005-03&r=all 85. Croissance, capital humain et interactions spatiales : une etude econometrique. ERTUR, Cem (LEG - CNRS UMR 5118 - Universite de Bourgogne) THIAW, Kalidou (LEG - CNRS UMR 5118 - Universite de Bourgogne) The aim of this paper is to analyze the theoretical and econometric implications of omitting spatial dependence in the Mankiw, Romer, and Weil (1992) model. Indeed, the international distribution of income levels and growth rates suggests the existence of large international disparities, and therefore the important role of location on economic performance. However, taking spatial dependence into account requires resorting to the methods of Spatial Econometrics, not only for a valid statistical inference, but also for revaluating the impact of the variables generally considered as crucial in the growth phenomenon and finding the processes underlying growth rates and income levels. / L'objectif de cet article est d'analyser les implications econometriques et theoriques de l'omission de la dependance spatiale dans le cadre de l'estimation du modele de Mankiw, Romer et Weil (1992). En effet, la distribution internationale des taux de croissance et des niveaux de revenu suggere l'existence de bassins de croissance et de recession, et donc un role important de la localisation dans les performances economiques. Cependant, la prise en compte de l'autocorrelation spatiale dans l'estimation necessite de recourir aux methodes de l'econometrie spatiale afin, non seulement d'obtenir une inference statistique valide, mais egalement d'elucider les processus qui sous-tendent la determination des rythmes de croissance et des niveaux de revenu. Keywords: Economic growth ; Human capital ; convergence ; spatial econometrics ; Croissance economique ; capital humain ; convergence ; econometrie spatiale JEL: C14 C31 O4 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:lat:legeco:2005-04&r=all 86. Price Liberalization and Output Decline in Transition Saso Polanec In this paper, we attempt to fill the gap in theoretical explanations of a large output decline that took place in the early years of transition process. The prevalent explanations, commonly found under the title of disorganisation, are succesful in explaining output decline in countries of former Soviet Union, but less so for Central and Eastern European countries. The model we develop shares the cause of output decline with disorganisation - price liberalisation, however, the decline takes place only under a set of plausible assumptions: adjustment costs to labor mobility across economic sectors and large benefits to inactivity in a form of either government transfers or reservation wage earned in informal economy. Liberalisation of prices in a form of removal of distortionary taxes creates incentives for labor mobility from a declining sector to inactivity. The decline takes place only in a part of the economy, while the rest of the economy stagnates or slowly grows. Since the model does not have a closed-form solution, we analyze the equilibrium allocation using simulation methods. We also discuss the political economy of reforms and identify the conditions under which rational voters under majoritarian voting rule would support the price liberalisation. Keywords: liberalization, transition, recession, adjustment cost, government transfers, reservation wage, heterogeneity JEL: F11 J21 J60 O11 O17 URL: http://d.repec.org/n?u=RePEc:lic:licosd:15304&r=all 87. Do External Knowledge Spillovers Induce Firms’Innovations? Evidence from Slovenia Joze P. Damijan Andreja Jaklic Matija Rojec The paper analyses whether, and to what extent, firm’s ability to innovate is induced by firm’s own R&D activity and to what extent by factors external to firm. It first estimates the impact of firms' internal R&D capital and external R&D spillovers on firms' innovation activity within an integrated dynamic model. In the second step, we then estimate the impact of firms'innovations on firms’ productivity growth. Using the firm level data on innovation activity combined with firms' financial data for a large sample of Slovenian firms in the period 1996-2002, the paper produces three main findings. First, firm’s own R&D expenditures as well as external knowledge spillovers, such as national and international public R&D subsidies, foreign ownership and intra-sector innovation spillovers do enhance firm’s ability to innovate. Second, innovations as a result of firm’s R&D do contribute substantially to firm’s total factor productivity growth. And third, foreign ownership has a double impact on firm’s TFP growth - it first enhances firm’s ability to innovate and then it additionally contributes to firm’s TFP growth via superior organization techniques and other channels of knowledge diffusion. Keywords: innovation, external knowledge spillovers, FDI, Slovenia JEL: D24 F14 F21 URL: http://d.repec.org/n?u=RePEc:lic:licosd:15605&r=all 88. Human Capital, Market Imperfections, Poverty, and Migration: Evidence from Albania Etleva Germenji Johan Swinnen The most dramatic recent immigration in Europe is the influx of more than 700,000 Albanians, about a quarter of the total Albanian workforce, in the 1990s. The vast majority migrated illegally. This paper analyses the determinants of Albanian migration based on a unique representative survey of rural households. The study confirms that migrants are mostly young, male, and single. Regional variations in migration reflect a combination of cultural and economic factors, including migration costs. However, we find that migrants do not come from the poorest rural households. Moreover, education has a positive, albeit non-linear, effect on the likelihood of migration. Migration is negatively related with household access to alternative income sources and reduced financial constraints but positively related with the presence and household’s access to migration networks. Policy implications are that aid programs and government initiatives to invest in rural infrastructure and rural education may have mixed effects on migration. A key policy target to reduce migration should be the creation of non-farm rural employment and rural households’ access to finance. Keywords: Albania, migration, rural household JEL: F22 O52 P20 URL: http://d.repec.org/n?u=RePEc:lic:licosd:15705&r=all 89. A Note on the Anglo-Saxon and Continental Approaches to Europe: Identical in Spirit, not in Practice Thierry Warin The purpose of this note is to propose a breakdown of the European concept into different sub-categories, based upon the different stages of the European integration process. In doing so, it is easier to understand the political differences and debate between an allegedly Anglo-Saxon approach and a Continental one. This note challenges the usual definition of the Anglo-Saxon and Continental approaches, and highlights the usual misconceptions and misunderstandings of the European economic goal. Keywords: Europe, EMU, EU, Schengen Convention, Anglo-Saxon approach, Continental approach JEL: E5 H0 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:mdl:mdlpap:0509&r=all 90. Does Relationship Lending Still Matter in the Consumer Banking Sector? Evidence from Two Financial Service Organizations in Vermont Jessica Holmes Jonathan Isham Ryan Petersen Paul Sommers We use actual loan applications submitted to a community development credit union (CDCU) and a traditional community bank to examine the role of relationship lending in the automobile loan market. We first show that the community bank relies upon credit scoring, not relationship lending; low-income households with poor credit histories are very unlikely to receive car loans from this traditional bank. We then show that relationship lending is a critical factor in the loan decision at the CDCU; low-income households with strong ties to the institution are likely to receive loans, despite poor credit histories. We conclude that as consolidation, deregulation and technology move mainstream financial institutions away from relationship lending and toward credit scoring, CDCUs will occupy an increasingly critical niche for low-income households. Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:mdl:mdlpap:0511&r=all 91. PENSION INCOMES IN THE EUROPEAN UNION: POLICY REFORM STRATEGIES IN COMPARATIVE PERSPECTIVE Daniela Mantovani Fotis Papadopoulos Holly Sutherland Panos Tsakloglou 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: 2005-07 URL: http://d.repec.org/n?u=RePEc:mod:cappmo:0507&r=all 92. The Incidence of a Tax on Pure Rent in a Small Open Economy. Alberto Petrucci This paper analyzes the effects of a land rent tax on capital formation and foreign investment in a life-cycle small open economy with endogenous labor-leisure choices. The consequences of land taxation critically depend on how the tax proceeds are used by the government. A land tax depresses capital formation, crowds out foreign investment and increases national wealth and consumption when the land tax revenues are distributed as lump- sum payments. If the proceeds from land taxation are used to finance unproductive government expenditure, the land tax will be neutral in its effects on the capital stock, nonhuman wealth and labor. When the tax revenues are used to reduce labor taxes, the land rent tax spurs nonhuman wealth accumulation and ambiguously affects the capital stock and labor. Keywords: Land Taxation, Labor Supply, Capital Accumulation, Overlapping generations. JEL: E21 E62 H22 Date: 2005-07-12 URL: http://d.repec.org/n?u=RePEc:mol:ecsdps:esdp05025&r=all 93. Generalization of a nonparametric co-integration analysis for multivariate integrated processes of an integer order. Roy Cerqueti and Mauro Costantini This paper provides a further generalization of co-integration tests in a nonparametric setting. We adopt Bierens' approach in order to give an extension for processes I(d), with a fixed integer d. A generalized eigenvalue problem is solved, and the test statistics involved are obtained starting from two matrices that are independent on the data generating process. The mathematical tools we adopt are related to the asymptotic theory of the stochastic processes. The key point of our work is linked to the distinguishing between the stationary and non-stationary part of an integrated process. Keywords: Multivariate analysis, Nonparametric methods, Co- integration, Asymptotic properties. JEL: C14 C32 Date: 2005-07-12 URL: http://d.repec.org/n?u=RePEc:mol:ecsdps:esdp05026&r=all 94. Correcting Second Home Equity in HRS/AHEAD: the Issues, a Method, and Preliminary Results Honggao Cao (University of Michigan) Thomas Juster (University of Michigan) Second home equity is an important component of both housing equity and net worth for the old population. It has been covered, implicitly or explicitly, across all waves of HRS and AHEAD surveys. But due to a skip-pattern error, not all households with second homes were asked detailed questions about current market value, amount of mortgage, etc... The negative impact of the inconsistent treatment of second home on the estimation of housing equity and net worth is substantial. When the second home information is not collected for all the households who own second homes (as in AHEAD 1995 and HRS 1996), the second home equity measure based on the partial data is likely to suffer from selection bias, rendering vulnerable both measures of total housing equity and total net worth. This paper reports on an imputation method to correct for this bias that we demonstrate and find effective. Date: 2004-06 URL: http://d.repec.org/n?u=RePEc:mrr:papers:wp081&r=all 95. Inference with "Difference in Differences" with a Small Number of Policy Changes Timothy Conley Christopher Taber Difference in differences methods have become very popular in applied work. This paper provides a new method for inference in these models when there are a small number of policy changes. This situation occurs in many implementations of these estimators. Identification of the key parameter typically arises when a group "changes" some particular policy. The asymptotic approximations that are typically employed assume that the number of cross sectional groups, N, times the number of time periods, T, is large. However, even when N or T is large, the number of actual policy changes observed in the data is often very small. In this case, we argue that point estimators of treatment effects should not be thought of as being consistent and that the standard methods that researchers use to perform inference in these models are not appropriate. We develop an alternative approach to inference under the assumption that there are a finite number of policy changes in the data, using asymptotic approximations as the number of non-changing groups gets large. In this situation we cannot obtain a consistent point estimator for the key treatment effect parameter. However, we can consistently estimate the finite-sample distribution of the treatment effect estimator, up to the unknown parameter itself. This allows us to perform hypothesis tests and construct confidence intervals. For expositional and motivational purposes, we focus on the difference in differences case, but our approach should be appropriate more generally in treatment effect models which employ a large number of controls, but a small number of treatments. We demonstrate the use of the approach by analyzing the effect of college merit aide programs on college attendance. We show that in some cases the standard approach can give misleading results. Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:nbr:nberte:0312&r=all 96. Supersanctions and Sovereign Debt Repayment Kris James Mitchener Marc D. Weidenmier Theoretical models have suggested that sanctions may be important for enforcing sovereign debt contracts (Bulow and Rogoff, 1989a, 1989b). This paper examines the role of sanctions in promoting debt repayment during the classical gold standard period. We analyze a wide range of sanctions including gunboat diplomacy, external fiscal control over a country's finances, asset seizures by private creditors, and trade sanctions. We find that "supersanctions," instances where military pressure or political control were applied in response to default, were an important and commonly used enforcement mechanism from 1870-1913. Following the implementation of supersanctions, on average, ex ante default probabilities on new debt issues fell by more than 60 percent, yield spreads declined approximately 800 basis points, and defaulting countries experienced almost a 100 percent reduction of time spent in default. We also find that debt defaulters that surrendered their fiscal sovereignty for an extended period of time were able to issue large amounts of new debt on international capital markets. Consistent with policies advocated by Caballero and Dornbusch (2002) for Argentina, our results suggest that third-party enforcement mechanisms, with the authority to enact financial and fiscal reforms, may be beneficial for resuscitating the capital market reputation of sovereign defaulters. JEL: F10 F34 G15 N10 N20 N40 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11472&r=all 97. Long-Run Determinants of Inflation Differentials in a Monetary Union Filippo Altissimo Pierpaolo Benigno Diego Rodriguez Palenzuela This paper analyzes the long-run determinants of inflation differentials in a monetary union. First, we aim at establishing some stylized facts relating the regional dispersion in headline inflation rates in the euro area as well as in the main components of the consumer price index. We find that a relatively large proportion of it occurs in the Service category of the EU's harmonized consumer price index (HICP). We then lay out a model of a monetary union with fully flexible prices, the long-run properties of which are analyzed. Our model departs in several respect from the Balassa-Samuelson hypotheses. Our results are in contrast with the result that movements in the real exchange rate are mainly driven by regionally asymmetric productivity shocks in the traded sectors. Our results point instead to relative variations in productivity in the non-traded sector as the primary cause of price and inflation differentials, with shocks to productivity in the traded sector being largely absorbed by movements in the terms of trade in the regional economies. These shocks are also found to largely drive the variability of real wages at the country level. JEL: E31 F41 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11473&r=all 98. Do Women Shy Away From Competition? Do Men Compete Too Much? Muriel Niederle Lise Vesterlund Competitive high ranking positions are largely occupied by men, and women remain scarce in engineering and sciences. Explanations for these occupational differences focus on discrimination and preferences for work hours and field of study. We examine if absent these factors gender differences in occupations may still occur. Specifically we explore whether women and men, on a leveled playing field, differ in their selection into competitive environments. Men and women in a laboratory experiment perform a real task under a non-competitive piece rate and a competitive tournament scheme. Although there are no gender differences in performance under either compensation, there is a substantial gender difference when participants subsequently choose the scheme they want to apply to their next performance. Twice as many men as women choose the tournament over the piece rate. This gender gap in tournament entry is not explained by performance either before or after the entry decision. Furthermore, while men are more optimistic about their relative performance, differences in beliefs only explain a small share of the gap in tournament entry. In a final task we assess the impact of non-tournament- specific factors, such as risk and feedback aversion, on the gender difference in compensation choice. We conclude that even controlling for these general factors, there is a large residual gender gap in tournament entry. JEL: L0 C9 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11474&r=all 99. University Invention, Entrepreneurship, and Start-Ups Celestine Chukumba Richard Jensen This paper develops a game-theoretic model that predicts when a university invention is commercialized in a start-up firm rather than an established firm. The model predicts that university inventions are more likely to occur in start-ups when the technology transfer officers (TTOs) search cost is high, the cost of development or commercialization is lower for a start-up, or the inventor's effort cost in development is lower in a start-up. We test the theory using data from the Association of University Technology Managers, the National Research Council, and the National Venture Capital Association. Licensing is more likely in general, and especially so in start-ups, by universities with higher quality engineering faculty and older TTOs. Start-ups are more likely by universities in states with larger levels of venture capital. TTO size has no effect on start-ups, but does increase licenses. Conversely, universities that earn greater licensing royalties have fewer start-ups but more licenses. The number of start-ups is decreasing in the interest rate, increasing in the S&P 500, and unaffected by levels of industrial research funding and the presence of a medical school. All of these results are consistent with the predictions of our theory. JEL: L31 O31 O32 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11475&r=all 100. Consumption Strikes Back?: Measuring Long-Run Risk Lars Peter Hansen John Heaton Nan Li We characterize and measure a long-run risk return tradeoff for the valuation of financial cash flows that are exposed to fluctuations in macroeconomic growth. This tradeoff features components of financial cash flows that are only realized far into the future but are still reflected in current asset values. We use the recursive utility model with empirical inputs from vector autoregressions to quantify this relationship; and we study the long-run risk differences in aggregate securities and in portfolios constructed based on the ratio of book equity to market equity. Finally, we explore the resulting measurement challenges and the implied sensitivity to alternative specifications of stochastic growth. JEL: G1 E2 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11476&r=all 101. The Empirical Risk-Return Relation: A Factor Analysis Approach Sydney C. Ludvigson Serena Ng A key criticism of the existing empirical literature on the risk- return relation relates to the relatively small amount of conditioning information used to model the conditional mean and conditional volatility of excess stock market returns. To the extent that financial market participants have information not reflected in the chosen conditioning variables, measures of conditional mean and conditional volatility--and ultimately the risk-return relation itself--will be misspecified and possibly highly misleading. We consider one remedy to these problems using the methodology of dynamic factor analysis for large datasets, whereby a large amount of economic information can be summarized by a few estimated factors. We find that three new factors, a "volatility," "risk premium," and "real" factor, contain important information about one-quarter ahead excess returns and volatility that is not contained in commonly used predictor variables. Moreover, the factor-augmented specifications we examine predict an unusual 16-20 percent of the one-quarter ahead variation in excess stock market returns, and exhibit remarkably stable and strongly statistically significant out-of-sample forecasting power. Finally, in contrast to several pre-existing studies that rely on a small number of conditioning variables, we find a positive conditional correlation between risk and return that is strongly statistically significant, whereas the unconditional correlation is weakly negative and statistically insignificant. JEL: G12 G10 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11477&r=all 102. Mandated Disclosure, Stock Returns, and the 1964 Securities Acts Amendments Michael Greenstone Paul Oyer Annette Vissing-Jorgensen The 1964 Securities Acts Amendments extended the mandatory disclosure requirements that had applied to listed firms since 1934 to large firms traded Over-the-Counter (OTC). We find several pieces of evidence indicating that investors valued these disclosure requirements, two of which are particularly striking. First, a firm-level event study reveals that OTC firms most impacted by the 1964 Amendments had abnormal excess returns of about 3.5 percent in the weeks immediately surrounding the announcement that they had begun to comply with the new requirements. Second, we estimate that the most affected OTC firms had abnormal excess returns ranging between 11.5 and 22.1 percent in the period between when the legislation was initially proposed and when it went it went into force, relative to unaffected listed firms and after adjustment for the standard four-factor model. While we cannot determine how much of shareholders' gains were a transfer from insiders of these same companies, our results suggest that mandatory disclosure causes managers to more narrowly focus on the maximization of shareholder value. JEL: G28 G38 K22 L51 M41 M49 N22 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11478&r=all 103. Global Engagement and the Innovation Activities of Firms Chiara Criscuolo Jonathan E. Haskel Matthew J. Slaughter Firms that export or, even more so, are part of a multinational enterprise tend to exhibit higher productivity than their purely domestic counterparts. To better understand this correlation, we incorporate the perspective of industrial organization that one of the main drivers of differences in productivity is differences in knowledge. We examine a new data set of several thousand U.K. enterprises covering all industries from 1994 through 2000. For each enterprise we have multiple detailed measures of knowledge outputs, knowledge investments, and sources of existing knowledge. We find that globally engaged firms do innovate more. But this is not just because globally engaged firms use more researchers. It is also because they learn more from more sources such as suppliers and customers, universities, and their intra-firm worldwide pool of information. We also find that the relative importance of knowledge sources varies systematically with the type of innovation. JEL: F1 F2 O3 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11479&r=all 104. Momentum Profits and Macroeconomic Risk Laura X.L. Liu Jerold B. Warner Lu Zhang Previous work shows that the growth rate of industrial production is a common macroeconomic risk factor in the cross- section of expected returns. We demonstrate the connection between momentum profits and shifts in factor loadings on this macroeconomic variable. Winners have temporarily higher loadings on the growth rate of industrial production than losers. The loading dispersion derives mostly from the high, positive loadings of winners. Depending on model specification, this loading dispersion can explain up to 40% of momentum profits. JEL: G12 E44 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11480&r=all 105. Layoffs, Lemons, Race, and Gender Luojia Hu Christopher Taber This paper expands on Gibbons and Katz (1991) by looking at how the difference in wage losses across plant closing and layoff varies with race and gender. We find that the differences between white males and the other groups are striking and complex. The lemons effect of layoff holds for white males as in Gibbons and Katz model, but not for the other three demographic groups (white females, black females, and black males). These three all experience a greater decline in earnings at plant closings than at layoffs. This results from two reinforcing effects. First, plant closings have substantially more negative effects on minorities than on whites. Second, layoffs seem to have more negative consequences for white men than the other groups. We also find that the relative wage losses of blacks following layoffs increased after the Civil Rights Act of 1991 which we take as suggestive of an informational effect of layoff as in Gibbons and Katz. The results are suggestive that the large losses that African Americans experience at plant closing could result from heterogeneity in taste discrimination across firms. JEL: J6 J7 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11481&r=all 106. Reexamining the Distribution of Wealth in 1870 Joshua L. Rosenbloom Gregory W. Stutes This paper uses data on real and personal property ownership collected in the 1870 Federal Census to explore factors influencing individual wealth accumulation and the aggregate distribution of wealth in the United States near the middle of the nineteenth century. Previous analyses of these data have relied on relatively small samples, or focused on population subgroups. By using the much larger sample available in the Integrated Public Use Microdata Series (IPUMS) we are able to disaggregate the data much more finely than has previously been possible allowing us to explore differences in inequality across space and between different population groups. The data provide strong support for the hypothesis that American industrialization during the nineteenth century resulted in increasing inequality in the distribution of wealth. JEL: N3 R2 O1 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11482&r=all 107. Does Falling Smoking Lead to Rising Obesity? Jonathan Gruber Michael Frakes The strong negative correlation over time between smoking rates and obesity have led some to suggest that reduced smoking is increasing weight gain in the U.S.. This conclusion is supported by the findings of Chou et al. (2004), who conclude that higher cigarette prices lead to increased body weight. We investigate this issue and find no evidence that reduced smoking leads to weight gain. Using the cigarette tax rather than the cigarette price and controlling for non-linear time effects, we find a negative effect of cigarette taxes on body weight, implying that reduced smoking leads to lower body weights. Yet our results, as well as Chou et al., imply implausibly large effects of smoking on body weight. Thus, we cannot confirm that falling smoking leads in a major way to rising obesity rates in the U.S. JEL: H1 I1 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11483&r=all 108. Political Competition and Economic Performance: Theory and Evidence from the United States Timothy Besley Torsten Persson Daniel Sturm One of the most cherished propositions in economics is that market competition by and large raises consumer welfare. But whether political competition has similarly virtuous consequences is far less discussed. This paper formulates a model to explain why political competition may enhance economic performance and uses the United States as a testing ground for the model's implications. It finds statistically robust evidence that political competition has quantitatively important effects on state income growth, state policies, and the quality of Governors. JEL: D72 H11 H70 N12 O11 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11484&r=all 109. Denial of Death and Economic Behavior Wojciech Kopczuk Joel Slemrod We model denial of death and its effect on economic behavior. Attempts to reduce death anxiety and the possibility of denial of mortality-relevant information interact with intertemporal choices and may lead to time-inconsistent behavior and other %u201Cbehavioral%u201D phenomena. In the model, repression of signals of mortality leads to underconsumption for unsophisticated individuals, but forward-sophisticated individuals may over-consume in anticipation of future denial and may seek ways to commit to act according to one%u2019s mortality prospects as currently perceived. We show that the mere possibility of engaging in this kind of denial leads to time- inconsistent but efficient behavior. Refusal to face up to the reality of death may help explain a wide range of empirical phenomena, including the underutilization of tax-advanced inter vivos gifts and inadequate purchase of life insurance. JEL: D11 D81 D91 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11485&r=all 110. Filming Images or Filming Reality: The Life Cycles of Movie Directors from D.W. Griffith to Federico Fellini David W. Galenson Joshua Kotin Why have some movie directors made classic early films, but subsequently failed to match their initial successes, whereas other directors have begun much more modestly, but have made great movies late in their lives? This study demonstrates that the answer lies in the directors%u2019 motivations, and in the nature of their films. Conceptual directors, who use their films to express their ideas or emotions, mature early; thus such great conceptual innovators as D. W. Griffith, Sergei Eisenstein, and Orson Welles made their major contributions early in their careers, and declined thereafter. In contrast experimental directors, whose films present convincing characters in realistic circumstances, improve their techniques with experience, so that such great experimental innovators as John Ford, Alfred Hitchcock, and Akira Kurosawa made their greatest films late in their lives. Understanding these contrasting life cycles can be part of a more systematic understanding of the development of film, and can resolve previously elusive questions about the creative life cycles of individual filmmakers. Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11486&r=all 111. Nonrenewable Resource Prices: Deterministic or Stochastic Trends? Junsoo Lee John A. List Mark Strazicich In this paper we examine temporal properties of eleven natural resource real price series from 1870-1990 by employing a Lagrangian Multiplier unit root test that allows for two endogenously determined structural breaks with and without a quadratic trend. Contrary to previous research, we find evidence against the unit root hypothesis for all price series. Our findings support characterizing natural resource prices as stationary around deterministic trends with structural breaks. This result is important in both a positive and normative sense. For example, without an appropriate understanding of the dynamics of a time series, empirical verification of theories, forecasting, and proper inference are potentially fruitless. More generally, we show that both pre-testing for unit roots with breaks and allowing for breaks in the forecast model can improve forecast accuracy. JEL: Q31 C12 C53 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11487&r=all 112. The Only Game in Town: Stock-Price Consequences of Local Bias Harrison Hong Jeffrey D. Kubik Jeremy C. Stein Theory suggests that, in the presence of local bias, the price of a stock should be decreasing in the ratio of the aggregate book value of firms in its region to the aggregate risk tolerance of investors in its region. We test this proposition using data on U.S. Census regions and states, and find clear-cut support for it. Most of the variation in the ratio of interest comes from differences across regions in aggregate book value per capita. Regions with low population density%u2014%u2014e.g., the Deep South%u2014%u2014are home to relatively few firms per capita, which leads to higher stock prices via an %u201Conly-game-in- town%u201D effect. This effect is especially pronounced for smaller, less visible firms, where the impact of location on stock prices is roughly 12 percent. JEL: G11 G12 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11488&r=all 113. The Sensitivity of Homeowner Leverage to the Deductibility of Home Mortgage Interest Patric H. Hendershott Gwilym Pryce Mortgage interest tax deductibility is needed to treat debt and equity financing of homes equally. Countries that limit deductibility create a debt tax penalty that presumably leads households to shift from debt toward equity financing. The greater the shift, the less is the tax revenue raised by the limitation and smaller is its negative impact on housing demand. Measuring the financing response to a legislative change is complicated by the fact that lenders restrict mortgage debt to the value of the house (or slightly less) being financed. Taking this restriction into account reduces the estimated financing response by 20 percent (a 32 percent decline in debt vs a 40 percent decline). The estimation is based on 86,000 newly originated UK loans from the late 1990s. JEL: H2 H3 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11489&r=all 114. Efficient Fiscal Policy and Amplification Mark Aguiar Manuel Amador Gita Gopinath We provide a rationale for the observed pro-cyclicality of tax policies in emerging markets and present a novel mechanism through which tax policy amplifies the business cycle. Our explanation relies on two features of emerging markets: limited access to financial markets and limited commitment to tax policy. We present a small open economy model with capital where a government maximizes the utility of a working population that has no access to financial markets and is subject to endowment shocks. The government's insurance motive generates pro-cyclical taxes on capital income. If the government could commit, this policy is not distortionary. However, we show that if the government lacks the ability to commit, the best fiscal policy available exacerbates the economic cycle by distorting investment during recessions. We characterize the mechanism through which limited commitment generates cycles in investment in an environment where under commitment investment would be constant. We extend our results to standard productivity shocks and to the case where the government has access to intra-period insurance markets. Lastly, we conjecture that our results would hold as well if the government could issue debt subject to borrowing constraints. JEL: F3 F4 E3 E6 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11490&r=all 115. Crime, Punishment, and Myopia David S. Lee Justin McCrary Economic theory predicts that increasing the severity of punishments will deter criminal behavior by raising the expected price of committing crime. This implicit price can be substantially raised by making prison sentences longer, but only if offenders%u2019 discount rates are relatively low. We use a large sample of felony arrests to measure the deterrence effect of criminal sanctions. We exploit the fact that young offenders are legally treated as adults%u2014%u2014and face longer lengths of incarceration%u2014%u2014the day they turn 18. Sufficiently patient individuals should therefore significantly lower their offending rates immediately upon turning 18. The small behavioral responses that we estimate suggest that potential offenders are extremely impatient, myopic, or both. JEL: D9 K4 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11491&r=all 116. Global Business Cycles and Credit Risk M. Hashem Pesaran Til Schuermann Bjorn-Jakob Treutler The potential for portfolio diversification is driven broadly by two characteristics: the degree to which systematic risk factors are correlated with each other and the degree of dependence individual firms have to the different types of risk factors. Using a global vector autoregressive macroeconomic model accounting for about 80% of world output, we propose a model for exploring credit risk diversification across industry sectors and across different countries or regions. We find that full firm- level parameter heterogeneity along with credit rating information matters a great deal for capturing differences in simulated credit loss distributions. These differences become more pronounced in the presence of systematic risk factor shocks: increased parameter heterogeneity reduces shock sensitivity. Allowing for regional parameter heterogeneity seems to better approximate the loss distributions generated by the fully heterogenous model than allowing just for industry heterogeneity. The regional model also exhibits less shock sensitivity. JEL: C32 E17 G20 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11493&r=all 117. What Do Parents Value in Education? And Empirical Investigation of Parents%u2019 Revealed Preferences for Teachers Brian A. Jacob Lars Lefgren This paper examines revealed parent preferences for their children's education using a unique data set that includes the number of parent requests for individual elementary school teachers along with information on teacher attributes including principal reports of teacher characteristics that are typically unobservable. We find that, on average, parents strongly prefer teachers that principals describe as good at promoting student satisfaction and place relatively less value on a teacher's ability to raise standardized math or reading achievement. These aggregate effects, however, mask striking differences across family demographics. Families in higher poverty schools strongly value student achievement and are essentially indifferent to the principal's report of a teacher's ability to promote student satisfaction. The results are reversed for families in higher- income schools. JEL: I2 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11494&r=all 118. The State of Village-Level Infrastructures and Public Services in Indonesia During the Economic Crisis Jesse Darja (SMERU Reasearch Centre) Daniel Suryadarma (SMERU Reasearch Centre) Asep Suryahadi (SMERU Reasearch Centre) Sudarno Sumarto (SMERU Reasearch Centre) Infrastructures play a crucial role in economic development and poverty reduction. The economic crisis in 1997-98 severely curtailed the government’s capacity to maintain existing infrastructures, negatively impacted the prospects for future economic development and poverty reduction in the country. This study provides an overview of the changes in the availability of village-level infrastructures and public services during the economic crisis. The findings indicate that there were mixed trends in the availability of different types of infrastructures and public services. Furthermore, the changes in the availability of certain infrastructures or public services differ across urban and rural areas as well as between Java-Bali and the outer islands. In the era of regional autonomy, it is essential to involve regional governments in infrastructure development planning, management, and maintenance. Keywords: economic development, poverty reduction, economic crisis, village-level, infrastructure development, public services, Java-Bali, Indonesia JEL: H54 P43 P46 Date: 2004-06 URL: http://d.repec.org/n?u=RePEc:eab:develo:524&r=all 119. A Reassessment of Inequality and Its Role in Poverty Reduction in Indonesia Daniel Suryadarma (SMERU Reasearch Centre) Rima Prama Artha (SMERU Reasearch Centre) Asep Suryahadi (SMERU Reasearch Centre) Sudarno Sumarto (SMERU Reasearch Centre) This study provides an overview of inequality in Indonesia for the period of 1984 to 2002 using several widely used measurements of inequality. Firstly, unlike previous studies, our paper uses real consumption expenditure that takes into account the high regional price disparity across regions in Indonesia. Secondly, we found that, although during the crisis all measures indicate a decrease in inequality, it actually increased for those below the poverty line. Finally, this study also provides an estimation of ‘distribution corrected’ growth elasticity of poverty for Indonesia. This proves to be an important explanation for the fact that the poverty rate decreased very rapidly between 1999 and 2002: because inequality during the peak of the economic crisis in 1999 was at its lowest level in 15 years. Keywords: inequality, Indonesia, real consumption expenditure, disparity, poverty, economic crisis, Indonesia JEL: P46 E31 E21 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:eab:develo:525&r=all 120. International Capital Market Imperfections: Evidence from Geographical Features of International Consumption Risk Sharing Yonghyup Oh (Korea Institute for Internation Economic Policy) This paper tests the validity of gravity variables to explain the degree of international consumption risk sharing. Our data show that consumption and output cycles for selected economies in the EU, NAFTA, East Asia and English-speaking countries have synchronized during the four decades since 1950s, but the lack of consumption risk sharing is evident. For the panel of 27 countries our results first show that the gravity variables such as distance, economic size, richness, sharing the same border and sharing the same language are valid in explaining consumption correlations, but among these variables sharing the same border is not significant in explaining correlation. Only richness, sharing the same border and sharing the same language turn out to be significant in explaining consumption risk sharing. When used for each of the four economic blocks in our sample, gravity variables have even less explanatory power with one notable exception that richness matters for the English speaking countries. Richer English speaking countries seem to share consumption risk better than any other group in our sample. Keywords: Capital market imperfection, consumption risk sharing, gravity model, real business cycle JEL: E32 F36 G15 Date: 2004-11 URL: http://d.repec.org/n?u=RePEc:eab:financ:351&r=all 121. Finance and Economic Development in East Asia Yung Chul Park (Korea University) Wonho Song (Korea Institute for Internation Economic Policy) Yunjong Wang (Korea Institute for Internation Economic Policy) Despite the increasing trend toward market-based finance systems, most East Asian countries still have bank-based systems. The purpose of this paper is to examine the extent to which bank- based financial development in East Asia has contributed to economic growth. To do this, a series of empirical analyses are conducted to gauge the effects of changes in the exogenous component of financial development on economic growth by using data on East Asian and Latin American countries for the 1960-97 period. Out empirical results show that the exogenous changes to financial development in East Asia have a strong, positive impact on growth rates. However, we find that there is weak evidence of a negative relationship between finance and growth for Latin American countries, a finding consistent with that of de Gregario and Guidotti (1995). Keywords: Economic development, East Asia, finance, financial develoment, GMM JEL: G10 G20 O12 O16 Date: 2003-10 URL: http://d.repec.org/n?u=RePEc:eab:financ:366&r=all 122. Location Choice of Multinational Companies in China: Korean and Japanese Companies Sung Jin Kang, (Korea University) Hongshik Lee (Korea Institute for Internation Economic Policy) By using aggregate and firm level data of Korean and Japanese forign affiliates in Chin, we investigate the recent FDI trends and the determinants of location choice. The comparison of the FDI trends of Japanese and Korean companies show that Korean companies are concentrated into China, especially in three regions of northeast of China. The conditional logit estimation results differ between Korean and Japanese companies. Even though agglomeration variable is shown to be positive and significant for two countries, regional income is shown to be positive for Japan but negative for Korea. For Korean companies, the college graduate, the railway variables and trade share are shown to be positive and significant but other variables such as the number of economic zones and the share of production are shown to be negative. In addition, the distance from Korea and the ethnicity factor might play more significant role sin FDI decisions as well. Thus, we can interpret that the main determinants such as agglomeration, vertical, horizontal FDI and infrastructure variables play significant roles in explaining recent FDI location. However, explanatory power of those variables above for location decision of Japanese companies is not significant. Keywords: location choice, multinationals, agglomeration, conditional logit JEL: F11 F12 Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:eab:financ:529&r=all 123. Finance and Economic Development in Korea Yung Chul Park (Korea University) Wonho Song (Korea Institute for Internation Economic Policy) Yunjong Wang (Korea Institute for Internation Economic Policy) This paper focuses on the following two issues. First, the paper investigates the extent to which financial development has contributed to economic growth in Korea. For this purpose, we introduce four well-know financial development indicators, and seek to find a long-ruin relationship between output growth and financial development. Second, the effects of financial repression on economic growth are examined. A financial index is constructed based on five related measures, and this index is augmented to the growth-finance equation. For the robustness of the results, the model with per capita capital stock is also estimated. Keywords: Economic development, finance, financial development, financial repression, Korea JEL: G10 G20 O12 O16 Date: 2005-08 URL: http://d.repec.org/n?u=RePEc:eab:financ:530&r=all 124. The Effect of Labor Market Institutions on FDI Inflows Chang-Soo Lee (Korea Institute for International Economic Policy) This study examines the impact of strengthening employment protection legislation, the structure of collective bargaining ( centralization and coordination) and the labor market variables ( national levels of unionization, strike levels and tax wedges on labor income) on a country's FDI inflows. Examining 29 OECD nations, our statistical analysis shows that strict EPL, which increases labor market rigidity, is usually associated with lower levels of FDI shares. Japanese investors are more sensitive to employment protection measures in choosing destinations for FDI than others. A 1-percentage-point increase in EPL causes a decrease of about 4.2 percent to Japan’s FDI share, compared to the decrease of 2.2 percent that results in the worldwide share. Finally, we discuss the implications of the recent employment protection policies in Korea that focus only on the interests of inside labor, reducing FDI inflows as well as neglecting the interests of outside labor (unemployed and future labor). Thus, policies for spending on outside labor and promoting entrepreneurship are necessary for national welfare to increase. Keywords: Labor Market , FDI Inflows, entrepreneurship JEL: E24 J23 J31 J51 Date: 2003-10 URL: http://d.repec.org/n?u=RePEc:eab:laborw:343&r=all 125. Accelerating ASEAN Economic Integration: Moving Beyond AFTA Hadi Soesastro (Centre for Strategic and International Studies) Progress and realisation of the ASEAN Economic Community (AEC) can only be achieved if there is a clear blueprint, which identifies the end goal, the process to reach the end goal and a framework for proper assessment of the costs and benefits of an ASEAN Economic Community. AEC should not be based on the AFTA in which an agreement was reached first and the details negotiated afterwards earning it the nickname of "Agree First Talk After". A "new ASEAN way" will have to be developed and accepted as the rule of the game before the AEC has any serious chance of fulfilling the role of making ASEAN more competitive and attractive for world business. Keywords: ASEAN Economic Community (AEC), regional integration, economic cooperation JEL: E61 F33 F41 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:eab:macroe:526&r=all 126. Risk Management for the Poor and Vulnerable Ari A. Perdana (Centre for Strategic and International Studies) This paper reviews some literatures on the mechanisms available for the poor in managing risk. Lacking access to formal mechanisms of risk management, the poor rely on informal mechanisms, which are built based on the existing social networks and trust. But when the shocks are big or affecting the entire community, these informal mechanisms may not be adequate. Some policy interventions are then required to help improving the ability of poor people in managing risk. Policy intervention should aim to provide access for the poor on saving, credit and insurance. Microfinance schemes have been applauded as a successful ‘best practice’ in providing access to saving and credit. However, microfinance institutions still have some room for improvement by expanding their role in providing insurance schemes. Keywords: poverty, vulnerability, risk management, microfinance JEL: E21 E51 E52 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:eab:macroe:527&r=all 127. Expansion Strategies of South Korean Multinationals Hongshik Lee (Korea Institute for International Economic Research) The purpose of this paper is to study the motivations of South Korean direct investment. Using recent, detailed data on a selective sample of South Korean multinational firms, I examined the export and import behaviour of the affiliates abroad of South Korean multinational corporations. In doing so, I investigated, on the one hand, to what extent multinational activity is consistent with the factor proportions theory, i.e., to what extent multinational activity is related to cheap factor supplies. On the other hand, I study the market access motivation for multinational activity. I also provide some suggestive evidence about foreign affiliates that are export platforms. The obtained results are broadly consistent with the recent findings for US multinationals. Keywords: FDI, multinationals, factor proportions, market access, affiliates JEL: F14 F21 F23 Date: 2004-08 URL: http://d.repec.org/n?u=RePEc:eab:macroe:531&r=all 128. The Decision to Invest Abroad: The Case of Korean Multinationals Hongshik Lee (Korea Institute of International Economic Policy) Recent firm-based empirical studies find that firms that serve foreign markets either through exports or foreign direct investment (FDI) are more efficient than their domestically orientated counterparts. However, recent empirical literature attributes these differences to only exports. The purpose of this paper is to extend some recent works to study the link between firm performance of multinationals and choice to participate in the foreign investment. In so doing, this paper explicitly differentiates exports and FDI decisions. Keywords: Export, FDI, Self-selection, Dynamic Choice model, learning-by doing JEL: F14 F15 F23 Date: 2003-12 URL: http://d.repec.org/n?u=RePEc:eab:tradew:342&r=all 129. Specialization and Geographical Concentration in East Asia: Trend and Industry Characteristics Soon-Chan Park (Korea Institute for International Economic Policy) In this paper, we examine changes in patterns of specialization and geographical concentration in East Asia. we found that relative specialization, on average, has decreased in East Asia, implying that the economic structures of East Asian countries have been converging. Investigation in the industrial characteristics, it is shown that the differences in economies of scale between east Asian countries have been greatly reduced over time. I addition, we also identified that geographical concentration has increased. During the 1989/91-1995/96 period, 17 industries experience the increase of geographical concentration more than 10 percent, while only three industries show the decline in geographical concentration more than 10 percent. The industries with increased concentration are characterized by above the medium level of economies of scale, capital and skill intensity. In comparison with the United States and the EU, East Asian countries show a low level of specialization and concentration. Thus, if East Asia countries follow the development patterns of the more integrated regions, a regional trading agreement in this region may lead to further specialization and concentration. Keywords: Economic geography, specilization, industrial concentration JEL: C21 F14 F15 Date: 2003-12 URL: http://d.repec.org/n?u=RePEc:eab:tradew:355&r=all 130. Geographic Concentration and Industry Characteristics: An Empirical Investigation of East Asia Soon-Chan Park, (Korea Institute of International Economic Policy) Hongshik Lee, (Korea Institute of International Economic Policy) Mikyung Yun (Korea Institute of International Economic Policy) In this paper we assess the geographic concentration of 26 manufacturing industries over the 1986-1997 period, based on annual employment data for 8 East Asian countries. The average level of geographic concentration, in the relative term, has decreased continuously during the period in this regio. We show that intra-industry linkage and inter-industry linkage have a positive and significant influence on relative concentration. Furthermore, the industries with large demand bias, high scale intensity and low capital intensity are geographically concentrated. Finally, we find the evidence that regional integration in East Asia will lead to agglomeration of industries. Keywords: economic integration, location of industries, economic geography, industry characteristics JEL: F12 F13 Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:eab:tradew:356&r=all 131. Redistribution, horizontal inequity and reranking: how to measure them properly Ivica Urban (Institute of Public Finance, Zagreb, Croatia) Peter J. Lambert (University of Oregon Economics Department) The decomposition of the redistributive effect of an income tax into vertical, horizontal and reranking contributions according to the model of Aronson, Johnson and Lambert (1994), henceforth AJL, is revisited. When close equals groups are used, rather than the exact equals groups upon which the model is predicated, problems arise. A new measurement system is proposed, in which three distinct forms of reranking are disentangled and the vertical and horizontal contributions are redefined. Other approaches to measuring equity in tax systems are set in context. Findings are applied to Croatian data, and recommendations for users of the AJL methodology are given. Keywords: redistributive effect, vertical equity, horizontal inequity, reranking JEL: H23 Date: 2005-07-01 URL: http://d.repec.org/n?u=RePEc:ore:uoecwp:2005-12&r=all 132. Do Asymmetric and Nonlinear Adjustments Explain the Forward Premium Anomaly? Richard T. Baillie (Queen Mary, University of London) Rehim Kilic (Georgia Institute of Technology) The forward premium anomaly refers to the situation where the slope coefficient in a regression of spot returns on the lagged interest rate differential is negative and significantly different to unity. This paper explores some of the asymmetries and non linearities present in the anomaly and the apparent rejection of Uncovered Interest Parity (UIP). The methodology is motivated by some recent economic theory literature on transactions costs, the limits to speculation and hysteresis. The paper estimates Logistic Smooth Transition Dynamic Regression ( LSTR) models with the transition variable being the lagged forward premium for a range of currencies. An inner regime with foreign interest rates exceeding US rates is found to be consistent with the anomaly. While a third and outer regime with US interest rates exceeding foreign rates indicates convergence towards UIP. Detailed Monte Carlo experiments support the finding that an LSTR data generating process can indeed induce the forward premium anomaly. While the methodology appears promising in terms of uncovering important non linear and asymmetric behavior in the relationship, it should be noted that parameter estimation uncertainty indicates quite wide confidence intervals on the estimated transition functions. Hence, the accurate prediction of states, or regimes where UIP has a high probability of holding, is quite hard. Keywords: Forward premium anomaly, Uncovered Interest Parity, Non-linearity, LSTR models. JEL: C22 F31 F41 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:qmw:qmwecw:wp543&r=all 133. The First Fifty Years of Modern Econometrics Christopher L. Gilbert (Universita degli Studi di Trento) Duo Qin (Queen Mary, University of London) We characterize modern econometrics in terms of the emergence a widely accepted analytical framework. A major theme which dominated much of the debate through the century was whether and how econometric models can reflect theory-generated economic structures. In the period prior to the 2nd world war, economists adopted a wide variety of analytical methods, some ad hoc but others reflecting advances in statistical methodology. Business cycle analysis and demand analysis were the two major areas in which statistical theory was employed. Methods became increasingly formalized but problems of data adequacy, estimation and identification were not always well distinguished. During and immediately after the war, Cowles Commission research sought to base econometrics on autonomous probabilistic models specified in terms of underlying structural parameters. Least squares would not normally be consistent in such models and maximum likelihood estimation was to be preferred. Subsequently, however, the pendulum swung back towards least squares-based methods and this was reflected ion the textbook expositions of what was accepted as standard econometrics in the late sixties and early seventies. Subsequently, the paradigm was undermined by the challenges imposed by rational expectations modelling, which challenged standard identification assumptions, and by the poor forecasting performance of many macroeconomic models by comparison with black box time series competitors. The result was a revival of non- structural modelling, particularly in the analysis of macroeconomic data. Keywords: Econometrics, History, Estimation, Identification. JEL: B23 C10 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:qmw:qmwecw:wp544&r=all 134. Long-Run Trend in Hours : A Model Guillaume Vandenbroucke (University of Rochester) During the 20th century the average number of hours worked per worker in the United States declined, and the distribution of hours across wage deciles narrowed. Coincidentally, the wage distribution narrowed and then widened again. The explanation proposed here is that (i) Home production of leisure services creates an incentive to work less on the market as wages increase and the price of leisure goods decrease (ii) The development of education in the early 20th century explains the narrowing of the wage structure and, henceforth, of the distribution of hours. Keywords: Hours worked, leisure, home production, technological progress JEL: E24 J22 O11 O33 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:roc:ecavga:11&r=all 135. The Trend in Retirement Karen Kopecky (University of Rochester) A model with leisure production and endogenous retirement is used to explain the declining labor force participation rates of elderly males. The model is calibrated using the health and retirement study. The model is able to predict both the increase in retirement since 1850 and the observed drop in market consumption at the moment of retirement. The increase in retirement is driven by rising real wages and a falling price of leisure goods over time. Keywords: retirement, leisure, home production, consumption-drop, technological progress JEL: E13 J26 O11 O33 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:roc:ecavga:12&r=all 136. Designing the Optimal Length of Working Time Carlo Altavilla – Antonio Garofalo – Concetto Paolo Vinci (University of Naples Parthenope) How many hours per week should workers in the United States and Germany spend at their paying jobs? The present paper addresses this question by constructing policymakers’ reaction functions capable of modelling the optimal length of working time as a function of the relevant labour market variables. The empirical analysis is based on the optimal control algorithm. Given a policymaker’s loss function and a structural model of the labour market we define alternative specifications of reaction functions where the response coefficients indicate how policymakers should react to any news in the labour market in order to stabilize employment and wages. We also perform a comparative analysis on the ability of the rules to correspond to historical working-time records. The results suggest that simple rules perform quite well and that the advantages obtained from adopting an optimal control-based rule are not so great. Moreover, the analysis emphasizes the success of the wage-based rule and of the employment based rule in the US and Germany, respectively. Finally, we propose a policy rule to capture the dynamics of the weekly working hours. According to our rule the length of the workweek is an inverse function of the deviation between the actual and potential employment level. Keywords: Policy Rule, Working-time, Dynamic Optimization JEL: J23 C32 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:sal:celpdp:91&r=all 137. Banking System Efficiency and the Dualistic Development of the Italian Economy in the Nineties Cesare Imbriani – Antonio Lopes (Universita di Roma “La Sapienza” – Universita di Foggia) The article provides an analysis of some features of the Italian Credit System in the Nineties. In particular, it focuses on a comparison of Banks efficiency – in terms of costs, revenues and profits – in Northern and Southern Italy taking into account the dualistic structure, which characterizes the Italian economic system. Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:sal:celpdp:92&r=all 138. Matching Efficiency and Labour Market Reform in Italy. A Macroeconometric Assessment Sergio Destefanis, Raquel Fonseca (CELPE – CSEF, Universita di Salerno) A matching theory approach is utilised to assess the impact on the Italian labour market of the 1997 legge Treu, which considerably eased the regulation of temporary work and favoured its growth in Italy. We re-parameterise the matching function as a Beveridge Curve and estimate it as a production frontier. We find huge differences in matching efficiency between the South and the rest of the country. The legge Treu appears to have reduced unemployment in the more developed regions of the country but did not greatly affect the matching efficiency of the regional labour markets. Keywords: temporary contracts, matching efficiency, regionaldisparities JEL: J64 J69 C24 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:sal:celpdp:93&r=all 139. Unit root and cointegration tests for cross-sectionally correlated panels.Estimating regional production functions Roberto Basile, Mauro Costantini, Sergio Destefanis (ISAE, Roma – Universita di Macerata, ISAE, Roma – Universita “La Sapienza” di Roma, CELPE, CSEF – Universita di Salerno) This paper employs recently developed non stationary panel methodologies that assume some cross-section dependence to estimate the production function for Italian regions in the industrial sector over the period 1970-1998. The analysis consists in three steps. First, unit root tests for cross- sectionally dependent panels are used. Second, the existence of a co-integrating relationship among value added, physical capital and human capital-augmented labor is investigated. The Dynamic OLS (DOLS) and Fully modified (FMOLS) estimators developed by Pedroni (1996, 2000, 2001) and the Panel Dynamic OLS (PDOLS) estimator proposed by Mark and Sul (2003) are then used to estimate the long run relationship between the variables considered. Keywords: panel cointegration, cross-section dependence, production function. JEL: C33 C15 D24 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:sal:celpdp:94&r=all 140. "The Impacts of "Shock Therapy" under a Banking Crisis : Experiences from Three Large Bank Failures in Japan" Shin-ichi Fukuda (Faculty of Economics, University of Tokyo) Satoshi Koibuchi (University of Tokyo) A bank failure can have various adverse consequences for the clients. The adverse impacts might, however, differ depending on who takes over the operation of the failed banks. In this paper, we show that how to manage the new banks is important in mitigating the short-run and long-run consequences of bank failures. In the analysis, we focus on clients of three large failed Japanese banks - Hokkaido Takushoku Bank, the Long-term Credit Bank of Japan (LTCB), and the Nippon Credit Bank. We examine when the number of bankruptcies increased and how the market valuation changed for the client firms after the banks' operations were taken over by new banks. As for the clients of LTCB, there were dramatic increases of bankruptcies in the short- run but the surviving clients showed significant recovery of their stock prices. In contrast, as for the clients of the other two banks, there was neither dramatic increase of bankruptcies nor significant recovery of their stock prices. The result implies that "shock therapy" or "soft budget constraints" had dramatically different consequences in solving bad loan problems in Japan. Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:tky:fseres:2005cf351&r=all 141. "Seasonality and Seasonal Switching Time Series Models"(in Japanese) Naoto Kunitomo (Faculty of Economics, University of Tokyo) Makoto Takaoka (Research Center for Advanced Science and Technology, University of Tokyo) In the recent X-12-ARIMA program developed by the United States Census Bureau for seasonal adjustments, the RegARIMA modeling has been extensively utilized. We shall discuss some problems in the RegARIMA modeling when the time series are realizations of non- stationary integrated stochastic processes with fixed regressors. We propose to use the seasonal switching autoregressive moving average (SSARMA) model and the regression SSARMA (RegSSARMA) model to cope with seasonality commonly observed in many economic time series. We investigate the basic properties of the SSAR ( seasonal switching autoregressive) models. We argue that the phenomenon called "spurious seasonal unit roots" could be an explanation for a good fit of the seasonal ARIMA models to actual data. Some results of economic data analyses are reported. Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:tky:fseres:2005cj135&r=all 142. Understanding Why Universal Service Obligations May Be Unnecessary: The Private Development of Local Internet Access Markets Tom Downes Shane Greenstein This study analyzes the geographic spread of commercial Internet Service Providers (ISPs), the leading suppliers of Internet access. The geographic spread of ISPs is a key consideration in U. S. policy for universal access. We examine the Fall of 1998, a time of minimal government subsidy, when inexpensive access was synonymous with a local telephone call to an ISP. Population size and location in a metropolitan statistical area were the single most important determinants of entry, but their effects on national, regional and local firms differed, especially on the margin. The thresholds for entry were remarkably low for local firms. Universal service in less densely-populated areas was largely a function of investment decisions by ISPs with local focus. There was little trace of the early imprint of government subsidies for Internet access at major U.S. universities. Keywords: Internet; Universal service; Geographic diffusion; Telecommunications JEL: D21 L29 L51 L86 L96 Date: 2005 URL: http://d.repec.org/n?u=RePEc:tuf:tuftec:0516&r=all 143. Conversations between Anthropologists and Economists Metin Cosgel (University of Connecticut) Interdisciplinary citation patterns and other indicators of the flow and sharing of academic knowledge suggest that economists and anthropologists do not talk to each other. Previous studies of this puzzling trend have typically attributed the problem to methodological differences between the two disciplines. Although there are significant differences between economics and anthropology in behavioral assumptions and modes of inquiry, similar differences exist between them and other disciplines ( some with much heavier volumes of cross-citations with economics or anthropology), suggesting that the source of the problem lies elsewhere. This paper considers the problem at a deeper level by examining systematic differences in the preferences, capabilities, and literary cultures of economists and anthropologists. Adopting a rhetorical perspective, I consider not the firms, households, or tribes as the principal objective of analysis in the two disciplines, but the conversations between these units. These conversations (through non-verbal as well as verbal media) can be grouped into two genres, based on the type of problem they aim to solve. Those in the first genre aim to solve the problem of interest--how to align the incentives of the parties involved. Those in the second genre deal with the problem of knowledge--how to align localized, and dispersed information. Economists are interested and capable of dealing with primarily, if not exclusively, the first genre, and anthropologists focus on the second. This difference has far reaching consequences for how economists and anthropologists conduct their own scholarly conversations with their own colleagues, why they are having difficulty talking to each other across disciplinary boundaries, and what can be done to change the patterns of communication. Keywords: anthropology, conversation, interest, incentive, knowledge JEL: A12 B4 O5 Z1 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:uct:uconnp:2005-29&r=all 144. Refundable Tax Credits for Health Insurance: The Sensitivity of Simulated Impacts to Assumed Behavior David W. Emmons (American Medical Association) Eva Madly (W.E. Upjohn Institute) Stephen A. Woodbury (W.E. Upjohn Institute and Michigan State University) We replicate and extend a simulation model developed by Jonathan Gruber with the goals of illuminating Gruber's modeling of health insurance coverage under a tax credit and examining the sensitivity of the results to changes in the model's key parameters. The replications suggest that a refundable tax credit of $1,000 for a single individual or $2,000 for a family for private health insurance would reduce the number of uninsured individuals by between 17.5 and 28 percent and require new government expenditures of between $16.6 and $44 billion, of which about $7.4 - $9.7 billion would be for coverage of previously uninsured individuals. These wide simulated ranges highlight the uncertainty inherent in modeling the effects of health insurance tax credits and suggest that progress on the issue of tax credits for health insurance will require improved evidence on the likely take-up rate of a credit.Keywords: Sullivan, TANF, eligibility, vehicle, asset limits Keywords: health, insurance, Gruber, tax, credit, Woodbury, Emmons, Upjohn JEL: I18 H23 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:upj:weupjo:05-119&r=all 145. Group Cooperation Under Alternative Peer Punishment Technologies: An Experiment Marco Casari Luigi Luini This paper experimentally studies peer punishment under three alternative technologies. We find that the choice of peer punishment technology has a substantial impact on group performance. First, under a technology where at least two subjects in the group must agree before another group member can be punished, group cooperation and group net earnings are the highest. Second, outcomes are similar regardless of whether punishment choices are simultaneously or sequential. These results suggest that punishment is not perceived as a second- order public good but is instead an emotional reaction unresponsive to changes in the strategic environment. Keywords: decentralized punishment, public goods, other- regarding preferences, team production, experiments. JEL: C91 C92 D23 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:usi:labsit:002&r=all 146. Social Learning in Market Games Carlo Altavilla Luigi Luini Patrizia Sbriglia The aim of our experiments is to test the effect of different information settings on firms’ behaviour in duopoly price and quantity games. We find that, when players have full information on their rivals’ choices, the imitation rule prevails and such learning behaviour induces more competitive outcomes in the Cournot market designs. By the same token, when information on the average industrial profit is provided, there is evidence of an increase in cooperation, and the majority of players experiment with new strategies when their payoff falls below the average profit (F. Palomino and F. Vega-Redondo, 1999; H. Dixon, 2000) Keywords: Learning, Cournot and Bertrand experiments JEL: D83 C91 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:usi:labsit:003&r=all 147. Direct and Indirect Causality Between Exports and Economic Output for Bangladesh and Sri Lanka: Horizon Matters Judith A. Clarke (Department of Economics, University of Victoria) Mukesh Ralhan (Department of Economics, University of Victoria) The extensive body of research that examines for (Granger, 1969) causality from exports to output for developing countries, including Bangladesh and Sri Lanka, using vector autoregressions and/or vector error correction models, is limited in only examining for one-period ahead or direct causality; the exception is in bivariate systems. This (usually unrecognized) focus on one- period causality in multivariate systems has often led to conclusions that exports do not Granger-cause economic output. We show that moving to Granger-causality at longer horizons, in a commonly used multivariate system, leads to bidirectional causality between exports and output, even when there is not one- period causality; the longer horizon causality arises indirectly through one or more of the auxiliary variables. Keywords: Economic growth, Granger causality, export-led growth, vector autoregressions JEL: C32 O4 Date: 2005-07-15 URL: http://d.repec.org/n?u=RePEc:vic:vicewp:0512&r=all 148. Employee lay-off under different modes of restructuring Coucke, Kristien Pennings, Enrico Sleuwaegen, Leo In recent years, there has been a growing concern about the effect of globalisation on employment in most West European countries. More and more firms had to drastically restructure their operations in order to survive the rise in global competition. Restructuring often leads to a collective lay-off of employees. We use a theoretical model to examine how firm and industry characteristics have an impact on different modes of restructuring. (1) Close down part of its activities and relocate abroad, (2) Downsizing through a significant decrease in employees or (3) Dismiss all employees and exit the market. Using a unique sample of Belgian firms reporting collective layoffs, we test empirically the predictions of the model. Relocating firms are found to be most profitable among the restructuring firms, have invested more in the recent past, operate in sectors with significant economies of scale and belong more often to a multinational group than firms opting for downsizing or exit. Downsizing firms are more capital intensive than relocating firms, while exiting firms are less profitable, smaller, younger and more labour intensive than downsizing or relocating firms. Note Keywords: exit, relocation, downsizing Date: 2005-07-14 URL: http://d.repec.org/n?u=RePEc:vlg:vlgwps:2005-13&r=all 149. Import competition and the exit of firms in belgian manufacturing Coucke, Kristien In this paper we investigate the different effects of import competition on the exit behaviour of different types of firms. We find that import competition in Belgian manufacturing has a strong positive effect on the exit behaviour of firms that are not part of a multinational network. However, domestic firms with outsourcing activities (through a network of independent firms) experience a less important crowding out effect. Strong import competition especially increases the exit behaviour of larger domestic firms. But also multinational firms that do not specialise their production process through sourcing of less cost efficient activities abroad, have a higher probability to exit in industries characterised by strong import competition. The finding that import competition also increases the competitive pressure between multinational firms, reflects the increased importance of specialisation of production processes and vertical oriented FDI during the last decade. Note Keywords: exit, import, multinational presence Date: 2005-07-14 URL: http://d.repec.org/n?u=RePEc:vlg:vlgwps:2005-14&r=all 150. Genetic Action Trees A New Concept for Social and Economic Simulation Thomas Pitz (Laboratory of Experimental Economics University of Bonn) Thorsten Chmura (Laboratory of Experimental Economics University of Bonn) Multi-Agent Based Simulation is a branch of Distributed Artificial Intelligence that builds the base for computer simulations which connect the micro and macro level of social and economic scenarios. This paper presents a new method of modelling the formation and change of patterns of action in social systems with the help of Multi-Agent Simulations. The approach is based on two scientific concepts: Genetic Algorithms [Goldberg 1989, Holland 1975] and the theory of Action Trees [Goldman 1971]. Genetic Algorithms were developed following the biological mechanisms of evolution. Action Trees are used in analytic philosophy for the structural description of actions. The theory of Action Trees makes use of the observation of linguistic analysis that through the preposition by a semi-order is induced on a set of actions. Through the application of Genetic Algorithms on the attributes of the actions of an Action Tree an intuitively simple algorithm can be developed with which one can describe the learning behaviour of agents and the changes in action spaces. Using the extremely simplified economic action space, in this paper called aˆ?SMALLWORLDaˆ, it is shown with the aid of this method how simulated agents react to the qualities and changes of their environment. Thus, one manages to endogenously evoke intuitively comprehensible changes in the agentsaˆ? actions. This way, one can observe in these simulations that the agents move from a barter to a monetary economy because of the higher effectiveness or that they change their behaviour towards actions of fraud. Keywords: Multi agent system, genetic algorithms, actiontrees, learning, decision making, economic and social behaviour, distributed artificial intelligence JEL: C8 Date: 2005-07-14 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpco:0507002&r=all 151. Trade And Structural Adjustment Policies In Selected Developing Countries Jens Andersson (Swedish Minsitry of Foreign Affairs) Federico Bonaglia (OECD Development Centre) Kiichiro Fukasaku (OECD Development Centre) Caroline Lesser (OECD Development Co-operation Directorate) The experience of the five examined industries (agro-food in Chile, cut flowers in Kenya,garment in Lesotho and in Mauritius and seafood in Thailand) demonstrates that non-traditional industries can emerge and achieved strong growth rates in very diverse settings in terms of geography and initial economic and social conditions. In most of these cases, the government adopted a relatively export-oriented, business- friendly attitude and adapted its policies as the industries developed. Hence, a key factor for successful structural adjustment has been the pro- active role of government in establishing an enabling economic and policy environment that allows local firms to operate on a level-playing field and strengthen their competitive edge in international markets. This highlights the importance of implementing trade policies in the framework of comprehensive development strategies and establishing a consultative national policy-making process for ensuring a coherent approach to trade and structural adjustment. The case studies also underscore that countries (government and industry) are compelled to constantly adapt in light of new sources of competition, growing wage levels, environmental constraints, technological advances and demanding product and process standards. Policy-makers in most countries under review are aware of this challenge. As a consequence, some of them have taken the initiative to set up specific mechanisms or programmes for further enhancing the competitiveness of existing export sectors and/or promoting emerging non-traditional export industries. Keywords: Trade and structural adjustment, export diversification, trade capacity building JEL: O P Date: 2005-07-11 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpdc:0507003&r=all 152. IQ in the Ramsey Model: A Naive Calibration Garett Jones (Southern Illinois University Edwardsville) I show that in a conventional Ramsey model, between one-fourth and one- half of income differences across countries can be explained by a single factor: The steady-state effect of large, persistent differences in national average IQ on worker productivity. These differences in cognitive ability--which are well-supported in the psychology literature--are likely to be malleable through better nutrition, better education, and better health care in the world’s poorest countries. A simple calibration exercise in the spirit of Bils and Klenow (2000) and Castro (2005) is conducted. According to the model, a move from the bottom decile of the global IQ distribution to the top decile will cause steady-state living standards to rise by between 75 and 350 percent. We provide evidence that little of IQ- productivity relationship is likely to be due to reverse causality. Keywords: Economic Growth, Intelligence, IQ, Ramsey. JEL: O41 J24 Date: 2005-07-11 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpdc:0507004&r=all 153. Intelligence, Human Capital, and Economic Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach Garett Jones (Southern Illinois University Edwardsville) W. Joel Schneider (Illinois State University) Human capital plays an important role in the theory of economic growth, but it has been difficult to measure this abstract concept. We survey the psychological literature on cross-cultural IQ tests, and conclude that modern intelligence tests are well- suited for measuring an important form of a nation’s human capital. Using a new database compiled by Lynn and Vanhanen (2002) along with a Bayesian methodology derived from Sala-i-Martin, Doppelhofer, and Miller (AER, 2004), we show that national average IQ has a robust positive relationship with economic growth. In growth regressions that include only robust control variables, IQ is statistically significant in 99.8% of these 1330 regressions, and the IQ coefficient is always positive. A strong relationship persists even when OECD countries are excluded from the sample. A 1 point increase in a nation’s average IQ is associated with a persistent 0.11% annual increase in GDP per capita. Keywords: Economic Growth, Human Capital, Intelligence, IQ, Education JEL: O41 J24 I20 Date: 2005-07-11 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpdc:0507005&r=all 154. TIME, A FORM OF WEALTH Gopinath VadirajaRao Bangalore (No affiliation) Time fulfils following conditions to qualify as wealth. 1)Time can be expressed in Units. 2)Time can be changed to other forms of wealth. 3)Like all other forms of wealth, time moves from higher concentration to lower concentration till equilibrium is reached. 4) Like all other forms of wealth, time is soluble in this universal solvent- UTILITY. The science that deals with nature, properties, laws and classification of wealth is yet unnamed. This branch is similar to chemistry. Concept of time as a form of wealth leads one to take first step in classying wealth. Wealth can be broadly classified into: 1) Current Wants ( consisting of goods and services that an economic entity wants to possess) 2) Current means (Consists of money and money related forms of wealth) 3) Future wants and 4)Future means. When wants are more and means are few, current wants may be changed to future wants or cheaper wants may substitute costlier wants or furure means(loans and credit) may be cashed or converted into current means. Wants and means can neither be created nor be destroyed but can be changed from one form to another. Keywords: Law of Conservation, Law of Equilibrium, Wants and Means JEL: N Date: 2005-07-14 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpeh:0507001&r=all 155. Estimating the Underground Economy using MIMIC Models Trevor Breusch MIMIC models are being used to estimate the size of the underground economy or the tax gap in various countries. In this paper I examine critically both the method in general and three applications of the method by Giles and Tedds (2002), Bajada and Schneider (2005) and Dell’Anno and Schneider (2003). Connections are shown to familiar econometric models of linear regression and simultaneous equations. I also investigate the auxiliary procedures used in this literature, including differencing as a treatment for unit roots and benchmarking from other data. The three applications demonstrate how the method is subjective and pliable in practice. I conclude that the MIMIC method is unfit for the purpose. Keywords: underground economy, MIMIC, structural modelling, LISREL® software JEL: C22 C51 H26 Date: 2005-07-12 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpem:0507003&r=all 156. Egalitarian Punishment in Humans Tim Johnson (Max Planck) Richard McElreath (UC Davis - Anthropology) Oleg Smirnov (University of Miami) Participants in laboratory public goods games are often willing to decrease the earnings of others at a cost to themselves. What motivates this behaviour is unclear: in the conventional public goods game, punishment aimed at promoting cooperation cannot be distinguished from punishment seeking to attain equality. To resolve this problem and better understand punishment behaviour, we deviate from the public goods framework and create an experimental game that isolates egalitarian motives. Subjects are placed in small groups and each is allocated a randomly determined sum of money; subjects are shown the amount given to other group members and are allowed to reduce others’ incomes at a personal cost. Results show that individuals punish, at a cost to themselves, even when no cooperation norm can be enforced. The magnitude of punishment increases with income and, furthermore, the group member with the most income receives a disproportionate amount of punishment. Costly punishment of top earners suggests that relative status concerns influence human social competition. When employed in cooperative games where income correlates positively with defection, such behaviour could be misperceived as the sanctioning of defection. JEL: C9 Date: 2005-07-14 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpex:0507003&r=all 157. CASO SOROS Fernando Rubio (FERNCAPITAL S.A.) El caso analiza al inversor internacional George Soros y su entorno. Se pretende mostrar una serie de operaciones financieras que reflejen sus estrategias de inversion. Adicionalmente, se pretende que los alumnos asuman la figura del Administrador de un HEDGE FUND, especializado en inversiones internacionales y arbitraje financiero, de manera que resuelvan problemas relacionados con el ambito del rol del director financiero, del analisis financiero, de las estrategias de inversion y la valuacion de empresas. Keywords: George Soros, Quantum Fund, arbitraje financiero, estrategias de inversion, acciones, bonos, monedas. JEL: G10 G15 G21 G32 Date: 2005-07-10 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0507013&r=all 158. Simulation-Based Pricing of Convertible Bonds Manuel Ammann (University of St. Gallen) Axel Kind (University of St. Gallen) Christian Wilde (Johann Wolfgang Goethe University Frankfurt) We propose and empirically study a pricing model for convertible bonds based on Monte Carlo simulation. The method uses parametric representations of the early exercise decisions and consists of two stages. Pricing convertible bonds with the proposed Monte Carlo approach allows us to better capture both the dynamics of the underlying state variables and the rich set of real-world convertible bond specifications. Furthermore, using the simulation model proposed, we present an empirical pricing study of the US market, using 32 convertible bonds and 69 months of daily market prices. Our results do not confirm the evidence of previous studies that market prices of convertible bonds are on average lower than prices generated by a theoretical model. Similarly, our study is not supportive of a strong positive relationship between moneyness and mean pricing error, as argued in the literature. Keywords: Convertible bonds, Pricing, American Options, Monte Carlo simulation JEL: G13 G14 Date: 2005-07-16 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0507015&r=all 159. Mackerels in the Moonlight: Corrupt Politicians and Anti- Corruption Reform in Two-Candidate Elections Haldun Evrenk (Suffolk University) This paper examines causes of the persistence of corruption among elected politicians and the effectiveness of some commonly discussed anti-corruption reforms. We study a theoretical model of competition between two candidates who differ both in ability and popularity in a probabilistic voting setup. Each candidate proposes a tax rate and a public good level. The elected candidate's ability determines the cost of producing the public good. The budget constraint implies that taxes collected must equal the sum of funds used in public good production plus funds stolen by the elected politician. We solve for the tax rate and public good level chosen by each candidate and how much each candidate decides to steal. We then identify conditions under which (i) imposing constitutional constraints such as tax rate ( upper) or public good (lower) limits, (ii) increasing compensation of elected politicians, and (iii) small changes in legal penalties, will reduce corruption and increase voters' welfare. We find that the designers of a successful reform need to have information that is privately held by candidates. The redistributive effects of a reform and how that would affect the popularity of the reform is discussed as well. Finally, we argue that a welfare-improving reform that would reduce the corruption may not be supported by both corrupt and honest politicians. Keywords: corruption, reform, constitutional limits JEL: C7 D8 Date: 2005-07-12 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpga:0507005&r=all 160. Beat The Market Fan Wang (Stony Brook University, JP Morgan Chase & Co.) Speculation in asset market is modelled as a stochastic betting game played by finite number of players and repeated infinite times. With stochastic asset return and unkown quality of public signal, a generic adaptive learning rule is proposed and the corresponding evolutionary dynamics is analyzed. The impact of historical events on players' belief decays over time. It is proved to be a robust approach to adapt to stochastic regime shifts in the market. The market dynamics has characteristics, i. e. endogenous boom-bust cycle, positive correlation in return and volume, and negative first order autocorrelation in return series, commonly observed in financial market but inexplicable by conventional rational expectations theory. Keywords: Evolutionary Dynamics, Adaptive Learning, Behavioral Finance JEL: C7 D8 Date: 2005-07-12 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpga:0507006&r=all 161. Modeling the effect of Consumer Utility through Personalized Services and Compensating Variance through Greater Product Variety on Increased Spending in Online Advertisements Avimanyu Datta (ICFAI Business School Research Center, Calcutta) Rwitankar Coondoo (ICFAI Business School Research Center, Calcutta) Extending and combining concepts from consumer surplus of product availability and personalization strategies under privacy concern we made a model to comprehend and justify the reasons for the increase in the spending on online advertisements. We inductively found that with higher capability to sell increased product variety online and with high consumer utility from personalized services, investment in online advertisement will rise with a greater exponential slope and reach the saturation point much later than with lower levels of consumer utility and product variety. First, we linked online advertisement with technology adoption, by using decision-theoretic model to understand the probabilistic outcomes of when a firm decides to wait and observe and when it decides to adopt. Then we tried to comprehend the implications of consumer utility through personalized services and the compensating variance through increased product variety. Considering, that Internet adoption like most technology adoption will follow an S-curve we inductively concluded, along with attached evidences, that spending in online advertisements will follow the same path. The slope, inflection point and the saturation point of the curve will depend on the ability to increase consumer utility through personalization and the consumer variance with increased product variety. Combining the concepts we also stated that a firm is more likely to adopt online advertisement as a media for marketing if these two features are optimized. Keywords: Technology adoption, Bayesian function, Online Advertisement, Advertising channels, personalization, consumer surplus, compensating variance, Internet adoption, S-curve JEL: C6 D5 D9 Date: 2005-07-10 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpge:0507008&r=all 162. Chaotic expansion of powers and martingale representation ( v1.5) Farshid Jamshidian (Univ. of Twente, NIBCapital) This paper extends a recent martingale representation result of [N-S] for a Levy process to filtrations generated by a rather large class of semimartingales. As in [N-S], we assume the underlying processes have moments of all orders, but here we allow angle brackets to be stochastic. Following their approach, including a chaotic expansion, and incorporating an idea of strong orthogonalization from [D], we show that the stable subspace generated by Teugels martingales is dense in the space of square-integrable martingales, yielding the representation. While discontinuities are of primary interest here, the special case of a (possibly infinite-dimensional) Brownian filtration is an easy consequence. Keywords: Martingale representation, stochastic integration, stable subspaces, power brackets, Teugels martingales, polynomial, chaos, Hilbert space direct sum decomposition, Levy processes, finite moements semimartingales, dense. JEL: C G Date: 2005-07-15 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpge:0507009&r=all 163. Exploring the relationship between tourism and offshore finance in small island economies: lessons from Jersey John Christensen (Tax Justice Network) Mark Hampton (University of Kent) Many islands host tourism and offshore finance but research tends to focus on either industry without examining the nature of the relationship(s) between these two where they co-exist. This paper examines the nature of the relationships using a case study of the British Channel Island of Jersey. Both industries demand labour, land and capital that are frequently scarce in small islands. Given their common characteristics and, drawing lessons from Jersey, the paper then considers the nature and the dynamics of their relationship, and the issue of resource competition between the two sectors. In light of the unusual context of small polities and the political power of external actors, the paper also analyses the dynamics of the central relationship between tourism, offshore finance and the state in islands. Finally, the paper considers the overall impact of the relationship between tourism and offshore finance and how it affects the economic development trajectory of small islands. Keywords: tax havens, island tourism, island development JEL: F N O Date: 2005-07-11 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0507006&r=all 164. Endogenous Timing in a Mixed Triopoly with a Foreign Competitor Yuanzhu Lu (National University of Singapore) Endogenous order of moves is analyzed in a mixed triopoly with one public firm, one domestic private firm and one foreign private firm. The public firm produces most inefficiently, the foreign private firm produces most efficiently, and the efficiency of the domestic private firm is in between. We consider the observable delay game of Hamilton and Slutsky (1990) in the context of a quantity setting mixed triopoly where firms first choose the timing of choosing their quantities before quantity choice and find subgame perfect Nash equilibria (SPNE). The main result is that the public firm chooses to produce in the last period while the domestic private firm chooses to produce in any period except the last one in such a mixed triopoly, provided that efficiency differential between domestic and foreign private firm is not big. Keywords: Mixed Oligopoly; Endogenous Timing; Foreign Competitor; Simultaneous; Sequential; Efficiency Differential JEL: C72 D43 H42 L13 Date: 2005-07-12 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0507004&r=all 165. Optimum Population Growth with CIES Preference in the Infinite- Horizon Ramsey Model Ralph Z. Wang (College of Economics, Zhejiang University) When the preference over intertemporal consumptions is of CIES type and human capital enters the production function in a secific way, we show that the optimum population growth rate is exactly the subjective discount rate in an infinite-horizon Ramsey Model. Keywords: Population growth; CIES function; Ramsey Model JEL: D91 O21 Date: 2005-07-13 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpla:0507007&r=all 166. Looking for the Workforce: the Elderly, Discouraged Workers, Minorities, and Students in the Baltic Labour Markets Mihails Hazans (University of Latvia & BICEPS) This paper looks at the evolution of the labour markets in Estonia, Latvia, and Lithuania since the beginning of transition ( in some respects since 1996/1998) until 2003, with a particular focus on labour force participation. How did labour supply in the Baltic countries respond to changes in minimum wages, unemployment benefits and retirement regulation? Do the marked differences in labour market policies between the countries result in different patterns of participation? What are the obstacles to and driving forces of participation? We find that relative contribution of participation and demographic trends to the dynamics of the labour force varied substantially both over the years and across the three countries. Participation, in turn, has been shaped by sometimes complicated interaction between educational choices, retirement, policy changes, and external shocks. Resulting differences in trends and patterns are quite substantial, indicating that there is a room for increasing participation in each of the countries. Recent rates of transition from unemployment to employment and to inactivity are similar to those found in EU-15. Panel data analysis of determinants of participation and discouragement suggests that increasing after-tax real minimum wage has significant positive effect on participation and reduces discouragement in Lithuania. In Estonia, by contrast, positive effect of minimum wage on participation is found only for teenagers of both genders and for young males. Ethnic minorities, especially females, in all three Baltic countries are less likely to be in the labour force, other things equal. Keywords: Labour supply; discouraged workers; labour market flows; minimum wages; ethnic minorities. JEL: J14 J15 J22 P52 Date: 2005-07-13 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpla:0507008&r=all 167. Migration, Labor Market Flexibility, and Wage Determination in Zhong Zhao (Institute for the Study of Labor) This paper reviews economic studies on rural-urban migration issues in China. The paper focuses on four issues: the household registration system in China, the pro?le of the migrants, explanations for rural-to-urban migration, and the interaction between migration and labor market evolution, with special reference to labor market segregation, labor market ?exibility, and wage differentials. The paper concludes with suggestions for further research topics. Keywords: Migration, Labor Market, Segregation, Mobility, China JEL: J61 J68 J42 Date: 2005-07-13 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpla:0507009&r=all 168. Execution Moratoriums, Commutations and Deterrence: The Case of Illinois Dale Cloninger (U. Houston-Clear Lake) Roberto Marchesini (U. Houston-Clear Lake) In an earlier work we examined the impact of an execution moratorium in Texas on the monthly returns (first differences) of homicides. That moratorium was judicially imposed pending the appeal of a death sentence that could have had wide spread consequences. We apply similar methodology to the state of Illinois. In January 2000, the Governor of Illinois declared a moratorium on executions pending a review of the judicial process that condemned certain murderers to the death penalty. In January 2003 just prior to leaving office, the Governor commuted the death sentences of all of those who then occupied death row. We find that these actions are coincident with the increased risk of homicide incurred by the residents of Illinois over the 48 month post event period for which data were available. These findings are consistent with the deterrence hypothesis. Keywords: Execution; deterrence; capital punishment; moratorium; death penalty JEL: K Date: 2005-07-14 URL: http://d.repec.org/n?u=RePEc:wpa:wuwple:0507002&r=all 169. The Pro-cyclical R&D Puzzle: Technology Shocks and Pro- cyclical R&D Expenditure Taiji Harashima (University of Tsukuba & Cabinet Office of Japan) Empirically R&D expenditure moves pro-cyclically, but the pro- cyclicality is a puzzle from the Schumpeterian point of view. The paper examines the cyclical property of R&D expenditure in the context of endogenous growth, and concludes that (i) substitutability between investing in physical capital and investing in technology/knowledge is a key of the cyclical property of R&D, (ii) basically technology shocks accompany counter-cyclical R&D and demand shocks accompany pro-cyclical R&D, and (iii) the easiest way to solve the pro-cyclical R&D puzzle is to abandon the conjecture that business cycles are generated mainly by technology shocks. Keywords: R&D; Technology shock; Business cycle; Schumpeterian; Endogenous growth JEL: E32 O30 Date: 2005-07-12 Date: 2005-07-12 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0507012&r=all 170. Modelling Households' Savings and Dwellings Investment - A Portfolio Choice Approach Gabor Vadas (Magyar Nemzeti Bank) A house is generally considered as a 'roof over one's head', however, housing can be regarded as an investment or asset. Our paper focuses on this function of dwellings and develops a stochastic portfolio choice model for the housing market, which is easy to incorporate into medium and large-scale macro models. Theoretical results suggest that house prices move in line with households' income, although house prices have a higher variance than income does. On the other hand the positive correlation between the return on housing investment and consumption not only implies positive relationship between the portfolio share of housing investment and excess return but also renders the housing wealth inappropriate in consumption smoothing. We use UK data to test these theoretical implications of the model. In this case, empirical results strengthen the model framework. Keywords: households’ behaviour, housing investment, saving, portfolio decision, house price JEL: E Date: 2005-07-13 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0507013&r=all 171. World bank comments'India has done good work' Maheshjani (G.H.Jani Charitable Trust,kampteelane, Rajnandgaon- 491441 C.G India) World bank has comments that India has done pretigeous work,but it is only about a few people,what about 71% people of India? This is a very big problem,which has to be solved.Only by arms , India canot become superpower of the world in 21st century. Corruption is the biggest problem in India,which can be solved only by World peace model,which is submitted by me to Econ. National income is increasing in India,but purchasing capacity of currency is decreasing.Debts are increasing.Population is increasing,but education system isnot developed,even claen water isnot available in most of the rural area.PM of India says to develop Agriculture production,but subsidy on agriculture is decreasing.Even Bio-Diesel project is encouraged in CG state of India only.Which can develop rural economy.The basic problem is insufficient funds for planning,which can be solved by World peace model.Class war and religious differences of opinion can be solved by Spiritual-science research magazine,the first part of it is reported by Econ,i have sent the second part also,which isnot reported by Econ and www.google.com also.G-8 nations are thinking to reduce bad debts of African nations.These Nations can solve it by Credit-Debeit card corporation,which i have sent the paper to Econ.The solution of bad debts of a state of a Nation. India maximum states are facing heavy debts problems also. Political parties choose thier candidates on ther basis of caste and religion in India.New political system has been mentioned in web search-maheshjani in www.google.com,www.yahoo.com,www.msn.com, www.altavista.com,www.rediff.co m Keywords: India with new Planning suggestions. JEL: E Date: 2005-07-14 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0507014&r=all 172. The (Much Understated) Quantitative Role of Capital Accumulation and Saving Genevieve Verdier (Texas A&M University) Can factor accumulation still help us understand differences in capital inflows and income across countries? This paper offers a quantitative evaluation of neoclassical models of growth with collateral constraints. Previous work has found evidence that supports the qualitative predictions of this class of models for the direction of capital flows - -- they are driven by domestic scarcity --- and the role of domestic savings --- they act as complements rather than substitutes to capital inflows. In this paper, I estimate the factor shares implied by the long-term dynamics of external debt observed in the data. I find that a model with constant-elasticity-of substitution technology and a collateral constraint can generate plausible capital shares and cross- country distributions of debt-to-GDP ratios. This suggests that capital accumulation may play a more important role than suggested by the recent literature on growth, even in a world with limited financial integration. Keywords: Credit constraints, net external debt, capital flows, savings, convergence, capital shares. JEL: F41 F43 O41 C63 Date: 2005-07-14 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0507015&r=all 173. On the Welfare Gains of Growth and Welfare Costs of Inequality Juan Carlos Cordoba (Rice University) Genevieve Verdier (Texas A&M University) This note extends Lucas' (1987) analysis to assess welfare gains of economic growth and welfare costs of consumption inequality, both within and across countries. We find that the welfare costs of inequality are significantly larger than the gains of economic growth. While the gains of economic growth are equivalent to a permanent increase of 26% in per- capita consumption, the costs of within-country and cross-country inequality are equivalent to a permanent reduction in per-capita consumption of 45% and 90% respectively. A benevolent planner would accept a negative growth rate of 1\% (instead of the baseline positive rate of 2.1%) in exchange for the elimination of all within-country inequality. The gains of economic growth are equivalent to those of reducing within-country inequality by approximately 1/3. Keywords: Welfare cost, business cycles, economic growth, inequality JEL: E1 E2 D3 Date: 2005-07-15 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0507016&r=all 174. Refocusing the ECB on Output Stabilization and Growth through Inflation Targeting? Joreg Bibow (The Levy Economics Institute) Challenging the conventional wisdom that structural problems are to blame for the euro area’s protracted domestic demand stagnation, this paper sets out to shed some fresh light on the role of the ECB in the ongoing EMU crisis. Contrary to the widely held interpretation of the ECB as an inflation targeter—and a rather soft one, too—it is argued that the key characteristic of the ECB is the pronounced asymmetry in its policy approach and mindset. Curiously, this asymmetry has not only given rise to an antigrowth bias, but to upward price pressures and distortions as well. There is a link between stagnation and inflation persistence that owes to the ECB’s failure to internalize the euro area’s fiscal regime. This raises the question as to whether inflation targeting would have led to better results, or could do so in future. Keywords: Monetary policy, European Central Bank, inflation targeting, inflation persistence, tax-push inflation, antigrowth bias. JEL: E31 E42 E58 E61 Date: 2005-07-15 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0507017&r=all 175. Pushing the Prize Up, A Few Notes on Al-Qaeda's Reward Structure and the choice of Casualties Raul Caruso (Universita Cattolica del Sacro Cuore) Andrea Locatelli (Universita Cattolica del Sacro Cuore) The article aims at suggesting possible conjectures on Al- Qaeda's logic and structure. Even if the organization's secrecy makes any empirical evidence difficult to find, some insight can be provided by economic theory of contests: in this terms, Al- Qaeda can be acknowledged like an agent rewarding a prize ( membership) to its clients (cells and would-be cells). Although this principle makes the organization hardly visible and virtually impenetrable, we contend that in the long term such a logic is non-sustainable Keywords: Conflict, Al Qaeda, Terrorism, microeconomic theory, prize, contest JEL: D7 D74 Date: 2005-07-12 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0507008&r=all 176. A Tentative Definition and Taxonomy of Conflict Raul Caruso (Universita Cattolica del Sacro Cuore) Violent conflicts as wars, revolutions, rebellions have always been the traditional domain of students of politics. In recent years among economists there is a growing interest for conflict in its different form. The goal of this short essay is twofold: first, I try a tentative novel definition of conflict linked with categories famous among economists as rent-seeking, contest and unproductive activities. Secondly, I also try a taxonomy of different forms of conflict. Keywords: Conflict, Contest, Rent_Seeking, Unproductive Activities, Piracy, War, Plunder JEL: D7 D74 Date: 2005-07-12 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0507009&r=all 177. Financial Instability and Life Insurance Demand Mahito Okura (Faculty of Economics, Nagasaki University) Norihiro Kasuga (Faculty of Economics, Nagasaki University) This paper estimates private life insurance and Kampo demand functions using household-level data provided by the Postal Services Research Institute. The results show that income, children, pension and knowledge factors have a significant effect on the decision as to whether each household purchases life insurance products. The amount of income and financial assets also appear to have significant effect on the purchase of private life insurance and Kampo. However, pension and bankruptcy experience appear only to have an impact on Kampo, while aged ( less than 40) and occupation (civil servant) factors affect only private life insurance. Dummy variables representing comparison, knowledge, and bankruptcy experience did not have any significant effect on decisions concerning private life insurance. Simultaneous estimations are also used to examine why households that already have one type of life insurance product (e.g. private life insurance) purchase the other type of life insurance product (e.g. Kampo). The results indicate that income, children, and bankruptcy experience variables are not significant factors when households with private life insurance product decide to purchase additional Kampo. The results also show that a knowledge dummy has a negative impact on additional purchases. Keywords: life insurance demand, financial instability, sample selection model Date: 2005-07-10 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpri:0507002&r=all 178. Extreme Value Theory: the bivariate case and an application for assesing risks Federico Agustin Alcalde Bessia (Facultad de Ciencias Economicas de la Universidad de Buenos Aires) Maria Teresa Casparri (Facultad de Ciencias Economicas de la Universidad de Buenos Aires) Historicamente, la teoria en valores extremos se remonta a los comienzos de 1709 cuando Nicolas Bernoulli planteo el problema de la distancia media maxima desde el origen de “n” puntos distribuidos aleatoriamente en un linea recta de distancia fija t. Mientras que Frechet en 1927 identifico una distribucion limite posible para valores maximos, Fisher y Tippett en 1928 demostraron que las distribuciones de valores extremos pueden ser solo de tres tipos. Pero recien en 1943, Gnedenko, da los fundamentos rigurosos para esta teoria y presenta las condiciones necesarias y suficientes para la convergencia debil. En 1958, Gumbel fue el primero en llamar la atencion sobre las posibles aplicaciones de la teoria formal de los valores extremos para algunas distribuciones. El primer problema que se trato tiene que ver con fenomenos meteorologicos. Esto ocurrio en 1941. En la actualidad, el marco de aplicacion de la teoria de valores extremos es extenso. En particular, en el campo que nos interesa, economia, finanzas y seguros tiene su auge a fines de la decada del noventa. En el presente trabajo, a partir del caso univariado de la Teoria de los Valores Extremos, se llega al bivariado presentando, luego, una aplicacion a modo de ejemplo. Keywords: Extreme Value Theory, Biavariate Extreme Distributions, Univariate Extreme Distributions, Asses Risk, Multivariate Pareto Distribution Date: 2005-07-12 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpri:0507003&r=all 179. Market integration for agricultural output markets in Peru: the role of public infrastructure Javier Escobal (Grupo de AnA?lisis para el Desarrollo GRADE) Arturo VA?squez (OSINERG) This paper shows the impact that investment in infrastructure may have on the efficiency of agricultural products markets. Using daily price series for the most important agricultural crop in Peru (potato), in 10 cities from 1995 to 2001, we show that there is enough evidence to conclude that agricultural markets are spatially integrated. However we also show that there is short term disequilibria that affect the efficiency with which price information is transmitted across markets. A Threshold Cointegration Model is used to asses the speed of adjustment towards the equilibrium, the presence of transaction costs and the probabilities of successful and failed arbitrage between spatially distributed markets. As was expected, the paper shows that distance and geographic differences are important factors affecting spatial integration and efficiency between markets. However, other elements susceptible of government intervention, such as availability of information (access to local media and telecommunications facilities), road density or access to wholesale markets, are key factors for the reduction of transaction costs and the improvement of spatial integration between markets. Keywords: Infrastructure, Investment, Rural, Peru JEL: R12 D23 H54 Q11 Q13 Date: 2005-07-13 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpur:0507003&r=all 180. Debilidades Metodologicas en la Medicion de la Capacidad Innovadora de los Sistemas Regionales de Innovacion en la UE Jon Mikel Zabala Iturriagagoitia (Institute of Innovation & Knowledge Management, INGENIO CSIC-UPV) Fernando Jimenez Saez (Institute of Innovation & Knowledge Management, INGENIO CSIC-UPV) La Innovacion se ha convertido en uno de los principales pilares de la Union Europea. En este sentido se manifiestan los acuerdos adoptados en las cumbres de Lisboa y de Barcelona ( Consejo Europeo de Lisboa, 2000; Consejo Europeo de Barcelona, 2002). La realizacion de estudios de Benchmarking sobre Politica de Innovacion se constituye asi, en uno de los principales focos de atencion en la bibliografia, lo que lleva aparejado la aparicion de propuestas de nuevas metodologias para la medicion de la Capacidad de Innovacion Regional (Buesa et al., 2002; Archibugi y Coco, 2004; Faber y Hesen, 2004). El objetivo de este articulo consiste en analizar algunas de las metodologias existentes asi como los Indicadores empleados, identificando sus principales carencias en la determinacion de la capacidad de los Sistemas de Innovacion (SI). Para ello, se analizan los indicadores de I+D, Innovacion Tecnologica y otros relacionados con la capacidad innovadora de las regiones espanolas durante el periodo 1996–2001. Tras haber comparado las dos metodologias objeto de estudio, es posible concluir, que el empleo de una u otra metodologia en la definicion de un influye directamente en el ranking de innovacion. Por otra parte, la cantidad de variables que intervienen en los analisis estadisticos realizados, asi como la interpretacion de su significado resultan ciertamente complejas. Ademas, los cambios de criterio adoptados por los Institutos de Estadistica dificultan la realizacion de series temporales, mientras que el uso de identicos criterios para la medicion de la capacidad innovadora de territorios muy diferentes es calificado como una deficiencia de consideracion. Keywords: Innovation, Indicators, Indices, Weaknesses. JEL: R Date: 2005-07-15 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpur:0507004&r=all 181. Benchmarking study about R&D and Innovation at the Spanish Jon Mikel Zabala Iturriagagoitia (Institute of Innovation & Knowledge Management, INGENIO CSIC-UPV) The aim of this paper is the realization of a Benchmark analysis about the relative position of the Valencian Innovation System. This comparison has been threefold comparing the Spanish, Mediterranean and European regions. In order to undertake this analysis, on the one hand, for the Spanish regions, their evolution from 1992 to 2001 is analyzed according to the Instituto Nacional de Estadistica (INE) data. On the other hand, when comparing the different Mediterranean and European Regions, the analysis done is related to the indicators offered by the European Innovation Scoreboard for 2002 and 2003. These analyses illustrate the Valencian Innovation System’s weaknesses. The Comunidad Valenciana shows relative strengths in those fields related to public funding, such as High Education, Lifelong learning and Public R&D Expenditure. In contrast, the weaknesses are strongly related to private activities, as Employment in High Technology sectors and Business R&D expenditure. The low employment rates remark the lacking industrial structure at the Comunidad Valenciana, what arises in great difficulties to absorb the new high educated people. This situation shows a great structural imbalance at the Valencian Innovation System, clearly compromising its future development. Keywords: Regional Systems of Innovation, Benchmarking, European Innovation Scoreboard JEL: O12 O18 O32 O52 R11 Date: 2005-07-15 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpur:0507005&r=all 182. ANALYSIS OF THE DECISION MAKING PROCESSES IN NPD PROJECTS WITHIN INNOVATIVE COMPANIES. AN EMPIRICAL STUDY IN THE VALENCIAN REGION (SPAIN) Jon Mikel Zabala Iturriagagoitia (Institute of Innovation & Knowledge Management, INGENIO CSIC-UPV) Monica Garcia Melon (Departamento de Proyectos de Ingenieria, DPI, Universidad Politecnica de Valencia) The decisions made during the design process have a critical impact both on the design solution obtained but also on the design process itself. It can be observed that while the way in which products are developed differs not only across firms but within the same firm over time, what is being decided seems to remain fairly consistent [2]. After a thorough Literature research many references addressing decision processes developed within the NPD have been found. In the paper by Krishnan and Ullrich [4] an extensively list the most common decisions made in each phase of the development process of new products is presented. While rigorous at a bibliographical level, this work has not been empirically verified yet. Therefore, an empirical study to inquire whether decisions considered usual in the literature were actually common within the framework of innovative companies in the Valencia region (Spain) has been carried out. The empirical study has covered a representative sample of innovative companies in this region. A questionnaire including all decisions identified was prepared and sent by mail to all the companies belonging to the sample, whose aim was to determine the frequency these decisions are usually made. At the same time this study has been used to find out the patterns of decision-making processes in those innovative companies. The analysis of the results obtained confirmed that the decisions identified in the literature do correspond to the decisions mostly made in innovative companies of the Valencia Region and that they all follow a specific pattern. Keywords: New Product Development (NPD), Innovative firms, decision making, survey. JEL: C44 D70 O32 R11 Date: 2005-07-15 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpur:0507006&r=all 183. The Performance of Real Estate Portfolios: A Simulation Approach WILLIAM N. GOETZMANN (Yale School of Management, International Center for Finance) JEFFREY D. FISHER (Indiana University) In this paper we simulate the performance of real estate portfolios using cash flows from commercial properties over the period 1977 Q4 through 2004 Q2. Our methodology differs from analyses that rely upon historical time-weighted rates of return on property. We relax implicit rebalancing and mark to market assumptions inherent in time-series analysis. We use the distribution of internal rates of return to analyze the performance distribution of commercial property investment. We examine the performance of real estate in the context of portfolios of stocks and bonds over the same period. Keywords: Asset Allocation, Real Estate JEL: G11 R33 Date: 2005-07-15 URL: http://d.repec.org/n?u=RePEc:ysm:somwrk:ysm456&r=all 184. Institutional Perspectives on Real Estate Investing: The Role of Risk and Uncertainty William N. Goetzmann (Yale School of Management - International Center for Finance) Ravi Dhar (International Center for Finance at Yale School of Management) In this paper we address the factors influencing the institutional decision to allocate resources to real estate. We survey a sample of major institutional investors via a web questionnaire. They were willing to answer questions about their target real estate allocation, their plans to increase or decrease their allocation, the major reasons for investing in real estate, and views on the major risks and relative expense of doing so. We find that the endowments in our sample typically had a relatively short history of real estate investment, but planned to increase their allocation to the asset class - more so than pension funds. We also find uncertainty about use of historical data to be a significant factor in the allocation choice. Keywords: Behavioral Finance, real estate, investing, risk, uncertainty JEL: R33 G0 G23 Date: 2005-07-15 URL: http://d.repec.org/n?u=RePEc:ysm:somwrk:ysm457&r=all 185. Fertility in Portugal, How persistent is it? Gertrudes Guerreiro (Department of Economics, University of Evora) Maria Filomena Mendes (Department of Sociology, University of Evora) Antonio Caleiro (Department of Economics, University of Evora) The decline in fertility that has been observed in Portugal is an apparent fact. From 1960 to 2002, the average number of children by woman has decreased from 3.1 to 1.5. Not ignoring this strong evidence of a sustainable decrease in fertility, the fact is that the numbers on the fertility rates by women’ ages show different realities. At the first sight, the decline in fertility of younger women has been the result of a postponement of births given that a general increase in fertility rates has been observed for older women. A question that then comes up is the following: are these observed trajectories sustainable in the sense of reflecting persistence in time or are just mere phases of a cycle in fertility? The paper intents to start giving an answer to that question by the use of statistical techniques, in a univariate approach, which are adequate to measure the degree of persistence over time. Keywords: Fertility, Persistence, Portugal JEL: C22 J11 J13 Date: 2005 URL: http://d.repec.org/n?u=RePEc:evo:wpecon:12_2005&r=all 186. New Technologies, Workplace Organisation and the Age Structure of the Workforce: Firm-Level Evidence. Patrick Aubert Eve Caroli Muriel Roger This paper investigates the relationships between new technologies, innovative workplace practices and the age structure of the workforce in a sample of French manufacturing firms. We find evidence that the wage-bill share of older workers is lower in innovative firms and that the opposite holds for younger workers. This age bias affects both men and women. It is also evidenced within occupational groups, thus suggesting that skills do not completely protect workers against the labour- market consequences of ageing. More detailed analysis of employment inflows and outflows shows that new technologies essentially affect older workers through reduced hiring opportunities as compared to younger workers. In contrast, organisational innovations mainly affect the probability of exit, which decreases much more for younger than for older workers following reorganisation. Date: 2005 URL: http://d.repec.org/n?u=RePEc:pse:psecon:2005-18&r=all 187. Nouvelles technologies et nouvelles formes d'organisation du travail : quelles consequences pour l'emploi des salaries ages ? Patrick Aubert Eve Caroli Muriel Roger This paper investigates the relationships between new technologies, innovative workplace practices and the age structure of the workforce in a static labour demand framework. As a first step, we assume that, in the short run, the only variable factor is the number of workers in different age groups. We then assume, as a second step that the number of workers by age and skill group may vary. The data we use come from several sources: the Changements Organisationnels et Informatisation survey (COI); the Declarations Annuelles des Donnees Sociales ( DADS) and the Benefices Reels Normaux database (BRN). We find evidence that the wage-bill share of older workers is lower in innovative firms. This age bias affects is also evidenced within occupational groups, thus suggesting that skills do not completely protect workers against the labour-market consequences of ageing. Cet article s'interesse aux relations entre nouvelles technologies, changements organisationnels et structure par age de la main-d'oeuvre dans un cadre classique de demande de travail statique. Sous l'hypothese d'une fonction de cout translog, comme cela est habituel dans ce genre de modele, nous considerons que les seuls facteurs variables sont, dans un premier temps, les effectifs des differents groupes d'age puis, dans un second temps, les effectifs des groupes d'age par qualification. Les donnees utilisees pour estimer ce modele sont issues de l'appariement de plusieurs sources : l'enquete Changements Organisationnels et Informatisation (COI), les Declarations Annuelles des Donnees Sociales (DADS) et la base des Benefices Reels Normaux (BRN). Les resultats des estimations montrent que les salaries ages representent une part plus faible de la masse salariale dans les entreprises innovantes. Ce " biais a l'encontre de l'age " est verifie egalement au sein des differentes categories de qualifications la qualification ne suffit donc pas a proteger completement contre les consequences de l'age. Date: 2005 URL: http://d.repec.org/n?u=RePEc:pse:psecon:2005-19&r=all 188. Unemployment, growth and fiscal policy: new insights on the hysteresis hypothesis Xabier Raurich (Universitat Girona and Creb, Universitat de Barcelona) Hector Sala (Universitat Autonoma de Barcelona and IZA) Valeri Sorolla (Universitat Autonoma de Barcelona) We develop a growth model with unemployment due to imperfections in the labor market. In this model, wage inertia and balanced budget rules cause a complementarity between capital and employment capable of explaining the existence of multiple equilibrium paths. Hysteresis is viewed as the result of a selection between these different paths. We use this model to argue that, in contrast to the US, those fiscal policies followed by most of the European countries after the shocks of the 1970’s may have played a central role in generating hysteresis. Keywords: unemployment,hysteresis,multiple equilibria,economic growth,fiscal policy JEL: E24 E62 O41 Date: 2005-07 URL: http://d.repec.org/n?u=RePEc:iei:wpaper:0502&r=all 189. Determinants of Technical Efficiency in Agriculture and Cattle Ranching: A Spatial Analysis for the Brazilian Amazon Danilo Camargo Igliori (Department of Land Economy, University of Cambridge, UK) The determinants of technical efficiency in agriculture and cattle ranching are closely related with the debate involving the conservation-development trade-off in the Brazilian Amazon. Concerned with balancing development and environmental conservation, policy makers and academics have emphasized the importance of choosing ways of selecting areas where land use restrictions would be established. In order to understand the relationship between spatial patterns of deforestation and the associated distribution and characteristics of economic activity, issues regarding technical efficiency are clearly important. This paper aims to identify the socio-economic and environmental determinants of technical efficiency in agriculture and cattle ranching in the Brazilian Amazon emphasizing their relationship with spatial processes of deforestation and development. The study is structured in two parts. The first part is concerned with measuring technical efficiency for agriculture and cattle ranching in each geographical unit focusing on the production relationship between inputs and outputs. The second one focuses on the variation in the efficiency measure explained by exogenous factors and includes the spatial analysis. We adopt the model proposed by Battese and Coelli (1995) where the production function and the exogenous effects influencing technical efficiency are estimated simultaneously. Keywords: stochastic frontier, technical efficiency, spatial analysis, Brazilian Amazon Date: 2005-06 Date: 1998-01 URL: http://d.repec.org/n?u=RePEc:lnd:wpaper:092005&r=all 190. Productivity and labor management
in Shanghai state- owned industrial enterprises Christian Henriot (IAO - Institut d'asie orientale - http: //iao.ish-lyon.cnrs.fr/ - Universite Lumiere - Lyon II - Ecole Normale Superieure Lettre et Sciences Humaines) The present paper is based on a large three-year survey we carried out among Shanghai SOEs from 1989 to 1992, with a follow- up to 1995. We tried to assess the extent of the reforms, their impact, and the capacity of Shanghai SOEs to adapt to a more competitive environment. In this paper, I shall focus on one aspect of SOEs' management, namely the issue of productivity. Low and declining productivity has been one of the major features of SOEs in China and in Shanghai. By the time of our survey, Shanghai SOEs had been under reform for 8 years (1984-1992). Reforms in management, labor, marketing should have brought substantial changes. They had a serious impact indeed, but they failed to materialize into a real rejuvenation of SOEs. Keywords: China; Shanghai; industry; reforms; Date: 2005-07-09 URL: http://d.repec.org/n?u=RePEc:hal:papers:halshs-00004064_v1&r=all 191. transmission intergenerationnelle du capital humain Boubaker Hlaimi (LEST UMR 6123 - Laboratoire d'Economie et de Sociologie du Travail - http://lest.univ-aix.fr) L'objectif de ce papier est d'analyser les mecanismes de transmission intergenerationnelle dans un cadre theorique qui suppose une structure familiale heterogene. Pour cela, nous proposons une version modifie du modele de Becker et Tomes ( 1986) en supposant qu'ils existent deux groupes d'enfants : les aines et les cadets. Nous tentons de voir comment en fonction des resultats des aines, les parents modifient leurs choix educatifs ou d'apprentissage des cadets etant donne les taux de rendement et les dotations. Keywords: transmission intergenerationnelle; capital humain; dotations; marche du travail; facteur de chances Date: 2005-07-12 URL: http://d.repec.org/n?u=RePEc:hal:papers:halshs-00004052_v1&r=all 192. Vulcanism and Prehistory in the massif central of France : Future Prospects for Sustainable Development of Rural Highlands Jean-Paul Raynal (PACEA - De le Prehistoire a l'Actuel : Culture, Environnement et Anthroplogie - CNRS : UMR5199;MIN CULTURE - Universite Sciences et Technologies - Bordeaux I) Gerard Vernet (GMNA - Geodynamique des milieux naturels et anthropises - http://www.univ-bpclermont.fr/LABOS/geolab - CNRS : UMR6042 - Universite Blaise Pascal - Clermont- Ferrand II;Universite de Limoges) Guy Kieffer (GMNA - Geodynamique des milieux naturels et anthropises - http://www.univ-bpclermont.fr/LABOS/geolab - CNRS : UMR6042 - Universite Blaise Pascal - Clermont- Ferrand II;Universite de Limoges) If recent huge projects in Auvergne, as Vulcania near Clermont- Ferrand for example, try to use vulcanism as a matter of sustainable local development, attracting either seasonal touristic flow or all-year academic activities, the remote highlands of Velay begin to discover that archaeology and vulcanism make an original combination to increase interest of populations and can be a key for sustainable rural development. Keywords: volcanisme;archeologie;developpement local; developpement durable;Massif central;Haute-Loire Date: 2005-07-11 URL: http://d.repec.org/n?u=RePEc:hal:papers:halshs-00004081_v1&r=all 193. Experiences de laboratoire en economie et incitations monetaires Nathalie Etchart-Vincent (CIRED - Centre International de Recherche sur l'Environnement et le Developpement - http: //www.centre-cired.fr - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales;Ecole Nationale du Genie Rural des Eaux et des Forets;Ecole Nationale des Ponts et Chaussees) La mise en place d'une procedure monetaire incitative dans le cadre d'une experience de laboratoire en economie suppose l'existence d'une relation positive etroite entre incitation et effort d'une part et entre effort et performance d'autre part. Pourtant, sur le plan empirique, l'impact des incitations monetaires sur l'effort et/ou la performance apparait plus mitige, voire negatif. Nous revenons ici sur un certain nombre d'arguments theoriques et empiriques avances dans la litterature pour expliquer cet ecart. Sont ainsi mis en cause le montant insuffisant des incitations, l'inadequation des procedures incitatives utilisees, la fragilite du lien entre incitation et effort et/ou entre effort et performance, le role ambigu de la motivation intrinseque. Nous nous interessons ensuite au cas particulier de l'experimentation dans des contextes de pertes, qui pose de maniere plus fondamentale la question de l'opportunite des incitations monetaires. Nous concluons sur la necessite d'une utilisation pragmatique de ces dernieres selon la nature de l'etude envisagee. Keywords: economie experimentale;incitations monetaires; motivation intrinseque;contextes de pertes Date: 2005-07-13 URL: http://d.repec.org/n?u=RePEc:hal:papers:halshs-00004121_v1&r=all 194. An Adaptive Version for the Metropolis Adjusted Langevin Algorithm with a Truncated Drift Yves Atchade (Department of Mathematics and Statistics, University of Ottawa and LRSP) This paper proposes an adaptive version for the Metropolis adjusted Langevin algorithm with a truncated drift (T-MALA). The scale parameter and the covariance matrix of the proposal kernel of the algorithm are simultaneously and recursively updated in order to reach the optimal acceptance rate of 0:574 (see Roberts and Rosenthal (2001)) and to estimate and use the correlation structure of the target distribution. We develop some convergence results for the algorithm. A simulation example is presented. Keywords: Markov Chain Monte Carlo, Stochastic approximation algorithms, Metropolis Adjusted Langevin algorithm, geometric rate of convergence. JEL: C10 C40 Date: 2005-03-01 URL: http://d.repec.org/n?u=RePEc:pqs:wpaper:0272005&r=all 195. Banks Lending and Macroeconomic Uncertainty: the Case of Canada Alejandro Garcia (Department of Monetary and Financial Analysis, Bank of Canada) Christian Calmes (Departement des sciences administratives, Universite du Quebec en Outaouais and LRSP) This paper studies the changes in the portfolio allocation of Canadian banks resulting from macroeconomic uncertainty. Statistical evidence suggest that banks reduce the composition of loans as a percentage of their total assets when macroeconomic uncertainty increases. This behaviour has been previously studied for the U.S by Baum et al. (2002). In their paper, the authors find that the cross-sectional variance of banks allocation of loans with respect to other assets (loan-to-asset-ratio) decreases during episodes of greater macroeconomic uncertainty. According to this result, banks allocate their portfolio in an homogenous manner where there is greater uncertainty, and chose more heterogeneous allocations under normal economic conditions. The contribution of this paper is to confirm their findings in the context of Canadian banking. Based on the conditional variance of monthly industrial production, we find that Canadian banks displays a herding behaviour when uncertainty is more pronounced. Keywords: Banks portfolio, Macroeconomic uncertainty, herding JEL: G11 C22 Date: 2005-03-09 URL: http://d.repec.org/n?u=RePEc:pqs:wpaper:0282005&r=all 196. Calibrage econometrique de processus stochastiques avec applications aux donnees boursieres, bancaires et cambiales canadiennes Francois-Eric Racicot (Departement des sciences administratives, Universite du Quebec (Outaouais)) Raymond Theoret (Departement de strategie des affaires, Universite du Quebec (Montreal)) In this paper, we show how to calibrate the most usual stochastic processes: arithmetic and geometric Brownian motions,, mean-reverting processes and jump processes. This paper contains also many applications to Canadian financial data. We observe, among other phenomena, that a mean-reverting process is very appropriate to estimate the return on assets of the six biggest Canadian banks. Finally, we estimate a monofactorial model of interest rate. Keywords: Stochastic processes, financial econometrics, banks, derivatives, financial engineering JEL: G11 C22 Date: 2005-07-13 URL: http://d.repec.org/n?u=RePEc:pqs:wpaper:0292005&r=all 197. The limits of Consequentialism: An experimental approach Fernado Aguiar (IESA/CSIC) Pablo Branas-Garza (Department of Economic Theory and Economic History, University of Granada) Over the last two decades there has been a complex debate about the nature and limits of the consequentialism. Using these ideas this paper revises giving (altruism) in experimental dicatator games. We use results from several experimental papers plus an experiment ad-hoc designed to motivate altruism. Keywords: dictator game, fairness, consequentialism JEL: D63 D64 C91 Date: 2005-07-11 URL: http://d.repec.org/n?u=RePEc:gra:wpaper:05/17&r=all 198. The Welfare Economics of Adaptive Preferences Carl Christian von Weizsacker (Max Planck Institute for Research on Collective Goods, Bonn, Germany) In this paper I demonstrate that a reasonable welfare theoretic concept of "progress" can be made consistent with the assumption of endogenously changing preferences as long as these preference changes correspond to the pattern of "adaptive preferences". The main theorem of the paper shows that under certain additional conditions "adaptive preferences" imply the existence of a complete pre-ordering of the consumption space in terms of "improvement paths" which allow endogenous preference changes. It is then shown that welfare economics of "improvement paths" is also possible with interpersonal influences on preferences. A conjecture is developed that results of recent empirical and experimental research into human economic behaviour corroborate the hypothesis of "adaptive preferences". Keywords: Welfare Economics, Endogenous Preferences, Adaptive Preferences, Interpersonal Influences on Preferences, Improvement Paths, Bounded Rationality Date: 2005-06 URL: http://d.repec.org/n?u=RePEc:mpg:wpaper:2005_11&r=all 199. R&D investment, Credit Rationing and Sample Selection Gianfranco Atzeni (University of Sassari) Claudio Piga (Dept of Economics univ. of Loughborough) We study whether R&D-intensive firms are liquidity-constrained, by also modeling their antecedent decision to apply for credit. This sample selection issue is relevant when studying a borrower- lender relationship, as the same factors can influence the decisions of both parties. We find firms with no or low R&D intensity to be less likely to request extra funds. When they do, we observe a higher probability of being denied credit. Such a relationship is not supported by evidence from the R&D-intensive firms. Thus, our findings lend support to the notion of credit constraints being severe only for a sub-sample of innovative firms. Furthermore, the results suggest that the way in which the R&D activity is organized may differentially affect a firms’ probability of being credit-constrained. Keywords: Bivariate Probit; Innovation; selectivity; in-house R&D. JEL: D45 G21 G32 E51 Date: 2005-06 Date: 2005-06 URL: http://d.repec.org/n?u=RePEc:lbo:lbowps:2005_6&r=all 200. National Key FDI Policies and International Investment Agreements Development Anthony Ho (Department of Economics, Shanghai University) National FDI policies play an important part in attracting FDI, which covering attracting FDI, gaining from FDI, and addressing TNCs. Recent years have seen great changes and developments in national FDI policies, and IIAs with respect to the form and amount as well. IIAs at different levels have their own advantages and disadvantages, therefore, when entering into IIAs, countries have to balance their own benefits and development needs with costs. To a great extend, IIAs supplement national FDI policies, making those of different countries tend to be the same. IIAs provide investors with a more transparent, more stable, more predictable, and safer environment, and an opener environment as well. Keywords: FDI Policies, International Investment, National Policies and International Agreements JEL: F1 F2 Date: 2004-07 URL: http://d.repec.org/n?u=RePEc:shu:wpaper:2004001&r=all 201. Analysis on Major Issues in International Investment Agreements and Future Options Anthony Ho (Department of Economics, Shanghai University) Since World War II, international investment agreements experienced a rapid development. However, some differences exist greatly in different agreements in the following aspects: Definition of Investment, FDI Entry and Treatment, Nationalization and Expropriations, Investment Dispute Settlement, Performance Requirements, Incentive Measures, Technology Transfer, and Competition Policies. All eight areas reviewed here are key sensitive issues that arise in the interface between national and international rule-making. When entering to international investment agreements, governments should take into consideration its development level and needs to opt provisions beneficial to it. Keywords: International Investment Agreements, Issues in Negotiation, Provision Options JEL: F1 F2 Date: 2004-07 URL: http://d.repec.org/n?u=RePEc:shu:wpaper:2004002&r=all 202. Search Intensity and Wage Differences Tairi Room (Bank of Estonia) Differences in job search behaviour have long been recognized in theoretical literature as a potential source of wage differentials. The aim of the current paper is to estimate whether there exists a systematic difference in search activity between genders and whether this can explain a part of the gender wage gap. These hypotheses are tested using micro-level data for the years 1998-2000 from the Estonian Labour Force Survey. The empirical model yields a result that unemployed men search more actively for new jobs than women. Controlling for the difference in search intensity significantly reduces the residual gender wage differential. URL: http://d.repec.org/n?u=RePEc:eea:boewps:wp2004-01&r=all 203. Critical Levels of Debt? Lenno Uuskula (Bank of Estonia) Peeter Luikmel (Bank of Estonia) Jana Kask High credit growth in Central and Eastern European countries ( CEEC) over recent years has sparked interest among many market analysts. Although banking supervision has improved, the continuation of such growth may cause concern about the threat of financial crisis. This paper is written with the aim of analysing the importance of debt factors as a potential cause of financial crises. First, a comparison is conducted of various debt indicators from episodes of crisis in banking across European countries since the 1970s. Second, a probit analysis is used to measure the probability of a crisis. Based on this analysis, it can be claimed that any direct link between debt indicators and financial crises is weak. However, there is some evidence that once the crisis occurs, greater indebtedness lengthens the crisis and raises costs in terms of GDP. Keywords: financial crisis, indebtedness indicators JEL: C23 E44 F34 G20 URL: http://d.repec.org/n?u=RePEc:eea:boewps:wp2005-03&r=all 204. Short-Term Effects of Foreign Bank Entry on Bank Performance in Selected CEE Countries Janek Uiboupin This paper analyses the short-term impact of foreign bank entry on bank performance in ten Central and Eastern European countries. A panel of 319 banks was analysed over the period 1995–2001. The Arellano-Bond dynamic panel estimation technique was used. The results indicate that foreign bank entry is associated with lower beforetax profits, non-interest income, interest income on interest earning assets and loan loss provisions. Foreign bank entry tends to increase the overhead costs of local banks in the short-run. The results generally indicate that foreign bank entry enhances competition on the market. The role the development of the banking sector plays in regard to the effects of foreign bank entry was analysed. Research results show that in more developed banking markets, foreign bank entry is associated less with decreasing incomes and loan loss provisions than in less developed banking markets. In more developed markets, the overhead costs of banks are less likely to increase. The results show that banks with a higher market share react less to foreign banks entering the market. Keywords: foreign bank entry, financial development, domestic banking JEL: E44 G21 URL: http://d.repec.org/n?u=RePEc:eea:boewps:wp2005-04&r=all