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NEP: New Economics Papers
All new papers
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Edited by: Marco Novarese
http://ideas.repec.org/e/pno2.html
Universita del Piemonte Orientale
Date: 2005-06-05
Papers: 271
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1. On the Efficiency of Spam Mailing and Portal Advertising
Martin Bandulet (University of Augsburg, Department of
Economics)
The objective of this paper is to provide a simple approach
endogenizing the welfare reducing or welfare enhancing effect of
informative advertising. Using this approach, it is possible to
analyse the welfare consequences of a technology shock that
reduces unit information costs, and to explain whether electronic
junk mails or portal advertising will cause welfare gains or
losses in a competitive environment.
Keywords: advertising, externalities, internet portals
JEL: D8 D62 L86
Date: 2005-06
URL: http://d.repec.org/n?u=RePEc:aug:augsbe:0275&r=all
2. What if the UK has Joined the Euro in 1999? An Empirical
Evaluation using a Global VAR
M. Hashem Pesaran
L. Vanessa Smith
Ron P. Smith
We provide a conceptual framework to analysis counterfactual
scenarios using macroeconometric models. We consider UK entry to
the euro. We derive conditional probability distributions for the
difference between the future realisations of variables of
interest subject to UK entry restrictions being fully met over a
given period, and the alternative realisations without the
restrictions. Economic interdependence means that such policy
evaluation must take account of international linkages and common
factors that drive fluctuations across economies. We use the
Global VAR developed by Dees, di Mauro, Pesaran and Smith (2005).
The paper briefly describes the GVAR which has been estimated for
25 countries and the euro area over the period 1979-2003. It
reports probability estimates that output will be higher and
prices lower in the UK and the euro area as a result of entry. It
examines the sensitivity of these results to a variety of
assumptions about UK entry.
Keywords: Global VAR (GVAR), Counterfactual Analysis, euro.
JEL: C32 C35 E17 F15 F42
Date: 2005-05
URL: http://d.repec.org/n?u=RePEc:cam:camdae:0528&r=all
3. The Role of Industry, Geography and Firm Heterogeneity in
Credit Risk Diversification
M. Hashem Pesaran
Til Schuermann
Bjorn-Jakob Treutler
In theory the potential for credit risk diversification for
banks could be substantial. 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. We propose a model for exploring these dimensions of
credit risk diversification: across industry sectors and across
different countries or regions. We find that full firm-level
parameter heterogeneity matters a great deal for capturing
differences in simulated credit loss distributions. Imposing
homogeneity results in overly skewed and fat-tailed loss
distributions. These differences become more pronounced in the
presence of systematic risk factor shocks: increased parameter
heterogeneity greatly reduces shock sensitivity. Allowing for
regional parameter heterogeneity seems to better approximate the
loss distributions generated by the fully heterogeneous model
than allowing just for industry heterogeneity. The regional model
also exhibits less shock sensitivity.
Keywords: Risk management, default dependence, economic
interlinkages, portfolio choice
JEL: C32 E17 G20
Date: 2005-05
URL: http://d.repec.org/n?u=RePEc:cam:camdae:0529&r=all
4. Inflation Targeting, Committee Decision Making and
Uncertainty: The case of the Bank of England’s MPC
Arnab Bhattacharjee
Sean Holly
Transparency and openness of the monetary policymaking process
at the Bank of England has provided very detailed information on
both the decisions of individual members of the Monetary Policy
Committee and the information on which they are based. We
consider this decision making process in the context of a model
in which inflation forecast targeting is used but there is
heterogeneity among the members of the committee. We find that
internally generated forecasts of output and market generated
expectations of medium term inflation provide the best
description of discrete changes in interest rates. We find a role
for asset prices through the equity market, foreign exchange
market and housing prices. There are identifiable forms of
heterogeneity among members of the committee that improves the
predictability of interest rate changes. This can be thought of
as supporting the argument that full transparency of monetary
policy decision making can be welfare enhancing.
Keywords: Monetary policy, interest rates, Monetary Policy
Committee, Committee decision making
JEL: E42 E43 E50 E58
Date: 2005-06
URL: http://d.repec.org/n?u=RePEc:cam:camdae:0530&r=all
5. A note on the asymptotic efficiency of the restricted
estimation
Jose A. Hernandez (University of Las Palmas de Gran
Canaria; Facultad de CC. EE y EE. Despacho D312; Campus de
Tafira; C/ Saulo Toron 4; 35017; Las Palmas de G.C. Spain
Tfno (0034) 928458206, Fax (0034) 928458183)
This paper provides a unified framework for the analysis of the
stochastic and deterministic constrained estimation. In a general
framework it is show that stochastic restrictions method
estimates can be asymptotically more e.cient than estimates
ignoring prior information, and can achieve efficiency of the
restricted estimate if prior information grows faster than the
sample information in the asymptotics. As an example of the
applicability of the previous result, the maximum likelihood
stochastically restricted criterion is provided.
Keywords: Prior information, stochastic restrictions, efficiency,
maximum likelihood.
Date: 2005-01
URL: http://d.repec.org/n?u=RePEc:can:series:2005-01&r=all
6. Prediccion mediante algoritmos geneticos con matriz de
transicion. Una aplicacion a la demanda turistica de
Tenerife
Montserrat Hernandez Lopez (Dpto. de Economia de las
Instituciones, Estadistica Economica y Econometria
Facultad de Ciencias Economicas y Empresariales;
Universidad de La Laguna Campus de Guajara.38071 La Laguna;
38071; La Laguna; Tenerife.Islas Canarias.Espana Telefono:
922317032)
Aunque los algoritmos geneticos se disenaron originalmente
como metodo de optimizacion, tambien pueden ser utilizados, en
el contexto economico, como herramienta predictiva de los
cambios en la composicion de una poblacion, en terminos de las
caracteristicas individuales de los agentes que la componen. En
este documento, se desarrolla un algoritmo genetico especifico
capaz de predecir los cambios en las caracteristicas de los
turistas que visitan el sur de Tenerife. Los resultados obtenidos
sugieren la conveniencia de sustituir los tradicionales
operadores de cruce y mutacion por la accion de una adecuada
matriz de transicion. Esta matriz dirige la dinamica de
transformacion de la poblacion en el sentido de que permite
introducir consideraciones economicas que otorgan mayores
probabilidades a ciertas transformaciones en las caracteristicas
de los turistas que visitan la Isla.
Keywords: Algoritmos geneticos, prediccion economica,
operadores geneticos, matriz de transicion.
Date: 2005-02
URL: http://d.repec.org/n?u=RePEc:can:series:2005-02&r=all
7. Viabilidad economica del policultivo de tilapia nilotica y
langosta australiana en el estado de Yucatan, Mexico.
Donny Victor Ponce Marban (Centro de Investigacion y
Estudios Avanzados del Instituto Politecnico Nacional
Departamento de Recursos del Mar, Km. 6 de la carretera
antigua a Progreso s/n, Merida, Yucatan, Mexico, C.P.
97201.)
Juan Hernandez Guerra (Departamento de Metodos
Cuantitativos en Economia y Gestion, Facultad de CC.EE. y
EE, Universidad de Las Palmas de Gran Canaria, c/Saulo
Toron s/n, 35017 Las Palmas de G.C. Islas Canarias,
Espana.)
Eucario Gasca Leyva (Centro de Investigacion y Estudios
Avanzados del Instituto Politecnico Nacional Departamento
de Recursos del Mar, Km. 6 de la carretera antigua a
Progreso s/n, Merida, Yucatan, Mexico, C.P. 97201.)
El cultivo de tilapia lleva desarrollandose desde hace decadas
en comunidades rurales del estado del Yucatan, Mexico. No
obstante, la produccion de esta especie en policultivo con otras
de mayor valor comercial se presenta como una oportunidad de
mejora sustancial en los rendimientos economicos de los
acuicultores. Este trabajo analiza la viabilidad economica de
implementar la estrategia del policultivo de tilapia nilotica
con langosta australiana. Los resultados simulados sugieren que
el policultivo incrementa la rentabilidad, abrevia el tiempo de
recuperacion de la inversion y actua como inhibidor de riesgo
ante cambios tanto en el precio de venta como en los costos de
produccion. Se observa tambien la existencia de una produccion
combinada optima en densidades medias de abastecimiento de
langosta.
Keywords: Acuicultura, policultivo, Yucatan, viabilidad
economica, TIR.
Date: 2005-03
URL: http://d.repec.org/n?u=RePEc:can:series:2005-03&r=all
8. Riesgo estrategico percibido y riesgo estrategico asumido
Juan Ramon Oreja Rodriguez (Departamento de Economia y
Direccion de Empresas; Universidad de La Laguna Facultad
de Ciencias Economicas y Empresariales Campus
Universitario de Guajara. 38071-La Laguna (Santa Cruz de
Tenerife) Telefono: 922 317056)
Vanessa Yanes Estevez (Departamento de Economia y
Direccion de Empresas; Universidad de La Laguna Facultad
de Ciencias Economicas y Empresariales; Campus
Universitario de Guajara. 38071-La Laguna (Santa Cruz de
Tenerife) Telefono: 922 845400)
El concepto de riesgo es uno de los criterios y conceptos mas
considerados en la toma de decisiones estrategicas. Tras adoptar
la perspectiva del comportamiento, surgen diversos estudios y
modelos que pretenden contribuir a su mejor entendimiento en
direccion de empresas. En este trabajo, aportamos algunas
evidencias sobre variables que tambien deberian ser
consideradas en dichos modelos. Utilizamos una muestra de
empresas que desarrollan sus actividades en un entorno
geograficamente diferenciado como es Las Islas Canarias (Espana)
A partir de la identificacion de diversas dimensiones dentro
del concepto de riesgo, comprobamos que lo que se percibe o
entiende por riesgo estrategico condiciona el riesgo que
finalmente se asume. De esta forma seguimos ahondando en los
procesos mentales de los decisores al enfrentarse a la toma de
decisiones. Base de lo que deberia ser la nueva ciencia del
management (Simon, 1977).
Keywords: riesgo estrategico; percepcion; toma de decisiones;
decisor; cognicion.
Date: 2005-04
URL: http://d.repec.org/n?u=RePEc:can:series:2005-04&r=all
9. Inversion publica y crecimiento economico. Una revision
critica con propuesta de futuro
Carmen Diaz Roldan (Universidad de Castilla-La Mancha)
Diego Martinez-Lopez (Centro de Estudios Andaluces y
Univesidad Pablo de Olavide)
The relationship between public investment and economic
performance has received a substantial attention by economists
and policy-makers over the recent few years. In such a way,
several approaches have been followed, from different theoretical
and empirical points of view. The aim of this paper is to survey
the main results found in the literature, especially those
concerning productive public spending and economic growth.
Moreover, we present a simple growth model in which regional
characteristics are explicitly taken into account.
Keywords: Growth, infrastructures, regional policy
JEL: E62 H54
Date: 2005
URL: http://d.repec.org/n?u=RePEc:cea:doctra:e2005_10&r=all
10. Policy Responses to External Shocks: The Experiences of
Australia, Brazil and Chile
Luis Felipe Cespedes,,,
Ilan Goldfajn
Phil Lowe
Rodrigo Valdes
Open economies, particularly emerging markets and commodity-
intensive economies, deal with large external shocks.
Interestingly enough, policy reactions and policy set-ups may
dampen or amplify the consequences of these shocks, affecting the
magnitude of the shock. This paper revisits the recent experience
of policy frameworks and reactions in three countries: Australia,
Brazil and Chile. In particular, we analyse and evaluate
alternative policy set-ups and policy reactions to the Asian
crisis in the period 1997-98, and to the lower world growth and
higher risk aversion in 2001-2002.
Date: 2005-05
URL: http://d.repec.org/n?u=RePEc:chb:bcchwp:321&r=all
11. International Borrowing, Capital Controls and the Exchange
Rate: Lessons from Chile
Kevin Cowan
Jose De Gregorio
This paper analyzes the Chilean experience with capital flows.
We discuss the role played by capital controls, financial
regulations and the exchange rate regime. The focus is on the
period after 1990, the period when Chile returned to
international capital markets. We also discuss the early 80s,
where a currency collapse triggered a financial crisis in Chile,
despite stricter capital controls on inflows than the 90s and
tighter currency matching requirements on the banking sector. We
conclude that financial regulation and the exchange rate regime
are at the center of capital inflows experiences and financial
vulnerabilities. Rigid exchange rates induce vulnerabilities,
which may lead to sharp capital account reversals. We also
discuss three important characteristics of the Chilean experience
since the 90s. The first is the fact that most international
borrowing is done directly by corporations and it is not
intermediated by the banking system. The second is the
implication of the free trade agreement of Chilean and the US
regarding capital controls. Finally, we examine the Chilean
experience following the Asian-Russia crisis, showing that Chile
did not suffer a sudden-stop, but a current account reversal due
to policy reactions and a sudden-start in capital outflows.
Date: 2005-05
URL: http://d.repec.org/n?u=RePEc:chb:bcchwp:322&r=all
12. Mixed Tactical Asset Allocation
Alejandro Corvalan
In a typical tactical asset allocation set up a manager receives
compensation for his excess of return given a tracking error
target. Critics of this framework cite its lack of control over
the total portfolio risk. Current approaches recommend what we
call a mixed allocation, derived from concerns about relative and
absolute return and risk. This work provides an analytical
framework for mixed tactical asset allocation, based on the
premise that after the investor sets a tracking error target, a
fundamental trade off remains unsolved: the one between excess of
return and total risk. The article derives a separation theorem
for tactical allocation, wherein the portfolio is a linear
combination of an alpha portfolio providing excess returns and a
beta portfolio providing overall risk hedge. The author shows how
the formal expression summarizes all previous works. Moreover, it
also includes the simplest Black-Litterman allocation.
Date: 2005-05
URL: http://d.repec.org/n?u=RePEc:chb:bcchwp:323&r=all
13. Evaluation de risque du projet de migration vers la suite
bureautique libre sous Linux
Groupe utilisateurs finaux
Malika Aboubekr
Suzanne Rivard
La percee et les performances des logiciels libres incitent de plus en plus au questionnement sur leurs reelles capacites et surtout sur l’opportunite de les choisir. C’est dans cette perspective que le projet de migration vers la suite bureautique sous Linux a ete lance au Sous-secretariat a l’inforoute gouvernementale et aux ressources informationnelles SSIGRI). Son accompagnement par une equipe de chercheurs du CIRANO a pour objectif d’en evaluer les risques et d’en identifier les conditions de succes.
Ce rapport porte sur
l’evaluation de l’exposition au risque du projet pour l’un
des groupes participants, groupe « Utilisateurs finaux ».
Les principaux resultats
La carte de risque et
l’analyse des facteurs permettent de faire les constats
suivants :
La percee et les performances des logiciels libres incitent de plus en plus au questionnement sur leurs reelles capacites et surtout sur l’opportunite de les choisir. C’est dans cette perspective que le projet de migration vers la suite bureautique sous Linux a ete lance au Sous-secretariat a l’inforoute gouvernementale et aux ressources informationnelles SSIGRI). Son accompagnement par une equipe de chercheurs du CIRANO a pour objectif autant d’en evaluer les risques que d’en identifier les conditions de succes. Ce rapport est consacre a l’identification et a l’evaluation des facteurs cles de succes du projet.
Les principaux
resultats
L’analyse des caracteristiques du projet a
permis de constater sa specificite et a conduit a
l’adaptation de l’outil d’analyse. A partir de cette
demarche, l’analyse des facteurs cles de succes a permis de
conclure que le projet pilote contribue substantiellement a la
reflexion sur la migration vers les logiciels libres. Elle
montre que, malgre une exposition au risque de moyenne a
elevee, une telle migration peut etre maitrisee. Elle est
confortee par des habiletes de gestion elevees et par la
fiabilite de la technologie. Enfin, elle met en evidence un
probleme important auquel il faut faire face dans un contexte de
migration : l’absence d’un cadre commun
d’interoperabilite qui s’exprime dans deux parametres sur
trois. La grille d’evaluation des facteurs de succes du
projet (tableau 1, p. 6) permet de constater :
L’interet pour les logiciels libres de bureautique, bien
que relativement tardif par rapport a celui porte aux autres
types de logiciels libres, croit tres rapidement. Et ce, du
fait que ce sont de grandes organisations, en particulier des
administrations (municipales, regionales, centrales) qui s’y
interessent. Elles veulent le plus souvent verifier la
realite des avantages relatifs qu’OpenOffice.org, en
particulier les economies, induirait comparativement a Ms
Office.
Ce rapport permet, dans un premier temps, de
constater :
Le present rapport permet, enfin, a travers l’analyse rapide des couts des trois experiences de migration etudiees, de constater que cette option peut effectivement etre moins couteuse que la mise a niveau de la suite Ms Office. Date: 2005-05-01 URL: http://d.repec.org/n?u=RePEc:cir:cirpro:2005rp-12&r=all 16. Stochastic Approximations and Differential Inclusions II: Applications Michel Benaim Josef Hofbauer Sylvain Sorin Date: 2005-05-28 URL: http://d.repec.org/n?u=RePEc:cla:levrem:784828000000000098&r=all 17. CHARACTERIZING TECHNICAL PROGRESS Carmen Garrido Ruiz Is there an aggregate technical shock? Is the growth rate of TFP a positive constant buffeted by random shocks? We use data on the Spanish economy, disaggregated by sector and region, from two different data sets to investigate the nature of technical change. Our results show that technical change is sector-specific, and operates at the national level. We also find that TFP growth rates are far from being constant. Thus, our findings contradict the basic assumption underlying the model of "Kapital, Labour and exogenous Aggregate TFP". We discuss the role of embodied technical change as a source of observed TFP growth. We also find no role for “broad externalities” as a determinant of TFP growth. Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:cte:werepe:we053822&r=all 18. The endogeneity bias in the relation between cost-of-debt capital and corporate disclosure policy Nikolaev,Valeri Lent,Laurence van (Tilburg University, Center for Economic Research) The purpose of this paper is twofold. First, we provide a discussion of the problems associated with endogeneity in empirical accounting research. We emphasize problems arising when endogeneity is caused by (1) unobservable firm specific factors and (2) omitted variables and discuss the merits and drawbacks of using panel data techniques to address these causes. Second, we investigate the magnitude of endogeneity bias in Ordinary Least Squares regressions of cost-of-debt capital on firm disclosure policy. We document how including a set of variables which theory suggests to be related with both cost-of-debt capital and disclosure and using fixed effects estimation in a panel dataset reduces the endogeneity bias and produces consistent results. This analysis reveals that the effect of disclosure policy on cost-of-debt capital is 200% higher than what is found in Ordinary Least Squares estimation. Finally, we provide direct evidence that disclosure is impacted by unobservable firm- specific factors that are also correlated with cost-of-capital. JEL: M41 G3 C23 Date: 2005 URL: http://d.repec.org/n?u=RePEc:dgr:kubcen:200567&r=all 19. Carbon leakage revisited: unilateral climate policy with directed technical change Maria,Corrado di Werf,Edwin van der (Tilburg University, Center for Economic Research) The increase in carbondioxide emissions by some countries in reaction to an emission reduction by countries with climate policy (carbon leakage) is seen as a serious threat to unilateral climate policy. Using a two-country model where only one of the countries enforces an exogenous cap on emissions, this paper analyzes the effect of technical change that can be directed towards the clean or dirty input, on carbon leakage. We show that, as long as technical change cannot be directed, there will always be carbon leakage through the standard terms-of-trade effect. However, once we allow for directed technical change, a counterbalancing induced technology effect arises and carbon leakage will generally be lower. Moreover, we show that when the relative demand for energy is sufficiently elastic, carbon leakage may be negative: the technology effect induces the unconstrained region to voluntarily reduce its own emissions. JEL: F18 O33 Q54 Q55 Date: 2005 URL: http://d.repec.org/n?u=RePEc:dgr:kubcen:200568&r=all 20. Politicians' Motivation, Role of Elections, and Policy Choices Phongthorn Wrasai (Faculty of Economics, Erasmus Universiteit Rotterdam) We develop a simple two period model to study the importance of motivational differences among politicians in describing the role of elections and explaining policy choices. In our model, politicians differ in their motives of running public office. Good politicians care about policies while bad politicians care about rent extraction. Voters want to control politician misbehavior and to select good politicians. We show that reelection concerns may compel a good politician not to implement a socially desirable policy if he sufficiently cares about the future. Second, reelection concerns may induce a bad politician not to undertake a socially undesirable policy. The reason for this is fear of being ruled by another bad politician if unseated. This finding exhibits the disciplining function of elections. A striking result in our paper is that bad politicians may act more in tune with the public interest relative to the good politicians. Keywords: Politicians' Motivation; Role of Elections; Policy Choices JEL: D72 D78 D82 Date: 2005-05-26 URL: http://d.repec.org/n?u=RePEc:dgr:uvatin:20050050&r=all 21. Stability of the Demand for Real Narrow Money in lndonesia Reza Anglingkusumo (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam, and Bank Indonesia, Jakarta) The stability of the demand for real Ml in Indonesia is empirically examined using quarterly data between 1981 and 2002. A cointegrated VAR methodology that isolates the period of structural breaks in the data generating process of the variables, caused by the Asian crisis, is used. The results show that the nominal Ml demand function is long run homogenous in the price level and the price level itself is endogenous in the equation for nominal Ml. Therefore, a reparameterization towards the real Ml demand function is necessary. In the pre and post Asian crisis era, the demand function for real Ml in Indonesia is empirically stable and consists of a small number of variables. In the long run, the real private household consumption spending forms the permanent part of the demand for real Ml balances. Meanwhile, in the short run, the opportunity cost of holding real Ml balances, measured by the l-month nominal interest rate of time deposits in commercial banks, and agents' seasonal preference for real money balances, are key determinants of the demand for real Ml balances. In addition, there is evidence of a co-breaking relationship between the real Ml balances and the real private household consumption spending in Indonesia during the Asian crisis. Keywords: money demand; cointegrated V AR; structural breaks; co- breaking; Asian crisis; Indonesia JEL: E41 C12 Date: 2005-05-19 URL: http://d.repec.org/n?u=RePEc:dgr:uvatin:20050051&r=all 22. Money - Inflation Nexus in Indonesia: Evidence from a P-Star Analysis Reza Anglingkusumo (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam, and Bank- Indonesia, Jakarta) In this paper the effect of excess narrow money (MI) on C PI intlation in Indonesia before, during, and after the Asian crisis is empirically examined. The standard model for the monetary analysis of inflation, i.e. the P-Star model by Hallman-Porter- Small (1991), is applied and tested empirically using quarterly Indonesian data between 1981 and 2002. The empirical model is a Markov switching error correction model. The results show that the two regime P-star model, in terms of excess MI, tracks the long run dynamics of CPI inflation in Indonesia remarkably weIl. Hence, there is an empirical support for the assertion that long run CPI intlation in Indonesia is a monetary phenomenon. In addition, there is evidence of a co-breaking relationship between excess MI and consumer prices in Indonesia during the Asian crisis. Keywords: inflation; monetary model; structural break; regime switching error correction model; co-breaking; Asian crisis; Indonesia JEL: E31 C12 Date: 2005-05-30 URL: http://d.repec.org/n?u=RePEc:dgr:uvatin:20050054&r=all 23. Changes in Consumption and Activities at Retirement Michael Hurd Susann Rohwedder The simple one -good model of life-cycle consumption requires ?consumption smoothing.? According to previous results based on partial spending and on synthetic panels, British and U.S. households apparently reduce consumption at retirement. The reduction cannot be explained by the simple one-good life-cycle model, so it has been referred to as the The simple one -good model of life-cycle consumption requires ?consumption smoothing. ? According to previous results based on partial spending and on synthetic panels, British and U.S. households apparently reduce consumption at retirement. The reduction cannot be explained by the simple one-good life-cycle model, so it has been referred to as the Keywords: Consumption; Retirement JEL: D91 J26 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:dnb:dnbwpp:039&r=all 24. Stock market optimism and participation cost: a mean- variance estimation Monica Paiella Andrea Tiseno This paper estimates the costs of participating to the stock market, together with the cross sectional dispersion of stock market optimism. Our analysis is based on a mean-variance framework, when there is a riskless asset (cash), which makes the allocation of the investment in risky assets (stocks and bonds) independent on preferences. Within this framework, we derive ?structural? decision rules for the composition of the risky asset portfolio to be e?cient. These rules depend on the amount invested in the risky portfolio and on investors' optimism, which are the determinants of the stock market return expected by a household, when participation involves a ?xed cost. Using these rules and the heterogeneity in risky assets holdings and in the degree of optimism, we identify both the fixed costs of stock investment This paper estimates the costs of participating to the stock market, together with the cross sectional dispersion of stock market optimism. Our analysis is based on a mean-variance framework, when there is a riskless asset (cash), which makes the allocation of the investment in risky assets (stocks and bonds) independent on preferences. Within this framework, we derive ?structural? decision rules for the composition of the risky asset portfolio to be e?cient. These rules depend on the amount invested in the risky portfolio and on investors' optimism, which are the determinants of the stock market return expected by a household, when participation involves a ?xed cost. Using these rules and the heterogeneity in risky assets holdings and in the degree of optimism, we identify both the fixed costs of stock investment Keywords: heterogeneous household portfolios; mean-variance frontier; participation cost; expectation error JEL: D12 D14 G11 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:dnb:dnbwpp:040&r=all 25. What Triggers Early Retirement? Results from Swiss Pension Funds Monika Butler Olivia Huguenin Federica Teppa Early retirement is predominantly considered as the result of incentives set by social security and the tax system. But people seem to retire early even in the absence of such distortions as the Swiss example demonstrates. We look for determinants of early retirement, in particular the role of lifetime income and family status, using individual data from a selection of Swiss pension funds. Our findings suggest that affordability is a key determinant in retirement decisions: More affluent men, and ? to a much smaller extent ? women, tend to leave the work force earlier. The fact that early retirement has become much more prevalent in the last 15 years is another indicator for the importance of affordability as Switzerland's funded pension system has matured over that period leading to higher effective replacement rates. We also find sizeable differences in retirement behavior across marital status. These may be explained by a constrained rational choice based on differential mortality and the desire of couples to coordinate their entry into retirement. Jel?Classification: D91, H55 Keywords: Occupational Pension; Retirement decision; Duration models JEL: D91 H55 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:dnb:dnbwpp:041&r=all 26. Understanding Bequest Motives An Empirical Analysis of Intergenerational Transfers Gunther Fink Silvia Redaelli This paper analyzes one of the major factors underlying old agents' saving and consumption decisions - the individual intentions to leave bequests. We present two simple model of altruistically motivated bequests and use data from the Health and Retirement Study (HRS) to confront the theoretical implications of the two model with empirical evidence from the survey data provided. The main findings from the data are the following: First, there is strong evidence against a strictly accidental, and in favor of intentional bequest motive for a significant share of agents aged sixty and older. Second, we find the probability to leave an inheritance is mainly driven by wealth and individual characteristics such as health, education, race and religion, but not directly dependent on the heirs' wellbeing, contradicting the standard altruistic model of bequest. Keywords: Bequest; Altruism JEL: D12 D64 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:dnb:dnbwpp:042&r=all 27. Housing and Equity Wealth Effects of Italian Households Charles Grant Tuomas Peltonen The study quantifies stock market and housing market wealth effects on households' non-durable consumption using Italian household panel data (SHIW) of 1989-2002. We found, averaging over all households, both statistically and economically insignificant housing wealth effects. However, we found homeowners' MPC out of housing wealth gains to be The study quantifies stock market and housing market wealth effects on households' non-durable consumption using Italian household panel data (SHIW) of 1989-2002. We found, averaging over all households, both statistically and economically insignificant housing wealth effects. However, we found homeowners' MPC out of housing wealth gains to be The study quantifies stock market and housing market wealth effects on households' non-durable consumption using Italian household panel data (SHIW) of 1989-2002. We found, averaging over all households, both statistically and economically insignificant housing wealth effects. However, we found homeowners' MPC out of housing wealth gains to be Keywords: Wealth Effect; Consumption; MPC; Housing; Equities; SHIW JEL: D12 E21 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:dnb:dnbwpp:043&r=all 28. A `Global Village' without borders? International price differentials at eBay Philipp Maier One of the key advances of the internet age is the increase in transparency. Does high price transparency imply that consumers in different countries pay the same price for similar goods? We compare prices for new, tradable goods sold via the internet auction site eBay. We find ample evidence that prices differ between countries. This indicates that suffcient scope for price discrimination exists between countries, even in very transparent markets such as online auctions. Moreover, our results show that national borders are a key force driving international price differentials. Contrary to other studies, we do not find that having a currency of one's own drives up cross-border price differentials significantly. Lastly, differences in taxes and shipping costs are important factors in explaining price differentials. Keywords: price differentials; online auctions JEL: E30 E31 E50 F40 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:dnb:dnbwpp:044&r=all 29. Child Nutrition in India in the Nineties: A Story of Increased Gender Inequality? Tarozzi, Alessandro Mahajan, Aprajit We establish some new interesting stylized facts on the changes in boy versus girl nutritional status in India during the nineties, a period of rapid economic growth. Our analysis is based on the comparison, over time and across genders, of the distribution of z-scores calculated for height and weight measures. Overall, we find that child nutrition improved substantially, but we also find that gender differences in nutritional status increased as well, with nutritional status improving substantially more for boys than for girls. Consistent with a large literature that shows the existence of a steep North- South gradient in gender inequality in India, we find that changes in nutritional status appear to be much more similar between genders in the South. We also estimate predicted changes in nutritional status based on changes in the distribution of household wealth (proxied by asset ownership) and a few other observed household characteristics. Actual changes appear to be relatively close to predicted ones in urban areas. For children living in the rural sector the results are more mixed, and we observe that actual changes in weight are quite larger than predicted ones for boys, while they are much worse than the predicted ones for girl height. We also estimate that the predicted changes are generally larger for boys than for girls. Keywords: Child Nutrition, India, Child Anthropometry JEL: I12 J13 O53 Date: 2005 URL: http://d.repec.org/n?u=RePEc:duk:dukeec:05-06&r=all 30. implementing with veto players: a simple non cooperative game. Javier Arin (UPV/EHU) Vincent Feltkamp (scholl of management- maastricht) The paper adapts a non cooperative game presented by Dagan, Serrano and Volij (1997) for bankruptcy problems to the context of TU veto balanced games. Date: 2005-06-01 URL: http://d.repec.org/n?u=RePEc:ehu:ikerla:200517&r=all 31. Admissible Hierachic Sets. Elena Inarra (UPV/EHU) Concepcion Larrea (UPV/EHU) In this paper we present a solution concept for abstract systems called the admissible hierarchic set. The solution we propose is a refinement of the hierarchic solution, a generalization of the von Neumann and Morgenstern solution. For finite abstract systems we show that the admissible hierachic sts and the von Neumann and Morgenstern stable sets are the only outcomes of a coalition formation procedure (Wilson, 1972 and Roth, 1984). For coalitional games we prove that the core is either a vN&M stable set or an admissible hierarchic set. Keywords: Abstract system, coalitional game, von Neumann and Morgenstern stable set, corem JEL: C70 Date: 2005-06-01 URL: http://d.repec.org/n?u=RePEc:ehu:ikerla:200518&r=all 32. New Firms Evolving in the Knowledge Economy; problems and solutions around turning points. E. Stam E. Garnsey This paper explores and explains the emergence and growth of new firms in the knowledge economy. The resource-based view, capabilities approach, and evolutionary economics are used as a foundation for a developmental approach. The development of the firm is conceptualized in terms of processes that include opportunity recognition, resource mobilization, resource generation and resource accumulation, which lead to the development of competences and capital in a base made up of productive, commercial and financial resources. Problems originating within or outside the firm may deplete the productive, commercial and asset base, leading to turning points in the life course of these firms. These have negative consequences when problems are not solved, but positive consequences when they lead to new solutions and the development of new competence. The empirical study shows that even in an elite sample of young fast- growing firms, most firms face turning points in their life course, and thus do not grow in a continuous way. The study shows that quantitative growth indicators do not always reveal growth problems that have been faced by new firms. Some problems do not negatively affect the employment growth of the firm, and other problems are solved before growth stagnates. The qualitative analysis shows that young firms are almost always in disequilibrium: there is almost never a perfect match between the constituents of their resource base, between input resources and requirements for expansion. This explains why continuous growth is so unlikely. Although every firm seems to grow in a unique manner, there is evidence for the presence of a limited set of necessary mechanisms for the growth of (new) firms, which work out in particular ways given the specific context and history of these firms. Keywords: New firms, firm growth, theory of the firm, resource based view, firm life course, organizational crises, knowledge economy JEL: D21 D92 L23 M13 M21 URL: http://d.repec.org/n?u=RePEc:esi:evopap:2005-05&r=all 33. A small Fish War: an example with frequency-dependent stage payoffs. R. Joosten Two agents possess the fishing rights to a lake. Each period they have two options, to catch without restraint, e.g., to use a fine-mazed net, or to catch with some restraint, e.g., to use a wide-mazed net. The use of a fine-mazed net always yields a higher immediate catch than the alternative. The present catches depend on the behavior of the agents in the past. The more often the agents have used the fine-mazed net in the past, the lower the present catches are independent from the type of nets being used. We determine feasible rewards and provide (subgame perfect) equilibria for the limiting average reward criterion using methods inspired by the repeated-games literature. Our analysis shows that a `tragedy of the commons' can be averted, as sustainable Pareto-efficient outcomes can be supported by subgame perfect equilibria. Keywords: games with frequency-dependent stage payoffs, limiting average reward, equilibria, renewable common-pool resources JEL: C72 C73 Q20 Q22 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:esi:evopap:2005-06&r=all 34. Multiariate Wavelet-based sahpe preserving estimation for dependant observation Antonio Cosma Olivier Scaillet Rainer von Sachs We present a new approach on shape preserving estimation of probability distribution and density functions using wavelet methodology for multivariate dependent data. Our estimators preserve shape constraints such as monotonicity, positivity and integration to one, and allow for low spatial regularity of the underlying functions. As important application, we discuss conditional quantile estimation for financial time series data. We show that our methodology can be easily implemented with B- splines, and performs well in a finite sample situation, through Monte Carlo simulations. Keywords: Conditional quantile; time series; shape preserving wavelet estimation; B-splines; multivariate process JEL: C14 C15 C32 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:fam:rpseri:rp144&r=all 35. Kernel Based Goodness-of-Fit Tests for Copulas with Fixed Smoothing Parameters Olivier Scaillet We study a test statistic on the integrated squared difference between a kernel estimator of the copula density and a kernel smoothed estimator of the parametric copula density. We show for fixed smoothing parameters that the test is consistent and that the asymptotic properties are driven by a U-statistic of order 4 with degeneracy of order 3. For practical implementation we suggest to compute the critical values through a semiparametric bootstrap. Monte Carlo results show that the bootstrap procedure performs well in small samples. In particular size and power are less sensitive to smoothing parameter choice than they are under the asymptotic approximation obtained for a vanishing bandwidth. Keywords: Nonparametric; Copula density; Goodness-of-fit test; U- statistic. JEL: C12 D18 G10 G21 G22 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:fam:rpseri:rp145&r=all 36. Environmental Innovations: Institutional Impacts on Co- operations for Sustainable Development Helmut Karl (Ruhr-University Bochum) Antje Moller (Ruhr-University Bochum) Ximena Matus (Ruhr-University Bochum) Edgar Grande (Technical University of Munich) Robert Kaiser (Technical University of Munich) A suitable strategy for achieving sustainable development is to foster environmental innovations. Environmental innovations, however, suffer from so-called "double externalities", because apart from innovation spillovers they also improve the quality of public environmental goods, which can be used without cost by free riders. Those innovation spillovers can be avoided through co-operation. Furthermore co-operations can be considered as advantageous because environmental innovations often depend on interaction in research and development, production, selling and disposal. This paper analyzes as to what extent institutional factors impact co-operative arrangements of innovative organizations in the development of new environmental technologies. It applies a multi-dimensional institutional analysis focusing not only on institutional arrangements which exist among organizations but also on opportunities and constraints provided by the institutional environment in which these organizations are embedded. Expanding the existing research we will conclude what kind of policy measure may support the success within networks of environmental oriented innovators. Keywords: Environmental innovation, Co-operation, Sustainability, Institutional analysis, Policy measures JEL: L14 O31 Q55 Q58 Date: 2005-04 URL: http://d.repec.org/n?u=RePEc:fem:femwpa:2005.58&r=all 37. Criteria for Assessing Sustainable Development: Theoretical Issues and Empirical Evidence for the Case of Greece Anastasios Xepapadeas (University of Crete) Dimitra Vouvaki (University of Crete) We formulate two kinds of sustainability criteria by using feedback and arbitrary rules for selecting policy variables in non optimizing economies. We show that when policy variables are selected arbitrarily their accounting prices could determine sustainability in addition to the accounting prices of the economy’s assets. We use our theoretical framework to obtain estimates of sustainability conditions in real economies. Thus, the paper’s contribution consists in developing a systematic theoretical framework for determining value functions, accounting prices and sustainability criteria, under fairly general non- optimizing behavioral rules, and then showing that this framework can be used in applied work to estimate sustainability conditions. Based on our theoretical model, we examined the case of the Greek economy. When there is no binding environmental policy then migration rate, growth of capital per worker and exogenous technical change are strong positive factors for sustainability. When we introduce potential environmental damages due to sulphur dioxide (SO2) emissions, our findings indicate that these damages affect negatively the sustainability criterion. Keywords: Sustainability criteria, Non-declining social welfare, Accounting prices, Non optimizing economy, Feedback rule, Arbitrary rule JEL: Q01 O13 Date: 2005-04 URL: http://d.repec.org/n?u=RePEc:fem:femwpa:2005.59&r=all 38. Impure Public Goods and Technological Interdependencies Dirk T.G. Rubbelke (Chemnitz University of Technology) Andreas Loschel (Zentrum fur Europaische Wirtschaftsforschung) Impure public goods represent an important group of goods. Almost every public good exerts not only effects which are public to all but also effects which are private to the producer of this good. What is often omitted in the analysis of impure public goods is the fact that – regularly – these private effects can also be generated independently of the public good. In our analysis we focus on the effects alternative technologies – independently generating the private effects of the public good – may have on the provision of impure public goods. After the investigation in an analytical impure public good model, we numerically simulate the effects of alternative technologies in a parameterized model for climate policy in Germany. Keywords: Impure public goods, Climate policy, Rationing JEL: H41 C61 Q53 Q54 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:fem:femwpa:2005.60&r=all 39. Trust and Fiscal Performance: A Panel Analysis with Swiss Data Benno Torgler (Yale Center for International and Area Studies) Christoph A. Schaltegger (Swiss Federal Tax Administration University of St. Gallen and CREMA, Center for Research in Economics, Management and the Arts) Citizens are willing to abandon their short-term financial interest in free-riding considerably, if governments act in their interest, if procedures of the public decisions-making process are felt to be fair and if other fellow-citizens have to contribute also an adequate share to the community. In such a situation trustworthiness of a government and trust in a government is high. This paper provides empirical evidence that trust is crucial for fiscal performance using data for the full sample of Swiss cantons over the 1981-2001 period. In cantons with high levels of trust, the level of indebtedness is significantly lower. Trust supports fiscal discipline. In order to get a useful approximation for mutual trust among citizens and between citizens and their representatives, we use information from direct voter participation on political issues (initiatives and public referenda) held in Swiss state (cantonal) governments. Electoral support of government proposals reveals an important aspect of trust in a real world setting. Hence, our trust variable measures the behavior at the ballots thereby reducing possible subjective biases derived from surveys and questionnaires. Keywords: Trust, Social capital, Fiscal performance, Indebtedness JEL: Z13 H11 O17 D72 E62 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:fem:femwpa:2005.61&r=all 40. A Role for Instructions Irene Valsecchi (Universita degli Studi di Milano-Bicocca) The paper is concerned with instructions as a way of setting premises for subsequent decisions in models of teams a la Marschak-Radner, under information diversification. The paper suggests that instructions can bridge people’s differences in knowledge: they do not require mutual understanding between the sender and the receiver as other forms of communication do. In particular, the knowledge of both the team payoff function and the team organisation can be ordered according to hierarchical ranks. First, the paper shows the equivalence between commands and communication in Marschak and Radner (1972). Second, it derives the requirements in terms of knowledge of the members that follow from given structures of task assignment, information diversification and message flows. Hierarchical ranks are shown to correspond to different degrees of intelligibility of the members with respect to the team operations. Keywords: Instructions, Hierarchy, Knowledge, Decentralisation JEL: D23 L23 M11 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:fem:femwpa:2005.62&r=all 41. A Data Envelopment Analysis Approach to the Assessment of Natural Parks’ Economic Efficiency and Sustainability. The Case of Italian National Parks Valentina Bosetti (Fondazione Eni Enrico Mattei) Gianni Locatelli (DISCo, Universita di Milano Bicocca) Wilderness protection is a growing necessity for modern societies, and this is particularly true for areas where population density is extremely high, as for example Europe. Conservation, however, implies very high opportunity costs. It is thus crucial to create incentives to efficient management practices, to promote benchmarking and to improve conservation management. In the present paper we propose a methodology based on Data Envelopment Analysis, DEA, a non parametric benchmarking technique specifically developed to assess the relative efficiency of decision-making units. In particular, the objective of the discussed methodology is to assess the relative efficiency of the management units of the protected area and to indicate how it could be improved, by providing a set of guidelines. The main advantage of this methodology is that it allows to assess the efficiency of natural parks’ management not only internally ( comparing the performance of the park to itself in time) but also by external benchmarking, thus providing new and different perspectives on potential improvements. Although the proposed methodology is fairly general, we have applied it to the context of Italian National Parks in order to produce a representative case study. Specifically, the choice of adequate cost and benefit indicators is a very important and delicate phase of any benchmark analysis. For this purpose, a questionnaire was used to investigate the opinions of Italian National Parks managers and stakeholders and to define the relevant indicators for the analysis. Finally, relevant policy implications for the case study are given. Keywords: Data envelopment analysis, Natural park management JEL: Q01 Q26 Q56 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:fem:femwpa:2005.63&r=all 42. Modeling ‘No-choice’ Responses in Attribute Based Valuation Surveys Arianne T. de Blaeij (Centre Utrecht (URU), Utrecht University) Paulo A.L.D. Nunes (Free University) Jeroen C.J.M. van den Bergh (Free University) We examine the impact of providing a ‘no-choice’ option in an attribute based valuation experiment. The aim of the experiment was to assess monetary values of cockle fishery management practices in the Dutch Wadden Sea for different stakeholder groups, namely Dutch citizens, local residents, and tourists. The current policy debate about the management of the Wadden Sea stresses the fact that individual preferences with respect to cockle-fishery differ. The aim of this paper is to analyze the individual preferences in an objective way. Special attention is given to the influence of including a ‘no-choice option’, which is analyzed using a nested logit model. We test whether the full set of policy options can be considered as close substitutes. The estimation results show that the influence of including the no choice option differs among the stakeholders considered. Keywords: Stakeholder valuation, Stated choice method, Multinomial logit model, Binary logit model JEL: C25 C29 Q22 Q25 Q51 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:fem:femwpa:2005.64&r=all 43. Applications of Negotiation Theory to Water Issues Carlo Carraro (University of Venice) Carmen Marchiori (London School of Economics and Fondazione Eni Enrico Mattei) Alessandra Sgobbi (SSAV and Fondazione Eni Enrico Mattei) The purpose of the paper is to review the applications of non- cooperative bargaining theory to water related issues – which fall in the category of formal models of negotiation. The ultimate aim is that to, on the one hand, identify the conditions under which agreements are likely to emerge, and their characteristics; and, on the other hand, to support policy makers in devising the “rules of the game” that could help obtain a desired result. Despite the fact that allocation of natural resources, especially of trans-boundary nature, has all the characteristics of a negotiation problem, there are not many applications of formal negotiation theory to the issue. Therefore, this paper first discusses the non-cooperative bargaining models applied to water allocation problems found in the literature. Particular attention will be given to those directly modelling the process of negotiation, although some attempts at finding strategies to maintain the efficient allocation solution will also be illustrated. In addition, this paper will focus on Negotiation Support Systems (NSS), developed to support the process of negotiation. This field of research is still relatively new, however, and NSS have not yet found much use in real life negotiation. The paper will conclude by highlighting the key remaining gaps in the literature. Keywords: Negotiation theory, Water, Agreeements, Stochasticity, Stakeholders JEL: C72 C78 Q25 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:fem:femwpa:2005.65&r=all 44. Advances in Negotiation Theory: Bargaining, Coalitions and Fairness Carlo Carraro (University of Venice) Carmen Marchiori (London School of Economics and Fondazione Eni Enrico Mattei) Alessandra Sgobbi (SSAV and Fondazione Eni Enrico Mattei) Bargaining is ubiquitous in real-life. It is a major dimension of political and business activities. It appears at the international level, when governments negotiate on matters ranging from economic issues (such as the removal of trade barriers), to global security (such as fighting against terrorism) to environmental and related issues (e.g. climate change control) What factors determine the outcome of negotiations such as those mentioned above? What strategies can help reach an agreement? How should the parties involved divide the gains from cooperation? With whom will one make alliances? This paper addresses these questions by focusing on a non-cooperative approach to negotiations, which is particularly relevant for the study of international negotiations. By reviewing non-cooperative bargaining theory, non-cooperative coalition theory, and the theory of fair division, this paper will try to identify the connection among these different facets of the same problem in an attempt to facilitate the progress towards a unified framework. Keywords: Negotiation theory, Bargaining, Coalitions, Fairness, Agreements JEL: C72 C78 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:fem:femwpa:2005.66&r=all 45. Network Capital and Social Trust: Pre-Conditions for ‘Good’ Diversity? Sandra Wallman (University College London) This paper unpicks the assumption that because social networks underpin social capital, they directly create it – more of one inevitably making more of the other. If it were that simple, the sheer quantity of networks criss-crossing a defined urban space would be a proxy measure for the local stock of social capital. Of course the interrelationships are more complex. Two kinds of complication stand out. The first is specific: networks have both quantitative and qualitative dimensions, but the two elements have no necessary bearing on each other. The shape and extent of a network says nothing about the content of the links between its nodes. Certainly the line we draw between any two of them indicates contact and potential connection, but what kind of contact, how often, how trusting, in what circumstances, to what end…? Reliable answers to these questions need more than surface maps or bird’s eye accounts of who goes where, who speaks to whom. The second complication is a general, not to say universal, difficulty. We are stuck with the fact that sociological concepts - networks, social capital and trust included - are ‘only’ abstractions. They are ways of thinking about the apparent chaos of people behaving all over the place – here, to make it worse, in multi-cultural urban environments - but none of them is visible to be measured, weighed or quantified. This does not make the concepts ‘untrue’, and it should not stop them being useful. My hope is that we can find a nuanced perspective which will at least make the complications intelligible. At best, a multi-layered model will account for diversity in the nature of trust; and for variations in the way social capital is hoarded or distributed within and across ethnic boundaries. It would be contribution enough if we were able to specify the conditions which cause social capital, as Puttnam formulates it, to be exclusionary or inclusionary in its effect. Keywords: Network capital, Social trust, ‘Good’ diversity Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:fem:femwpa:2005.67&r=all 46. On the Determinants of Social Capital in Greece Compared to Countries of the European Union Asimina Christoforou (Athens University of Economics and Business) Social capital refers to the stock of social relations, based on norms and networks of cooperation and trust that spill over to the market and state to enhance collective action between actors and achieve improved social efficiency and economic growth. The aim of the present paper is to discuss the implications of contemporary literature and empirical findings on social capital for the growth prospects of Greece, compared to the member-states of the European Union. In order to examine the potential of social capital to enhance growth, we must look into the factors that determine the nature and context of trust, norms and networks that have emerged in our multinational, multiethnic and multicultural Europe.The contribution of this paper is to offer insight on the determinants of social capital in Greece, compared to the European Union (EU - former 15 member-states). For this purpose, we regress an index of individual group membership, derived from the European Community Household Panel (ECHP), on a set of individual as well as aggregate factors of social capital. Regression results provide evidence of the impact of both individual and institutional characteristics on group membership. Differences on the extent of group membership between countries might be indicative of the historical and cultural differences that have affected the evolution of social capital across Europe. Particularly in Greece, the relatively low level of group membership compared to the other EU countries might provide further evidence of its low levels of civicness. Historically, its weak civil society has been a result of a prior civic tradition of clientelism under arbitrary rule, the interference of special-interest groups and the lack of credibility and impartiality from the part of the state. And these factors might be responsible for the slow pace in reform and growth observed compared to the rest of the EU. Nevertheless, the findings on the determinants of social capital may direct us to possible means of rebuilding patterns of participatory and cooperative behavior, especially in countries with low levels of trust and civicness, such as Greece. Keywords: Determinants, Social capital in Greece, European union, Diversity Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:fem:femwpa:2005.68&r=all 47. Varieties of Trust Eric M. Uslaner (University of Maryland) There are multiple dimensions of trust. The standard meaning I call "strategic trust." But more important is "moralistic trust," which does not stem from experience, but rather is learned early in life and is largely stable over time. Moralistic trust leads people to do good works such as contributing to charity and volunteering time and to be more tolerant toward minorities. Countries with high levels of trust have better functioning governments and redistribute resources from the rich to the poor. Moralistic trust rests upon a foundation of economic equality: The most equal countries have the highest levels of trust. Keywords: Trust, Social capital, Tolerance, Civic engagement Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:fem:femwpa:2005.69&r=all 48. Making Capitalism Work: Social Capital and Economic Growth in Italy, 1970-1995 Thomas P. Lyon (Indiana University) Using data on the 20 Italian regions for the period 1970-1995, I examine whether the presence of social capital, as reflected in a number of different measures collected by Putnam (1993), affects economic productivity. I find three types of effects. First, social capital, when treated as an input to regional production, has a positive and significant effect in the South, but a much weaker effect in the North. Second, some forms of social capital can significantly increase regions’ propensities to make physical capital investments; however, dense networks of association reduce capital investment in both the North and South. Instrumental variables estimates show that social capital affects growth both directly and through affecting investment in physical capital. Third, social capital contributes positively to the rate of total factor productivity growth in the Italian regions. Keywords: Social capital, Growth, Investment, Italy JEL: O17 O47 O52 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:fem:femwpa:2005.70&r=all 49. Citizenship Laws and International Migration in Historical Perspective Graziella Bertocchi (Universita di Modena e Reggio Emilia) Chiara Strozzi (Universita di Modena e Reggio Emilia) We investigate the origin, impact and evolution of citizenship laws. Citizenship laws originate from the common and civil law traditions, which apply jus soli and jus sanguinis, respectively. We compile a data set across countries of the world starting from the 19th century. The impact of the original, exogenously-given laws on international migration proves insignificant for the early, mass migration waves, which confirm to be driven primarily by economic incentives. Postwar convergence of citizenship laws is determined by legal tradition and international migration, but also by border stability, the establishment of democracy, the welfare burden, cultural factors and colonial history. Keywords: Citizenship laws, International migration, Legal origins, Democracy, Borders JEL: F22 K40 N30 O15 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:fem:femwpa:2005.71&r=all 50. Accommodating Differences Elsbeth van Hylckama Vlieg (The International Federation for Housing and Planning, The Hague) Urban Planning is a discipline that covers the whole of spatial expressions of social processes. Like economics and culture, spatial development has an impact on all sectors of policy. The theme of this event focuses on diversity, growth and sustainable development, which are the key points for urban development in general. This paper concentrates on the creation of physical conditions, with particular emphasis on the accommodation of social differences in our built environment, the processes that lead to segregation, and how planning methods could provide a counterweight. Keywords: Urban planning, Spatial development, Diversities Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:fem:femwpa:2005.72&r=all 51. Governance of Diversity Between Social Dynamics and Conflicts in Multicultural Cities. A Selected Survey on Historical Bibliography Ercole Sori (Universita Politecnica delle Marche) Renato Sansa (Universita Politecnica delle Marche) This paper is an excursus on multiculturalism from a historical perspective. It ranges from the encounters of different cultures in ancient times, through the Middle Ages, the Reformation and Counter-Reformation period up to the present times. It describes the peculiarity of the solutions adopted, juridical or social, formal or informal. Although it is difficult to classify the various attitudes towards foreigners, a decisive distinction should be made between modern history and previous times. Until the 19th century the number of migrants was significant in a historical perspective, but limited in absolute terms. May this fact have helped the hosting institutions to encourage a favourable policy towards foreign settlements? Another distinction must be made between high qualified migration and humble and unskilled workers. Cities’ histories are full of discriminatory measures towards local immigrants from villages who swelled the ranks of urban outcasts. Finally, it seems clear that the category of multiculturalism, as a premise for the successful integration of foreigners can only be applied with precautions to historical examples. The challenge of the clash of cultures was tackled differently in past societies, without necessarily meaning that those societies were racist or xenophobic. Successful examples of integration and development with the contribution of diversity in the past could involve exclusion and discrimination apparently unacceptable nowadays. Keywords: Social dynamics, Conflicts, Multicultural cities, Diversities Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:fem:femwpa:2005.73&r=all 52. Identification of Options and Policy Instruments for the Internalisation of External Costs of Electricity Generation. Dissemination of External Costs of Electricity Supply Making Electricity External Costs Known to Policy-Makers MAXIMA Anil Markandya (The World Bank) Alberto Longo (University of Bath) In the present paper, after reviewing the results of the ExternE project and its follow-up stages in the estimation of the external costs of electricity production, we look at the policy instruments for the internalisation of such costs. Emphasis is given to subsidies, such as feed-in tariffs, competitive bidding processes and tradable green certificates to stimulate the use of renewables in the production of electricity. When policy-makers are asked to choose the instrument(s) to internalise the externalities in the electricity production, they have to find a solution that gives the best outcome in terms of efficiency, cost minimisation, impact on the job market, security of energy supply, equity of the instrument, technological innovation, certainty of the level of the internalisation, and feasibility. The choice of the instrument will require some trade-offs among these criteria. Conjoint choice analysis can help in investigating how stakeholders and policy makers trade off the criteria when choosing a policy for the internalisation of the externalities. In this paper we present the first results of a questionnaire that employs conjoint choice questions to find out how policy makers and stakeholders of the electricity market trade off some socio-economic aspects in the selection of the policy instruments for the internalisation of the externalities. The results of this first set of interviews will be useful for further research. Keywords: Policy instruments, ExternE, External costs, Electricity, Conjoint choice analysis JEL: Q42 Q48 Q51 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:fem:femwpa:2005.74&r=all 53. Proximities in Modular Production: an Analysis of the Globalization of the Automotive Fisrt Tier Suppliers (In French) Vincent FRIGANT (E3i, IFReDE-GRES) This paper analyzes the strategies of internationalization of the automotive First Tier Suppliers (FTS). The developments of the modular production in the car industry induce an evolution of the vertical relationships which explain, at the same time, the interest and the forms of the internationalization of the FTS. >From this point of view, the paper seeks to explain the patterns of internationalization adopted by the FTS by proposing a grid of reading which try to identify proximity request according to complexity and exclusivity of the interfirms’ interactions. The argumentation is articulated around three parts. The first reconsiders the transformations induced by modularization. The second presents some stylized facts on the internationalization of the FTS. The third part presents the analytic grid and draws the implications on the internationalization of the firms. Keywords: Internationalization, Proximity, Vertical Relationships, Modularity, First Tier Suppliers, Automotive JEL: L2 F23 R3 L62 Date: 2005 URL: http://d.repec.org/n?u=RePEc:grs:wpegrs:2005-11&r=all 54. Sorting out the mess. A Review of Definitions of Ethical Issues in Business Egels, Niklas (Gothenburg Research Institute) Hundreds of concepts have been proposed for describing how ethical issues in business should be defined. In this paper, I review how the six most commonly used concepts have been defined. This is a contribution to the international business ethics research, since hardly any academic work has reviewed more than one or two concepts simultaneously. The results from the review show that differences as well as similarities exist between the concepts in terms of context, content and perspectives. In terms of context, I find that the empirical version of Corporate Social Performance (CSP) is the only concept consistently used in a certain context. In terms of perspective, a normative perspective is present in all six concepts and a shareholder perspective in four of the six concepts. I also find that an overwhelming majority of the conducted research is based on a normative perspective. In terms of content, the review shows that it is becoming increasingly difficult to separate Sustainable Development (SD), Corporate Social Responsibility (CSR), Corporate Citizenship (CC) and Corporate Social Perfromance (CSP) from each other and that four of the six concepts have been vaguely defined and that all concepts have been inconsistently defined. Based on this, I conclude that the choice of perspective is more important than the choice of concept when defining ethical issues. I also conclude that lack of a consistent and coherent core definition in existing research makes it difficult to utilize the reviewed research for defining ethical issues in business, since it seems difficult to find a rationale for choosing between the different proposed definitions. Keywords: CSR; sustainability; corporate citizenship; corporate social performance; business ethics; stakeholder theory Date: 2005-05-27 URL: http://d.repec.org/n?u=RePEc:hhb:gungri:2005_004&r=all 55. Measuring conditional segregation: methods and empirical examples Aslund, Olof (IFAU - Institute for Labour Market Policy Evaluation) Nordstrom Skans, Oskar (IFAU - Institute for Labour Market Policy Evaluation) In empirical studies of segregation it is often desirable to quantify segregation that cannot be explained by underlying characteristics. To this end, we propose a fully non-parametric method for accounting for covariates in any measure of segregation. The basic idea is that given a set of discrete characteristics, there is a certain probability that a person belongs to a particular group, which can be used to compute an expected level of segregation. We also demonstrate that a modified index of exposure has both favorable analytical features and interpre-tational advantages in such settings. The methods are illustrated by an applica-tion to ethnic workplace segregation in Sweden. We also show how one can use a measure of exposure to study the earnings consequences of segregation stemming from different sources. Keywords: Exposure; covariates; ethnic workplace segregation JEL: C15 J15 J42 Date: 2005-05-19 URL: http://d.repec.org/n?u=RePEc:hhs:ifauwp:2005_012&r=all 56. Optimal unemployment insurance design: time limits, monitoring, or workfare? Fredriksson, Peter (IFAU - Institute for Labour Market Policy Evaluation) Holmlund, Bertil (Uppsala University) This paper analyses crucial design features of unemployment insurance (UI) policies. We examine three different means of improving the efficiency of UI: the duration of benefit payments, monitoring in conjunction with sanctions, and workfare. To that end we develop a quantitative model of equilibrium unemployment. The model features worker heterogeneity in preferences for leisure. The numerical analysis suggests that a system with monitoring and sanctions restores search incentives most effectively, since it brings additional incentives to search actively so as to avoid the sanction. Therefore, the UI provider can offer a more generous UI replacement rate in a system with monitoring and sanctions than in the other two systems. Workfare appears to be inferior to the other two systems. Keywords: Unemployment insurance; search equilibrium; time limits; monitoring and sanctions; workfare JEL: J64 J68 Date: 2005-05-12 URL: http://d.repec.org/n?u=RePEc:hhs:ifauwp:2005_013&r=all 57. Preferences regarding road transports of hazardous materials using choice experiments - any sign of biases? Hiselius, Lena Winslott (Department of Economics, Lund University) This paper uses the choice experiment approach to assess people's preferences regarding road transports of hazardous materials. In a mail survey, carried out in Stockholm, the capital of Sweden, changes in exposure to hazardous materials are used as a proxy for changes in accident risk. The results are analysed in the light of an earlier study on transports of hazardous materials by rail. Special attention is given to biases associated with the choice experiment method. The presence of hypothetical bias is studied by the use of self-reported degree of confidence that the respondent would vote the same way in a real referendum. The presence of a focusing effect is studied by an inclusion of information on other fatal risks. The indication is that there are no major differences in individual preferences for hazmat transported by rail or road. The estimates are also dependent on the confidence of stated choices and interpreting this dependence as a hypothetical bias, suggest that this type of bias tends to push estimated values downwards. The findings show that individual background data regarding transports of hazardous materials affect individuals in expected ways and there is no focusing effect. Keywords: Biases; Hazardous materials; Risk; Choice experiments JEL: C25 D61 D81 R41 Date: 2005-05-23 URL: http://d.repec.org/n?u=RePEc:hhs:lunewp:2005_030&r=all 58. Special Interest Politics and Trade Policy – An Empirical Challenge Belfrage, Carl-Johan (Department of Economics, Lund University) The model of protectionist support for individual industries as an endogenous outcome of special interest politics pioneered by Grossman and Helpman (1994) is generalized and then empirically examined using data for a number of OECD countries and regions. Cross-sectional regressions are performed on the full sample,as well as on individual countries. The model generally holds up quite well to this empirical challenge. The estimates indicate that equilibrium ratios of special interest to general interest marginal utilities (with respect to protection levels) vary positively with protection levels as the theory has led us to expect. Terms of trade concerns seem important to the larger countries in our sample as implied by the present generalization of the GH model (as well as by the optimum tariff literature), but the influence of downstream interests does not come across in the estimates. The results seem robust also to inclusion of variables reflecting exogenous political concerns (indicated as relevant in other studies), although those bring a substantial addition to predictive power which strengthens the impression that (what is endogenously derived in) the GH model only captures a limited share of the considerations underlying trade policy decisions. Keywords: Trade policy; Lobbying; Special interest groups JEL: F13 Date: 2004-06-03 URL: http://d.repec.org/n?u=RePEc:hhs:lunewp:2005_031&r=all 59. Determining the Level of Transportation Costs in the Core- Periphery Model: a Majority Voting Approach Gallo, Fredrik (Department of Economics, Lund University) We analyse the political determination of transportation costs in an analytically solvable core-periphery model. In a benchmark case with certainty about where agglomeration takes place, we find that a majority of voters prefers low trade costs and the resulting equilibrium is an industrialised core and a de- industrialised periphery. Allowing for uncertainty we show that a high trade cost candidate, that guarantees the initial symmetric equilibrium, may defeat the core-periphery equilibrium candidate. The reason is that a coalition of risk-averse immobile factors of production votes for status quo due to uncertainty about which region that will attract industrial activity. Keywords: core-periphery model; majority voting; new economic geography; regional policy JEL: F12 F15 R12 Date: 2005-05-31 URL: http://d.repec.org/n?u=RePEc:hhs:lunewp:2005_032&r=all 60. Conditioned Actions in Strategic Coordination Games Engseld, Peter (Department of Economics, Lund University) A simple symmetric 2 „e 2 strategic coordination game is analyzed in an evolutionary environment under the assumption that agents are able to condition their actions on observations made of the opponent. Agents are assumed to be associated with a profile of characteristics, of which all agents can make a noisy observation. Actions can be conditioned on how the observed characteristics relates to that of their own. It is shown that there exist feasible states under which evolutionary pressure will transform any population conditioning its actions through a genetically induced continuous characteristic, such as body length, into a population conditioning its actions through Status, or how well agents have done in previous games. It is also shown that there does not exist feasible states by which a population conditioning its actions through Status could be invaded by any other strategies. Keywords: Coordination; Hawk-Dove Games; Status; Positional Concerns; Conditioned Strategies; Evolutionary Equilibrium JEL: C70 C72 Date: 2005-05-30 URL: http://d.repec.org/n?u=RePEc:hhs:lunewp:2005_033&r=all 61. Debt and Economic Growth in Developing and Industrial Countries Schclarek, Alfredo (Department of Economics, Lund University) This paper empirically explores the relationship between debt and growth for a number of developing and industrial economies. For developing countries, we find that lower total external debt levels are associated with higher growth rates, and that this negative relationship is driven by the incidence of public external debt, and not by private external debt. Regarding the channels through which debt accumulation affects growth, we find that this is mainly driven by the capital accumulation growth. There is only limited evidence on the relationship between external debt and total factor productivity growth. In addition, for private savings rates there are mixed results. We do not find any support for an inverted-U shape relationship between external debt and growth. For industrial countries, we do not find any significant relationship between gross government debt and economic growth. Keywords: External Debt; Public debt; Economic Growth; Capital Accumulation; Productivity Growth; Private Savings JEL: F34 H63 O10 O40 Date: 2004-12-04 URL: http://d.repec.org/n?u=RePEc:hhs:lunewp:2005_034&r=all 62. Determinants of International Patent Examination Outcomes Alfons Palangkaraya (Centre for Microeconometrics, Melbourne Institute of Applied Economic and Social Research, and Intellectual Property Research Institute of Australia, The University of Melbourne) Paul H. Jensen (Centre for Microeconometrics, Melbourne Institute of Applied Economic and Social Research, and Intellectual Property Research Institute of Australia, The University of Melbourne) Elizabeth Webster (Centre for Microeconometrics, Melbourne Institute of Applied Economic and Social Research, and Intellectual Property Research Institute of Australia, The University of Melbourne) This paper examines the factors that cause differences in patent examination outcomes at the trilateral patent offices using a dataset of more than 70,000 non-PCT patent applications filed at the European and Japanese Patent Offices conditional upon them being granted by the United States Patent and Trademark Office. The paper finds that the quality of the invention, the applicant and whether the inventor was a local resident were the major determinants of patent grants. There is some, albeit inconsistent, evidence that examination decisions are made in the interests of the region's national trade. Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:iae:iaewps:wp2005n06&r=all 63. Gerechtigkeit zwischen den Generationen – Globale Perspektiven. Peter Koslowski Intergenerational justice arises from the fact that generations stand towards each other in a relationship of obligation. Children owe their existence to their parents, and therefore the continuation of their own existence in children of the next generation. Self interest demands the constant continuation of generations – for old age pensions and for the continuity of families. The welfare state weakens this bond of obligation by transferring old age pensions provision to the state. In this process, a welfare state illusion arises: individuals overrate systematically the value of their claims to pensions provided by the state and underrate the need to give birth to future generations at sufficient numbers. They underestimate the future burdens they will undergo due to a drop of the population numbers. The continental European countries are late in shifting their pensions to capital market funds that invest in countries with a high ratio younger generations. The countries with pay-as-you-go- sytems of old age pensions overrate the degree of freedom they have in withholding from the global capital market as the market for old age pensions and they underrate the degree to which their old age pensions will be devaluated due to the decrease of population. Date: 2005-04 URL: http://d.repec.org/n?u=RePEc:icr:wpicer:08-2005&r=all 64. An alternative scheme to compute the Common Agricultural Policy direct payments to farmers. Fernando Brito Soares An alternative to the direct payments modulation under CAP Regulation n. 2237/2003 is presented, using a logistic function model where payments to farmers are related to economic efficiency, environmental impact of agricultural production, and farmer’s income. The approach used develops into two phases: in phase one the focus is on modulation among countries; then in phase two redistribution among farmers within a Member State is contemplated. Date: 2005-04 URL: http://d.repec.org/n?u=RePEc:icr:wpicer:09-2005&r=all 65. The Implosion of the Brussels Economic Consensus. George Irvin Underlying the current political crisis of EU is a decade of cumulative malaise produced by low growth, high unemployment and welfare cuts. The poor economic record of the core Eurozone states is attributable neither to supply-side sclerosis nor top- heavy welfare, but rather to the ECB’s obsession with inflation and the fiscal strait-jacket imposed by the Stability and Growth Pact (SGP), referred to here as ‘Brussels Consensus’ economics. The paper critically examines the SGP rules, argues that the 2005 SGP compromise reached at Luxembourg has not addressed the fundamental problem of Europe’s asymmetric economic institutions, and proposes radical remedies. Keywords: Eurozone growth; unemployment; Maastricht; EIB; SGP rules; EU fiscal and monetary policy; neo-liberal Brussels consensus. Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:icr:wpicer:11-2005&r=all 66. On Growth and Development. Enrico Colombatto Contrary to the mainstream view, the paper offers a subjectivist approach to growth and an institutional view of development. In particular, the term development regards the prevailing rules of the game and their effects on the key variables for economic activity to take off: property rights and entrepreneurship. And growth is deemed to be the result of favourable institutional environments where chances are exploited and individuals succeed in improving their living conditions. From a methodological standpoint it is then argued that the common attempts to measure growth provide at best crude evaluations of the efforts to acquire purchasing power, but hardly measure well-being. From a normative perspective, the role of growth-enhancing government intervention is thus questioned. Doubts are also raised with respect to the recent and increasing literature on institutional design, which seems to ignore much of the lessons taught by the institutional schools - both old and new. And which tends to describe the past, rather than providing explanations that might help us understand the future. Date: 2005-04 URL: http://d.repec.org/n?u=RePEc:icr:wpicer:13-2005&r=all 67. Calibrating risk-neutral default correlation. Elisa Luciano The implementation of credit risk models has largely relied on the use of historical default dependence, as proxied by the correlation of equity returns. However, as is well known, credit derivative pricing requires risk-neutral dependence. Using the copula methodology, we infer risk neutral dependence from CDS data. We also provide a market application and explore its impact on the fees of some credit derivatives. JEL: G12 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:icr:wpmath:12-2005&r=all 68. Mercados Informales y Control Vertical: Comercializacion de Pesca Artesanal Perecible Julio Pena Torres (ILADES-Georgetown University, Universidad Alberto Hurtado) R. Javier Bustos S. (Master Student, ILADES-Georgetown University, Universidad Alberto Hurtado, Chile) Claudio Perez B. (Sociology Department, Universidad Alberto Hurtado, Chile.) This paper offers an in-depth case study analysis about institutional changes occurring since the late 1990s at the Chilean Austral Hake artisanal fishery. This high-value exporting fishery, specialized on selling fresh-chilled products, represents a pioneering example of self-government developments within artisanal fishermen's communities exploiting mobile marine resources in Chile. Despite entry restrictions and global catch quotas, this fishery faced a productivity crisis from the late 1980s up to the second half of the 1990s. As a response to this, fishermen initiated talks with the Government in order to introduce new management rules. After gradual evolution, today there prevails a well-developed system of de facto individual non- transferable quotas subject to a high degree of self-management by fishermen organizations. We discuss industrial organization issues which condition the exchange solutions found at this fishery. In particular, we discuss incentives derived from industrial concentration and buyer power, vertical integration and other strategies of vertical control between transacting parties at this industry; namely, between wholesale marketing brokers, exporters, processors, direct buyers of the catch and fishermen. Contractual issues of relevancy are: the use of informal markets; multi-dimensional contracting; temporal specificity due to product perishability; the use of different instruments for vertical control; and the influence of increasing degrees of industrial concentration as we advance through the wholesale commercialization channel, moving closer to the retailing stages at final export markets. Keywords: Produccion y comercializacion de Alimentos; Cadenas de produccion; Control y Coordinacion Vertical; Pesca Artesanal en Chile; Merluza Austral. Date: 2005-04 URL: http://d.repec.org/n?u=RePEc:ila:ilades:inv161&r=all 69. Risk Adjustment and Primary Health Care in Chile Veronica Vargas (Professor of Health Economics, ILADES- Georgetown University-Universidad Alberto Hurtado, Chile.) Juergen Wasem (Department of Economics, University of Essen, Germany) Chile?s primary health care (PHC) payment system uses income of the municipalities and the geographic location of health centres ( HCs) to adjust current capitation payments. Concerns over the ability of the formula to direct health resources where greater health needs are discussed. We uses a sample of 10,000 individuals was drawn and two years data was collected from a region in Chile. Three models were tested: i) age and gender, ii) age, gender and the presence of two key diagnoses and iii) age, gender and the presence of seven key diagnoses, to estimate how significant their effects were on utilization and per-capita expenditures. Regression analysis was performed to calculate the predictive values of the independent variables and two tests applied to select the best and next best model. The main results are the following. First, the use of services by age and gender confirmed international trends, where children under five, women and elderly were the main users of PHC services. Second, women consulted twice as much as men. Thrid, clear difference by SES were observed, indigents aged 65+ under-utilised PHC services. >From the three models simulated, the major improvement in the predictive power took place from the demographic to the demographic plus two diagnoses model. Improvements were limited when five other diagnoses were added (R-square=28%). The conclusion is that the current normative formula used by the MOH provides little incentives to care appropriately for indigents and people with chronic conditions such as diabetes and hypertension. A capitation payment that adjusts for age, gender, and presence of hypertension and diabetes will better guide resources to those with poorer health and lower SES. Keywords: Primary health care, Payment system, Risk adjustment JEL: H51 I11 I18 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:ila:ilades:inv162&r=all 70. Rapid Rise of China’s Dairy Sector: Factors Behind the Growth in Demand and Supply, The Fuller, Frank H. Huang, Jikun Ma, Hengyun Rozelle, Scott With the rapid growth in China’s dairy industry, a number of recent papers have addressed either the supply or the demand trends for dairy products in China. None, however, presents a systematic explanation for the recent growth in both the supply and demand for dairy products. The goal of this paper is to sketch a more comprehensive picture of China’s dairy sector and to assess the nature of the sector’s development in the coming decades. Drawing upon several empirical studies, we examine the trends in dairy product consumption to create a composite picture of the factors underlying the recent growth. We also empirically investigate the sources of production gains in milk supply and assess the relative importance of expanding herd size, changes in the nature of production, technological change, and improvements in efficiency to the overall growth of milk production. Date: 2005-05-27 URL: http://d.repec.org/n?u=RePEc:isu:genres:12363&r=all 71. Your Money or Your Life: Changing Job Quality in OECD Countries Andrew E. Clark (CNRS, PSE and IZA Bonn) Job quality may usefully be thought of as depending on both job values (how much workers care about different job outcomes) and the job outcomes themselves. Here both crosssection and panel data are used to examine changes in job quality in OECD countries over the 1990s. Despite rising wages and falling hours, overall job satisfaction is either stable or declining. These movements are not due to changes in the type of workers, nor to changes in their job values. A number of pieces of evidence point to stress and hard work as being strong candidates for what has gone wrong with employees’ jobs. We find evidence of increasing inequality in a number of job outcomes. Some groups of workers have done better than others: the young and the higher-educated have been insulated against downward movements in job quality, and there is tentative evidence that trade unions may have protected their members against adverse job outcomes. Keywords: job values, job outcomes, job satisfaction, effort JEL: J28 J3 J81 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1610&r=all 72. Multinationals and Plant Exit: Evidence from Chile Roberto Alvarez (University of California, Los Angeles) Holger Gorg (University of Nottingham, DIW Berlin and IZA Bonn) This paper examines the link between multinational enterprises and plant exit in Chile. We investigate three main questions: are affiliates of foreign multinationals more likely to exit than domestic firms? Does the exit probability of multinationals depend on its export orientation?, and Does the presence of multinationals affect the survival of other firms in the economy? Our results show that foreign plants are more likely to exit the economy, controlling for other firm and industry characteristics, only during the late 1990s, a period when the Chilean economy experience a massive slowdown. Our data also suggest that only domestic market oriented multinationals responded to this negative shock by being more "footloose"; this is not true for multinational exporters. We also find that the presence of multinationals has a positive effect on plant survival in the early 1990s. This positive effect, however, is fully captured by productivity, once controlling for TFP in our exit regressions we do not find any further impact of multinational presence on a plant’s probability of exit. Keywords: exit, survival, multinationals, foreign direct investment, exporting JEL: F2 L6 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1611&r=all 73. Student Flows and Migration: An Empirical Analysis Axel Dreher (Thurgau Institute of Economics and University of Konstanz) Panu Poutvaara (CEBR, Copenhagen Business School, CESifo and IZA Bonn) Using panel data for 78 countries of origin we examine the impact of student flows to the United States on subsequent migration there over the period 1971-2001. What we find is that the stock of foreign students is an important predictor of subsequent migration. This holds true whether or not the lagged endogenous variable is included. The relationship is robust to the inclusion of time and country dummies, and remains when we account for outliers. The basic results also hold for a cross section of 36 countries of origin and 9 host countries. Our results have important policy implications which we discuss in the last section. Keywords: migration, education, student flows, brain drain JEL: F22 I2 J61 O15 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1612&r=all 74. Does Parental Leave Affect Fertility and Return-to-Work? Evidence from a "True Natural Experiment" Rafael Lalive (University of Zurich, CESifo and IZA Bonn) Josef Zweimuller (University of Zurich, CEPR, CESifo and IZA Bonn) We study the causal effects of changes in parental leave provisions on fertility and return-towork behavior. We exploit a policy change that took place in 1990 in Austria which extended the maximum duration of parental leave from the child’s first to the child’s second birthday. As parental leave benefits can be automatically renewed when a new mother is still on leave from a previous child, this created a strong incentive to "bunch" the time off work in case of multiple planned children and/or to increase fertility. We study the quantitative effect of this incentive using an empirical strategy which resembles a true experimental set-up very closely. In particular, assignment to treatment is random and treated and controls face (almost) identical environmental conditions. We find that treated mothers have a 4.9 percentage points (or 15 percent) higher probability to get an additional child within the following three years; and a 3.9 percentage points higher probability in the following ten years. This suggests that not only the timing but also the number of children were affected by the policy change. We also find that parental leave rules have a strong effect on mothers’ return-to- work behavior. Per additional months of maximum parental leave duration, mothers’ time off work is reduced by 0.4 to 0.5 months. The effects of a subsequent policy change in 1996 when maximum parental leave duration was reduced from the child’s second birthday to the date when the child became 18 months old brought about no change in fertility behavior, but a labor supply effect that is comparable in magnitude to the one generated by the 1990 policy change. This can be rationalized by the incentives created through automatic benefit renewal. Keywords: parental leave, fertility, pro-natalist policy, family and work obligations, return to work, labor supply JEL: J13 J18 J22 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1613&r=all 75. Economic Performance and Unemployment: Evidence from an Emerging Economy - Turkey Hakan Berument (Bilkent University) Nukhet Dogan (Gazi University) Aysit Tansel (Middle East Technical University and IZA Bonn) This article examines whether various macroeconomic policy shocks have different effects on overall unemployment rate and the unemployment rate by different levels of education in Turkey. These effects are assessed for total, male and female unemployment rates separately. To examine the relationship, a quarterly VAR model with a recursive order is employed to estimate the effects of real GDP, price, exchange rate, interbank interest rate, money supply and unemployment for the period from 1988:01 to 2003:04. Main findings indicate that a positive income shock reduces total unemployment while positive exchange rate and interbank interest rate innovations both increase the unemployment rate during the initial periods. The responses of high school educated unemployment rate to five macroeconomic variable shocks are different than the response of other educational unemployment rates. Furthermore, the overall results across gender are similar. Keywords: unemployment, economic performance and vector autoregressive regression JEL: E24 C32 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1614&r=all 76. Returns to Foreign Education: Yet Another But Different Cross Country Analysis Max Gruetter (University of Zurich and IZA Bonn) The main interest of this paper is to compare the value of education systems of different countries. For this reason I use data on workers who have completed their education before immigrating to Switzerland to estimate a country specific return to education. I estimate the standard Mincer-equation with the extension that I additionally allow for country specific returns to education. Results show that there are important differences between the returns to different education systems within Switzerland in the value of the basic education on the one hand and the return to an additional year of education on the other hand. Keywords: return to education, immigration, international JEL: C13 J61 I21 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1615&r=all 77. Nonparametric Bounds on the Effect of Deductibles in Health Care Insurance on Doctor Visits - Swiss Evidence Michael Gerfin (University of Bern and IZA Bonn) Martin Schellhorn (GSF, Institute of Health Economics and Health Care Management, Munich, University of Bern and IZA Bonn) We evaluate the effect of the size of deductibles in the basic health insurance in Switzerland on the probability of a doctor visit. We employ nonparametric bounding techniques to minimise statistical assumptions. In order to tighten the bounds we consider three further assumptions: mean independence of an instrument, monotone treatment response, and monotone treatment selection. Under the first two assumptions we are able to bound the treatment effect of high deductibles compared to low deductibles below zero. Adding the third assumption allows to tighten the bounds further. We conclude that there is a negative treatment effect. Keywords: treatment effects, bounds, health insurance JEL: C14 I19 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1616&r=all 78. Parental Leave - A Policy Evaluation of the Swedish "Daddy- Month" Reform John Ekberg (SOFI, Stockholm University) Rickard Eriksson (SOFI, Stockholm University) Guido Friebel (University of Toulouse (EHESS and IDEI), CEPR and IZA Bonn) Many countries are trying to incentivize fathers to increase their share in parental leave and in household work to improve female labor market opportunities. Our unique data set stems from a natural experiment in Sweden. The data comprises all children born before (control group) and after the reform (treatment group) in cohorts of up to 27,000 newborns, mothers and fathers. We find strong short term effects of incentives on male parental leave. However, we find no learning-by doing, or specialization, effects: fathers in the treatment group do not have larger shares in the leave taken for care of sick children, which is our measure for household work. Keywords: natural experiment, family benefits, gender and labor, incentives JEL: J48 J13 J16 J22 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1617&r=all 79. Making Sense of Bolkestein-Bashing: Trade Liberalization under Segmented Labor Markets Gilles Saint-Paul (University of Toulouse 1, CEPR and IZA Bonn) Trade liberalization is often met with sharp opposition. Recent examples include the so-called "Bolkestein" directive, which allows service providers from a given EU member to temporarily work in another member country. One way to view such a reform is that it simply widens the range of goods that are tradeable. This kind of reform is analyzed in a two-country Dornbusch-Fischer- Samuelson style model, where labor cannot relocate to another sector upon a non expected increase in the range of goods that can be traded. The effect of liberalization on the terms of trade tends to favor the poorer country (the "East"), if (as assumed) the most sophisticated goods are tradeable before reform. Second, under ex-post liberalization, there exists a class of workers in the West who are harmed because they face competition from Eastern workers and cannot relocate to other activities. But if the East's economy is relatively small, their wage losses are not very large. Things are different, however, if there exist asymmetries in labor market institutions, such that upon reform, labor can relocate in the East but not in the West. Some workers in the West can then experience very large wage losses. Thus, rigid labor markets in the West magnify opposition to reform there. Keywords: trade liberalization, European integration, Bolkestein directive, labor mobility, labor market institutions, comparative advantage, terms of trade JEL: F16 F11 F13 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1618&r=all 80. How Does Marriage Affect Physical and Psychological Health? A Survey of the Longitudinal Evidence Chris M. Wilson (University of East Anglia) Andrew J. Oswald (University of Warwick, Harvard University and IZA Bonn) This paper examines an accumulating modern literature on the health benefits of relationships like marriage. Although much remains to be understood about the physiological channels, we draw the judgment, after looking across many journals and disciplines, that there is persuasive longitudinal evidence for such effects. The size of the health gain from marriage is remarkable. It may be as large as the benefit from giving up smoking. Keywords: mortality, health, marriage, happiness, longitudinal JEL: I0 I12 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp1619&r=all 81. Do Magazines' "Companion Websites" Cannibalize the Demand for the Print Version? Ulrich Kaiser (University of Southern Denmark at Odense) Hans Christian Kongsted (Institute of Economics, University of Copenhagen) We analyze the relationship between website visits, magazine demand and the demand for advertising pages using Granger non- causality tests on the basis of an extensive and externally audited quarterly data set for the German magazine market spanning the period I/1998 to II/2004. We use traditional panel data estimators and an estimator suitable for heterogeneity across magazines. We find very robust evidence for positive effects from website visits to circulation. There is no evidence of causality running in the opposite direction. Our findings are contrary to the widespread belief that the Internet will cannibalize print media markets. Keywords: Granger causality; heterogeneous panel data models; Mean Group Estimation; website visits; magazine circulation JEL: C32 C33 L11 Date: 2005-04 URL: http://d.repec.org/n?u=RePEc:kud:kuieca:2005_07&r=all 82. Normality as a Theoretical Concept Schlicht, Ekkehart This note comments briefly on Mehdad Vahabi's article on Alfred Marshall's concept of "Normal Value." It points out, in particular, the relationship between normality and equilibrium in the context of Marshall's moving equilibrium method. JEL: B41 B13 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:lmu:muenec:649&r=all 83. The Case for Utilitarian Voting Hillinger, Claude Utilitarian voting (UV) is defined in this paper as any voting rule that allows the voter to rank all of the alternatives by means of the scores permitted under a given voting scale. Specific UV rules that have been proposed are approval voting, allowing the scores 0, 1; range voting, allowing all numbers in an interval as scores; evaluative voting, allowing the scores -1, 0 1. The paper deals extensively with Arrow's impossibility theorem that has been interpreted as precluding a satisfactory voting mechanism. I challenge the relevance of the ordinal framework in which that theorem is expressed and argue that instead utilitarian, i.e. cardinal social choice theory is relevant for voting. I show that justifications of both utilitarian social choice and of majority rule can be modified to derive UV. The most elementary derivation of UV is based on the view that no justification exists for restricting voters? freedom to rank the alternatives on a given scale. JEL: D72 D71 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:lmu:muenec:653&r=all 84. A comparison between alternative models for environmental ordinal data: Nonlinear PCA vs Rasch Analysis Pieralda FERRARI Paola ANNONI Silvia SALINI Two different methodologies, Nonlinear PCA and Partial Credit ver sion of Rasch model, are applied to real data to obtain a quantit ative measure of a latent factor. Specifically the goal is to ide ntify the level of damage of a set of particurarly valuable publi c buildings. Several ordinal variables are observed on each build ing, which describe various aspects of damage severity. Scores o n each bulding are then assigned on the basis of computed 'vulner ability' level. Keywords: Nonlinear PCA; Partial Credit Rasch Model; Ordinal Variables URL: http://d.repec.org/n?u=RePEc:mil:wpdepa:2005-12&r=all 85. Inequality, redistribution and the allocation of public spending in education. A political-economy approach. Debora Di Gioacchino, Sergio Ginebri, Laura Sabani The incidence of public expenditure in education appears to be skewed in favour of the middle and upper classes. This paper inquires into the determinants of this bias using a political economy approach. We develop a model with two time periods with an election occurring between the two. In the first period, agents differ in their initial wealth. In the second period, differences in wealth are combined with differences in income. In the first period, the incumbent government issues debt to finance public spending in education and decides how to allocate available resources between primary and tertiary education. Both increase aggregate income, but while investment in primary education reduces income inequality, investment in tertiary education increases it. At the beginning of the second period, a two-party electoral competition is held and probabilistic voting decides the winner. By varying the parameters of the linear income tax, the elected policy-maker can redistribute resources between low and high income individuals, while by choosing a debt default rate she can renege on the promise to fully repay public obligations, redistributing resources from bond-holders to tax- payers. We show that the investment in primary education might not be (politically) viable. Intuitively, investment in primary education, by reducing income inequality with respect to wealth inequality, might increase the desired debt default rate of future policy makers, making issuing debt to finance primary education unfeasible. Keywords: policy choices in representative democracies, public investment in education, redistribution, government debt repayment. JEL: D78 H63 H42 I28 Date: 2005-05-27 URL: http://d.repec.org/n?u=RePEc:mol:ecsdps:esdp05024&r=all 86. On the Bimodality of the Exact Distribution of the TSLS Estimator Giovanni Forchini Nelson and Startz (Econometrica, 58, 1990), Maddala and Jong ( Econometrica, 60, 1992) and Wolgrom (Econometrica, 69, 2001) have shown that the density of the two-stage least squares estimator may be bimodal in a just identified structural equation. This paper further investigates the conditions under which bimodality may arise in a just over-identified model. Keywords: Bimodality, Identification, Structural equation, Two Stage Least Squares. JEL: C30 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:msh:ebswps:2005-14&r=all 87. Assessing the Magnitude of the Concentration Parameter in a Simultaneous Equations Model D. S. Poskitt C. L. Skeels Poskitt and Skeels (2003) provide a new approximation to the sampling distribution of the IV estimator in a simultaneous equations model. This approximation is appropriate when the concentration parameter associated with the reduced form model is small and a basic purpose of this paper is to provide the practitioner with a method of ascertaining when the concentration parameter is small, and hence when the use of the Poskitt and Skeels (2003) approximation is appropriate. Existing procedures tend to focus on the notion of correlation and hypothesis testing. Approaching the problem from a different perspective leads us to advocate a different statistic for use in this problem. We provide exact and approximate distribution theory for the proposed statistic and show that it satisfies various optimality criteria not satisfied by some of its competitors. Rather than adopting a testing approach we suggest the use of p-values as a calibration device. Keywords: Concentration parameter, simultaneous equations model, alienation coefficient, Wilks-lambda distribution, admissible invariant test. JEL: C12 C39 C52 Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:msh:ebswps:2004-29&r=all 88. Forecasting Accuracy and Estimation Uncertainty Using VAR Models with Short- and Long-Term Economic Restrictions: A Monte-Carlo Study Osmani Teixeira de Carvalho Guillen Joao Victor Issler George Athanasopoulos Using vector autoregressive (VAR) models and Monte-Carlo simulation methods we investigate the potential gains for forecasting accuracy and estimation uncertainty of two commonly used restrictions arising from economic relationships. The first reduces parameter space by imposing long-term restrictions on the behavior of economic variables as discussed by the literature on cointegration, and the second reduces parameter space by imposing short-term restrictions as discussed by the literature on serial- correlation common features (SCCF). Our simulations cover three important issues on model building, estimation, and forecasting. First, we examine the performance of standard and modified information criteria in choosing lag length for cointegrated VARs with SCCF restrictions. Second, we provide a comparison of forecasting accuracy of .fitted VARs when only cointegration restrictions are imposed and when cointegration and SCCF restrictions are jointly imposed. Third, we propose a new estimation algorithm where short- and long-term restrictions interact to estimate the cointegrating and the cofeature spaces respectively. We have three basic results. First, ignoring SCCF restrictions has a high cost in terms of model selection, because standard information criteria chooses too frequently inconsistent models, with too small a lag length. Criteria selecting lag and rank simultaneously have a superior performance in this case. Second, this translates into a superior forecasting performance of the restricted VECM over the VECM, with important improvements in forecasting accuracy .reaching more than 100% in extreme cases. Third, the new algorithm proposed here fares very well in terms of parameter estimation, even when we consider the estimation of long-term parameters, opening up the discussion of joint estimation of short- and long-term parameters in VAR models. Keywords: Reduced rank models, model selection criteria, forecasting accuracy. JEL: C32 C53 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:msh:ebswps:2005-15&r=all 89. A, B, C's (and D)'s for Understanding VARs Jesus Fernandez-Villaverde Juan Rubio-Ramirez Thomas J. Sargent The dynamics of a linear (or linearized) dynamic stochastic economic model can be expressed in terms of matrices (A,B,C,D) that define a state space system. An associated state space system (A,K,C,Sigma) determines a vector autoregression for observables available to an econometrician. We review circumstances under which the impulse response of the VAR resembles the impulse response associated with the economic model. We give four examples that illustrate a simple condition for checking whether the mapping from VAR shocks to economic shocks is invertible. The condition applies when there are equal numbers of VAR and economic shocks. JEL: E0 C11 C3 Date: 2005-06 URL: http://d.repec.org/n?u=RePEc:nbr:nberte:0308&r=all 90. A Theory of Pyramidal Ownership and Family Business Groups Heitor Almeida Daniel Wolfenzon We provide a rationale for pyramidal ownership (the control of a firm through a chain of ownership relations) that departs from the traditional argument that pyramids arise to separate cash flow from voting rights. With a pyramidal structure, a family uses a firm it already controls to set up a new firm. This structure allows the family to 1) access the entire stock of retained earnings of the original firm, and 2) to share the new firm's non-diverted payoff with minority shareholders of the original firm. Thus, pyramids are attractive if external funds are costlier than internal funds, and if the family is expected to divert a large fraction of the new firm's payoff; conditions that hold in an environment with poor investor protection. The model can differentiate between pyramids and dual-class shares even in situations in which the same deviation from one share-one vote can be achieved with either method. Unlike the traditional argument, our model is consistent with recent empirical evidence that some pyramidal firms are associated with small deviations between ownership and control. We also analyze the creation of business groups (a collection of multiple firms under the control of a single family) and find that, when they arise, they are likely to adopt a pyramidal ownership structure. Other predictions of the model are consistent with systematic and anecdotal evidence on pyramidal business groups. JEL: G32 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11368&r=all 91. Capital Flows and Exchange Rate Volatility: Singapore's Experience Basant K. Kapur Singapore%u2019s experience with international capital flows over the past two decades or so has been a rather %u2013 although not completely %u2013 benign one, owing to strong fundamentals and generally well-conceived macro-economic policies. We begin by briefly discussing the experience in 1998 of Hong Kong, another city-state with a well-developed banking system and equities market, and operating on a Currency Board (CB) system (although with some differences from Singapore%u2019s CB system). The discussion serves to identify some %u2018areas of vulnerability%u2019 in the Hong Kong set-up at that time. We next discuss Singapore%u2019s policy background and early experience, and in the light of Hong Kong%u2019s experience are better able to appreciate how Singapore%u2019s policy framework served to circumvent or minimize important vulnerabilities. Particular attention is paid to Singapore%u2019s exchange-rate policy and its policy of non-internationalization of the Singapore dollar. Equity- and currency- market interactions are also considered. We next show how Singapore emerged relatively unscathed from the 1997 Asian Crisis. Lastly, we discuss Singapore%u2019s debt markets, and show how under the imperative of promoting the development of its bond markets the non-internationalization policy has been progressively relaxed, while retaining key safeguards. JEL: F4 F3 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11369&r=all 92. What Matters for Financial Development? Capital Controls, Institutions, and Interactions Menzie D. Chinn Hiro Ito We extend our earlier work, focusing on the links between capital account liberalization, legal and institutional development, and financial development, especially that in equity markets. In a panel data analysis encompassing 108 countries and twenty years ranging from 1980 to 2000, we explore several dimensions of the financial sector. First, we test whether financial openness can lead to equity market development when we control for the level of legal and institutional development. Then, we examine whether the opening of the goods sector is a precondition for financial opening. Finally, we investigate whether a well-developed banking sector is a precondition for financial liberalization to lead to equity market development and also whether bank and equity market development complements or substitutes. Our empirical results suggest that a higher level of financial openness contributes to the development of equity markets only if a threshold level of general legal systems and institutions is attained, which is more prevalent among emerging market countries. Among emerging market countries, a higher level of bureaucratic quality and law and order, as well as the lower levels of corruption, increases the effect of financial opening in fostering the development of equity markets. We also find that the finance-related legal/institutional variables do not enhance the effect of capital account opening as strongly as the general legal/institutional variables. In examining the issue of the sequencing, we find that the liberalization in cross-border goods transactions is found to be a precondition for capital account liberalization. Our findings also indicate that the development in the banking sector is a precondition for equity market development, and that the developments in these two types of financial markets have synergistic effects. JEL: F36 F43 G28 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11370&r=all 93. Lobbying Competition Over US Trade Policy Kishore Gawande Pravin Krishna Competition between opposing lobbies is an important factor in the endogenous determination of trade policy. This paper investigates empirically the consequences of lobbying competition between upstream and downstream producers for US trade policy. The theoretical framework used is the well-known Grossman-Helpman model of trade policy determination suitably modified to account for the cross-sectoral use of inputs in production (the input- output matrix). Our empirical results, using US trade data, validate the predictions of the theoretical model with lobbying competition. Trade protection is found to be higher in industries with organized lobbies but lower when there are organized downstream users of the industry's output. Lobbying competition is additionally interesting as a candidate explanation for an empirical puzzle in the literature concerning the apparently nearly "welfare-maximizing" behavior of the US government in setting trade policy. Our estimates diminish the magnitude of the puzzle somewhat, but do not provide a full quantitative resolution of this question. JEL: D72 D78 F12 F13 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11371&r=all 94. The Microeconomic Evidence on Capital Controls: No Free Lunch Kristin J. Forbes Macroeconomic analyses of capital controls face a number of imposing challenges and have yielded mixed results to date. This paper takes a different approach and surveys an emerging literature that evaluates various microeconomic effects of capital controls and capital account liberalization. Several key themes emerge. First, capital controls tend to reduce the supply of capital, raise the cost of financing, and increase financial constraints - especially for smaller firms, firms without access to international capital markets and firms without access to preferential lending. Second, capital controls can reduce market discipline in financial markets and the government, leading to a more inefficient allocation of capital and resources. Third, capital controls significantly distort decision-making by firms and individuals, as they attempt to minimize the costs of the controls or even evade them outright. Fourth, the effects of capital controls can vary across different types of firms and countries, reflecting different pre-existing economic distortions. Finally, capital controls can be difficult and costly to enforce, even in countries with sound institutions and low levels of corruption. This microeconomic evidence on capital controls suggests that they have pervasive effects and often generate unexpected costs. Capital controls are no free lunch. JEL: F2 F3 G1 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11372&r=all 95. Fiscal Remedies for Japan's Slump Laurence Ball This paper asks how a fiscal expansion would affect Japan. It uses a textbook-style macro model calibrated to fit the Japanese economy. According to the results, Japan%u2019s output slump would be ended by a fiscal transfer of 6.6% of GDP. This policy raises the debt-income ratio in the short run, but it reduces this ratio in the long run through higher inflation and tax revenue. The financing of the transfer -- bonds or money -- affects debt in the short run but not the long run. JEL: E3 E6 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11374&r=all 96. Does Corporate Ownership Matter? Service Provision in the Hospital Industry Jill R. Horwitz Three types of firms %uF818 nonprofit, for-profit, and government %uF818 own U.S. hospitals, yet we do not know whether ownership results in the specialization of medical service provision. This study of over 30 medical services in urban, general hospitals (1988-2000) shows that ownership types specialize in medical services according to the profitability of those services. The paper examines three theories to explain the differences: 1) objectives, 2) capital prices, and 3) market characteristics. The findings are best explained by differences in the objectives adopted by hospital types rather than differences in capital constraints faced by them. Preliminary evidence suggests that hospital behavior depends on the ownership form of neighboring hospitals. JEL: I1 L3 L2 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11376&r=all 97. Religious Market Structure, Religious Participation, and Outcomes: Is Religion Good for You? Jonathan Gruber Religion plays an important role in the lives of many Americans, but there is relatively little study by economists of the implications of religiosity for economic outcomes. This likely reflects the enormous difficulty inherent in separating the causal effects of religiosity from other factors that are correlated with outcomes. In this paper, I propose a potential solution to this long standing problem, by noting that a major determinant of religious participation is religious market density, or the share of the population in an area which is of an individual's religion. I make use of the fact that exogenous predictions of market density can be formed based on area ancestral mix. That is, I relate religious participation and economic outcomes to the correlation of the religious preference of one's own heritage with the religious preference of other heritages that share one's area. I use the General Social Survey ( GSS) to model the impact of market density on church attendance, and micro-data from the 1990 Census to model the impact on economic outcomes. I find that a higher market density leads to a significantly increased level of religious participation, and as well to better outcomes according to several key economic indicators: higher levels of education and income, lower levels of welfare receipt and disability, higher levels of marriage, and lower levels of divorce. JEL: H3 N4 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11377&r=all 98. An Investigation of the Effects of Alcohol Consumption and Alcohol Policies on Youth Risky Sexual Behaviors Sara Markowitz Robert Kaestner Michael Grossman The problems of teen pregnancy, HIV/AIDS and the high rates of other sexually transmitted diseases among youth have lead to widespread concern with the sexual behaviors of teenagers. Alcohol use is one of the most commonly cited correlates of risky sexual behavior. The purpose of this research is to investigate the causal role of alcohol in determining sexual activity and risky sexual behavior among teenagers and young adults. This research also addresses the question of whether there are public policies that can reduce the risky sexual behavior that results in harmful consequences. Individual and aggregate level data are used to investigate these questions. Results show that alcohol use appears to have no causal influence in determining whether or not a teenage has sex. However, alcohol use may lower contraception use among sexually active teens. JEL: I0 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11378&r=all 99. Hospital Integration and Vertical Consolidation: An Analysis of Acquisitions in New York State Robert S. Huckman While prior studies tend to view hospital integration through the lens of horizontal consolidation, I provide an analysis of its vertical aspects. I examine the effect of hospital acquisitions in New York State on the distribution of market share for major cardiac procedures across providers in target markets. I find evidence of benefits to acquirers via business stealing, with the resulting redistribution of volume across providers having small effects, if any, on total welfare with respect to cardiac care. The results of this analysis--along with similar assessments for other services--can be incorporated into future studies of hospital consolidation. JEL: I1 L2 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11379&r=all 100. Ultra High Frequency Volatility Estimation with Dependent Microstructure Noise Yacine Ait-Sahalia Per A. Mykland Lan Zhang We analyze the impact of time series dependence in market microstructure noise on the properties of estimators of the integrated volatility of an asset price based on data sampled at frequencies high enough for that noise to be a dominant consideration. We show that combining two time scales for that purpose will work even when the noise exhibits time series dependence, analyze in that context a refinement of this approach based on multiple time scales, and compare empirically our different estimators to the standard realized volatility. JEL: G12 C22 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11380&r=all 101. South Korea's Experience with International Capital Flows Marcus Noland South Korea%u2019s experience is unparalleled in its combination of sustained prosperity, capital controls, and financial crisis. Over several decades, South Korea experienced rapid sustained growth in the presence of capital controls. These controls and the de-linking of domestic and international financial markets were an essential component of the country's state-led development strategy. As the country developed, opportunities for easy technological catch-up eroded, requiring more sophisticated corporate and financial sector decision-making, but decades of financial repression had bequeathed a bureaucratized financial system and a formidable constellation of incumbent stakeholders opposed to transition to a more market-oriented development model. Liberalization undertaken in the 1990s was less a product of textbook economic analysis than of parochial politicking. Capital account liberalization program affected the timing, magnitude, and particulars of the 1997-98 crisis. Despite considerable reforms undertaken since the crisis, concerns remain about both South Korea%u2019s lending culture and its authorities%u2019 capacity to successfully regulate the more complex financial system. The main lesson of the South Korean case appear to be that while the state-led model may deliver impressive initial gains, transitioning out of this approach presents an exceedingly complex challenge of political-economy. JEL: F3 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11381&r=all 102. Historical Perspective on Global Imbalances Michael D. Bordo This paper takes an historical perspectives approach to the current episode of global imbalances. I consider four historical episodes which may give some indications as to whether the adjustment to U.S. current account deficit will lead to a 'benign' or 'gloomy' outlook. The episodes are: the transfer of capital in the earlier era of globalization the late nineteenth century; the interwar gold exchange standard; Bretton Woods; and the 1977-79 dollar crisis. I conclude that adjustment in earlier era of globalization has more resonance for the current imbalance than the other scenarios. JEL: F02 F32 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11383&r=all 103. Incomes in South Africa Since the Fall of Apartheid Murray Leibbrandt James Levinsohn Justin McCrary This paper examines changes in individual real incomes in South Africa between 1995 and 2000. We document substantial declines-- on the order of 40%--in real incomes for both men and women. The brunt of the income decline appears to have been shouldered by the young and the non-white. We argue that changes in respondent attributes are insufficient to explain this decline. For most groups, a (conservative) correction for selection into income recipiency explains some, but not all, of the income decline. For other groups, selection is a potential explanation for the income decline. Perhaps the most persuasive explanation of the evidence is substantial economic restructuring of the South African economy in which wages are not bid up to keep pace with price changes due to a differentially slack labor market. JEL: F0 O1 O5 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11384&r=all 104. Venture Capital Investment Cycles: The Impact of Public Markets Paul Gompers Anna Kovner Josh Lerner David Scharfstein It is well documented that the venture capital industry is highly volatile and that much of this volatility is associated with shifting valuations and activity in public equity markets. This paper examines how changes in public market signals affected venture capital investing between 1975 and 1998. We find that venture capitalists with the most industry experience increase their investments the most when public market signals become more favorable. Their reaction to an increase is greater than the reaction of venture capital organizations with relatively little industry experience and those with considerable experience but in other industries. The increase in investment rates does not affect the success of these transactions adversely to a significant extent. These findings are consistent with the view that venture capitalists rationally respond to attractive investment opportunities signaled by public market shifts. JEL: G2 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11385&r=all 105. A General Formula for the Optimal Level of Social Insurance Raj Chetty In an influential paper, Baily (1978) showed that the optimal level of unemployment insurance (UI) in a stylized static model depends on only three parameters: risk aversion, the consumption- smoothing benefit of UI, and the elasticity of unemployment durations with respect to the benefit rate. This paper examines the key economic assumptions under which these parameters determine the optimal level of social insurance. A Baily-type expression, with an adjustment for precautionary saving motives, holds in a very general class of dynamic models subject to weak regularity conditions. For example, the simple reduced-form formula derived here applies with arbitrary borrowing constraints, endogenous insurance markets, and search and leisure benefits of unemployment. A counterintuitive aspect of this result is that the optimal benefit rate appears not to depend on (1) any benefit of UI besides consumption-smoothing or (2) the relative magnitudes of income and substitution effects in the link between UI benefits and durations. However, these parameters enter implicitly in the optimal benefit calculation, and estimating them can be useful in testing whether the values of the primary inputs are consistent with observed behavior. JEL: H5 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11386&r=all 106. India's Experience with Capital Flows: The Elusive Quest for a Sustainable Current Account Defecit Ajay Shah Ila Patnaik >From the early 1990s onwards, India has engaged in policies involving trade liberalisation, strong controls on debt flows, and encouragement for portfolio flows and FDI, under a pegged exchange rate regime. Domestic institutional factors have led to relatively little FDI and substantial portfolio flows. There has been significant tension between capital flows and the currency regime. Many tactical details of the intricate reforms to the capital controls derive from the interlocking relationships between monetary policy, the currency regime and capital flows. In the recent period, pegging has given a capital outflow through reserves accumulation which was larger than the substantial net private capital inflows. In March 2004, difficulties of pegging appear to have led to a near-tripling of the nominal rupee-dollar returns volatility, which has reduced outward capital flows. The goal of the early 1990s - of finding a consistent way to augment investment using current account deficits - has remained elusive. JEL: F3 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11387&r=all 107. The Rise in Firm-Level Volatility: Causes and Consequences Diego Comin Thomas Philippon We document that the recent decline in aggregate volatility has been accompanied by a large increase in firm level risk. The negative relationship between firm and aggregate risk seems to be present across industries in the US, and across OECD countries. Firm volatility increases after deregulation. Firm volatility is linked to research and development spending as well as access to external financing. Further, R&D intensity is also associated with lower correlation of sectoral growth with the rest of the economy. JEL: E3 O3 D4 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11388&r=all 108. Rare Events and the Equity Premium Robert J. Barro The allowance for low-probability disasters, suggested by Rietz ( 1988), explains a lot of puzzles related to asset returns and consumption. These puzzles include the high equity premium, the low risk-free rate, the volatility of stock returns, and the low values of typical macro-econometric estimates of the intertemporal elasticity of substitution for consumption. Another mystery that may be resolved is why expected real interest rates were low in the United States during major wars, such as World War II. This resolution works even though price-earnings ratios tended also to be low during the wars. This approach achieves these explanations while maintaining the tractable framework of a representative agent, time-additive and iso-elastic preferences, complete markets, and i.i.d. shocks to productivity growth. Perhaps just as puzzling as the high equity premium is why Rietz's framework has not been taken more seriously by researchers in macroeconomics and finance. Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11310&r=all 109. The Opium Wars, Opium Legalization, and Opium Consumption in China Jeffrey A. Miron Chris Feige The effect of drug prohibition on drug consumption is a critical issue in debates over drug policy. One episode that provides information on the consumption-reducing effect of drug prohibition is the Chinese legalization of opium in 1858. In this paper we examine the impact of China's opium legalization on the quantity and price of British opium exports from India to China during the 19th century. We find little evidence that legalization increased exports or decreased price. Thus, the evidence suggests China's opium prohibition had a minimal impact on opium consumption. JEL: K4 N4 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11355&r=all 110. Asset Fire Sales (and Purchases) in Equity Markets Joshua D. Coval Erik Stafford This paper examines asset fire sales, and institutional price pressure more generally, in equity markets, using market prices of mutual fund transactions caused by capital flows from 1980 to 2003. Funds experiencing large outflows (inflows) tend to decrease (increase) existing positions, which creates price pressure in the securities held in common by these funds. Forced transactions represent a significant cost of financial distress for mutual funds. We find that investors who trade against constrained mutual funds earn highly significant returns for providing liquidity when few others are willing or able. In addition, future flow-driven transactions are predictable, creating an incentive to front-run the anticipated forced trades by funds experiencing extreme capital flows. JEL: G14 G32 G20 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11357&r=all 111. Productivity, Efficiency, Scale Economies and Technical Change: A New Decomposition Analysis Jiro Nemoto Mika Goto This paper aims to examine the productivity change of the Japanese economy using the data pertaining to the 47 prefectures during the period 1981-2000. The decomposition analysis of the Hicks-Moorsteen-Bjurek productivity index is conducted to explore the sources of the productivity change. In summary, technical change and efficiency change are two of the most important components driving procyclical productivity. We find that their relative importance varies over periods. Supply shocks captured by technical change component caused upturns in productivity in the mid and late 80s and in 1999 and 2000. Supply shocks also caused downturns in the early and mid 90s. On the other hand, demand shocks captured by the efficiency change component drove upturns of productivity in 1984, 1990, and 1996 when supply shocks were not detected. JEL: C43 D24 O47 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11373&r=all 112. A Simple Scheme to Improve the Efficiency of Referenda Alessandra Casella Andrew Gelman This paper proposes a simple scheme designed to elicit and reward intensity of preferences in referenda: voters faced with a number of binary proposals are given one regular vote for each proposal plus an additional number of bonus votes to cast as desired. Decisions are taken according to the majority of votes cast. In our base case, where there is no systematic difference between proposals' supporters and opponents, there is always a positive number of bonus votes such that ex ante utility is increased by the scheme, relative to simple majority voting. When the distributions of valuations of supporters and opponents differ, the improvement in efficiency is guaranteed only if the distributions can be ranked according to first order stochastic dominance. If they are, however, the existence of welfare gains is independent of the exact number of bonus votes. Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11375&r=all 113. Growth or Glamour? Fundamentals and Systematic Risk in Stock Returns John Y. Campbell Christopher Polk Tuomo Vuolteenaho The cash flows of growth stocks are particularly sensitive to temporary movements in aggregate stock prices (driven by movements in the equity risk premium), while the cash flows of value stocks are particularly sensitive to permanent movements in aggregate stock prices (driven by market-wide shocks to cash flows.) Thus the high betas of growth stocks with the market's discount-rate shocks, and of value stocks with the market's cash- flow shocks, are determined by the cash-flow fundamentals of growth and value companies. Growth stocks are not merely "glamour stocks" whose systematic risks are purely driven by investor sentiment. More generally, accounting measures of firm-level risk have predictive power for firms' betas with market-wide cash flows, and this predictive power arises from the behavior of firms' cash flows. The systematic risks of stocks with similar accounting characteristics are primarily driven by the systematic risks of their fundamentals. JEL: G12 G14 N22 Date: 2005-06 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11389&r=all 114. Assigning Deviant Youths to Minimize Total Harm Philip J. Cook Jens Ludwig A common practice in the fields of education, mental health, and juvenile justice is to segregate problem youths in groups with deviant peers. Assignments of this sort, which concentrate deviant youths, may facilitate deviant peer influence and lead to perverse outcomes. This possibility adds to the list of arguments in support of "mainstreaming" whenever possible. But there are other concerns that help justify segregated-group assignments, including efficiency of service delivery and protection of the public. Our analysis organizes the discussion about the relevant tradeoffs. First, the number of deviant youths (relative to the size of the relevant population, or to the number of assignment locations) affects whether the harm-minimizing assignment calls for diffusion or segregation. Second, the nature of the problematic behavior is relevant; behavior which has a direct, detrimental effect on others who share the assignment makes a stronger case for segregation. Third, the capacity for behavior control matters, and may make the difference in a choice between segregation and integration. We briefly discuss the empirical literature, which with some exceptions is inadequate to the task of providing clear guidance about harm-minimizing assignment strategies. Finally, we reflect briefly on the medical-practice principle "first do no harm," and contrast it with the claims of potential victims of deviants. JEL: I18 I2 K42 Date: 2005-06 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11390&r=all 115. Is Cash Negative Debt? A Hedging Perspective on Corporate Financial Policies Viral V. Acharya Heitor Almeida Murillo Campello We model the interplay between cash and debt policies in the presence of financial constraints. While saving cash allows financially constrained firms to hedge against future income shortfalls, reducing debt - "saving borrowing capacity" - is a more effective way of securing future investment in high cash flow states. This trade-off implies that constrained firms will allocate excess cash flows into cash holdings if their hedging needs are high (i.e., if the correlation between operating cash flows and investment opportunities is low). However, constrained firms will use excess cash flows to reduce current debt if their hedging needs are low. The empirical examination of cash and debt policies of a large sample of constrained and unconstrained firms reveals evidence that is consistent with our theory. In particular, our evidence shows that financially constrained firms with high hedging needs have a strong propensity to save cash out of cash flows, while showing no propensity to reduce outstanding debt. In contrast, constrained firms with low hedging needs systematically channel free cash flows towards debt reduction, as opposed to cash savings. Our analysis points to an important hedging motive behind standard financial policies such as cash and debt management. It suggests that cash should not be viewed as negative debt. JEL: G31 Date: 2005-06 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11391&r=all 116. Optimal Policy Projection Lars O. Svensson Robert J. Tetlow We outline a method to provide advice on optimal monetary policy while taking policymakers' judgment into account. The method constructs Optimal Policy Projections (OPPs) by extracting the judgment terms that allow a model, such as the Federal Reserve Board's FRB/US model, to reproduce a forecast, such as the Greenbook forecast. Given an intertemporal loss function that represents monetary policy objectives, OPPs are the projections - of target variables, instruments, and other variables of interest that minimize that loss function for given judgment terms. The method is illustrated by revisiting the Greenbook forecasts of February 1997 and November 1999, in each case using the vintage of the FRB/US model that was in place at that time. These two particular forecasts were chosen, in part, because they were at the beginning and the peak, respectively, of the late 1990s boom period. As such, they differ markedly in their implied judgments of the state of the world, and our OPPs illustrate this difference. For a conventional loss function, our OPPs provide significantly better performance than Taylor-rule simulations. JEL: E52 E58 Date: 2005-06 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11392&r=all 117. Market Size, Trade, and Productivity Marc J. Melitz Gianmarco I.P. Ottaviano We develop a monopolistically competitive model of trade with firm heterogeneity - in terms of productivity differences - and endogenous differences in the `toughness' of competition across markets - in terms of the number and average productivity of competing firms. We analyze how these features vary across markets of different size that are not perfectly integrated through trade; we then study the effects of different trade liberalization policies. In our model, market size and trade affect the toughness of competition, which then feeds back into the selection of heterogeneous producers and exporters in that market. Aggregate productivity and average markups thus respond to both the size of a market and the extent of its integration through trade (larger, more integrated markets exhibit higher productivity and lower markups). Our model remains highly tractable, even when extended to a general framework with multiple asymmetric countries integrated to different extents through asymmetric trade costs. We believe this provides a useful modeling framework that is particularly well suited to the analysis of trade and regional integration policy scenarios in an environment with heterogeneous firms and endogenous markups. JEL: F12 R13 Date: 2005-06 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11393&r=all 118. Evaluating the Role of Brown vs. Board of Education in School Equalization, Desegregation, and the Income of African Americans Orley Ashenfelter William J. Collins Albert Yoon In this paper we study the long-term labor market implications of school resource equalization before Brown and school desegregation after Brown. For cohorts born in the South in the 1920s and 1930s, we find that racial disparities in measurable school characteristics had a substantial influence on black males' earnings and educational attainment measured in 1970, albeit one that was smaller in the later cohorts. When we examine the income of male workers in 1990, we find that southern-born blacks who finished their schooling just before effective desegregation occurred in the South fared poorly compared to southern-born blacks who followed behind them in school by just a few years. JEL: J7 I28 N32 Date: 2005-06 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11394&r=all 119. Price and the Health Plan Choices of Retirees Thomas C. Buchmueller This study analyzes health plan choices of retirees in an employer-sponsored health benefits program that resembles "premium support" models proposed for Medicare. In this program, out-of-pocket premiums depend on when an individual retired and his or her years of service as of that date. Since this price variation is exogenous to unobserved plan attributes and retiree characteristics, it possible to obtain unbiased premium elasticity estimates. The results indicate a significantly negative effect of premiums. The implied elasticities are at the low end of the range found in previous studies on active employees. JEL: I11 D12 Date: 2005-06 URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:11395&r=all 120. Portugal-EU convergence revisited: evidence for the period 1960-2003 Miguel Lebre de Freitas (Universidade de Aveiro and NIPE) This paper uses the stochastic approach to convergence to investigate whether real per capita GDP in Portugal has been converging to the EU15 average. The estimation accounts for conditional convergence, transitional dynamics and up to two structural breaks. It is found that per capita GDP in Portugal has indeed converged to the EU15 average, but the pace of convergence has not been uniform along time. In particular, a slow down in the convergence process is identified in 1974. This result depends, however, as to whether the choice of this break- date is viewed as uncorrelated with the data. No evidence of acceleration in the speed of convergence is found after EC accession, in 1986. Keywords: Unit root test, Income convergence, The Portuguese Economy. JEL: C32 O40 Date: 2005 URL: http://d.repec.org/n?u=RePEc:nip:nipewp:10/2005&r=all 121. Development Strategies for Inclusive Growth in Developing Asia Justin Lifu Lin (China Center for Economic Research) In this paper, I would like to argue that for the countries in developing Asia, like developing countries in other parts of the world, if their governments adopt a right development strategy, they have good opportunities to achieve dynamic growth and equitable income distribution in their process of development. However, many of them followed an inappropriate strategy and impeded their opportunities to realize this growth potential. I would also like to propose an approach for the developing countries to transit from the old to the new development strategy smoothly. Keywords: developing countries, developing Asia, development strategy JEL: O11 O20 O4 Date: 2004-10 URL: http://d.repec.org/n?u=RePEc:eab:develo:444&r=all 122. Is China's Growth Real and Sustainable Justin Lifu Lin (China Center for Economic Research) Since the reform of 1978, China's overall economic performance has been remarkable. The average annual GDP growth rate reached 9. 4% in 1978-2002. However, in the last few years, China's economic growth rate has been questioned. A deflation was evident at the end of 1997. In spite of the Chinese government's many efforts, the deflation has continued. A deflation in an economy in general accompanied by stagnation or slow GDP growth. However, China's GDP growth rate reached 7.8% annually during the deflation period in 1998-2002, which was the fastest growth rate in the world. Moreover, the energy consumption dropped in 1998 and 1999. The abnormality prompted some economists to question the reliability of China's statistics. In the paper, the author will analyze why it is possible for china to maintain high growth with reduction of energy consumption during the deflation period and suggest the way for China to absorb excess capacity and get out of the deflation. The author will also discuss the prospect for China's long-term growth. Keywords: China, growth, inflation, deflation, GDP, stagnation JEL: E31 E43 O4 Date: 2004-02 URL: http://d.repec.org/n?u=RePEc:eab:develo:445&r=all 123. Lessons of China's Transition from a Planned Economy to a Market Economy Justin Lifu Lin (China Center for Economic Research) One of the most important events in the modern economic history is the socialist countries' transition from the Soviet-type planned economy to a market economy starting in the last two decades of the 20th Century. China's experience of transition has produced many interesting contrasts to the experience of transition in Eastern Europe and Former Soviet Union (EEFSU). When the transition started in EEFSU, most economists in the West favoured a big bang approach, which included stabilization, price liberalization, and privatization. They considered these three reforms to be necessary for a successful transition to a market economy and attempted to complete all these reforms simultaneously or in a short sequence. The big bang approach in essence is a version of the Washington Consensus, which is based on the basic principles of neoclassical economies for a well- functioning market economy and was recommended by the IMF/World Bank for market-orientated reforms in the developing countries. The proponents of big bang approach expected the transition in EEFSU to have a "J-Curve" effect on economic growth; that is, they expected the GDP in a country that implemented the big bang approach to decline initially and to be followed by a strong recovery in a short period of time. Most countries in EEFSU followed this approach. The big bang approach, nevertheless, has resulted in an unexpected sharp and prolonged decline in GDP with extraordinarily high inflation rates and serious deterioration of other social indicators. Keywords: China, transition, stabilization, price liberalization, privatization, GDP JEL: O11 O16 O18 Date: 2004-02 URL: http://d.repec.org/n?u=RePEc:eab:develo:446&r=all 124. Development strategy, Transition and Challenges of Development in Lagging regions Justin Lifu Lin (China Center for Economic Research) In this paper, we argue that the poor growth performance and many institutional distortions in the LDCs after the World War II can be explained by heir adoption of an inappropriate development strategy.. Motivated by nation building, most LDCs, including the socialist countries, adopted a comparative-advantage defying (CAD) strategy to accelerate the growth of capital-intensive, advanced sectors in their countries. Many firms in those prioritised sectors were nonviable in open, competitive markets because of the violation of their economies' comparative advantages. For implementing CAD strategy, the governments in the LDCs adopted a series of distortions in input and output markets to subsidize/ protect the nonviable firms, resulting in rent seeking, soft- budget constraint, macroeconomic instability, and income disparities. Economic stagnation or even sudden collapse becomes unavoidable, prompting the LDCs, voluntarily or involuntarily, to start a market-orientated reform. Without addressing first the firm's' viability issue, the implementation of market-orientated reforms might result in widespread bankruptcies, unemployment, and social/ political instability. For fear of the above dreadful consequences, many governments found other disguised ways to the above dreadful consequences, many governments found other disguised ways to protect/ subsidize those nonviable firms after implementing the reform. In either case, not only the transition to a well-functioning market economy could not be achieved but also the economic performance became poorer than that before the reform. Keywords: protect, subsidize, LDCs, comparative-advantage defying, CAD, reform JEL: O11 O16 F13 Date: 2004-02 URL: http://d.repec.org/n?u=RePEc:eab:develo:447&r=all 125. A Regional Bond Market for East Asia? The Evolving Political Dynamics of Regional Financial Cooperation Jennifer A. Amyx (Australia–Japan Research Centre) This paper examines the evolving political dynamics of regional financial cooperation in East Asia since the 1997–98 Asian financial crisis, examining in particular the factors contributing to the growing momentum behind the recent Asian bond market initiative being pursued by the Association for Southeast Asian (ASEAN) nations plus Japan, China and South Korea (referred to collectively as ‘ASEAN+3’). The paper argues that this initiative is making rapid progress because it resonates positively with the domestic political agendas of many leaders in the region, is an initiative that numerous countries can claim at least partial ‘ownership’ of, and elicits considerable support from actors outside the region. Keywords: Regional Bond Market, East Asia, Financial Cooperation, Asian financial crisis, ASEAN, Japan, China, South Korea JEL: E61 E62 F33 Date: 2004-01 URL: http://d.repec.org/n?u=RePEc:eab:financ:383&r=all 126. Capital Income Taxation and the Dual Income Tax Shigeki Morinobu (Ministry of Finance Japan) In June 2004, the Government Tax Commission presented its report on the unified taxation system for financial income (hereinafter referred to as “integration of taxes on financial income”). Theoretically, the dual income tax (DIT) discussion introduced mainly in Nordic countries is at the core of the discussion about integration of taxes on financial income. The Tax Commission’s mid-term policy report (hereinafter referred to as “the mid- term policy report”), submitted in June 2002, lists DIT as a key issue for future consideration. Then, in the revised report submitted in November of the same year, the commission argues: “Establishing a tax system that is fair, simple, and easy to understand should be the basis of all taxes on financial assets. >From this perspective, which meets the policy demand for a shift ‘from savings to investment,” with regard to the tax structure for financial transactions, the tax authorities should not only strive to ensure neutrality between financial instruments regarding taxes on interest, dividends, and capital gains but also aspire to integrate the various categories of financial income. In this case, the integration of taxes on financial income and the DIT should be considered as a future direction.” Specifically, in the FY 2003 tax reform, dividend income (large accounts excluded), which until then was taxed as part of aggregate income, is taxed as separate income and at the same rate as are capital gains and interest. In this paper, we will first give an overview of the discussions thus far on dual income tax, after which we will take up various issues surrounding the integration of taxes on financial income. Keywords: tax commision, financial income, dual income tax (DIT), JEL: H24 D14 H71 Date: 2004-01 URL: http://d.repec.org/n?u=RePEc:eab:financ:484&r=all 127. The Public Financial System in Japan - Re-verification of the ballooning theory and the privileged government enterprise theory Nobuyoshi Yamori (Nagoya University) Narunto Nishigaki (Okayama University) The large weight of public financial institutions is often identified as one of the characteristics of the Japanese financial system. It is believed that reform of the private financial sector is not enough to revitalize the Japanese financial system, but reform of the public financial sector is crucial. There are various opinions concerning ideal public financial institutions, and heated debate continues. We would like to raise attention to the point that much discourse is based on the prerequisite that public financial sector is still increasing (i.e., the ballooning theory). However, only a small number of arguments present grounds for the prerequisite, and even in the case of those based on statistical analyses, such analyses are not rigorously verified. Under these circumstances, the first purpose of this paper is to reverify the ballooning theory of public financial sector which is used as a prerequisite for much of the discourse. Keywords: financial institutions, Japan, public financial sector, JEL: P11 F36 H24 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:eab:financ:487&r=all 128. An Empirical and Theoretical Study on the Wider Use of Local Currencies in the Asia-Pacific Region after the Asian Financial and Currency Crisis: An Analysis Focused on Thailand Ichiro Inoue (Ministry of Finance Japan) The Asian financial and currency crisis triggered a significant change to the currency composition of private liabilities in Thailand. Namely, the Thai private sector switched the denominations from the US dollar to the yen and at a larger percentage to the home currency (the Thai baht). The private sectors elsewhere in the Asia-Pacific region also switched from the US dollar to home currencies. Japanese banks resident in Thailand increased their local claims in the Thai baht; Japanese banks also increased the share of local currencies elsewhere in the Asia-Pacific region; and the same is true with the non- Japanese banks as they increased the share of local currencies in the region. Countries in the region examined the crisis and their heavy dependency on the US dollar. Their currency switch can be construed as a movement away from that dependency. The author believes that such a movement should not be temporary, but should firmly take root. Keywords: Asian Financial, Currency Crisis, Asia-Pacific Region, Thailand, US Dollar, Thai Baht, JEL: G32 G15 G18 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:eab:financ:488&r=all 129. A Missing Link in Decentralization Reform in Japan: “Trinity Reform package” Takero Doi (Ministry of Finance Japan) In June 2003, the Koizumi administration created the "Trinity Reform Package." In this context, "trinity" means the decentralization reform process that involves three factors: local tax, local allocation tax grant and national government disbursement. There is, however, a missing link in the reform. This is local bond, which is one of major revenue source for local governments. In particular, system of local bond has a very close relationship with local allocation tax system. Local allocation tax grant also covers debt service expenditure at the local level. Hence, the system itself undermines the sound issuance of local bonds. Moreover current local bond system does not result in awareness as debtors. In this paper, we build a simple theoretical model describing the Japanese local system, and propose a comprehensive decentralization reform including local bond. Keywords: Decentralization, Reform, Japan, local tax, local allocation tax grant, national government disbursement JEL: H71 H77 H63 Date: 2004-04 URL: http://d.repec.org/n?u=RePEc:eab:govern:489&r=all 130. Causes of Privatization in China: Testing Several Hypotheses Kai Guo (China Center for Economic Research) China has undergone massive yet quiet privatization since the mid-1990s. The number of SOEs has fallen by 40% in the period 1996-2001 and most of the remaining SOEs were scheduled for privatization in one or two years. As recent studies have shown, privatization has brought positive gains to firm efficiency. Contrasting to the top-down approach adopted in the former Soviet States and Eastern European counties, the Chinese privatization, like most other major reform initiatives, has taken a bottom-up approach by which the privatization templates were first experimented in several localities and then sanctioned and promoted by the central government. It is of great academic interests as to what are the economic and political forces that have led to China's spontaneous wave of privatization in transition as well as developed countries. In this paper, we identify five sets of such theories and test their validity for the Chinese case by using firm-level panel data collected on 683 firms in 11 cities for the period 1995-2001. Keywords: China, transition, privatization, central government, SOE JEL: L33 L22 P31 Date: 2004-07 URL: http://d.repec.org/n?u=RePEc:eab:macroe:448&r=all 131. Impacts of Privatization on Firm Performance in China Lingang Song (Australia–Japan Research Centre) Yang Yao (China Center for Economic Research) This paper studies the impact of privatization on firm performance in China. Using a unique dataset, we are able to control the selection biases of privatization and handle the missing variable problem that are frequently encountered in the transition economies literature. Privatization is found to have a significantly positive impact in firm profitability, but a weak or no significant impact on unit cost and labor productivity. Clear time trends are found for the effect of privatization. Firms with medium length of privatization and firms in the period 1997-1999 are found to have more robust effects. Keywords: privatization, transition economies, Chinese economy JEL: L25 P27 P31 Date: 2004-07 URL: http://d.repec.org/n?u=RePEc:eab:macroe:449&r=all 132. Precautionary Saving and Employment Risk in the 1990s Takero Doi (Ministry of Finance Japan) This paper analyzes the reason that Japan’s household saving rate rose in the 1990s. The unemployment rate as well as saving rate of workers’ households was increasing in the 1990s, and growth rate of disposable income was decreasing in the late 1990s. The evidence may imply that an increase in the saving rate is explained by precautionary saving motive among growing uncertainty (risk) concerning future income and employment. An increase in income risk means that households’ expectation of future income becomes more uncertain. This paper investigates this evidence, and finds that correlation between Japan’s saving rate of workers’ households (using data for the Family Income and Expenditure Survey) and the income risk is significantly positive during the full sample period (from 1976 to 1998), but not significantly positive in the recent years. Therefore it is concluded that the increase in Japan’s household saving rate in the 1990s is not explained by precautionary saving hypothesis with the income risk. Keywords: Japan, saving, unemployment rate, household income, disposable income, JEL: H24 E21 E24 O16 Date: 2004-03 URL: http://d.repec.org/n?u=RePEc:eab:macroe:474&r=all 133. Japan's Banking System: From the Bubble and Crisis To Reconstruction Masahiro Kawai (university of Tokyo) The Japanese banking sector is now going through major restructuring, reorganization, and consolidation on a scale unprecedented in its history, all against a background of an increasingly market-oriented, more deregulated and globalized policy environment. This process was set in motion and greatly precipitated by recent economic difficulties, i.e., the asset disinflation and economic stagnation that started in the early 1990s and led to the systemic banking crisis in 1997-98. The focus of this paper is the state of the Japanese banking system that was exposed to an asset price bubble (in the late 1980s), its collapse (in the early 1990s) and subsequent systemic crisis ( in the late 1990s), and is undergoing recent reconstruction. Keywords: Japan, banking, asset price, reorganization, reconstruction JEL: G21 E58 G12 Date: 2003-12 URL: http://d.repec.org/n?u=RePEc:eab:macroe:475&r=all 134. To Establish Sustainability of Government Deficits: Methodology and Application Takero Doi (Ministry of Finance Japan) The purpose of this paper is to survey methodology of test for fiscal sustainability. The econometrical tests for fiscal sustainability have been improved since the 1980s. We introduce the methods and backgrounds of these tests. Also we apply the tests to the Indonesian and Japanese data. It is important to analyze the sustainability of government bonds consisting with the fiscal system, particularly intergovernmental relationship. Namely, we should investigate debt sustainability of the consolidated government including not only the central government but also local governments and other (off-budget) account of the central government. In the second half of this paper, we explain the Japanese fiscal policy from the viewpoint of the sustainability problem of government bond policy. Keywords: Japan, Indonesia, government bonds, debt sustainability, fiscal policy JEL: O23 H30 E62 Date: 2004-03 URL: http://d.repec.org/n?u=RePEc:eab:macroe:476&r=all 135. Reforming Japan's Capital Markets Sadakazu Osaki (Nomura Institute of Capital Market Research) The Japanese version of the Big Bang announced in November 1996 was a major plan to drastically reform the financial and capital markets in Japan through significant revisions to laws such as the Securities and Exchange Law. The Japanese Big Bang was planned because of mounting worries about the lowering of the international status of Japanese markets and deadlock of the existing financial structure which depended excessively on indirect financing, mainly of bank loans. The Japanese Big Bang was supposed to have been completed by the end of March, 2001, but in reality system reforms for financial and capital markets are still continuing including revisions of the Securities and Exchange Law and of the taxation system of securities. Reform of the financial structure -- the goal of Big Bang -- has not made notable progress, an example being that most privately held financial assets are still in the form of deposits, because of the following reasons. The first reason is that participation of individual investors in the security market has not significantly increased. This is due to lack of familiarity with security companies that broker investments in securities and lack of knowledge of the market and investments. The second reason is that the use of financial and capital markets to procure funds is being hindered by the irrational behavior of banks, an example of which is the placement of loans at interest rates which are not commensurate with the risks involved. This is particularly problematic. It is necessary to reveal the values of securities in the trading market to the maximum extent and to promote conversion of bank credit into securities in order to normalize the behavior of banks. To bring this about it is necessary to strengthen supervision to prevent unjust behavior in the market in order to raise investor confidence in the market. As a consequence of the Japanese Big Bang and subsequent reforms, the financial and capital market systems of Japan now bear comparison with those in the UK and the US, at least procedurally. However, the system reforms implemented in Japan may just become a state of tilling the ground and failing to sow if there is no change in the attitude of control that experts (including the managing authorities who design the systems) persist in maintaining and no change in the way of thinking of companies that regard procurement of funds in the market as merely being the means to make adjustments for bank borrowing. Keywords: financial reform, capital market, Japan, Security law, Exchange law, Big bang, bank borrowing JEL: P41 P11 K39 F31 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:eab:macroe:479&r=all 136. Structural Change in Japanese Business Fluctuations and Nikkei 225 Stock Index Futures Transactions Toshiaki Watanabe (Institute for Monetary and Economic Studies, Bank of Japan) Hirokuni Uchiyama (Institute for Monetary and Economic Studies, Bank of Japan) Structural changes in business fluctuations have been gathering attention in Europe and the US in recent years. It has become clear that business fluctuations in the US began to stabilize from the middle of the 1980s, and similar structural changes have been observed in Europe. On the other hand, there have been only a few studies concerning structural changes in Japanese business fluctuations. With this background, this paper presents an analysis as to whether or not there has been a structural change in Japanese business fluctuations in recent years, and if so, when and what kind of change. Keywords: business fluctuations, Japan, Europe, US JEL: L11 L22 E32 E44 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:eab:macroe:480&r=all 137. Public Debt and the Macroeconomic Stability of Japan Keigo Kameda (Niigata university) Masao Nakata (Ministry of Finance Japan) Recently, the outstanding debt of the Japanese government amounts to 695 trillion yen, which implies 139.5% of GDP. In this paper, we constructed three IS-LM type dynamic models and estimate the eigenvalues of their differential systems. Then we confirm whether or not the huge amount of public debt violates the stability conditions for the Japanese economy. Our estimation concludes the Japanese economy to be unstable with the existence of a saddle-point equilibrium. Our simulation also shows that severe tax reform would be required to restore the economic stability. Concretely, the government has to raise the consumption tax rate to 15% from 5%, and in addition, allowing the income elasticities of income taxes and inhabitant taxes to increase by 0.033 each, which is equivalent to tax hikes of about 8.3 trillion yen. We assert that structural reform for the government budget including a tax system is essential and emergent. Keywords: Public Debt, Macroeconomic Stability, Japan, Yen, GDP, consumption tax, saddle-point equilibrium, IS-LM type dynamic models, eigenvalues JEL: C30 H61 H63 H20 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:eab:macroe:481&r=all 138. Optimal Capital Investment, Uncertainty and Outsourcing Justin Y. Lin (China Center for Economic Research) Yingyi Tsai (China Center for Economic Research) Ching-Tang Wu (China Center for Economic Research) This paper provides an explanation for outsourcing based on uncertainty. We study an optimal capital investment model both with and without the possibility to outsource under uncertainty. We show, in the presence of uncertainty, that outsourcing is Pareto-improving and that a brand-producing monopolistic reduces its fixed-asset investment if outsourcing is possible. We also show that the cost of undertaking outsourcing can have a significant impact on the monopolist's choices of optimal capital investment and outsourcing quantity. Keywords: Outsourcing, Investment, Uncertainty JEL: D24 D40 D81 E22 L23 Date: 2003-11 URL: http://d.repec.org/n?u=RePEc:eab:microe:450&r=all 139. Exchange Rate Uncertainty and Free Trade Agreement between Japan and Korea Kwanho Shin (Korea Development Institute) Yunjong Wang (Korea Institute of International Economic Policy) In this paper, we empirically analyze how increased exchange rate volatility influences the volume of trade between Japan and Korea and between these two countries and the United States. Out results strongly suggest that the increased exchange rate volatility is negatively related to the trade volume between Japan and Korea and the U.S., Japan and Korea. Despite the evidence that exchange rate stability promotes trade, the discussions on the Japan-Korea FTA are proceeding without emphasis on exchange rate coordination. While the EU integration process was fortified initially by exchange rate coordination and later by the introduction of a monetary union, NAFTA presents a contrasting case of pure trade integration without monetary cooperation. The crucial elements in EU that facilitated monetary cooperation were: a large trade share among involved countries and strong political will from member countries. As the Japan- Korea trade integration process, at least in isolation, lacks both elements, it is not likely that any explicit monetary or exchange rate coordination will naturally rise. Keywords: Japan-Korea trade integration, Exchange Rate Uncertainty, Free Trade Agreement JEL: F15 F31 F36 F41 Date: 2003-10 URL: http://d.repec.org/n?u=RePEc:eab:tradew:359&r=all 140. Trade Structure and Economic Growth A New Look at the Relationship between Trade and Growth Chan-Hyun Sohn (Korea Institute for International Economic Policy) Hongshik Lee (Korea Institute for International Economic Policy) What is the relationship between trade and economic growth? Due to the ambiguity of the relationship between trade and growth, the empirical relationship remains open. This paper introduces "trade structure" variables, borrowing from the structure-conduct- performance (SCP) paradigm of Industrial Organization literature, and applying them to the relationship. A dynamic panel estimation for the data of 66 countries during 1991-2001 is used to verify the validity and robustness of the relationship. Trade structure variables that represent Heckscher-Ohlin model and Product Differentiation model respectively show strong evidence of positive effects on growth. This paper concludes that trade structures, not trade, well explain growth. Keywords: Trade Structure, Growth, Dynamic panel, SCP paradigm JEL: F14 F43 L16 Date: 2003-12 URL: http://d.repec.org/n?u=RePEc:eab:tradew:364&r=all 141. Marginal Intra-industry Trade, Trade-induced Adjustment Costs and the Choice of FTA Partners Chan-Hyun Sohn (Korea Institute for International Economic Policy) Hyun-Hoon Lee (Kangwon National University) In recent years a new regionalism has begun to emerge in East Asia. Korea is no exception. In side Korea, however, there are many arguments against opening its domestic market for the foreign competition resulting from a free trade agreement (FTA). The main reason behind the FTA would result in costly factor adjustment. It has been argued by many researchers that intra- industry trade generates smaller inter-industry factor adjustment than inter-industry trade, and hence intra-industry trade involves lower adjustment costs than inter-industry trade. The purpose of this paper is to understand the extents and the nature of Korea's intra-industry trade (IIT) and its dynamic version, so- called marginal intra-industry trade (MIIT), and is to help predict the relative degree of adjustment costs when Korea would have an FTS with different trading partners. For this purpose, the paper first calculates the weighted average of the unadjusted Grubel-Lloyd IIT indices for different trading partners, using the data at three-digit SITC for 1991 and 2001, and the weighted average of Brulhart's (1994) A indices between 1991 and 2001. This paper then evaluates the country characteristics that have effects on the extent of IIT and MIIT. Finally, the paper assesses the desirability of an FTA with different trading partners form the perspective of trade-induced adjustment costs. Keywords: Trade-induced adjustment costs, marginal intra- industry trade, partial adjustment model, Korea JEL: F12 F14 Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:eab:tradew:365&r=all 142. Regional Cooperation in East Asia and FTA Strategies Peter Drysadale (Australia-Japan Resarch Centre) The need for deeper financial and trade cooperation in East Asia became clear through the experience of the East Asian financial crisis. The imperatives of East Asian cooperation mean that the quest for East Asian influence and leadership on regional and international affairs through ASEAN + 3 will continue. However, the creation of an East Asian Economic Community requires leadership and a model that is consistent with East Asian (not European or American) circumstances. Japan’s changing role in the regional economy prompted policy initiatives such as espousal of bilateral free trade agreements (FTAs) aimed at closer East Asian regional economic and political links. This fundamental shift in Japan’s trade policy diplomacy was effected without public debate in Japan and the reactions to it from partner countries, almost entirely unanticipated by Japanese policymakers, led to some confusion in policy strategy. Discriminatory regional trade arrangements do not reflect the needs and circumstances of the East Asian economy at the beginning of the twenty-first century, and specifically the need to accommodate the growth and opening of the Chinese economy within the regional and global economic systems. The proliferation of FTA arrangements, with increasingly complicated rules of origin, is more likely to distort and derail rather than to encourage broader and deeper economic integration. The objectives of ‘closer economic partnership’ arrangements are better served by nondiscriminatory trade agreements than by distorting and limited bilateral FTAs. Many of the features of the East Asian economy have not fundamentally changed. It continues to be distinguished by its extra-regional trade and economic reach. Large flows of FDI, particularly into China, cement economic interaction with the global economy. Both economic and political considerations have influenced thinking among the Chinese leadership about the change in trade policy strategy. The sensible and rational choice for China is a global choice, the acceptance and entrenchment of global obligations and responsibilities in a multilateral ‘pluralist’ setting. Keywords: East Asia, ASEAN, free trade agreements, FTA, FDI, China JEL: R12 P45 O19 F14 F15 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:eab:tradew:382&r=all 143. Free Trade Area: Awakening Regionalism in East Asia Feng Lu (China Center for Economic Research) Recent years witness a strong up-surging Free Trade Area (FTA) movement in East Asia. The events signal a sharp departure from the region's traditional development model of "regionalization with regionalism" and may have important implications for its future growth pattern and regional alignments of the global economy. The paper investigates various aspects of the subject. It examines the background and causes of the new movement, reviews the literature on assessment of FTA's impact and discusses potential agenda and evolving path of the East Asian FTA drive. Keywords: East Asia, Free Trade Area, FTA, regionalization JEL: F13 F14 F15 Date: 2003-10 URL: http://d.repec.org/n?u=RePEc:eab:tradew:451&r=all 144. The Empirical Trap of Sign Reversals with Equality Restrictions Stephen E. Haynes (Department of Economics, University of Oregon) This note explores the insidious empirical trap posed by two common equality restrictions in regression analysis. The trap is that restricted coefficients can lie outside the interval of unrestricted coefficients and even reverse sign when negatively correlated regressors are added to one another or when positively correlated regressors are subtracted from one another. Keywords: Equality restrictions, Sign reversals, Invalid restrictions JEL: C12 C52 Date: 2005-01-15 URL: http://d.repec.org/n?u=RePEc:ore:uoecwp:2005-8&r=all 145. Optimal Constrained Interest-rate Rules George W. Evans (University of Oregon Economics Department) Bruce McGough (Oregon State University Economics Department) We show that if policy-makers compute the optimal unconstrained interest-rate rule within a Taylor-type class, they may be led to rules that generate indeterminacy and/or instability under learning. This problem is compounded by uncertainty about structural parameters since an optimal rule that is determinate and stable under learning for one calibration may be indeterminate or unstable under learning under a different calibration. We advocate a procedure in which policymakers restrict attention to rules constrained to lie in the determinate learnable region for all plausible calibrations, and that minimize the expected loss, computed using structural parameter priors, subject to this constraint. Keywords: Monetary policy, Taylor rules, indeterminacy, learning, Estability, parameter uncertainty, robust rules JEL: E52 E32 D83 D84 Date: 2005-05-19 URL: http://d.repec.org/n?u=RePEc:ore:uoecwp:2005-9&r=all 146. Monetary Policy, Asset-price Bubbles and the Zero Lower Bound Tim Robinson (Reserve Bank of Australia) Andrew Stone (Reserve Bank of Australia) We use a simple model of a closed economy to study the recommendations of monetary policy-makers attempting to respond optimally to an asset-price bubble whose stochastic properties they understand. We focus on the impact which the zero lower bound (ZLB) on nominal interest rates has on the recommendations of such policy-makers. For a given target inflation rate, we identify several different forms of ‘insurance’ which policy- makers could potentially take out against encountering the ZLB due to the future bursting of a bubble. Even with perfect knowledge of the bubble process, however, which of these will be optimal varies from one type of bubble to another and, for certain bubbles, from one period to the next. It is therefore difficult to draw general conclusions as to whether the ZLB should cause policy-makers to operate policy more tightly or loosely than otherwise, while a bubble is growing – even after abstracting from the informational difficulties they face in practice. We also examine the implications of the ZLB for policy- makers’ preferences as to their inflation target. Policy-makers who wish to avoid concerns about the ZLB should take care not to set too low a target, especially if the neutral real interest rate is low. Such policy-makers should also set a higher target inflation rate if the economy’s natural propensity to rebound from a shock to output is weak, or if output is relatively unresponsive to real interest rate settings. Keywords: monetary policy; asset-price bubbles; zero lower bound JEL: E32 E52 E60 Date: 2005-06 URL: http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2005-04&r=all 147. Reversal in the Trend of Global Anthropogenic Sulfur Emissions David I. Stern (Department of Economics, Rensselaer Polytechnic Institute, Troy, NY 12180-3590, USA) Global anthropogenic sulfur emissions increased until the late 1980s. Existing estimates for 1995 and 2000 show a moderate decline from 1990 to 1995 or relative stability throughout the decade. This paper combines previously published data and new econometric estimates to show a 25% decline over the decade to a level not seen since the early 1960s. The decline is evident in North America, Western and Eastern Europe and in the last few years in East and South Asia. If this new trend is maintained local air pollution problems will be ameliorated but global warming may be somewhat exacerbated. JEL: Q53 Q54 Q56 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:rpi:rpiwpe:0504&r=all 148. Evolutionary Theory and Economic Policy with Reference to Sustainability John M. Gowdy (Department of Economics, Rensselaer Polytechnic Institute, Troy NY 12180-3590, USA) The policy recommendations of most economists are driven by a view of economic reality embodied in Walrasian general equilibrium theory. Ironically, the Walrasian system has been all but abandoned by leading economic theorists. It has been demonstrated to be theoretically untenable, its basic assumptions about human decision making have been empirically falsified, and it consistently makes poor predictions of economic behavior. The current revolution in welfare economics offers opportunities on two related fronts for an evolutionary perspective on human behavior to reshape economic theory and policy. The first opportunity is to incorporate empirically-based information about human behavior to the study of human wants and their formation. This includes information about the evolution of the genetic component of decision making as well as the cultural dimensions of behavior. Expanding the role of economic analysis beyond stylized market behavior to focus on well-being (real utility) has far-reaching consequences for microeconomic policy. Secondly, abandoning the Walrasian model also means rethinking the microfoundations approach to the economic analysis of sustainability. This opens the door for economists to engage with the growing body of research on the evolution of whole societies. One link between the evolution of human behavior and the evolution of human societies is the psychological phenomenon of considering sunk costs. Understanding and overcoming the sunk cost fallacy may be the key to creating a sustainable society. Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:rpi:rpiwpe:0505&r=all 149. Corporate Social Responsibility: Strategic Implications Abagail McWilliams (College of Business Administration, University of Illinois at Chicago, 601 South Morgan Street, Chicago, IL 60607-7123, United States) Donald S. Siegel (Department of Economics, Rensselaer Polytechnic Institute, Troy, NY 12180-3590, USA) Patrick M. Wright (School of Industrial and Labor Relations Cornell University, 393 Ives Hall, Ithaca, NY 14853-3901, United States) We describe a variety of perspectives on corporate social responsibility (CSR), which we use to develop a framework for consideration of the strategic implications of CSR. Based on this framework, we propose an agenda for additional theoretical and empirical research on CSR. We then review the papers in this special issue and relate them to the proposed agenda. JEL: L15 L21 M14 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:rpi:rpiwpe:0506&r=all 150. World Trade as the Adjustment Mechanism of Agriculture to Climate Change Roxana Julia (Department of Economics, Rensselaer Polytechnic Institute,1403 Park Boulevard, Troy, NY, 12180, USA) Faye Duchin (Department of Economics, Rensselaer Polytechnic Institute, Troy NY 12180-3590, USA) This paper evaluates the role of trade as mechanism of economic adjustment to the impacts of climate change on agriculture. The study uses a model of the world economy able to reflect changes in comparative advantage; the model is used to test the hypotheses that trade can assure that, first, satisfying global agricultural demand will not be jeopardized, and, second, general access to food will not decrease. The hypotheses are tested for three alternative scenarios of climate change; under each scenario, regions adjust to the climatic assumptions by changing the land areas devoted to agriculture and the mix of agricultural goods produced, two of the major mechanisms of agricultural adaptation. We find that trade makes it possible to satisfy the world demand for agricultural goods under the changed physical conditions. However, access to food decreases in some regions of the world. Other patterns also emerge that indicate areas of concern in relying on trade as a mechanism for the adjustment of agriculture to likely future changes in climate. JEL: Q54 Q17 C61 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:rpi:rpiwpe:0507&r=all 151. Energy development under regional autonomy: Distributions, poverty alleviation, subsidies and corporate social responsibilities Hadi Soesastro (Centre for Strategic and International Studies, Jakarta, Indonesia) This paper examines problems and policies in regard to energy development under regional autonomy, distributions - in the sense of distributional or equity issues, poverty alleviation, subsidies, and corporate social responsibilities. The paper examines the problem from a simplified perspective, namely that of a centralized system versus decentralized system of energy development. Keywords: Indonesia, energy policy, fuel subsidies Date: 2004-11 URL: http://d.repec.org/n?u=RePEc:sis:wpecon:wpe086&r=all 152. Tinjauan Politik Ekonomi-Moneter Internasional dalam Kaitannya dengan Kerjasama Ekonomi dan Keuangan Internasional Hadi Soesastro (Centre for Strategic and International Studies, Jakarta, Indonesia) An overview of the direction of financial cooperation in relation to international trade cooperation, and its relevance to Indonesia Keywords: Multilateral cooperation, financial cooperation Date: 2005-02 URL: http://d.repec.org/n?u=RePEc:sis:wpecon:wpe088&r=all 153. The Evolution of ASEAN+X Free Trade Agreements: Implications for Canada Hadi Soesastro (Centre for Strategic and International Studies, Jakarta, Indonesia) This essay examines the question of whether Canada should also form an FTA with ASEAN. The first section will provide an update on the status of the various FTA agreements that ASEAN has signed since 2002. This will be followed by an examination of these FTA agreements in relation to the ASEAN Community project and the proposal to form an East Asian Free Trade Area (EAFTA). The concluding section briefly discusses the implications for Canada and other major trading partners as well as for APEC and trans- Pacific relations in general, and suggests ways to improve Canada's diplomatic and commercial relations with ASEAN. Keywords: ASEAN, Canada, free trade arrangement (FTA) JEL: F15 Date: 2005-02 URL: http://d.repec.org/n?u=RePEc:sis:wpecon:wpe089&r=all 154. Realizing the East Asian Vision Hadi Soesastro (Centre for Strategic and International Studies, Jakarta, Indonesia) This paper examines the developments of three separate FTAs between ASEAN and the +3 countries. It is still unclear how these separate FTAs will be amalgamated into an EAFTA, and whether that can happen before 2020. This paper argues that much will depend on the pace of ASEAN's own economic integration. The likely alternative is that China will become the main driver of the process. Keywords: East Asia, ASEAN, ASEAN+3, free trade agreement JEL: F15 Date: 2005-02 URL: http://d.repec.org/n?u=RePEc:sis:wpecon:wpe090&r=all 155. Accelerating ASEAN economic integration: Moving beyond AFTA Hadi Soesastro (Centre for Strategic and International Studies, Jakarta, Indonesia) 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: F15 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:sis:wpecon:wpe091&r=all 156. The political economy of trade policy in Indonesia Hadi Soesastro (Centre for Strategic and International Studies, Jakarta, Indonesia) M. Chatib Basri (Institute for Economic and Social Research, Faculty of Economics-University of Indonesia, Jakarta, Indonesia) This paper focuses on Indonesia's trade policies after the economic crisis. It examines the trend towards protection and addresses the issues of competitiveness. The concluding part briefly discusses Indonesia's policies on and involvement in free trade agreements (FTAs), which have recently proliferated in the Asia Pacific region. Keywords: Indonesia, political economy, trade policy, economic crisis, free trade agreement JEL: F13 F14 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:sis:wpecon:wpe092&r=all 157. Risk management for the poor and vulnerable Ari A. Perdana (Centre for Strategic and International Studies, Jakarta, Indonesia) 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: I3 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:sis:wpecon:wpe093&r=all 158. "Understanding the Economic History of Postal Services: Some Preliminary Observations from the Case of Meiji Japan" Janet Elizabeth Hunter (Economic History Department, London School of Economics and Political Science) This object of this paper is to raise some methodological issues relating to the economic history of postal services, an area relatively neglected by Western economic historians, and to use Japan in the second half of the 19th century as a case study for exploring some of these issues. The first half of the paper surveys the previous historical literature on 19th century postal systems, and then considers several key analytical issues, in particular the fact that postal systems were government monopolies, the nature of postal systems as technologies, and the significance of the improved information flow that these systems offered to an industrializing economy. The second half of the paper looks at the economic significance of the Meiji governments's postal regulatory framework, the use that was made of these provisions, and how this use changed over time. The analysis focuses in particular on the issue of demand for and supply of postal services, and suggests that in most cases the increasing use made of the service was supply-led. The conclusion puts Japan's postal usage in this period in comparative perspective, and suggests possibilities for future research. Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:tky:fseres:2005cf344&r=all 159. Utilite relative, politique publique optimale et croissance economique. Thi Kim Cuong PHAM Cet article etudie l'impact de la recherche du statut social sur la croissance et la determination des politiques publiques optimales dans un modele de croissance avec le secteur public. Le gouvernement preleve des taxes sur le revenus individuel pour financer le bien public, etant un facteur de production. Les individus ont des preferences portant a la fois sur leur consommation et leur statut social. Celui-ci est determine par la position relative de l'individu dans la societe en termes de richesse. On montre que la quete du statut social a un effet positif sur la croissance dans le cadre d'une economie decentralisee ainsi que sur la croissance optimale definie par le planificateur central. Le modele demontre aussi que l'existence et la valeur de taux de taxation optimale dependent etroitement du degre d'interaction sociale et de l'importance que l'individu accorde au statut social dans son utilite. Keywords: Croissance endogene ; Politique publique optimale ; Utilite relative ; Statut social JEL: D90 H31 H50 O41 Date: 2004 URL: http://d.repec.org/n?u=RePEc:ulp:sbbeta:2004-01&r=all 160. Pour une approche dialogique du role de l’entrepreneur / manager dans l’evolution des PME : l’ISO comme revelateur… Frederic CREPLET TBlandine LANOUX Les PME forment une categorie d’entreprises synonymes des specificites et de diversite. Apres avoir adopte une methodologie d’etude de ces entreprises, nous postulons que celles-ci peuvent utiliser des systemes de gestion de la qualite de type ISO 9000 principalement comme guide. Dans cette perspective, nous avons emis l'hypothese que l'adoption de tels systemes jouait le role de catalyseur dans une strategie de developpement, ou plus generalement de transformation des PME. En complement, nous montrons que la PME doit detenir a sa tete un acteur bicephale guide par une vision entrepreneuriale, ayant aussi bien les caracteristiques du createur, du coordonateur, que celle du facilitateur d’opportunites. Celui- ci est – selon les cas – unique ou multiple et possede comme principal objectif de faire evoluer son organisation en veillant a conserver une coherence interne et une pertinence, vis-a-vis de l’environnement qui l’entoure. Notre demarche de recherche nous a conduit a utiliser d’une part plusieurs ecrits theoriques en matiere de PME, de systemes qualite et plus generalement, sur des aspects d’ordre cognitif. D’autre part, forts des elements avances, nous avons confronte notre demonstration et ses premiers resultats a la realite d’une entreprise : Newflooring. Cette entreprise, veritable PME internationale, nous offrait un terrain empirique a priori robuste au regard de la teneur de nos developpements. Nous avons ainsi ete amenes a rencontrer plusieurs des dirigeants de l’entreprise dans le cadre d’interview semi- directifs ainsi que certains cadres. Par ailleurs, nous avons eu acces a de nombreux documents provenant du systeme qualite. Le rapprochement de notre corpus theorique a une etude empirique nous a conduit a preciser les termes de la croissance de cette entreprise en faisant appel a plusieurs modeles theoriques. Il en ressort que ces derniers ne repondaient pas veritablement a la problematique de Newflooring. C’est donc dans cette esprit que nous avons introduit la dialogique de l’entrepreneur / manager et degager plusieurs mecanismes cognitifs etant en rapport avec la realite de cette entreprise. Notre travail de recherche montre donc le role joue par des systemes qualite de type ISO 9000 dans le cadre du developpement d’une PME. Il introduit egalement un acteur resolument « dual » : l’entrepreneur / manager, veritable agent de croissance combinant a la fois des competences entrepreneuriales dans la construction d’une vision, que des competences manageriales ayant trait a l’organisation de l’entreprise. Les resultats de la confrontation empirique menee rejoignent nos propositions theoriques et presupposent d’autres phenomenes lies a la croissance des PME. Ces resultats doivent toutefois etre nuances dans la mesure ou ils proviennent d’une seule investigation. Une demarche plus large devra etre initiee pour affiner le corpus propose ainsi que les premieres conclusions affichees. Keywords: Creation de connaissance – Vision entrepreneuriale – ISO 9000 – Management de la connaissance - PME JEL: L20 L21 L23 M11 M12 M13 M14 Date: 2004 URL: http://d.repec.org/n?u=RePEc:ulp:sbbeta:2004-03&r=all 161. Organizational and Cognitive Duality of the firm with community concept Frederic CREPLET Olivier DUPOUET Francis KERN Francis MUNIER On the basis of the recent concepts of epistemic communities and communities of practice, we show that the firm can be defined according to a form of double duality: cognitive and organisational. The interest of this approach is to put ahead the differentiated behavior from the manager and the entrepreneur inside the firm. It also puts in light the important questions concerning the organisational tensions under the vision of the knowledge-based economies. Keywords: Creation of knowledge - Learning process - Routines – Community of Practice – Epistemic Community – Knowledge conversion modes – Knowledge management JEL: L20 L21 L23 M11 M12 M13 M14 Date: 2004 URL: http://d.repec.org/n?u=RePEc:ulp:sbbeta:2004-06&r=all 162. Les Portails d’entreprise : une reponse aux dimensions de l’entreprise « processeur de connaissances » Frederic CREPLET Il s’agit dans cette contribution de mettre en perspective les implications de l’economie de la connaissance sur la firme tout en exposant quels sont les outils TIC que cette derniere met en ?uvre en reponse. Il est fait appel dans cette recherche aussi bien aux ecrits traitant des concepts d’information et de connaissance que de ceux introduisant la notion de communautes cognitives dans la firme. Les principaux outils TIC « Intranet » sont categorises au moyen d’une typologie. Leurs specificites sont decrites avec pour objectif de demontrer quelle est leur contribution a l’emergence d’une connaissance organisationnelle interne a l’entreprise. Keywords: ECONOMIE DE LA CONNAISSANCE ; COMMUNAUTES ; PORTAIL D’ENTREPRISE ; APPRENTISSAGE ORGANISATIONNEL Date: 2004 URL: http://d.repec.org/n?u=RePEc:ulp:sbbeta:2004-07&r=all 163. Cumulative Causation and Evolutionary Micro-Founded Technical Change : A Growth Model with Integrated Economies Patrick Llerena Andre Lorentz We propose to develop in this paper an alternative approach to the New Growth Theory to analyse growth rate divergence among integrated economies. The model presented here considers economic growth as a disequilibrium process. It introduces in a cumulative causation framework, micro-founded process of technical change taking into account elements rooted in evolutionary and Neo- Austrian literature. We then attempt to open the ‘Kaldor- Verdoorn law black-box’ using a micro-level modelling of industrial dynamics. We use this framework to study the nature and sources of growth rate divergence, focusing on the effect of some macro-economic parameters (income elasticities) and of some technological parameters (technological opportunities and absorptive capacities). If the results remain broadly in Kaldorian lines, this framework allows for more subtle considerations of growth rate divergence. Date: 2004 URL: http://d.repec.org/n?u=RePEc:ulp:sbbeta:2004-08&r=all 164. Les CIFRE: un outil de mediation entre les laboratoires de recherche universitaire et les entreprises. Rachel Levy Depuis le debut des annees 1980, la France a developpe un outil original permettant aux doctorants de realiser leur these a la fois dans un laboratoire de recherche public et dans une entreprise : ce sont les Conventions Industrielles de Formations par la Recherche (CIFRE). Ce systeme permet de mettre en avant une relation a trois entre le laboratoire, l’entreprise et le doctorant. Dans ce dispositif, les doctorants peuvent etre consideres comme des individus qui appartiennent a la fois aux communautes scientifique et industrielle et forment un outil de mediation qui permet la creation et le transfert de connaissances entre le monde de la recherche scientifique et celui de l’industrie. Cette etude presente les resultats d’un questionnaire envoye aux differents acteurs des conventions CIFRE en Alsace et qui analyse les types de connaissances qui sont echangees et les manieres dont se deroule le transfert de connaissances. Nous verrons que laboratoires de recherche universitaire et entreprises realisent un echange mutuel de connaissances tant codifiees que tacites qui sont transferees par l’intermediaire du doctorant. Keywords: CIFRE, relation universite-entreprise. Date: 2004 URL: http://d.repec.org/n?u=RePEc:ulp:sbbeta:2004-09&r=all 165. On Taxation Pass-Through for a Monopoly Firm. Rabah Amir Isabelle Maret Michael Troge This paper investigates the pass-through of an excise tax imposed on a monopoly firm with constant marginal cost. The optimal price increases as tax increases for any demand function. Tax pass-through is globally under or in excess of 100% according as the direct demand function is log-concave or log-convex. The analysis relies on supermodular optimization and delivers conclusions based on minimal su?cient assumptions in a simple, broadly accessible and self-contained framework. Further results allow for mixed conditions that provide precise and local determination of pass-through. Several illustrative examples are given. Policy conclusions relating to the relative wisdom of taxing high versus low cost monopoly firms are drawn from the results. Date: 2004 URL: http://d.repec.org/n?u=RePEc:ulp:sbbeta:2004-10&r=all 166. Wealth distribution, endogenous fiscal policy and growth: status-seeking implications. Thi Kim Cuong PHAM We investigate the wealth distribution and endogenous fiscal policy in a two-classes growth model in which individuals exhibit a desire for social status. The latter is in- creasing with individual wealth and decreasing with the average level of the society. First, we show that status seeking is crucial in determining the long-run wealth dis- tribution: agents with stronger status motive end up holding a higher level of wealth. Second, a higher inequality can be associated with a higher growth if it is due to a stronger incentive to accumulate wealth of one class of agents. Third, the model implies that a higher growth rate may reduce welfare of one class of agents and raise welfare of the other one. Finally, when fiscal policy is determined through a voting mechanism, an increase in the strength of status motive of majoritarian class may lead to a reduced political equilibrium growth. Keywords: Individual welfare; endogenous growth; endogenous ?scal policy; status seeking; wealth distribution JEL: D31 H31 H50 O41 Date: 2004 URL: http://d.repec.org/n?u=RePEc:ulp:sbbeta:2004-11&r=all 167. Insurance and Financial Hedging of Oil Pollution Risks. Andre SCHMITT Sandrine SPAETER The current international regime that regulates maritime oil transport calls for financial contributions by oil firms once an oil spill has occurred. Their percentage contribution to the International Oil Pollution Compensation Fund depends only on their level of activity. In this paper, we show that this compensation regime would be more efficient if contributing oil companies adopted financial strategies to hedge against oil pollution risks. The optimal coverage contract is such that standard insurance is useful to manage small and medium oil spills, while investments on financial markets help to cover large oil spills, less frequent but much more catastrophic for society. We also show that the prevention of oil spills increases when insurance is combined with a financial hedging strategy. This positive effect on prevention is further enhanced if firms have the opportunity to send signals about their risk-reducing activities to potential investors. Keywords: oil spill, legislation, insurance, capital markets, prevention, catastrophe. JEL: D80 G22 Q25 Date: 2004 URL: http://d.repec.org/n?u=RePEc:ulp:sbbeta:2004-14&r=all 168. Intergenerational Altruism, Sustainable Development and Intergenerational Equity with Heterogeneous Agents. Alban Verchere In this article, we study the question of intergenerational equity in a framework that displays two kinds of agents distinguished by their non dynastic intergenerational altruism. The more altruist agents regarding the transmitted environment are qualified of ecologists, whereas the others, less altruists, are then qualified of consumerists. This heterogeneity integrated in a sustainable development model leads to a rather counter- intuitive or paradoxical result as compared with the homogeneous agents case: environmental quality and utility of each group equally record a U-shape evolution, but the favorable u-turn intervenes later in the heterogeneous case than when only consumerists (or less altruist agents) compound the economy. Interpreting this result in terms of free-riding give us the opportunity to reinterpret the question of intergenerational inequity that would have been excluded in a model with only one kind of altruist agents. Keywords: Intergenerational Altruism, Heterogeneity, Sustainable Development, Intergenerational Equity. JEL: O13 Q20 Date: 2004 URL: http://d.repec.org/n?u=RePEc:ulp:sbbeta:2004-15&r=all 169. Du paradoxe liberal-paretien a un concept de metaclassement des preferences. Herrade IGERSHEIM Notre contribution defend la these selon laquelle le paradoxe liberalparetien, formule en 1970 par Sen, plaide en faveur de l’elaboration d’un nouveau formalisme en termes de metaclassement des preferences. Il s’agit d’enrichir la structure de preferences traditionnelle par la prise en consideration des motivations individuelles comme vise a le prouver l’analyse des tentatives de resolution du conflit Pareto-liberte que nous operons tout d’abord. Puis, apres avoir montre que le fait de tenir compte des motivations individuelles justifie un recours au concept de metaclassement des preferences, nous suggerons une solution au paradoxe liberal-paretien integrant cette notion. Keywords: Iparadoxe liberal-paretien, choix collectif, metaclassement des preferences. JEL: D63 D71 Date: 2004 URL: http://d.repec.org/n?u=RePEc:ulp:sbbeta:2004-16&r=all 170. Why do Academic Scientists Engage in Interdisciplinary Research ? Nicolas CARAYOL Thuc Uyen NGUYEN THI This article provides a first empirical study of the determinants of the propensity to which academic scholars tend to perform interdisciplinarity research. For that purpose we introduce a measure of interdisciplinarity as the diversity of their research production across scientific domains. Our dataset concerns more than nine hundred permanent researchers employed by a large French university which is ranked first among French universities in terms of Impact. As expected we find that the traditional academic career incentives do not stimulate interdisciplinary research while having connections with industry does. The context of work in the laboratory (size, colleagues’ status, age and affiliations) strongly affects the propensity to undertake interdisciplinary research. Keywords: Economics of science, Academic incentives, Interdisciplinary research, Laboratory, University. JEL: L31 O31 O32 O34 O38 Date: 2004 URL: http://d.repec.org/n?u=RePEc:ulp:sbbeta:2004-17&r=all 171. The Exact Insensitivity of Market Budget Shares and the 'Balancing Effect'. Gael GIRAUD Isabelle MARET We reformulate Grandmont's and its successors' notion of behavioral heterogeneity such as to get the exact insensitivity of the aggregate budget share function with respect to changes in prices and income, instead of a mere approximate insensitivity. We propose a non parametric set-up such that, if the population is distributed according to some ``uniform'' probability measure, the aggregate budget share function is constant. The important contribution is that this exact insensitivity is not explained by any insensitivity at the microeconomic level but rather by an exact "balancing effect". We give illustrative examples of populations that fulfill our requirements. Keywords: Statistical approach, aggregation of demand, behavioral heterogeneity, balancing effect, large economy, Law of Demand, insensitivity of market budget shares. JEL: D11 D12 D30 D41 D50 E1 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ulp:sbbeta:2005-02&r=all 172. Les modeles de type Mundell–Fleming revisites. Gilbert KOENIG L’enseignement introductif et intermediaire de la macroeconomie monetaire et financiere internationale continue a etre dispensee generalement dans le cadre des modeles agreges de type Mundell-Fleming. Ces derniers comportent des vertus pedagogiques indeniables, mais aussi de nombreuses faiblesses qu’il convient de corriger pour assurer leur adequation a l’economie qu’ils veulent decrire et leur coherence interne. L’article se place dans le prolongement de l’analyse de Romer qui, pour ameliorer le realisme des modeles agreges d’economie ouverte, ecarte le role central occupe par la monnaie dans les modeles traditionnels et re-envisage les comportements des autorites monetaires. Il complete cette analyse en justifiant algebriquement les resultats qui sont uniquement commentes par Romer sur la base de graphiques, en introduisant explicitement les comportements de stock negliges dans l’analyse statique de court terme de Romer en vue d’effectuer une analyse dynamique et en re- envisageant l’analyse de long terme. L’article s’efforce egalement d’attenuer les faiblesses methodologiques des modeles agreges d’economie ouverte sans sacrifier la simplicite necessaire sur le plan pedagogique. Dans cette optique, il definit un cadre comptable compatible avec le modele theorique et il s’assure de la compatibilite entre les relations de comportements macroeconomiques du modele et les contraintes agreges des agents. La nouvelle formulation du modele agrege d’economie ouverte constitue le cadre de l’analyse des effets de court et de long terme de la politique monetaire et de la politique budgetaire. Cette analyse est plus complexe et ses resultats sont moins tranches que dans les modeles elementaires de type Mundell-Fleming qui retiennent l’hypothese de perfection de la mobilite des capitaux et de la substituabilite des actifs. Keywords: macroeconomie internationale, politique monetaire, politique budgetaire. Date: 2005 URL: http://d.repec.org/n?u=RePEc:ulp:sbbeta:2005-03&r=all 173. L’Etat et la cellule familiale sont–ils substituables dans la prise en charge du chomage en Europe ? Une comparaison basee sur le panel europeen. Olivia ECKERT–JAFFE Isabelle TERRAZ Cette contribution se propose de tester la substituabilite entre Etat et famille dans la prise en charge du chomage dans dix pays europeens. Apres avoir estime ce que pourrait etre le gain estime des chomeurs, nous utilisons cette base de comparaison pour analyser le pourcentage du salaire espere pris en charge par l’Etat et la famille. Nous montrons que, malgre la conjonction des prises en charge familiale et etatique, les niveaux de vie des chomeurs restent tres contrastes en Europe et cette disparite de niveaux de vie recoupe principalement les differences de generosite du systeme d’indemnisation chomage. Nous soulignons egalement que l’importance des niveaux de prise en charge depend crucialement de la structure demographique du chomage (chomage de la personne seule ou chomage des jeunes qui vivent toujours au domicile familial). Enfin, nous testons la substituabilite entre les indicateurs de prise en charge etatique et familiale pour mettre en evidence une substituabilite dans les pays « continentaux ». Cette substituabilite est surtout apparente pour les chomeurs qui resident toujours au sein de la structure familiale. Keywords: Niveaux de vie, Chomage, Solidarites publiques et privees. Date: 2005 URL: http://d.repec.org/n?u=RePEc:ulp:sbbeta:2005-04&r=all 174. Environment in an Overlapping Generations Economy with Endogenous Labor Supply : a Dynamic Analysis. Thomas SEEGMULLER Alban VERCHERE We consider an overlapping generations model with environment, where we introduce an elastic labor supply. In this framework, consumers have to choose between consumption, environmental quality and leisure. We establish that several steady states can coexist, even under a Cobb-Douglas technology, and we put in evidence a non monotonic relationship between pollution and per capita income, as suggested by the Environmental Kuznets Curve. Moreover studying local dynamics, we show the existence of deterministic cycles and endogenous fluctuations due to self- fulfilling expectations. In contrast to previous results, the occurrence of such fluctuations does not require a high emission rate of pollution. Finally, we discuss some welfare and policy implications of our results. Especially, we show that a government which would reduce pollution emissions can face a trade-off between an increase of steady state welfare and an intergenerational welfare inequality due to indeterminacy. Keywords: Environment, Labor supply, Overlapping generations, Multiplicity of steady states, Environmental Kuznets Curve, Indeterminacy, Endogenous cycles. JEL: C62 E32 Q20 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ulp:sbbeta:2005-05&r=all 175. Is Monetary Union Necessarily Counterproductive ? Giuseppe DIANA Blandine ZIMMER This paper analyses the case of a monetary union between identical countries characterised by oligopolistic competition in their labour market. It suggests that the switch to a common currency may improve their macroeconomic performances depending on labour market features. Keywords: Monetary Union, Employment, Inflation. JEL: E24 F33 J51 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ulp:sbbeta:2005-06&r=all 176. Factors Affecting University–Industry R&D Collaboration : The importance of screening and signalling. Roberto FONTANA Aldo GEUNA Mireille MATT This paper presents an empirical analysis of the determinants of research cooperation between firms and Public Research Organisations (PROs) for a sample of innovating small and mediumsized enterprises. The econometric analysis is based on the results of the KNOW survey carried out in seven EU countries during 2000. In contrast to earlier works that provide information about the importance of PROs’ research, we know how many collaborative projects a firm has had with PROs. This allows us to study the determinants of firms’ collaboration with PROs in terms of both the propensity of a firm to cooperate with a university (do they cooperate or not) and the extent of this cooperation (the number of collaborations). Two questions are addressed. Which firms cooperated with PROs? And what are the firm characteristics that might explain the number of collaborations with PROs? The results of our analysis point to two major phenomena. First, the propensity to forge an agreement with an academic partner depends on the ‘absolute size’ of the industrial partner. Second the openness of firms to the external environment, as measured by their willingness to search, screen and signal, significantly affects the development of cooperations with PROs. Our findings suggest that acquiring knowledge through the screening of publications and involvement in public policies positively affects the probability of signing an agreement with a PRO, but not the level of collaboration developed. In fact, firms that outsource research and development R&D), and patent to protect innovation and to signal competencies show higher levels of collaboration. Keywords: Public Research Organisations, University-Industry R&D cooperation, Openness. JEL: H4 L3 O3 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ulp:sbbeta:2005-07&r=all 177. Madison–Strasbourg, une analyse comparative de l’enseignement superieur et de la recherche en France et aux Etats–Unis a travers l’exemple de deux campus. Laurent BUISSON La plupart des comparaisons entre les dispositifs francais et americains d’enseignement superieur et de recherche portent sur les dimensions nationale et federale. Financements, organisation, processus de decision sont le plus souvent analyses et compares au niveau de l’Etat pour la France et du gouvernement federal pour les Etats-Unis. Il est aussi interessant d’examiner comment se situent, l’un par rapport a l’autre, deux poles universitaires de meme taille mais situes, de part et d’autre de l’Atlantique, dans des environnements reglementaires, culturels et economiques bien differents. C’est en effet sur les campus que sont definies en France et a fortiori aux Etats-Unis, pays tres decentralise, les conditions qui determinent le perimetre, la qualite, la pertinence et la reputation de l’enseignement superieur et de la recherche et que se jouent, par consequent, la competitivite et l’attractivite des sites. Une analyse comparative des poles universitaires et de recherche de Strasbourg et de Madison dans l’Etat du Wisconsin est donc proposee ici a travers notamment les questions des missions, d’organisation et des moyens de ces deux sites ainsi que des liens qu’ils entretiennent avec leur environnement regional, national ou international. Date: 2005 URL: http://d.repec.org/n?u=RePEc:ulp:sbbeta:2005-08&r=all 178. Coordination des negociations salariales en UEM : un role majeur pour la BCE. Blandine ZIMMER Cet article s'interroge sur l'applicabilite d'un systeme de negociations salariales coordonnees dans l'Union Economique et Monetaire (UEM). Nous evoquons, dans un premier temps, les gains en termes d'emploi, que pourrait generer une telle demarche. Nous montrons ensuite que si les resolutions issues de cette coordination ne sont pas assorties de mesures contraignantes interdissant toute deviation ulterieure, alors leur mise en pratique reste illusoire. La question qui se pose est donc de savoir comment amener les syndicats de l'union a tenir leurs engagements collectifs et garantir ainsi l'application effective de l'accord de coordination salariale. L'idee proposee dans cet article est de faire intervenir la Banque Centrale Europeenne (BCE). Plus precise- ment, nous supposons que la BCE "dedommage" l'effort de discipline salariale des syndicats au moyen d'un systeme de recompense monetaire. Keywords: emploi ; UEM; coordination syndicale. JEL: E24 E42 J51 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ulp:sbbeta:2005-09&r=all 179. Open knowledge disclosure, incomplete information and collective innovations. Julien PENIN Why do firms decide sometimes to disclose widely part of their knowledge while they could have kept it secret ? We attempt to provide an original answer to this question by combining the literature in economics of innovation and in economics of incomplete information. We suggest that such practices of open knowledge disclosure can be deliberate strategies aiming at solving adverse selection problems that arise when firms try to find partners with whom to cooperate in R&D. Competent firms can sometimes think it a profitable strategy to disclose knowledge because this disclosure may allow them to display their differences with less competent firms, thus making it easier to start a profitable collaboration with other competent firms. We illustrate this intuition with the help of a signalling game under incomplete information. Keywords: open knowledge disclosure, signalling, adverse selection, innovation network, R&D collaboration, collective invention. JEL: L0 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ulp:sbbeta:2005-10&r=all 180. The Second Paycheck to Keep Up With the Joneses: Relative Income Concerns and Labor Market Decisions of Married Women Yongjin Park (Connecticut College) This paper investigates whether one’s effort to keep up with the Joneses has any effect on labor supply behavior. We provide a simple model and empirical evidence that labor supply decisions of married women are influenced by relative as well as absolute income of their husbands. We find, after controlling for husbands’ absolute income and other individual characteristics, that married women are more likely to be in labor force when their husbands’ relative income is low. Results are robust across various settings and measures of relative income and the size of the effect is economically meaningful. We also show that income inequality of reference group of husbands in age-regional cross sections can be a predictor of their wives’ labor supply. Keywords: Interdependent utility, relative income, social comparisons, inequality, emulation, labor market participation of married women. JEL: H23 D31 D62 J22 Date: 2005-06 URL: http://d.repec.org/n?u=RePEc:ums:papers:2005-10&r=all 181. UNBALANCED COINTEGRATION Javier Hualde (School of Economics and Business Administration, University of Navarra) Recently, increasing interest on the issue of fractional cointegration has emerged from theoretical and empirical viewpoints. Here, as opposite to the traditional prescription of unit root observables with weak dependent cointegrating errors, the orders of integration of these series are allowed to take real values, but, as in the traditional framework, equality of the orders of at least two observable series is necessary for cointegration. This assumption, in view of the real-valued nature of these orders could pose some difficulties, and in the present paper we explore some ideas related to this issue in a simple bivariate framework. First, in a situation of "nearcointegration", where the only difference with respect to the "usual" fractional cointegration is that the orders of the two observable series differ in an asymptotically negligible way, we analyse properties of standard estimates of the cointegrating parameter. Second, we discuss the estimation of the cointegrating parameter in a situation where the orders of integration of the two observables are truly different, but their corresponding balanced versions ( with same order of integration) are cointegrated in the usual sense. A Monte Carlo study of finitesample performance and simulated series is included. JEL: C22 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:una:unccee:wp0605&r=all 182. ON THE ASYMPTOTIC POWER PROPERTIES OF SPECIFICATION TESTS FOR DYNAMIC PARAMETRIC REGRESSIONS J. Carlos Escanciano (School of Economics and Business Administration, University of Navarra) Economic theories in dynamic contexts usually impose certain restrictions on the conditional mean of the underlying economic variables. Omnibus specification tests are the primary tools to test such restrictions when there is no information on the possible alternative. In this paper we study in detail the power properties of a large class of omnibus specification tests for parametric conditional means under time series processes. We show that all omnibus specification tests have a preference for a finite-dimensional space of alternatives (usually unknown to the practitioner) and we characterize such space for Cramer-von Mises (CvM) tests. This fact motivates the use of optimal tests against such preferred spaces instead of the omnibus tests. We proposed new asymptotically optimal directional and smooth tests that are optimally designed for cases in which a finite- dimensional space of alternatives is in mind. The new proposed optimal procedures are asymptotically distribution-free and are valid under weak assumptions on the underlying data generating process. In particular, they are valid under possibly time varying higher conditional moments of unknown form, e.g., conditional heteroskedasticity. A Monte Carlo experiment shows that previous asymptotic results provide good approximations in small sample sizes. Finally, an application of our theory to test the martingale difference hypothesis of some exchange rates provides new information on the rejection of omnibus tests and illustrates the relevance of our results for practitioners. JEL: C12 C14 C52 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:una:unccee:wp0705&r=all 183. Single Mothers Working at Night: Standard Work, Child Care Subsidies, and Implications for Welfare Reform Erdal Tekin (Georgia State University and NBER) This paper estimates the effect of child care subsidies on the standard work decision of single mothers and examines whether this effect differs between welfare recipients and nonrecipients. The analysis uses data from the 1999 National Survey of America's Families. Results suggest that child care subsidy receipt is associated with a 6.9 percentage point increase in the probability of single mothers' working at standard jobs. When the effect of subsidy receipt is allowed to differ between welfare recipients and nonrecipients, results indicate that welfare recipients who are offered a child care subsidy are 14 percentage points more likely to work at standard jobs than others. Among nonrecipients, child care subsidy receipt increases standard work probability by only 1.8 percentage point. These findings underscore the important role of child care subsidies in helping low income parents, especially welfare recipients, find jobs with conventional or standard schedules. The results also lend support to the policy of giving priority to welfare recipients for child care subsidies. Results are found to be robust to several specification checks. Keywords: Child Care Subsidies, Standard work, Welfare, Single Mother, Upjohn, Institute JEL: J13 I38 Date: 2004-09 URL: http://d.repec.org/n?u=RePEc:upj:weupjo:05-113&r=all 184. Asynchronous Risk: Unemployment, Equity Markets, and Retirement Savings Jason S. Seligman (University of Georgia) Jeffrey B. Wenger (University of Georgia) The link between unemployment and pension accumulations is conceptually straightforward; periods of unemployment lead to lower pension contributions, and thus to lower accumulations. However, impacts on accumulation may differ as a result of the timing and frequency of unemployment spells. We hypothesize that unemployment is more likely during periods in which the equities market experiences greater than average returns, largely due to a lead/lag structure of the stock and labor markets, respectively. This would imply that workers may systematically miss opportunities to purchase equities through DC plans when prices are relatively low. To test this hypothesis, we match historic stock returns to stochastically generated unemployment spells for men and women across the earnings distribution. We find lower income workers suffer greater percentage losses in retirement savings as a result of more frequent spells of unemployment. Higher income worker losses are more greatly affected by the timing of unemployment relative to the equities market. Keywords: Unemployment, retirement, savings, defined contribution, pensions, earnings distribution Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:upj:weupjo:05-114&r=all 185. Do Government Sponsored Vocational Training Programs Help the Unemployed Find Jobs? Evidence from Russia Anton Nivorozhkin (Goteberg University) Eugene Nivorozhkin (University of Groningen) The study estimates the employment effect of vocational training programs for the unemployed in urban Russia. The results of propensity score matching indicate that training programs had a non-negative overall effect on the program participants relative to non-participants. Keywords: Unemployment, transition economies, active labour market programs, evaluation, propensity score JEL: J24 J64 J68 C14 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:upj:weupjo:05-115&r=all 186. Health, Wealth and Workforce Exit: Disability Insurance and Individual Accounts Jason S. Seligman (University of Georgia) Current debate on the Social Security Administrations long-term finance of benefits includes proposals for independent private investment via individual accounts. The author first investigates what implications disability might have for equity savings account balances. In light of results, incentives to exit the workforce ahead of retirement age are considered when a defined benefit program for disability insurance continues to be available. Included simulation uses historic wage series, equity market performance, and current OASDI regulations for cohorts retiring over the period of 1929 - 2003. Keywords: Seligman, SSA, individual, accounts Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:upj:weupjo:05-116&r=all 187. Peer effects and textbooks in primary education: Evidence from francophone sub-Saharan Africa Markus Froehlich Katharina Michaelowa As opposed to many other school inputs, textbooks have frequently been demonstrated to significantly foster student achievement. Using the rich data set provided by the 'Program on the Analysis of Education Systems' (PASEC) for five francophone, sub-Saharan African countries, this paper goes beyond the estimation of direct effects of textbooks on students' learning and focuses on peer effects resulting from textbooks owned by students' classmates. Applying and extending nonparametric estimation methods from the treatment evaluation literature we separate the direct effect of textbooks from their peer effect. The latter clearly dominates but depends upon the initial level of textbook availability. JEL: C14 C21 O15 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:usg:dp2005:2005-11&r=all 188. Butter Mountains, Milk Lakes and Optimal Price Limiters Ned Corron (U.S. Army RDECOM, AMSRD-AMR-WS-ST, Redstone Arsenal) Xue-Zhong He (School of Finance and Economics, University of Technology, Sydney) Frank Westerhoff (Department of Economics, University of Osnabrueck) It is known that simple price limiters may have unexpected consequences in irregular commodity price fluctuations between bull and bear markets and complicated impacts on the size of buffer stocks. In particular, imposing a lower price boundary may lead to a huge buffer stock, e.g. to a ?butter mountain? or a ? milk lake? and this is a real problem for regulators since storage costs may become impossible to finance over time. The relation between price limiters and the size of buffer stocks is nontrivial and there may exist some optimal price limiters which require only weak market interventions and thus provide a rather inexpensive option to regulate commodity markets. In this paper, we use a simple commodity market model to explore the relation between price limiters and the average growth rate of the buffer stocks. It is found that these optimal price limiter levels are simply the minimum values of unstable periodic orbits of the underlying deterministic system. Keywords: commodity markets; price stabilization; limiter control; butter mountains and milk lakes JEL: D84 G18 Q11 Date: 2005-05-01 URL: http://d.repec.org/n?u=RePEc:uts:rpaper:158&r=all 189. An Empirical Test of a New Theory of Economic Growth ? the Relationship Between External Debt and Economic Development Carolyn Currie (School of Finance and Economics, University of Technology, Sydney) Analyses of the nature of debt relying on the theory of rational expectations conclude that the burden of public debt need not fall on future generations if the present generation anticipates the higher taxes needed in the future for debt servicing. However, there have been many instances where increases in budget deficits have been followed by a decrease in the savings propensity of the private sector. Foreign exchange earnings also have to be set aside. It appears that the main problem for countries in an early stage of economic development, is that often the borrowings have not been productively employed so that a national debt crises results. Foreign lenders become increasingly reluctant to lend further amounts to a country, which has been a net capital importer. This paper puts forward a methodology of testing a new theory of economic growth that emphasises key factors determining the success or failure of policies that change underlying economic structures, and hence would lead to an intrinsic monitoring of ?over-borrowing?. Keywords: economic growth; debt burden; regulation; ownership structures JEL: L33 O11 O38 O47 P11 P52 Date: 2005-05-01 URL: http://d.repec.org/n?u=RePEc:uts:wpaper:140&r=all 190. A Test of the Strategic Effect of Basel II Operational Risk Requirements on Banks Carolyn Currie (School of Finance and Economics, University of Technology, Sydney) Most problematic of the Basel II capital adequacy requirements is the subset of Pillar I, requiring provision for operational risk (OR) as distinct from credit and market risk. Previous tests of the strategic effect of this new regulation from three prior Quality Impact Studies (QIS) conducted in G10 countries under the guidance of the Bank for International Settlements, have concluded that OR requirements poses difficulties of definition, implementation, and strategic planning. Anticipated strategic effects include dramatic changes to product development, investment and asset mix, as well as the necessity to rapidly develop new risk rating models and techniques, together with vastly expanded internal and external audit compliance routines. Unlike QIS1, 2 and 3, QIS4 focuses on operational risk, but still has drawbacks. This paper discusses its approach, in view of the ongoing difficulties that banks are experiencing with operational risk, particularly in the construction of a database. It concludes by listing the unanswered questions that have not even been addressed in four studies of the strategic impact of Basel II?s OR requirements. It also suggests that many smaller banks and emerging nations may not be able to use the sophisticated approaches and hence will suffer a competitive disadvantage. Hence in view of drawbacks in the simpler approaches such as lack of correlation of operational risk and revenue, other indicators such as the standard deviation of efficiency measures are suggested. Keywords: operational risk; Basel II JEL: E42 E44 E58 Date: 2005-05-01 URL: http://d.repec.org/n?u=RePEc:uts:wpaper:141&r=all 191. Towards a General Theory of Financial Regulation: Predicting, Measuring and Preventing Financial Crises Carolyn Currie (School of Finance and Economics, University of Technology, Sydney) Regulatory failure causing financial crises has occurred with great frequency in the last ten years in both advanced and emerging nations. Theories of regulation have failed to define and describe the meanings of deregulation, the range of regulatory models and their goals, the significance of regulatory failure, how to measure it and how to prevent it. This paper is motivated by the perception that incorrect design and failure to conduct ongoing performance monitoring of regulatory models in emerging economies as well as in some advanced industrial states is precipitating financial crises. Deregulation is redefined in a framework that recognises the diversity between financial systems that exists due to differences in regulatory models, in the ability to comply with best international structure, in the ownership of the means of production and in the calibre of human and social capital, within the framework of the limiting features of government goals and economic resources and infrastructure. Case studies of regulatory failure in an advanced and an emerging nation illustrate the necessity for a staged approach to liberalisation of a financial system, which takes account of the capacity of the underlying economy and society to conduct effective prudential supervision before attempts are made to remove protective measures. The comparison of fin de millennium solutions in advanced nations of integrated supervisors also illustrates the correct embodiment of government goals in regulatory models and the importance of feedback mechanisms such as the establishment of early warning systems. Keywords: regulatory failure; regulatory models, deregulation JEL: K2 N20 N40 P00 Date: 2005-05-01 URL: http://d.repec.org/n?u=RePEc:uts:wpaper:142&r=all 192. Dynamic Effects of Regulation and Deregulation in Goods and Labour Markets Pasquale Commendatore (Universita di Napoli 'Federico II') Ingrid Kubin (Vienna University of Economics & B.A.) Modern macroeconomic models with a Keynesian flavour usually involve nominal rigidities in wages and goods prices. A typical model is static and combines wage bargaining in the labour markets and monopolistic competition in the goods markets. As central policy implication it follows that deregulating labour and/or goods markets increases equilibrium employment. We reassess the consequences of deregulation in a dynamic model. It still increases employment at the fixed point, which corresponds to the static equilibrium solution. However, deregulation may also lead to stability loss and endogenous fluctuations. Keywords: Labour and goods markets deregulation, monopolistic competition, business cycles JEL: E1 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:wiw:wiwgee:geewp49&r=all 193. On-line distribution of working papers through NEP: A Brief Business History Bernardo Batiz-Lazo (Bristol Business School) Thomas Krichel (Long Island University) This brief article tells of the emergence and development of a service for speedy, on-line distribution of recent additions to the broad literatures on economics and related areas called NEP: New Economics Papers. This service is part of a wider project called RePEc. RePEc is a digital library for the Economics discipline. Details are also provided on how to make individual and institutional contributions. Keywords: NEP, current awareness service, RePEc, WoPEc JEL: N Date: 2005-05-30 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpeh:0505002&r=all 194. Extending the Merton Model: A Hybrid Approach to Assessing Credit Quality Alexxandros Benos (University of Piraeus) George Papanastasopoulos (University of Peloponnese) In this paper we have combined fundamental analysis and contingent claim analysis into a hybrid model of credit risk measurement. We have extended the standard Merton approach to estimate a new risk-neutral distance to default metric, assuming a more complex capital structure, adjusting for dividend payments, introducing randomness to the default point and allowing a fractional recovery when default occurs. Then, using financial ratios, other accounting based measures and the risk- neutral distance metric from our structural model as explanatory variables we calibrate the hybrid model with an ordered – probit regression method. Using the same econometric method, we calibrate a model using financial ratios and accounting variables as explanatory variables and a model using our risk-neutral distance to default metric as unique explanatory variable. Then, using cumulative accuracy plots we have test the classification power of those models to predict defaults out of sample. We have found that by enriching the risk-neutral distance to default metric with financial ratios and accounting variables into the hybrid model, we can improve both in of-sample fit of credit ratings and out-of-sample predictability of defaults. Our main conclusion is that financial ratios and accounting variables contain significant and incremental information, thus the risk- neutral distance to default metric does not reflect all available information regarding the credit quality of a firm. Keywords: credit risk, distance to default, financial ratios, accounting variables JEL: G Date: 2005-05-27 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0505020&r=all 195. Concurrence spatiale, differenciation verticale et comportement bancaire dhafer saidane (gremars - University Lille 3) A banking spatial competition model is developed to activate the horizontal and vertical parameters of differentiation in a two- dimensional space. Banking competition has become more relevant given the vertical differentiation elements related to some financial assets features. We consider a model in which spatial competition including vertical differentiation sets banks into a geometrical variable space linked with the regulation of deposit interest rates and financial transformation intensity. Thus we can rehabilitate in some case the Hotelling minimum differentiation principle applied to banking space and the financial changes based on the relation between financial imitation and financial innovation. Keywords: Banking, spatial competition JEL: G L Date: 2005-05-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0505021&r=all 196. 'Raison d'etre et specificites de la firme bancaire : pourquoi la banque n'est-elle pas une entreprise comme les autres ?' dhafer saidane (gremars - University of Lille 3) The definition of the bank and its conduct is often founded on a vision borrowed to industrial economy. Models of the banking firm that derive from this vision consider the bank as a producer of credits from deposits or as a producer of deposits from credits. However, following an institutional viewpoint, the banking activity is strongly regulated. Could the functioning of banks be related to the one of an industrial firm ? What are the specificities of banks ? Keywords: banking firm, microecomic of banking JEL: G D Date: 2005-05-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0505022&r=all 197. Bermudan swaptions in Hull-White one-factor model: analytical and numerical approaches Marc Henrard (Bank for International Settlements) A popular way to value (Bermudan) swaption in a Hull-White or extended Vasicek model is to use a tree approach. In this note we show that a more direct approach through iterated numerical integration is also possible. A brute force numerical integration would lead to a complexity exponential in the number of exercise dates in the base of the number of points ($p^N$). By carefully choosing the integration points and their order we can reduce it to a complexity $pN^2$ versus a quadratic $(pN)^2$ in the tree. We also provide a semi-explicit formula that leads to a faster converging implementation. Keywords: Bermudan option, swaption, Hull-White model, one- factor model, numerical integration. JEL: G13 E43 Date: 2005-05-30 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0505023&r=all 198. Bayesian Methods for Improving Credit Scoring Models Posch Peter N. (University of Ulm) Loeffler Gunter (University of Ulm) Schoene Christiane (University of Ulm) We propose a Bayesian methodology that enables banks to improve their credit scoring models by imposing prior information. As prior information, we use coefficients from credit scoring models estimated on other data sets. Through simulations, we explore the default prediction power of three Bayesian estimators in three different scenarios and find that they perform better than standard maximum likelihood estimates. We recommend that banks consider Bayesian estimation for internal and regulatory default prediction models. Keywords: Credit Scoring, Bayesian Inference, Bankruptcy Prediction JEL: C11 G21 G33 Date: 2005-05-31 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0505024&r=all 199. An Empirical Analasis of Market reaction Around the Bonus Issues in India Asim Mishra (Indian Institute of Management) Past researches have revealed significant abnormal returns for bonus issues even though the bonus issue date is known in advance and the distribution contains no new information. This study examines the stock price reaction to the information content of bonus issues with a view of examining the Indian stock market is semi-strong efficient or not. The period of the study is June 1998 to August 2004. Samples of 46 bonus issues have been used to study the announcement effect by using event study methodology. The results indicate that there are significant positive abnormal returns for a five-day period prior to bonus announcement in line with evidence from developed stock market. On the announcement day the average abnormal return of -0.10% is observed. The results provide stronger evidence of semi-strong market efficiency of the Indian stock market. Keywords: Bonus Issues, India, stock market, abnormal returns, semi strong efficient, event study, cumulative abnormal return, Cowan Test, Standardized abnormal return, JEL: G Date: 2005-05-31 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0505025&r=all 200. Can the human mind learn to backward induce? A neural network answer. Leonidas Spiliopoulos (University of Sydney) This paper addresses the question of whether neural networks, a realistic cognitive model of the human information processing, can learn to backward induce in a two stage game with a unique subgame-perfect Nash Equilibrium. The result that the neural networks only learn a heuristic that approximates the desired output and does not backward induce is in accordance with the documented difficulty of humans to apply backward induction and their dependence on heuristics. Keywords: behavioral game theory; neural networks; learning JEL: C7 D8 Date: 2005-05-30 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpga:0505008&r=all 201. An empirical analysis of endogenous growth without scale effect Francesco Schettino (Department of Public Economics, University of Rome I, 'La Sapienza') The aim of this paper is to empirically examine the endogenous growth without scale effect as in Segestrom (1998). We firstly build a concordance table between the 1972 Standard Industrial Classification System (SIC) and USPCS (as of December, 31 2002) industrial codes using the USPTO concordance new file. Then we approach the analysis of the difficulty index of each industry starting from the NBER patent data set (63_99) using the mean forward citations lag data as the fundamental variable of our analysis. In fact we follow the idea that each patent number of citations grows untill a point from which it starts to decade. We explain that point as the moment that draws the obsolescence of the invention. Once we have eliminated by that way the lag truncations problem we obtain the difficult index serie of each industrial sector. Finally we describe the relationship between the growth of the difficulty index and the number of scientists and engeneers. Our investigation concludes showing a difference between traditional and new sectors where in the latters the absence of the scale effect is more clear than in the others. Keywords: Patents, Endogenous Growth, Scale effect JEL: C6 D5 D9 Date: 2005-05-31 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpge:0505006&r=all 202. Monetary Policy Shocks in a Tri-Polar Model of Foreign Exchange Martin Melecky (School of Economics, University of New South Wales) This paper investigates effects of third-currency monetary policy shocks on exchange rates. For this purpose we setup a structural VAR model containing the exchange rates of the three major currencies – the U.S. dollar, the euro and the Japanese yen – and short-term interest rates on the three currencies. In addition, we include the medium-term interest rates and price levels as control variables. Long-run restrictions in accord with tested hypotheses and the existing literature are used to identify the structural VAR. The impulse response analysis of the co- integrated VAR reveals that third-currency monetary policy shocks not only significantly impact on the considered exchange rates but their impacts are comparable to those of MP shocks associated with the quoted currencies in terms of their magnitude. Keywords: Exchange Rates, Currency Substitution, Third-Currency Effects, SVAR JEL: F02 F31 F36 F42 Date: 2005-05-31 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0505016&r=all 203. How State Governments Implement Federal Policies: The Telecommunications Act of 1996 Troy Quast (University of Florida) This paper examines the rates set by state public utility commissions (PUCs) that competitors must pay to access the local loop of the largest incumbent U.S. telecommunications suppliers ( RBOCs). Employing a unique data set and dynamic panel data regressions, the results indicate that the rates are influenced by factors beyond local costs. Specifically, rates in the smaller states in each RBOC region are strongly influenced by the largest state in the region. Rates are lower in the period immediately before the RBOC applied for Section 271 approval in the state and where the level of competitive entry is lower, while they are higher in states where the governor is a Republican. The analysis suggests that this cornerstone of the Telecommunications Act of 1996 may been applied inconsistently across states and information spillovers should be considered when state agencies are charged with implementing federal policy. Keywords: telecommunications, regulation, federal government, state government JEL: H70 L50 L96 Date: 2005-05-29 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0505013&r=all 204. Trade Liberalization and Heterogeneous Time Preference Across Taiji Harashima (University of Tsukuba & Cabinet Office of Japan) Strategies for trade liberalization in developing countries when time preference rates are heterogeneous across countries are examined in an endogenous growth model. The paper concludes that the best strategy for a developing country with the higher rate of time preference is generally the strategy of free trade with yielding market power if the country is large enough to yield market power, because all the optimality conditions are satisfied and markets are not distorted. By this strategy, the country generally accumulates current account surpluses, which implies a possibility that China implicitly have taken this strategy. Keywords: Trade Liberalization; The rate of time preference; Heterogeneity; Trade deficits; China JEL: F10 F21 F43 Date: 2005-05-31 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpit:0505015&r=all 205. Europe’s economic institutions: Stability- or growth- oriented? Nicola Acocella (University of Rome La Sapienza) Giovanni Di Bartolomeo (University of Rome La Sapienza) The paper deals with various aspects of the performance, especially from a macroeconomic point of view, expected from some of the most relevant European institutions (monetary and tax authorities, unions) vis-a-vis alternative ones. The role of the rules (e.g. the Stability and Growth Pact) as a coordination device to deal with externalities arising from national fiscal policies is first considered and compared to explicit coordination. The priority given to price stability is then discussed together with the questions of reputation, credibility and the relationship with fiscal policy and labour markets. A conservative central bank eliminates the temptation to inflate, but is only a second- best solution for internalizing the externalities arising from uncoordinated-wage bargaining. The paper finally discusses the consequences on growth of the stability pursued by actual European institutions. Some reflections on the ‘model’ adopted for shaping European institutions conclude the paper. JEL: E Date: 2005-05-27 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0505024&r=all 206. Solving Models with Imperfect and Asymmetric Information Pawel Kowal (Department of Economics, Warsaw School of Economics) We consider linear dynamic models with rational expectations in case of incomplete and asymmetric information as well as agents heterogeneity. This problem requires solving infinite dimensional matrix equations. We propose asymptotic expansion method to reduce this problem to the finite dimensional problem. Keywords: Computational Methods, Imperfect Information, Asymmetric Information, Linear Rational Expectations Model, Asymptotic Expansion. JEL: C61 C63 E17 Date: 2005-05-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0505025&r=all 207. What determines macroeconomic volatility? A cross-section and panel data study Leonidas Spiliopoulos (University of Sydney) This paper examines the determinants of the volatility in growth rates, seeking to expand on a very limited literature which has focused almost exclusively on financial determinants of volatility. An analysis of 41 variables and their effects on growth volatility yields some surprising results: the relationship between financial sophistication and volatility is not clearly positive as expounded in many studies, the oft cited negative relationship between real GDP per capita and volatility turns out to be positive, and there is no important relationship between inflation and volatility. The main policy implication for authorities is that intervention in most cases, whether in the form of trade and currency controls, or high government consumption, tends to exacerbate volatility. Keywords: volatility; international economics; international finance; growth JEL: E Date: 2005-05-30 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0505026&r=all 208. The Value of the Substance Francesco Schettino (Department of Public Economics, University of Rome I, 'La Sapienza') The aim of the paper is to find the reason of the commodoties exchange. That is why our analysis inquires on the substance of the commodities value as Marx did on ``The Capital'' first pages using the dialectic method. Our different approach is analytic although we apply the fundamentals of the hegelian method. We use the concept of the labour centrality in the social production as an axiom, and we consider it as the natural starting point of the investigation. The historical materialism gives us the way to observe the conceptual dominion of the (exchange) value on the use value and then we are able to analyze its substance, our primary aim. Using the hegelian categories of quality and quantity we obtain that the only common quality of any commodity is the labour that, conseqently, is the substance of the value. This element, in fact, is basical to measure and, then, to compare any commodity. We conclude deriving that any study on the so called trasformation problem of Marx is unconsistent without a necessary deep analysis of the substance of the value. Keywords: Value theory, Marx, Hegelian approach JEL: B Date: 2005-05-31 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmh:0505004&r=all 209. Decentralisation of health care and its impact on health outcomes Dolores Jimenez Peter C Smith This paper explores the impact of health care decentralisation on a characteristic of human development: the overall level of population's health. While much of the literature on decentralisation in health care has stressed the advantages of sub national provision of health services, in the absence of a quantitative measure of the magnitude of the effect of decentralisation, there is little that can be said in terms of its benefits and costs for the health sector. The purpose of this study is therefore to contribute to the limited empirical literature on this issue by investigating the hypothesis that shifts towards more decentralisation would be accompanied by improvements in population health. The analysis draws on a theoretical model of theoretical model of local government's public finance applied to health. We use the ten provinces of Canada as a case study. Apart from being one of the most decentralised countries in the world, Canadian data required to estimate our model was found to be one of the best. Keywords: Fiscal decentralisation; health outcomes; Canada JEL: I12 H77 URL: http://d.repec.org/n?u=RePEc:yor:yorken:05/10&r=all 210. Credit Registries, Relationship Banking and Loan Repayment Martin Brown Christian Zehnder This paper examines the impact of a public credit registry on the repayment behavior of borrowers. We implement an experimental credit market in which loan repayment is not third-party enforceable. We compare market outcome with a credit registry to that without a credit registry. This experiment is conducted for two market environments: first a market in which interactions between borrowers and lenders are one-o. and, second, a market in which borrowers and lenders can choose to trade repeatedly with each other. In the market with one-o. interactions the credit market collapses without a credit registry as lenders rightly fear that borrowers will default. The introduction of a registry in this environment significantly raises repayment rates and the credit volume extende by lenders. In the market where repeat transactions are possible a credit registry is not necessary to sustain high market performance. In such an environment relationship banking enforces repayment even when lenders cannot share information, so that there is little value added of a public credit registry. Keywords: Credit Market, Information Sharing, Relationship Banking JEL: G21 G28 D82 URL: http://d.repec.org/n?u=RePEc:zur:iewwpx:240&r=all 211. Entrepreneurship as a non-profit-seeking activity Matthias Benz It is typically assumed that people engage in entrepreneurship because there are profits to be made. In contrast to this view, this paper argues that entrepreneurship is more adequately characterized as a non-profit-seeking activity. Evidence from a broad range of authors and academic fields is discussed showing that entrepreneurship does quite generally not pay in monetary terms. Being an entrepreneur seems to be rather rewarding because it entails substantial non-monetary benefits, like greater autonomy, broader skill utilization, and the possibility to pursue one’s own ideas. It is shown how incorporating these non- monetary benefits into economic models of entrepreneurship can lead to a better understanding of the phenomenon. Keywords: entrepreneurship, self-employment, wage and return differentials, non-monetary work benefits, job satisfaction JEL: M13 J23 J31 J32 M54 URL: http://d.repec.org/n?u=RePEc:zur:iewwpx:243&r=all 212. Control of Generalized Error Rates in Multiple Testing Joseph P. Romano Michael Wolf Consider the problem of testing s hypotheses simultaneously. The usual approach to dealing with the multiplicity problem is to restrict attention to procedures that control the probability of even one false rejection, the familiar familywise error rate ( FWER). In many applications, particularly if s is large, one might be willing to tolerate more than one false rejection if the number of such cases is controlled, thereby increasing the ability of the procedure to reject false null hypotheses One possibility is to replace control of the FWER by control of the probability of k or more false rejections, which is called the k- FWER. We derive both single-step and stepdown procedures that control the k-FWER in finite samples or asymptotically, depending on the situation. Lehmann and Romano (2005a) derive some exact methods for this purpose, which apply whenever p-values are available for individual tests; no assumptions are made on the joint dependence of the p-values. In contrast, we construct methods that implicitly take into account the dependence structure of the individual test statistics in order to further increase the ability to detect false null hypotheses. We also consider the false discovery proportion (FDP) defined as the number of false rejections divided by the total number of rejections (and defined to be 0 if there are no rejections). The false discovery rate proposed by Benjamini and Hochberg (1995) controls E(FDP). Keywords: Bootstrap, False Discovery Proportion, False Discovery Rate, Generalized Familywise Error Rates, Multiple Testing, Stepdown Procedure. JEL: E43 URL: http://d.repec.org/n?u=RePEc:zur:iewwpx:245&r=all 213. Returns to Foreign Education. Yet another but different cross country analysis. Max Grutter The main interest of this paper is to compare the value of education systems of different countries. For this reason I use data on workers who have completed their education before immigrating to Switzerland to estimate a country specific return to education. I estimate the standard Mincer-equation with the extension that I additionally allow for country specific returns to education. Results show that there are important differences between the returns to different education systems within Switzerland in the value of the basic education on the one hand and the return to an additional year of education on the other hand. Keywords: return to education, immigration, international comparison JEL: C13 J61 I21 URL: http://d.repec.org/n?u=RePEc:zur:iewwpx:246&r=all 214. Financial Reform, Institutional Interdependency, and Supervisory Failure in the Post-Crisis Korea Hong-Bum Kim (Gyeongsang National University, Seoul, Korea) Chung Lee (Department of Economics, University of Hawaii at Manoa) In the wake of the economic crisis of 1997-98 South Korea undertook a number of reforms in financial supervision. In spite of these reforms doubts have been raised as to whether Korea has in fact succeeded in creating a system of financial supervision capable of dealing with certain risks and responding to new challenges appropriately. This paper argues that because of institutional interdependency a successful institutional reform requires changing not only the particular institution at issue but also other inter-related institutions; that Korea’s post- crisis reform in financial supervision was limited to changing formal institutions for financial supervision; and that further reforms are needed in other institutions—formal as well as informal—if Korea is to further improve financial supervision. Keywords: financial reform, institutional interdependency, Korea’s post-crisis reform in financial supervision JEL: G20 N20 O17 Date: 2005 URL: http://d.repec.org/n?u=RePEc:hai:wpaper:200510&r=all 215. Search, Money and Capital: A Neoclassical Dichotomy, Second Version S. Boragan Aruoba (Department of Economics, University of Maryland) Randall Wright (Department of Economics, University of Pennsylvania) Recent work has reduced the gap between search-based monetary theory and mainstream macroeconomics by incorporating into the search model some centralized markets as well as some decentralized markets where money is essential. This paper takes a further step towards this integration by introducing labor, capital and neoclassical firms. The resulting framework nests the search-theoretic monetary model and a standard neoclassical growth model as special cases. Perhaps surprisingly, it also exhibits a dichotomy: one can determine the equilibrium path for the value of money independently of the paths of consumption, investment and employment in the centralized market. Keywords: Money, Search, Capital JEL: D83 E31 Date: 2002-09-09 Date: 2003-09-03 URL: http://d.repec.org/n?u=RePEc:pen:papers:03-028&r=all 216. Current Status of East Asian Economic Integration Cuyvers L. De Lombaerde Ph. Verherstraeten S. This paper gives an overview of recent developments in the process of Asian economic integration. A large part will focus on the integration initiatives undertaken within the framework of the Association of Southeast Asian Nations (ASEAN). ASEAN was not only the first regional integration arrangement in Asia, it also remains the centre for current and future economic integration initiatives in the wider East Asian region. The progress that has been made by ASEAN’s member countries in establishing an ASEAN Free Trade Area (AFTA) will be analysed. Given the important and reasonably successful integration initiatives in other parts of the world, such as the EU and NAFTA, academics and politicians have devoted much attention to the possibilities of both deepening and widening economic collaboration in the (East) Asian region. Ten ASEAN countries already decided to establish an ASEAN Economic Community by the year 2020 and some other countries seem eager to join. We will have a closer look at the recent initiatives taken in this direction. We also devote attention to the role ASEAN plays in the regional monetary integration and co- operation schemes adopted in the region. Empirical tests, using the optimum currency area (OCA) theory, will be reviewed to determine whether a common currency would be beneficial for certain groups or sub-groups of Asian countries. The paper concludes with the authors’ thoughts on the viability of a wider East Asian Free Trade Area and East Asian monetary union in the long term and on the role ASEAN would have to play in its establishment. Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:ant:wpaper:2005010&r=all 217. ENDOGENOUS GROWTH WITH TECHNOLOGICAL CHANGE: A MODEL BASED ON R&D EXPENDITURE MA? Jesus Freire-Seren (Universidad de Vigo. Facultad de Ciencias Economicas.) The aim of this paper is to empirically analyze the role that aggregate R&D-expenditures play in economic growth. We introduce a technology of innovation based on R&D-expenditures instead of labor to see how this consideration generates sustainable growth determined endogenously, even if population growth does not exist. Therefore, it also seems relevant to analyze the effects of some fiscal policies. For the empirical analysis we make use of an econometric model obtained from the decentralized equilibrium. More precisely, the specification is obtained using the freeentry condition that the competitive equilibrium states for the R&D- activity and the policy function defining the dynamic evolution of patentees' price. Keywords: Technological change, endogenous growth, aggregateR&D- expenditure, empirical evidence. URL: http://d.repec.org/n?u=RePEc:edg:anecon:0013&r=all 218. Two Faces of Participation: The Story of Kerala Patricia Justino (Poverty Research Unit at Sussex, Department of Economics, University of Sussex) This paper analysis the impact of collective action and political participation on the economic development of the south Indian state of Kerala over the last three decades. Despite its low economic basis, Kerala’s successive governments have implemented a large redistributive programme that resulted in impressive levels of social development. Kerala’s success has been largely attributed to the actions of organised collective movements, both in the formal and informal sectors, in the form of militant peasants associations and labour unions. Collective actions have, however, also contributed towards political instability, increase in the risk of investment and uncertainty in labour productivity. This paper examines the effects of collective actions on Kerala’s economic growth during the last three decades using time-series analysis techniques, considering in turn collective action and redistributive policies to be external and then endogenous variables to the process of economic growth in Kerala. The results show that while some forms of collective action can contribute towards the decrease of poverty and increase in state income, other forms harm economic growth. We compare these results with those obtained for a panel of 14 major Indian states. Keywords: Redistribution, industrial disputes, collective action, participation, social development, economic growth, Kerala, India JEL: O1 O5 Date: 2003-09 URL: http://d.repec.org/n?u=RePEc:pru:wpaper:19&r=all 219. Social Security in Developing Countries: Myth or Necessity? Evidence from India Patricia Justino (Poverty Research Unit at Sussex, Department of Economics, University of Sussex) This paper discusses the importance of social security policies in developing economies, using empirical evidence from India. The paper discusses the viability of implementing systems of social protection in developing countries and provides an empirical analysis of the effects of socio-economic security policies on Indian’s economic performance between 1973 and 1999, using a two-stage least square model adapted to data from a panel of 14 Indian states. The results show that policies that strengthen the social and economic security of the Indian population have been an important endogenous variable to both the reduction of poverty and the economic growth in India. Keywords: Social security, social protection, economic growth, India, simultaneous equation models, panel data JEL: C33 H50 I38 O10 O40 O53 Date: 2003-09 URL: http://d.repec.org/n?u=RePEc:pru:wpaper:20&r=all 220. Mathematical needs and economic interpretations. Miguel A. Duran (Department of Economic Theory and Economic History, University of Granada) This paper aims at showing that the disconnection between formal structures and theoretical content in economic model building could lead to undesirable consequences. In this sense, linking formal and verbal contents by means of coherent and relevant interpretations is worth the effort. For it is a relatively simple way of helping to improve the usefulness of mathematical economic theorization. By way of illustration of these ideas, the paper discusses the interpretation which Arrow and Debreu themselves put on the inclusion of free goods in their proof of existence of a general equilibrium. Keywords: Economic Methodology, Existence, General Equilibrium Theory, Interpretation, Mathematical Economics. Date: 2005-06-01 URL: http://d.repec.org/n?u=RePEc:gra:wpaper:05/07&r=all 221. Trade types with Developed and Developing Countries What can we learn from Spanish data? Juliette Milgram (Department of Economic Theory and Economic History, University of Granada) Ana Moro-Egido (Department of Economic Theory and Economic History, University of Granada) In this paper, we investigate the nature of Spanish intra- industry trade and find that intra-industry trade with CEEC, Asian and Mediterranean countries has increased considerably since the middle of the Nineties. The second aim of the paper is to study if the comparative advantage argument also explains vertical intra-.industry trade between different income countries. According to OLS estimations, technological differences do increase DVIIT while physical capital differences decreases it. Results obtained applying Heckman method support the idea that differences in physical capital reduce the probability of IIT to occur but the level of vertical and horizontal IIT is better explained by the proximity of partners, the similarity in development level and size of market than by differences in physical capital endowments. The variables considered, mostly country-specific do have the same impact on vertical and horizontal IIT with emergent countries. JEL: F13 F17 Date: 2005-06-01 URL: http://d.repec.org/n?u=RePEc:gra:wpaper:05/08&r=all 222. The problems of the the Co-Ordination problem. Miguel A. Duran (Department of Economic Theory and Economic History, University of Granada) This paper is focused on the Hayekian understanding of the operation of the market as the continuous solution of a co- ordination problem in a decentralised decision-making system. The aim is to show the reasons why the solution of this problem is imperfect. These reasons lie, on the one hand, in deficiencies in the mechanisms to which Hayek ascribes the task of solving the co- ordination problem and, on the other hand, in the implications of the Keynesian view on expectations and the workings of the market process. In this regard, the problem of co-ordination in a Hayekian world would have different implications if Keynes’s theory were taken into consideration and the possibility of mistakes in an uncertain world were not underestimated. Date: 2005-06-01 URL: http://d.repec.org/n?u=RePEc:gra:wpaper:05/09&r=all 223. Political Election on Legal Retirement Age Juan Antonio Lacomba (Department of Economic Theory and Economic History, University of Granada) Francisco Miguel Lagos (Department of Economic Theory and Economic History, University of Granada) We use a lifecycle model in which individuals di ?er by age and by wage in order to analyze a pairwise majority voting process on the legal retirement age. We consider two di ?erent retirement regimes. In the first one the retirees do not return to the labor market, regardless the new retirement age. In the second one, they have to return if this age is higher than her own age. We show that the final outcome of the voting process will crucially depend on the retirement regime as well as on the parameters of the Social Security, that is, the redistributive character of the system and the present legal retirement age. Date: 2005-06-01 URL: http://d.repec.org/n?u=RePEc:gra:wpaper:05/10&r=all 224. The determinants of bank margins revisited: A note on the effects of diversification Santiago Carbo Valverde (Department of Economic Theory and Economic History, University of Granada) Francisco Rodriguez Fernandez (Department of Economic Theory and Economic History, University of Granada) Most of the theoretical and empirical literature on bank margins has dealt solely with interest margins. Applying the seminal Ho- Saunders model (JFQA, 1981) to a multi-output framework, we show that the relationship between bank margins and market power ( controlling for risk) varies significantly across bank specializations. Using a set of both accounting margins and New Empirical Industrial Organization (NEIO) margins, we find that market power rises significantly with output diversification towards non-traditional activities. These results contribute to explain the paradoxical coexistence of decreasing interest margins and higher market power found in previous studies. Keywords: bank margins, specialization, market structure. JEL: G21 D40 Date: 2005-06-01 URL: http://d.repec.org/n?u=RePEc:gra:wpaper:05/11&r=all 225. Norm-based crisis and Deceitful firms Miguel A. Duran (Department of Economic Theory and Economic History, University of Granada) The aim of this paper is to provide an explanation of recent corporate malpractices in terms of individuals’ norm-based behaviour. In particular, it suggests that corporate misbehaviour could be understood in terms of a system-wide explanation grounded in the way in which the market itself operates and the endogenous norms which regulate its operation. Keywords: Accounting misbehaviour, Deception, Economic crisis, Invisible-hand explanation, Norm. JEL: B3 M1 M4 Date: 2005-06-01 URL: http://d.repec.org/n?u=RePEc:gra:wpaper:05/12&r=all 226. Postponing the Legal Retirement Age Juan Antonio Lacomba (Department of Economic Theory and Economic History, University of Granada) Francisco Miguel Lagos (Department of Economic Theory and Economic History, University of Granada) This paper analyzes the reform of the pensionable age as an answer to the future financing problems of public pension systems. We use a two-staged model where, firstly, the government decides the redistribution level of the pension system, and, secondly, individuals face a voting process on the legal retirement age. Our results suggest that an increase in the re-distributive character of the system could lead to a larger social consensus to postpone the legal retirement age. Surprisingly, it could be the case that the richest people would support more redistribution if that implies to postpone the pensionable age. Keywords: Legal retirement age, pension benefits, redistribution level JEL: D72 D91 H55 Date: 2005-06-01 URL: http://d.repec.org/n?u=RePEc:gra:wpaper:05/13&r=all 227. Improving Willingness to Pay Estimates for Quality Improvements through Joint Estimation with Quality Perceptions John C. Whitehead (Department of Economics, Appalachian State University) Willingness to pay for quality change may depend on heterogeneous perceived quality levels. In these instances, contingent valuation studies should include measures of quality perceptions as covariates in the willingness to pay model in order to avoid omitted variable bias. Variation in quality perceptions across respondents leads to a potential endogeneity of quality perceptions. We address the potential for endogeneity bias using an instrumental variables approach in which a measure of quality perceptions is included as a determinant of willingness to pay and is simultaneously determined by various exogenous factors. The willingness to pay model is estimated jointly with quality perceptions allowing for correlation of the error terms. Using data on willingness to pay for water quality improvements in the Neuse River in North Carolina we reject exogeneity of perceived quality. Correcting for endogeneity improves the measurement of willingness to pay by differentiating willingness to pay among respondents with heterogeneous quality perceptions. Keywords: Willingness to Pay, Quality, Perceptions, Endogeneity JEL: Q51 Q53 Date: 2003-12 Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:apl:wpaper:05-09&r=all 228. Introducing Procedural Utility: Not only What, but also How Matters Bruno S. Frey Matthias Benz Alois Stutzer People not only care about outcomes, they also value the procedures which lead to the outcomes. Procedural utility is a potentially important source of human well-being. This paper aims at introducing the concept of procedural utility into economics, and argues that it should be incorporated more widely into economic theory and empirical research. Three building blocks of a concept of procedural utility are outlined and it is suggested how procedural utility can be fruitfully integrated. Evidence from a broad range of social sciences is reviewed in order to show that procedural utility is a relevant concept for economics. Keywords: procedural utility; outcome utility; institutions. JEL: A00 A12 D60 D70 Date: 2003-07 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2003-02&r=all 229. Political Relationships, Global Financing and Corporate Transparency Christian Leuz Felix Oberholzer-Gee This study examines the financing choices of firms operating in a weak institutional environment. We argue that in relationship- based systems, global financing and political connections are substitutes: Well-connected firms are less likely to access foreign capital markets because (state-owned) domestic banks provide capital at low cost. Moreover, the additional scrutiny that comes with foreign securities might be at odds with close political ties at home. Using data from Indonesia, we provide strong support for this hypothesis. Firms with close political ties to former President Soeharto are significantly less likely than non-connected firms to have publicly traded foreign securities. We also examine how returns before and during the Asian financial crisis differ between firms with and without foreign securities. The former performed significantly better during the crisis, and their performance advantage increases considerably once we control for a firm’s closeness to the Soeharto regime. We show that simple return regressions in earlier work are downward biased if domestic opportunities such as political connections are ignored. Keywords: Disclosure; Cross listing; Financing choices; Emerging market economies; Asian financial crisis; Indonesia; Cost of capital JEL: P16 G32 G38 K22 K42 M41 G18 Date: 2003-08 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2003-03&r=all 230. A Market for Time: Fairness and Efficiency in Waiting Lines Felix Oberholzer-Gee In situations of excess demand, many firms use waiting lists to allocate products and services among their customers. The resulting allocation is likely to be inefficient, creating opportunities for Pareto improving trades among those who are waiting in line. Yet, in the queuing context, the trading of places is rare and inefficiencies often persist over time. In this paper, I report the results of a field experiment which allows randomly selected customers to earn up to $10 for letting a stranger cut in line. The higher the offer, the more likely it is that individuals let someone cut in. But while a majority agrees to wait longer, only a small minority accepts the monetary reward. Trading in this market is constrained by multiple social concerns. The obligation not to exploit situations of excess demand and efficiency considerations influence the willingness to let a stranger jump the queue. Keywords: Fairness; rationing; social norms Date: 2003-09 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2003-04&r=all 231. Direct Democracy: Designing a Living Constitution Bruno S. Frey Alois Stutzer A crucial aspect of constitutional design is the provision of rules on how a constitution is to be amended. If procedures for constitutional amendment are very restrictive, changes will take place outside the constitution. These changes are likely to be against the citizens’ interests and their ability to influence the political process. We argue that the development of the constitution must be based on the rule of law. We propose direct democratic rights that allow citizens to participate in the amendment process. The direct democratic process of institutional change is theoretically and empirically analyzed. A number of counter arguments and issues for a gradual introduction are discussed. Keywords: collective decision-making; constitutional design; constitutional economics; direct democracy JEL: D72 H1 H7 Date: 2003-09 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2003-05&r=all 232. Spatial Spillovers in Metropolitan Areas: Evidence from Swiss Communes Christoph A. Schaltegger Simon Zemp This paper investigates spatial spillovers in local spending decisions by using panel data of the Swiss communes in the canton of Lucerne during the 1990s. Due to the geographical fragmentation with a major central city and some 100 suburban communes within a distance from 4 to 55 kilometers to the center this area represents a particularly useful data base in order to test the relevance of spatial interactions in metropolitan areas. The empirical evidence confirms strategic interactions among suburban governments and the central city for public security spending. A 10% increase of the city’s security spending leads to a 3% decrease in security spending of the suburban communes in the Lucerne area. For all other spending items, the empirical evidence suggests no quantitative and significant spatial spillover effects. The same applies for spatial spillovers in overall local spending between the Lucerne communes and the Lucerne central city. Keywords: spatial spillovers; strategic interaction; central city exploitation JEL: D72 H72 Date: 2003-10 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2003-06&r=all 233. Reported Subjective Well-Being: A Challenge for Economic Theory and Economic Policy Alois Stutzer Bruno S. Frey Over the past few years, there has been a steadily increasing interest on the part of economists in happiness research. This paper argues that reported subjective well-being is a satisfactory empirical approximation to individual utility and endeavors to provide an impression of this new, and challenging, development. We study data from the German Socio-Economic Panel to better understand (i) the role of aspirations in the relationship between income and happiness and (ii) the effect of unemployment on people’s satisfaction with life. We discuss some of the consequences for economic policy and for economic theory. Keywords: aspiration level; relative income; subjective well- being; unemployment; utility JEL: D60 I31 J60 Date: 2003-07 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2003-07&r=all 234. The Importance of Faith: Tax Morale and Religiosity Benno Torgler The intention of this paper is to analyze religiosity as a factor that potentially affects tax morale. For this purpose, a multivariate analysis has been done with data from the World Values Survey 1995- 1997, covering more than thirty countries at the individual level. Several variables, such as church attendance, religious education, being an active member of a church or a religious organization, perceived religiosity, religious guidance and trust in the church have been analyzed. The results suggest that religiosity raises tax morale. Keywords: Tax morale; Tax compliance; Religiosity JEL: H26 H73 K42 Date: 2003-10 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2003-08&r=all 235. Tax Morale and Institutions Benno Torgler This paper analyses the impact of direct democracy, trust in government, the court and the legal system, and federalism on tax morale. In the tax compliance literature it is novel to analyse tax morale as dependent variable and to systematically analyse the effects of formal and informal institutions in Switzerland, a country where participation rights and the degree of federalism vary across different cantons. We used two different data sets at the individual level (World Values Survey and International Social Survey Programme). The findings suggest that direct democratic rights, local autonomy, and trust in government, the court and the legal system have a significantly positive effect on tax morale. Keywords: Tax Morale; Tax Compliance; Tax Evasion; Direct Democracy; Local Autonomy JEL: H26 H73 D70 Date: 2003-11 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2003-09&r=all 236. It Is About Believing: Superstition and Religiosity Benno Torgler This paper has a novel framework analysing what shapes superstition in a multivariate analysis. The results indicate that socio-demographic and socio-economic variables matter. The results also indicate that there is a certain concurrence between churches and superstitious beliefs. In most of the cases we observe a negative correlation between superstition and attendance of church and other religious activities. Closeness to the churches goes in line with lower superstition. On the other hand, a generally higher perceived religiosity increases superstition. Furthermore, there is the tendency that people without a religious denomination have the lowest belief in superstition. Finally, the results indicate that there is a strong variety in superstition among countries. Especially people from formerly Communist countries have a higher degree of superstition than others. Keywords: Superstition; Religiosity; Culture JEL: K42 Date: 2003-12 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2003-10&r=all 237. Moral Suasion: An alternative tax policy strategy? Evidence from a controlled field experiment in Switzerland Benno Torgler In a controlled field experiment in Switzerland this paper analyses the effects of moral suasion on the timely paying and filling out of the tax form 2001, and the honesty regarding the declaration of domestic income from capital gains, lottery winnings, and certain insurance benefits. Comparisons of different tax filling years and multiple regression estimations have been done using these three factors as dependent variables to check if there is a significant difference between the control group and the treatment group, controlling for additional factors that might influence compliance behaviour. In February 2002 the treatment group received a letter signed by the commune’s fiscal commissioner containing normative appeals. Results indicate that moral suasion has hardly any effect on taxpayers’ compliance behaviour. The strongest effect can be observed for the variable tax payments. Keywords: tax compliance; morale suasion; field experiment JEL: H26 H71 Date: 2004-01 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2004-01&r=all 238. Tax Morale in Asian Countries Benno Torgler This paper analyses tax morale in several Asian countries. The descriptive analysis indicates that tax morale is very low in the Philippines and relatively high in Japan, China, and Bangladesh. In general Asia has a higher tax morale than OECD countries, which might indicate cultural differences. The paper also analyses tax morale as a dependent variable and thus gives answers to what shapes tax morale. Pooling the Asian countries we find, e.g., that trust in the government and the legal system have a positive effect on tax morale. These results remain robust for India and Japan in a time series analysis. Keywords: tax morale; tax evasion; shadow economy JEL: H26 K42 Date: 2004-01 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2004-02&r=all 239. Shadow Economies Around the World: What Do We Know? Friedrich Schneider Robert Klinglmair Using various statistical procedures, estimates about the size of the shadow economy in 110 developing, transition and OECD countries are presented. The average size of the shadow economy ( in percent of official GDP) over 1999-2000 in developing countries is 41%, in transition countries 38% and in OECD countries 18.0%. An increasing burden of taxation and social security contributions combined with rising state regulatory activities are the driving forces for the growth and size of the shadow economy. If the shadow economy increases by one percent the annual growth rate of the “official” GDP of a developing country (of a industrialized and/or transition country) decreases by 0.6% (increases by 0.8 and 1.0 respectively). Keywords: shadow economy; interaction of the shadow economy with the official one; tax burden JEL: O17 O5 D78 H2 H11 H26 Date: 2004-01 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2004-03&r=all 240. Tax Morale in Australia: What Shapes it and Has it Changed over Time? Benno Torgler Kristina Murphy Why citizens pay their taxes voluntarily is an important question for tax administrations worldwide. Some believe it is because taxpayers are deterred from tax evasion out of a fear of being caught or penalised. Others, in contrast, suggest that factors such as the level of tax morale one has (i.e., the intrinsic motivation one has to pay their tax) affects compliance behaviour. While there have been numerous empirical studies published that have explored the role of deterrence on tax compliance behaviour, very few studies have explored the concept of tax morale in any detail. This study therefore attempts to rectify this gap in the literature. If tax morale is important in determining compliance behaviour, as several researchers have suggested, then it is also important to understand what might affect one’s level of tax morale. The specific aim of this paper will be to identify factors that shape or have an impact on tax morale. Using data collected from the Australian wave of the 1981 and 1995 World Values Survey, this study will demonstrate that factors such as trust and moral beliefs play an important role in shaping tax morale in Australia. Further, it will be shown that tax morale has increased significantly in Australia since the early 1980s, and that it has done so at a faster rate than many other OECD countries. Possible explanations for this increase will be discussed. Keywords: Tax Morale; Tax Compliance; Tax Evasion; Australia JEL: H26 H73 Date: 2004-01 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2004-04&r=all 241. Tax Morale, Trust and Corruption: Empirical Evidence from Transition Countries Benno Torgler This paper analyses tax morale in transition countries. Tax morale has been used as dependent variable working with World Values Survey and European Values data for different years (1990- 2000). The results suggest that trust, measured as trust in the legal system, the government, the parliament and the national officers has a strong impact on tax morale. Furthermore, a higher degree of satisfaction with the political system leads to a higher tax morale. Furthermore, the paper investigates the correlation between corruption and tax morale. The bivariate as well as the multivariate analysis show that in transition countries a higher corruption leads to a lower tax morale. Date: 2004-02 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2004-05&r=all 242. A Knight Without a Sword or a Toothless Tiger? The Effects of Audit Courts on Tax Morale in Switzerland Benno Torgler The intention of this paper is to analyse how audit courts affect tax morale, controlling in a multivariate analysis for a broad variety of potential factors. Switzerland with its variety of audit court competences among the cantons has been analysed. With data from the ISSP for 1999 evidence has been found that a higher audit court competence has a significantly positive effect on tax morale. Thus, the results in Switzerland suggest that in the cantons where audits courts are not just knights without swords or toothless tigers, they help improve taxpayers’ tax morale and thus citizens’ intrinsic motivation to pay taxes. Keywords: Tax Morale; Tax Compliance; Tax Evasion; Audit Courts Direct Democracy; Local Autonomy JEL: H26 H73 D70 Date: 2004-04 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2004-06&r=all 243. Is Trust a Bad Investment? Nava Ashraf Iris Bohnet Nikita Piankov This paper examines whether trust is an investment decision under uncertainty, based on the expectation of trustworthiness, and whether trustworthiness is reciprocity, conditional on one’s counterpart’s behavior. In trust experiments in Russia, South Africa and the United States, two thirds of the subjects who trust do not expect trust to pay monetarily. We find substantial heterogeneity in motivation: Expectations of return account for most of women’s trust, and reciprocity for most of Americans’ trustworthiness. Men’s trust and Russians’ and South Africans’ trustworthiness are significantly related to unconditional kindness as measured by subjects’ behavior in dictator games, us ing a within-subject design. Keywords: Trust; kindness; reciprocity; gender; cross-cultural experiments. JEL: C72 C91 Date: 2004-05 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2004-07&r=all 244. Social comparisons in ultimatum bargaining Iris Bohnet Richard Zeckhauser This paper employs experiments to examine the effects of social comparisons in ultimatum bargaining. We inform responders on the average offer before they decide whether to accept or reject their specific offer. To provide a metric for social comparison effects, we compare them with another change in informational conditions, asymmetric information on the pie size. Knowing comparable offers or knowing the pie size increases offers and rejection probabilities by similar magnitudes. Our results are consistent with people disliking deviations from the norm of equity but inconsistent with fairness theories, where people dislike income disparity between themselves and their referents. Keywords: Experimental bargaining; social comparisons; asymmetric information; ultimatum game. JEL: C91 Date: 2004-06 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2004-08&r=all 245. Effects of Culture on Tax Compliance: A Cross Check of Experimental and Survey Evidence Ronald G. Cummings Jorge Martinez-Vazquez Michael McKee Benno Torgler There is considerable evidence that enforcement efforts can increase tax compliance. However, there must be other forces at work because observed compliance levels cannot be fully explained by the level of enforcement actions typical of most tax authorities. Further, there are observed differences, not related to enforcement effort, in the levels of compliance across countries and cultures. To fully understand differences in compliance behavior across cultures one needs to understand differences in tax administration and citizen attitudes toward governments. The working hypothesis is that cross-cultural differences in behavior have foundations in these institutions. Tax compliance is a complex behavioral issue and its investigation requires the use of a variety of methods and data sources. Results from laboratory experiments conducted in different countries demonstrate that observed differences in tax compliance levels can be explained by differences in the fairness of tax administration, in the perceived fiscal exchange, and in the overall attitude towards the respective governments. These experimental results are shown to be robust by replicating them for the same countries using survey response measures of “tax morale.” Keywords: Tax Compliance; Tax Evasion; Tax Morale; Culture JEL: H26 C91 Date: 2004-06 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2004-13&r=all 246. Culture Differences and Tax Morale in the United States and in Europe James Alm Benno Torgler In recent years much research has investigated whether values, social norms, and attitudes differ across countries and whether these differences have measurable effects on economic behavior. One area in which such studies are particularly relevant is tax compliance, given both the noted differences across countries in their levels of tax compliance and the marked inability of standard economic models of taxpayer compliance to explain these differences. In the face of these difficulties, many researchers have suggested that the intrinsic motivation for individuals to pay taxes – what is sometimes termed their “tax morale” – differs across countries. However, isolating the reasons for these differences in tax morale is notoriously difficult. In a common approach, studies sometimes referred to as “cultural studies” have often relied upon controlled laboratory experiments conducted in different countries because such experiments can be set up with identical experimental protocols to allow cultural effects to be isolated. In this paper we first analyze a cross-section of individuals in Spain and the United States using the World Values Survey (WVS). In line with previous experiments, our findings indicate a significantly higher tax morale in the United States than in Spain, controlling in a multivariate analysis for additional variables. We then extend our multivariate analysis to include 14 European countries in the estimations. Our results again indicate that the United States has the highest tax morale across all countries, followed by Austria and Switzerland. We also find a strong negative correlation between the size of shadow economy and the degree of tax morale in those countries. Keywords: Tax Morale; Tax Compliance; Tax Evasion; Culture JEL: H26 H73 Date: 2004-07 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2004-14&r=all 247. Do Large Cabinets Favor Large Governments? Evidence from Swiss Sub-federal Jurisdictions Christoph A. Schaltegger Lars P. Feld The fiscal commons problem is one of the most prominent explanations of excessive spending and indebtedness in political economics. The more fragmented a government, the higher its spending, deficits and debt. In this paper we investigate to what extent this problem can be miti-gated by different fiscal or constitutional institutions. We distinguish between two variants of fragmented governments: cabinet size and coalition size. Theoretically, they both describe the degree to which the costs of spending decisions are internalized by individual decision- makers. In addition, we evaluate whether constitutional rules for executive and legislation as well as budget rules shape the size of government and how the different rules interact with fragmentation in de-termining government size. The empirical study of the role of fragmented governments for fiscal policy outcomes is based on a panel of the 26 Swiss cantons over the 1980-1998 period. The re-sults indicate that the number of ministers in the cabinet is negatively associated with fiscal disci-pline. Furthermore, the fiscal referendum does effectively restrict the fiscal commons problem, but less successfully than the budget rule. Keywords: Fragmentation; Fiscal Policy; Referendums; Legislative Rules; Budget Rules JEL: E61 E63 H61 Date: 2004-07 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2004-15&r=all 248. Growth Effects of Public Expenditure on the State and Local Level: Evidence from a Sample of Rich Governments Christoph A. Schaltegger Benno Torgler There is a vast empirical literature investigating the relationship between government size and economic growth. But the empirical evidence of growth effects of public expenditure using cross-country regres-sions is still inconclusive. According to a number of authors this is not surprising since the negative rela- tionship only applies for rich countries with a large public sector. Restricting their analysis on rich coun-tries only they can show the predicted negative impact. Naturally, a selection of a sub-sample of rich countries is always somewhat arbitrary. Another possibility is to concentrate on governments within a rich country. However, only few studies investigate the effect of state and local spending on economic growth. This paper concentrates on the relationship between public expenditure and economic growth within a rich country using the full sample of state and local governments from Switzerland over the 1981-2001 period. The general finding is a fairly robust negative relationship between government size and economic growth. However, in contrast to public spending from operating budgets there is no significant impact on economic growth by expenditure from capital budgets. Keywords: Economic Growth; Government expenditure; Public Sector JEL: E62 H20 O23 Date: 2004-07 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2004-16&r=all 249. Does Culture Influence Tax Morale? Evidence from Different European Countries Benno Torgler Friedrich Schneider There is considerable evidence that enforcement efforts cannot fully explain the high degree of tax compliance. Previous studies have found differences in compliance behaviour across cultures. Novel in this paper is to investigate the impact of culture differences within a country rather than between countries. Thus, the main purpose of the paper is to see how culture affects tax morale, using World Values Survey (WVS) and European Values Survey (EVS) data. The empirical findings focus individually on Switzerland, Belgium and Spain, countries with a certain cultural variety. In general, the results indicate that the cultural background seems not to have a strong effect on tax morale within a country. However, there is evidence that there is a strong interaction between culture and institutions, which has a strong impact on tax morale. Keywords: Tax Morale; Tax Compliance; Tax Evasion; Culture JEL: H26 H73 Date: 2004-07 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2004-17&r=all 250. ‘Historical Excellence’ in Football World Cup Tournaments: Empirical Evidence with Data From 1930 to 2002 Benno Torgler Most of the football papers that measure the international performances focus on the ranking system provided by the FIFA. Surprisingly, the World Cup per se has not been analyzed intensively. This paper as a novelty reports empirical evidence of international team performances in the World Cup tournaments between 1930 and 2002. The paper investigates to which extent economic, demographic, cultural and climatic factors have an impact on national teams’ performances. Strong evidence is reported that nations with a stronger football tradition perform better. Keywords: football; soccer; FIFA; culture JEL: L83 Date: 2004-07 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2004-18&r=all 251. The Determinants of Women’s International Soccer Performances Benno Torgler The expansion of economics to “non-market topics” such as football has received increased attention in recent years. However, most of the studies focus on men’s performances, whereas this paper reports empirical evidence of women’s international team performances. In line with the previous studies who analyzed the performance of men, the results reveal that economic, demographic, and climatic factors have a strong impact on teams’ performances. In this paper we analyze furthermore whether there is a correlation between women’s and men’s team performances. In general, countries with a stronger football tradition have not only strong men’s teams, but also women’s teams. The findings also indicate that there is a certain competitive balance between the different football regions. Keywords: football; soccer; FIFA; culture JEL: L83 Date: 2004-07 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2004-19&r=all 252. Taxation and Conditional Cooperation Bruno S. Frey Benno Torgler Why so many people pay their taxes, although fines and audit probability are low, has become a central question in the tax compliance literature. Concepts of Homo Economicus, endowed with a more refined motivation structure, help to shed light on the tax compliance puzzle. This paper provides empirical evidence for the relevance of conditional cooperation, using survey data from 30 European countries. The findings suggest that a higher perceived tax evasion leads to a lower tax morale, also when controlling for additional factors in a multivariate analysis. Keywords: tax morale; tax compliance; tax evasion; pro-social behavior JEL: H26 H73 D64 Date: 2004-08 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2004-20&r=all 253. ‘La Grande Boucle’: Determinants of Success at the Tour de France Benno Torgler Most sport papers focus on disciplines such as soccer, football, baseball, basketball or golf. Surprisingly, cycling per se has not been analyzed intensively. This paper reports empirical evidence of individuals’ performances in the cycle race ‘Tour de France’ with data for the year 2004. The results indicate that the performances in the time races and the mountains are the most important for a cyclist’s success. Athletes who were successful in previous tours perform better than other participants. Furthermore, a lower body-mass index leads to a higher performance. On the other hand, factors such as age, years of professionalism and number of participations in the Tour are statistically not significant. While domestic cyclists do not perform better, we found that cyclists from the heartlands of cycling reach better results than others. Keywords: sport; cycling tour; Tour de France JEL: L83 Date: 2004-09 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2004-22&r=all 254. Calculating Tragedy: Assessing the Costs of Terrorism Bruno S. Frey Simon Luechinger Alois Stutzer The trends and consequences of terrorist activities are often captured by counting the number of incidents and casualties. More recently, the effects of terrorist acts on various aspects of the economy have been analyzed. These costs are surveyed and put in perspective. As economic consequences are only a part of the overall costs of terrorism, possible approaches for estimating the utility losses of the people affected are discussed. Results using the life satisfaction approach, in which individual utility is approximated by self-reported subjective well-being, suggest that people’s utility losses may far exceed the purely economic consequences. Keywords: Terrorism; subjective well-being; life satisfaction; utility loss JEL: D74 H56 I31 Date: 2004-09 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2004-23&r=all 255. Corruption and Age Benno Torgler Neven T. Valev In recent years the topic of corruption has attracted a great deal of attention. However, there is still a lack of substantial empirical evidence about the determinants of corruption. This empirical study analyses a cross-section of individuals using the World Values Survey wave III (1995-1997), investigating the justifiability of corruption. The major aim in the paper is to investigate whether we observe differences between age groups. Despite an increasing interest of economists in the determinants of corruption, the factor age has been widely neglected in the literature. The results suggest that there is a strong age effect, controlling in a multivariate analysis for additional factors. Keywords: Corruption; Age; Bribe; Social Norms JEL: H10 J16 K42 Date: 2004-10 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2004-24&r=all 256. The Role of Direct Democracy and Federalism in Local Power Bruno S. Frey Alois Stutzer Alienation to politics weakens political competition and can undermine the acceptance and legitimacy of democracy as a political system. Governance and representation problems at the local level cause part of citizens’ lack of power and political alienation. Citizens have local power if they can influence the political process so that its outcomes are closer to their preferences and if they feel to be effective in the political sphere. In order to increase citizens’ local power, we emphasize the role of institutions of local governance. Local democratic governance is concerned about the relationship between citizens and local government institutions, political representatives and officials. This relationship is fundamentally shaped by the federal structure of a nation’s government and by the scope and depth of citizens’ participation possibilities in the political process. Keywords: collective decision-making; constitutional design; constitutional economics; direct democracy; fiscal federalism; local governance; local power; participation JEL: D70 D71 D72 H10 H77 Date: 2004-10 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2004-25&r=all 257. Demokratische Beteiligung und Staatsausgaben: Die Auswirkungen des Frauenstimmrechts Alois Stutzer Lukas Kienast In dieser Arbeit werden die Auswirkungen des Frauenstimmrechts auf die Staatsausgaben in den Kantonen der Schweiz untersucht. Anhand dieser institutionell bedingten Veranderung des Elektorats studieren wir den Zusammenhang zwischen reprasentierten Burgerpraferenzen und dem Ergebnis des politischen Prozesses. Da Frauen im Durchschnitt einkommensarmer sind als Manner, steigt mit ihrer Beteiligung gemass Theorien zur Grosse des Staatshaushaltes die Nachfrage nach staatlichen Leistungen. Entgegen der Hypothese schatzen wir jedoch eine dampfende Wirkung des Frauenstimmrechts auf die Entwicklung der Gesamtausgaben. Die zeitlich unterschiedliche Einfuhrung des Rechts erlaubt dabei die Berucksichtigung allgemeiner Trends in Wirtschaft und Gesellschaft. Als Erklarungsversuche diskutieren wir die Moglichkeit fiskalisch konservativer Frauen und einer Wechselwirkung des Frauenstimmrechts mit den direktdemokratischen Institutionen. Date: 2004-10 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2004-26&r=all 258. Attitudes Towards Paying Taxes in Austria: An Empirical Analysis Benno Torgler Friedrich Schneider People mostly pay their taxes although there is a low probability of getting caught and being penalized. Thus, new attempts in the tax compliance literature try to go beyond standard economic theory. This paper examines citizens’ attitudes toward paying taxes – what is sometimes termed their “tax morale”, or the intrinsic motivation to pay taxes. Tax morale may be a key determinant to explain why people are honest. However, there are very few papers that explore the concept of tax morale theoretically and empirically. This study, based on the World Values Survey and the European Values Survey, therefore attempts to fill this gap in the literature, focusing on tax morale in Austria. Societal institutions such as trust or pride have been identified as key determinants that shape tax morale in Austria. Furthermore, a lower perceived compliance leads to a decrease of tax morale, which indicates that social comparisons are relevant. The results also show a decrease of tax morale between 1990 and 1999, although Austria’s taxpayers still have a very high tax morale compared to other European countries. Keywords: Tax Morale; Societal Institutions; Austria JEL: H26 H73 D64 Date: 2004-11 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2004-27&r=all 259. ‘Just Forget It’: Memory Distortion as Bounded Rationality Bruno S. Frey Distortions in memory impose important bounds on rationality but have been largely disregarded in economics. While it is possible to learn, it is more difficult, and sometimes impossible, to unlearn. This retention effect lowers individual utility directly or via reduced productivity, and adds costs to principal-agent relationships. The imprinting effect states that the more one tries to forget a piece of information the more vivid it stays in memory, leading to a paradoxical outcome. The effects are based on, and are supported by, psychological experiments, and it is shown that they are relevant in many economic situations and beyond. Keywords: Memory; bounded rationality; learning; retention; ironic process theory; principalagency theory JEL: D11 D83 J2 M20 Z00 Date: 2004-06 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2005-01&r=all 260. What Shapes the Attitudes Towards Paying Taxes? Evidence from Switzerland, Belgium and Spain Benno Torgler Friedrich Schneider There is considerable evidence that enforcement efforts cannot fully explain the high degree of tax compliance. To resolve this puzzle of tax compliance, many researchers have argued that citizens’ attitudes toward paying taxes or tax morale, seen as the intrinsic motivation to pay taxes, can help to explain the high degree of tax compliance. However, most studies treat tax morale as a black box without discussing which factors shape it. Additionally, there is a lack of empirical evidence in the tax compliance literature that investigate attitudes towards paying taxes in Europe. Thus, a unique aspect in this paper is to examine citizens’ attitudes towards paying taxes in the three European countries Switzerland, Belgium and Spain, allowing thus to investigate in detailed way the impact of internal and external institutions. Keywords: Tax Morale; Tax Compliance; Tax Evasion; Internal and External Institutions. JEL: H26 H73 Date: 2005-02 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2005-06&r=all 261. Fiscal Autonomy and Tax Morale: Evidence from Germany Benno Torgler Jan Werner This paper analyses fiscal autonomy in Germany. First, it provides an overview of fiscal autonomy. What is novel in this paper compared to previous studies is the development of a fiscal autonomy coefficient for the states, based on communal data. The basic intention in the empirical part is to analyse how fiscal autonomy affects tax morale, defined as the intrinsic motivation to pay taxes, in Germany. Strong evidence has been found that a higher fiscal autonomy leads to a higher tax morale, controlling in a multivariate analysis for additional factors. Thus, this paper fills a gap in the tax compliance literature, which has rarely analysed the impact of fiscal autonomy on compliance Keywords: Tax Morale; Tax Compliance; Fiscal Autonomy; Germany JEL: H26 H73 D70 Date: 2005-02 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2005-07&r=all 262. Open Source software development – just another case of collective invention? Margit Osterloh Sandra Rota Does Open Source (OS) represent a new innovation model, and under what conditions can it be employed in other contexts? A look into history shows that OS isn’t a unique example of what is called “collective invention”. Other examples are blast furnaces in Britain’s Cleveland district, steam engine design, and more recently, the flat panel display industry. While OS shares many similarities with these cases of collective invention, there is a main difference: Other collective invention regimes did not survive after the development of a dominant design. It is argued that two factors can explain the difference. Firstly, OS licenses are important institutional innovations that make OS survive as a common property. Secondly, the second order social dilemma, which arises when it comes to developing and enforcing OS licenses, is overcome by the existence of intrinsically motivated contributors. It is asked under which conditions this kind of motivation is developed and sustained. We argue that it is the existence of certain selfgovernance- mechanisms which OS licenses are a part of. We conclude that OS differentiates itself from other cases of collective invention by its success in solving the second order social dilemma of rule development and enforcement. Keywords: Open source software; collective invention; intrinsic motivation; copyleft; conditional cooperation. Date: 2005-02 URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2005-08&r=all 263. Finance, Technology and Inequality in Economic Development Ryo Horii (Graduate School of Economics, Osaka University) Ryoji Ohdoi (Graduate School of Economics, Osaka University) Kazuhiro Yamamoto (Graduate School of Economics, Osaka University) This paper develops an overlapping generations model with technology choice and imperfect credit market, in order to investigate a possible source of underdevelopment. Consistent with empirical observations in the literature, the model shows that better financial institutions that provide stronger enforceability of contracts facilitate the development of financial markets, which in turn enables firms to switch to more capital intensive technologies, thereby promoting economic development. In the presence of credit rationing, however, this technological switch widens inequality. Therefore, risk-averse agents would not be willing to improve the financial institutions to the level at whic the technological switch occurs, resulting in a development trap. A remedy is to facilitate small firmsfadoption of existing technology, rather than the newone. Keywords: Enforceability of Contracts; Technological Switch; Income Distribution, Credit Rationing, Development Trap. JEL: O14 O16 Date: 2005-04 URL: http://d.repec.org/n?u=RePEc:osk:wpaper:0508&r=all 264. Wealth Heterogeneity and Escape from the Poverty- Environment Trap Masako Ikefuji (Graduate School of Economics, Osaka University) Ryo Horii (Graduate School of Economics, Osaka University) A mutual link between poverty and environmental degradation is examined in an overlapping generations model with environmental externality, human capital, and credit constraints. Environmental quality affects labor productivity and thus wealth dynamics, whereas wealth distribution determines the degree to which agents rely upon natural resources and therefore the evolution of environmental quality. This interaction creates a epoverty- environment trap,' where a deteriorated environment lowers income, which in turn accelerates environmental degradation. We show that greater wealth heterogeneity is the key to escaping the poverty-environment trap, although it has negative effects both on the environment and output when not in the trap. Keywords: Poverty trap, Environmental degradation, Wealth distribution, Human capital. JEL: O11 O13 O15 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:osk:wpaper:0509&r=all 265. Does Depositors' Discipline by Households Exist? Shizuka Sekita (Graduate School of Economics, Osaka University) This paper tests for the presence of depositors' discipline by households and examines the impact of revisions of the deposit insurance system, changes in the financial condition of the banking sector as a whole, and household characteristics on the extent of depositors' discipline using households' subjective evaluation of the financial condition of the banks with which they do business. I find evidence of the presence of depositors' discipline by households even during periods when bank deposits were fully protected by the deposit insurance system. The extent of depositors' discipline by households increased even before the abolition of the full protection of term deposits because households began making adjustments in anticipation of the proposed change, but only large depositors (households holding bank deposits of over 10 million yen) increased the extent of depositors' discipline at that time. In addition, the revision of the deposit insurance system that extended the full protection of ordinary deposits for another two years and fully protected payment and settlement deposits permanently decreased depositors' discipline of all households, regardless of how much bank deposits they hold. Moreover, various household characteristics affect the extent of depositors' discipline, the most important of which is awareness of the deposit insurance system (overall financial knowledge). I find that lack of awareness of the deposit insurance system (lack of overall financial knowledge) weakens the extent of depositors' discipline by a significant amount. Keywords: Market Discipline, Deposit Insurance. JEL: G21 G28 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:osk:wpaper:0510&r=all 266. Child Allowances, Fertility, and Uncertain Lifetime Megumi Mochida (Graduate School of Economics, Osaka University) We examine how child-allowance policies with pay-as-you-go systems affect fertility and growth rates. A current method to subsidize child-rearing households, which determines benefits according to family's number of children, increases the fertility rate but decreases the growth rate. This study also demonstrates that when a government initiates a child-allowance policy using some part of the pension budget, the fertility rate declines in aging economies. Keywords: Fertility, Social security, Uncertain lifetime. Keywords: Fertility, Social security, Uncertain lifetime. JEL: D91 H55 J13 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:osk:wpaper:0511&r=all 267. ECONOMIC ANALYSIS OF ASEAN FREE TRADE AREA; BY A COUNTRY PANEL DATA Nguyen Trung Kien (Osaka School of International Public Policy (OSIPP), Osaka University) Yoshizo Hashimoto (Osaka School of International Public Policy (OSIPP), Osaka University) This paper is an attempt to use the Hausman-Taylor (HT) estimation to examine the determinants of trade flows of Asean Free Trade Area (AFTA). Based on the two-way error component form of the gravity model, we employ the HT technique to estimate export flows by a country panel data of 39 countries for the period 1988-2002. The estimations have shown the following important results. Firstly, export flows among two countries increase more proportionately with GDPs. More interestingly, trade is higher between countries of identical preferences than those of different ones. Secondly, the most crucial result is that AFTA has only produced the trade creation among its members. Finally, this study suggests the importance of trade facilitation policy to support the targets of FTA. Keywords: AFTA, gravity models, panel data, trade. JEL: F1 F15 C23 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:osk:wpaper:0512&r=all 268. Dependent Background Risks and Asset Prices Yusuke Osaki (Graduate School of Economics, Osaka University) Dependent background risks which have functional forms are introduced into Lucas economies. This paper determines the conditions on preferences to guarantee the monotonicity of asset prices, when dependent background risks satisfy the monotonicity and the single crossing conditions. Keywords: Asset Price, Dependent Background Risk, Monotonicity, Single Crossing Condition. JEL: D51 D81 G12 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:osk:wpaper:0513&r=all 269. The Monotonicity of Asset Prices with Changes in Risk Masamitsu Ohnishi (Graduate School of Economics, Osaka University) Yusuke Osaki (Graduate School of Economics, Osaka University) The goal of this paper is the examination of the conditions on preferences to guarantee the monotonicity of asset prices, when their returns change in the sense of first- and second-order stochastic dominances. Keywords: Asset Price; Comparative Statics; First-order Stochastic Dominance; Second-order Stochastic Dominance. JEL: D81 G12 Date: 2005-05 URL: http://d.repec.org/n?u=RePEc:osk:wpaper:0514&r=all 270. Knowledge spillovers, location of industry, and endogenous growth Kyoko Hirose (Graduate School of Economics, Osaka University) Kazuhiro Yamamoto (Graduate School of Economics, Osaka University) A Grossman-Helpman-Romer-type endogenous-growth model is developed in this study. This model has two countries in which there are knowledge spillovers that are partially local. Owing to these spillovers, innovation cost in a particular country decreases as the number of firms locating in both that country and the other country increases. If international knowledge spillovers are symmetric, innovation cost is lower in the country that has the larger market. However, if a small-market country can absorb the international knowledge spillovers better than a large-market country, the innovation cost may be lower in the small-market country. When the innovation cost is lower in the country that has a large market, the growth rate increases with agglomeration, which is generated by a reduction in the transportation costs. However, when the innovation cost is lower in the country that has a small market, the growth rate decreases with the reduction in the transportation costs. Keywords: knowledge spillovers, growth rate, transportation costs, market scale JEL: F43 O30 R12 Date: 2005-06 URL: http://d.repec.org/n?u=RePEc:osk:wpaper:0515&r=all 271. Migration and agglomeration with knowledge Kyoko Hirose (Graduate School of Economics, Osaka University) In this paper, a Grossman-Helpman-Romer-type endogenous growth model is developed with two regions in which there are mobile workers and linkage between consumption goods and differentiated intermediate goods. The economy has the potential to reach the following spatial configuration: full agglomeration, partial agglomeration, and segmented agglomeration. In perfect agglomeration, the innovation sector and intermediate goods sector agglomerate in one region. In partial agglomeration, intermediate goods firms partially agglomerate in the region where the innovation sector agglomerates perfectly. In segmented agglomeration, the innovation sector agglomerates in the region where both intermediate goods sector and final good sector do not agglomerate perfectly. In addition, we show the comparison of the welfare of skilled workers in each steady state. Not surprisingly, the welfare of the skilled in full agglomeration is always the highest. However, even though there are transportation costs of final good, the welfare in segmented agglomeration is not necessarily the lowest. Keywords: knowledge spillovers, transportation costs, inter- regional trade JEL: F43 O18 R11 Date: 2005-06 URL: http://d.repec.org/n?u=RePEc:osk:wpaper:0516&r=all