bluuebunny/crossref_metadata_2025 huggingface dataset:
Signal Jamming in Games with Multiple Senders
Authors: Kim Jeong-Yoo
Published: December 2005

This paper investigates the possibility of signal jamming in games with multiple informed parties whose interests are conflicting. The possibility that signal jamming occurs in equilibrium depends on the observability of individual signals. Paradoxically, if the receiver can observe individual signals perfectly, signal jamming can occur in equilibrium, while it cannot occur if the receiver can observe only the one-dimensional signal synthesized from the senders' individual actions.
Communication and Voting with Double-Sided Information
Authors: Doraszelski Ulrich , Gerardi Dino , Squintani Francesco
Published: December 2005

We analyze how communication and voting interact when there is uncertainty about players' preferences. We consider two players who vote on forming a partnership with uncertain rewards. It may or may not be worthwhile to team up. Both players want to make the right decision but differ in their attitudes toward making an error. Players' preferences are private information and each player is partially informed about the state of the world. Before voting, players can talk to each other.We completely characterize the equilibria and show that the main role of communication is to provide a double check: When there is a conflict between a player's preferences and her private information about the state, she votes in accordance with her private information only if it is confirmed by the message she receives from her opponent. In a scenario where only one of the players is allowed to talk, the benefits of communication are independent of the identity of the sender.
Pollution Taxes for Monopolistically Competitive Firms
Authors: Vetter Henrik
Published: December 2005

This paper examines ways of taxing monopolistically competitive firms that pollute the environment. There are two sources of welfare loss: production externalities and product selection bias associated with fixed costs. We argue that the optimal firm specific tax is always, strictly speaking, less than the Pigouvian tax and that furthermore, under some circumstances, both Pigouvian and optimal taxes leave the monopolistically competitive industry with too few firms. Under either regime, however, the tax targets the right firms.
Incentives for Boundedly Rational Agents
Authors: Basov Suren
Published: December 2005

This paper develops a theoretical framework for analyzing incentive schemes under bounded rationality. It starts from a standard principal-agent model and then superimposes an assumption of boundedly rational behavior on the part of the agent. Boundedly rational behavior is modeled as an explicit optimization procedure, which combines gradient dynamics with imitation and experimentation. The results predict the underprovision of optimal incentives and deviation from a standard sufficient statistics result from the agency literature. It also allows us to address the question of creating the optimal incentives in a multicultural environment.
Trade and Linked Exchange; Price Discrimination Through Transaction Bundling
Authors: Dassiou Xeni , Choi Chong Ju , Maldoom Dan
Published: December 2005

In this paper we try to explain how price discrimination can cause bilateral trade patterns of the type seen under countertrade agreements. We interpret countertrade as a form of transaction bundling, which can discriminate between potential trading partners, and we combine characteristics from two explanations as to the existence of countertrade: Price discrimination through transaction bundling, and adverse selection arising from the uncertainty in the quality of the goods produced by trading partners in a less developed country (LDC) leading to a partner preference from the side of the Western (DC) firm. Our paper shows that the trade volume prospects of a firm in a LDC can be considerably enhanced if a countertrade transaction is bundled, and that such gains in trade become greater (relative to the case of no bundling), the greater the degree of quality uncertainty in the good it sells. It is also shown that it is profit maximising for a firm in a DC to offer mixed bundling for the exchange transaction, and that the profits derived from such bundling are a decreasing function of both the degree of uncertainty in the good sold by the firm in the LDC, and the marginal cost of the good sold by firm in the DC.
Market Size and Vertical Equilibrium in the Context of Successive Cournot Oligopolies
Authors: Dufeu Ivan
Published: December 2005

This paper illustrates the effect of market size on the decision of whether or not firms should vertically integrate or disintegrate. We use a model of two successive stages of production with Cournot competition in each stage. In this model, firms choose to specialize (either upstream or downstream) or to integrate the two stages, before making their production decisions. The decision of whether or not to integrate or specialize depends on the trade-off between "escaping from" the double marginalization problem or the gain from specializing in the production stage in which the firm is more efficient. We show (using simulations) that more firms choose to be vertically integrated as the valuation of the final product or the number of consumers increases, unless the number of firms increases proportionately.
Imitation and Long Run Outcomes
Authors: Dutta Jayasri , Prasad Kislaya
Published: December 2005

In a number of evolutionary models the presence of mutations, or random components of choice, serve to refine predictions of long-run behavior. We analyze the effects of mutation rates that vary because of the presence of imitation. A full characterization of long-run outcomes is provided for familiar coordination and congestion games, and also a number of other games not previously considered within the evolutionary framework. Our results are often quite distinct from those in the literature. We apply these tools to a series of economic applications, including market games, where imitation can explain excess volatility of prices, and location games, where it leads to greater uniformity in choices.
Intergenerational Habits, Fiscal Policy, and Welfare
Authors: Velculescu Delia
Published: December 2005

The present paper explores the fiscal policy implications of intergenerational habit formation in a Blanchard overlapping generations small open economy model. Three main conclusions emerge. (1) When individuals are finitely lived and have habits which they pass on to their descendants, the dynamic response of a small open economy to shocks exhibits sluggishness in consumption in the short run and may display damped cycles in the long run. (2) With habits, optimal fiscal policy takes the form of a social insurance scheme, allowing present and unborn cohorts to share in the consequences of macroeconomic shocks. In contrast, in an economy devoid of habits, the optimal fiscal response to a permanent shock is a one time abrupt adjustment, whereby the present generations bear the entire burden of the shock. (3) If habits exist but policy is conducted as though habits did not exist, the welfare losses for society can be substantial.
The UK Household Sector Demand for Risky Money
Authors: Elger Thomas , Binner Jane M.
Published: December 2005

We compare the empirical performance of a capital certain monetary services index and an index that is extended to contain assets with substantial interest rate risk, such as unit trusts, within a cointegration money demand framework for the UK. Technological changes and innovations have increased the liquidity of risky assets and recent developments in monetary aggregation theory have made it possible to account for interest rate risk in combination with risk aversion in the construction of monetary services indices. Coefficient estimates for all systems are consistent with theory and remarkably stable. No apparent gains are noted, however, by the inclusion of 'risky' assets.
Empirical Perspectives on Long-Term External Debt
Authors: Lane Philip R.
Published: December 2005

In this paper, we paint a statistical portrait of the determination of external debt for a set of low- and middle-income countries. The goal is to facilitate thinking about the role played by international capital flows in the development process. Empirically, we find that external debt is strongly increasing in the level of initial output. This remains true even when we control for variation in productivity and creditworthiness. More open economies also are found to have higher debt levels.
The Dynamics of Fertility and Growth: Baby Boom, Bust and Bounce-Back
Authors: Day Creina
Published: December 2005

This paper examines the dynamic interplay between economic growth and fertility as a developed economy moves through two distinct phases: women at home and raising children full time; women entering the work force and raising children part time. Women's relative wages rise with economic growth, as per Galor and Weil (1996). Higher wages make children more affordable. On the other hand, children are more costly when maternal time, used in child rearing, could be supplied to the labor market. I extend Galor and Weil (1996) by introducing goods and services as a child rearing input. A Constant Elasticity of Substitution (CES) production function for child rearing allows for varying degrees of substitutability between goods and time. The existence of an alternative input to maternal time generates a baby boom-bust cycle: fertility rises in the first phase and falls in the second. Whilst fertility declines unambiguously at the beginning of the second phase, as women enter the labor force, it may bounce-back before reaching a steady state as income effects start to dominate.
Parameter Instability, Model Uncertainty and the Choice of Monetary Policy
Authors: Favero Carlo A. , Milani Fabio
Published: December 2005

This paper starts from the observation that parameter instability and model uncertainty are relevant problems for the analysis of monetary policy in small macroeconomic models. We propose to deal with these two problems by implementing a novel "thick recursive modelling" approach. At each point in time we estimate all models generated by the combinations of a base-set of k observable regressors for aggregate demand and supply. We compute optimal monetary policies for all possible models and then consider alternative ways of summarizing their distribution. Our main results show that thick recursive modelling delivers optimal policy rates that track the observed policy rates better than the optimal policy rates obtained under a constant parameter specification with no role for model uncertainty.
Fiscal Policy and the Price Level
Authors: Annicchiarico Barbara , Marini Giancarlo
Published: December 2005

This paper studies the issue of price stability in a continuous time optimizing general equilibrium model with overlapping generations. It is shown that fiscal policy has effects on nominal variables. Fiscal expansions are inflationary even when the government intertemporal budget constraint is respected for any prices sequence and there is no recourse to money financing. Our results shed new light on the interaction between fiscal policy and nominal prices.
Imbalance Effects in the Lucas Model: an Analytical Exploration
Authors: Boucekkine Raouf , Ruiz Tamarit Ramon
Published: December 2005

In this note, we extend Xie (JET, 1994) to solve analytically the Lucas model with a weak externality in a specific parametric case. In particular, we characterize the shape of imbalance effects in this model. Our results are mostly consistent with the findings of the related computational literature. Among other analytical findings, we prove that, while U-shaped imbalance effects are not apparent in the Lucas model for the growth rate of output per capita, the level of such a variable may exhibit this shape.
Optimal Fiscal Policy with Rationing in the Labor Market
Authors: Gorostiaga Arantza
Published: December 2005

This paper studies the implications for the optimal policy of introducing an exogenous minimum wage into a standard public finance model. I present a dynamic general equilibrium model with a Ramsey planner deciding about public spending, labor income taxes and debt. I find that for sufficiently high minimum wages, equilibria in which the labor supply is rationed and involuntary unemployment arises may be optimal in bad times. For a minimum wage not too high, the government will set taxes to reduce the labor supply and avoid non desirable rationing. This implies increasing taxes in bad times. As regards the cyclical properties of the optimal policy, state contingent returns on debt are used as shock absorbers so as to smooth private consumption over time and across states of nature.
Transparency and Reputation: The Publication of Central Bank Forecasts
Authors: Geraats Petra M.
Published: December 2005

Transparency has become one of the key features of monetary policy. This paper analyzes the reputational incentives related to transparency, focusing on the publication of central bank forecasts. A simple dynamic monetary policy game shows how transparency reduces inflation, as has been found empirically. Furthermore, the endogenous choice of transparency is analyzed. Although transparency exposes weak central banks, the negative market feedback in response to secrecy could provide a sufficiently strong inducement to become transparent. Thus, reputational concerns could lead to transparency, even without formal disclosure requirements.
Estimates of the Productivity Trend Using Time-Varying Parameter Techniques
Authors: Roberts John M.
Published: December 2005

Over the 1995-to-2000 period, U.S. productivity growth moved up to rates not seen in several decades. In this paper, I use time-varying parameter techniques to isolate trend from cyclical movements in productivity and to estimate the trend rate of productivity growth. My estimates suggest that trend productivity growth moved up from around 1-1/2 percent in the period from the early 1970s to the mid 1990s to about 2-1/2 percent by the final observation used in this paper, the first quarter of 2001. I also estimate the trend rate of multifactor productivity growth, and find that it has also moved up -- to 1 percent by the end of the sample -- but the pick-up is not as great as for labor productivity, with the difference largely the result of increased capital accumulation. I also test whether the trend-cycle decomposition adopted in this paper can be rejected in favor of an alternative that allows the trend to affect the cycle, and, in contrast to other recent work, find that the trend-cycle model is not rejected.
Is the U.S. Aggregate Production Function Cobb-Douglas? New Estimates of the Elasticity of Substitution
Authors: Antràs Pol
Published: December 2005

I present new estimates of the elasticity of substitution between capital and labor using data from the private sector of the U.S. economy for the period 1948-1998. I first adopt Berndt's (1976) specification, which assumes that technological change is Hicks neutral. Consistently with his results, I estimate elasticities of substitution that are not significantly different from one. I next show, however, that restricting the analysis to Hicks-neutral technological change necessarily biases the estimates of the elasticity towards one. When I modify the econometric specification to allow for biased technical change, I obtain significantly lower estimates of the elasticity of substitution. I conclude that the U.S. economy is not well described by a Cobb-Douglas aggregate production function. I present estimates based on both classical regression analysis and time series analysis. In the process, I deal with issues related to the nonsphericality of the disturbances, the endogeneity of the regressors, and the nonstationarity of the series involved in the estimation.
Exchange Rates and Fiscal Adjustments: Evidence from the OECD and Implications for the EMU
Authors: Lambertini Luisa , Tavares José A
Published: December 2005

This paper investigates whether monetary and exchange rate policies are important for the success of major fiscal adjustments. We assess their role controlling for other determinants of success identified in the literature, including the size and composition of the deficit cut, the level of public debt and the rate of economic growth. We find that successful adjustments are preceded by exchange rate depreciations. Empirically, a depreciation of the nominal effective exchange of one standard deviation of the sample mean in the two years before an adjustment increases the probability of success by 2 percentage points. The size and composition of the deficit cut are also important determinants of success: an increase of one standard deviation of the sample mean raises the probability of success by 3 and 4 percentage points, respectively. One implication of our results is that it may be more difficult to attain persistent fiscal adjustments within the Economic and Monetary Union of Europe, since the adoption of a single currency rules out the use of exchange rate policy among member countries.
Do Federal Reserve Policy Surprises Reveal Superior Information about the Economy?
Authors: Faust Jon , Swanson Eric T , Wright Jonathan H
Published: December 2005

A number of recent papers have hypothesized that the Federal Reserve possesses information about the course of inflation and output that is unknown to the private sector, and that policy actions by the Federal Reserve convey some of this superior information. We conduct two tests of this hypothesis: 1) could monetary policy surprises be used to improve the private sector's ex ante forecasts of subsequent macroeconomic statistical releases, and 2) does the private sector revise its forecasts of macroeconomic statistical releases in response to these monetary policy surprises? We find little evidence that Federal Reserve policy surprises convey superior information about the state of the economy: they could not systematically be used to improve forecasts of statistical releases and forecasts are not systematically revised in response to policy surprises. One possible exception to this pattern is Industrial Production, a statistic that the Federal Reserve produces.
Indeterminacy, Stabilization Policy and Returns to Scale: A Re-Investigation
Authors: Sim Nicholas C. S.
Published: December 2005

This paper examines whether taxation is effective in eliminating sunspot fluctuations by considering two separate model economies by which indeterminacy occurs for empirically plausible specification of the model parameters. In the first model where production exhibits social increasing returns to scale and private constant returns to scale, I find that i) labor income tax alone, even if the tax schedule is flat, is effective; ii) taxes on labor and capital income would be more effective with increased progressivity; iii) at each average tax rate, labor income tax is more effective than capital income tax. However, in the second model where production exhibits social constant returns to scale and private decreasing returns to scale, I find that labor and capital income taxes at all progressivity levels are ineffective in removing sunspot fluctuations.
Aggregate Implications of Indivisible Labor
Authors: Mulligan Casey B
Published: December 2005

I suggest that the aggregate implications of indivisible labor are few, and subtle. First, I model behavior in an "indivisible labor" environment like those of Diamond and Mirrlees (1978, 1986), Hansen (1985), Rogerson (1988), Christiano and Eichenbaum (1992) and show how an inverse distribution function describing heterogeneity in the indivisible model is isomorphic with the marginal disutility schedule from the divisible labor model of Lucas and Rapping (1969). It follows that aggregate behavior in such an indivisible model is indistinguishable from aggregates generated by the divisible model; any data on aggregate hours and earnings generated by the divisible (indivisible) model can be generated by a similar parameterization of the indivisible (divisible) model. Second, I generalize the aforementioned models of indivisible labor to allow for labor supply on the "intensive" margin, and to allow for nonlinear taxes. The aggregate implications of doing the former are quite subtle, but doing the latter suggests that the indivisibility of labor may have implications for public finance. My results also imply that backward bending aggregate labor supply, and any nonnegative degree of aggregate intertemporal substitution, are consistent with standard economic theory even when all labor is supplied on the so-called "extensive" margin. Finally, my results suggest that the classic aggregate studies of labor supply by Mincer, Bowen and Finegan, and others have a simple microeconomic interpretation.
Patterns of Exchange, Fiat Money, and Coordination
Authors: Alonso Irasema
Published: December 2005

Many argue that the intrinsic uselessness of fiat money makes ``coordination'' an essential part of monetary theory: consumers could all equally well coordinate on believing that fiat money has no value. The coordination view suggests, however, that many transactions patterns are in fact possible as economic outcomes. Indeed, we do seem to observe different patterns of exchange at different times and in different places, and the relative importance of money is probably not a universal constant. The main goal of this paper is to develop a simple model of money's role as a medium of exchange when multiple transaction patterns are possible. The coordination view is conveniently analyzed in a dynamic version of Shubik's game-theoretic trading post economy. This economy allows a role for fiat money, and fiat money can coexist with barter in exchange. There are multiple decentralized equilibria, and one of these coincides with the equilibrium of a cash-in-advance economy: the model can be viewed as a generalization of the cash-in-advance framework. Other equilibria use both money and other, intrinsically valuable, objects as media of exchange. One implication of the coordination view is that the effects of monetary policy in general depend on the equilibrium transactions pattern. The paper illustrates this point by showing how estimates of the welfare costs of inflation may be biased depending on the econometrician's beliefs about the transactions patterns.
Optimal Time-Consistent Taxation with International Mobility Of Capital
Authors: Klein Paul , Quadrini Vincenzo , Rios-Rull Jose-Victor
Published: December 2005

The United States relies for its government revenues more on the taxation of capital relative to the taxation of labor than countries in continental Europe do. In this paper we ask what can account for this. Our approach is to look at Markov perfect equilibria of a two-country growth model where both governments use labor, capital and corporate taxes to finance exogenously given streams of public expenditure under period-by-period balanced budget constraints. There is no commitment technology and the equilibrium policies are time-consistent. We find that differences in productivity, size, and government spending can account for the heavy American reliance on capital taxation.
Comparing Wealth Effects: The Stock Market versus the Housing Market
Authors: Case Karl E. , Quigley John M. , Shiller Robert J.
Published: December 2005

We examine the link between increases in housing wealth, financial wealth, and consumer spending. We rely upon a panel of 14 countries observed annually for various periods during the past 25 years and a panel of U.S. states observed quarterly during the 1980s and 1990s. We impute the aggregate value of owner-occupied housing, the value of financial assets, and measures of aggregate consumption for each of the geographic units over time. We estimate regression models in levels, first differences and in error-correction form, relating consumption to income and wealth measures. We find a statistically significant and rather large effect of housing wealth upon household consumption.
Truth, Reconciliation, and the Fragility of Heroic Activism
Authors: Nagan Winston P
Published: December 2005

This article deals with the impact of personality on social change and its further impact upon processes of democratization in situations of transitional justice. The essay explores the concepts of truth, reconciliation and change, as these interrelate with the fragility of heroic activism. The persons involved are actual. The author of the piece is a participant observer. The specific setting is South Africa during the height of the resistance to apartheid in the 1960s.
The Legality Principle of Crimes and Punishments in the Iranian Legal System
Authors: Habibzadeh Jafar
Published: December 2005

The legality principle of crimes and punishments is derived from the Latin phrase "nullum crimen, nulla poena sine lege". Thus, no act whether immoral or against public interest or public order is considered a crime, if it is not specified by law before. As a result, the criminal judge cannot construe the individual's acts as crimes and assign punishment, even if he proves that it is worthy and useful in respect of the social interests. The second outcome is the necessity of the restrictive interpretation of the Criminal Law on the basis that the criminal judge should refer to the content of legal texts to assign the punishments and to identify the accusative titles, without resorting to analogy or adverse notion. The mentioned statements are coherent and connected phenomena in the Logic of Law. Therefore, the legality principle and its consequences are inseparable. One cannot accept a part of it and reject the rest. Even the Legislator, who provides the Criminal Law cannot deviate from this principle and its consequences, unless in exceptional cases. This is confirmed in the Islamic law, and is based on the individual's innate rights; in addition, the articles of the Constitution also approve it and make the ordinary Legislator and the Judges observe it.
The Peruvian Civil Code, Property and Plunder. Time For a Latin American Alliance to Resist the Neo Liberal Order.
Authors: Mattei Ugo
Published: December 2005

In Latin America as elsewhere, legal institutions imported from the capitalistic center have legitimized and covered up a process of economic and political domination. Traditional civilian legal culture first, and U.S. dominated rhetoric of the rule of law later, have provided a degree of intellectual legitimization. By looking at global economic transformations in the lifetime of the Code, this paper attempts to show that the real issues crucial to property law in Peru: resource distribution, social inequality and ethnic segregation, as elsewhere in Latin America, have not been tackled and truly discussed by legal scholars. Legal scholars have become prisoners of the myth of political neutrality first by civilian private law and later by the technocratic ideology of American inspired law and economics in development. They should rather unite to develop a new social constitution of Property, perhaps in the form of a Pan Latin American Code, granting to the historically exploited a right to International debt default. This paper was presented at the Catholic University of Lima for the 20 year Anniversary of the Peruvian Civil Code at an International Conference held in Lima, Peru on November 12, 2003.
Entrepreneurship and Household Saving
Authors: Gentry William M. , Hubbard R. Glenn
Published: December 2005

Using data from the 1983 and 1989 Federal Reserve Board Surveys of Consumer Finances, we quantify three findings about entrepreneurial saving decisions and their role in household wealth accumulation. First, entrepreneurial households own a substantial share of household wealth and income, and this share increases throughout the wealth distribution and the income distribution. Second, the portfolios of entrepreneurial households, even wealthy ones, are very undiversified, with the bulk of assets held within active businesses. Third, wealth-income ratios and saving rates are higher for entrepreneurial households even after controlling for age and other demographic variables. Taken together, these findings suggest that studies of household saving decisions in general and of the savings decisions of wealthy or high-income households in particular have paid insufficient attention to the role of entrepreneurial decisions and their role in wealth accumulation.
Welfare Reform and Non-Marital Fertility in the 1990s: Evidence from Birth Records
Authors: Joyce Ted , Kaestner Robert , Korenman Sanders
Published: December 2005

The 1996 Personal Responsibility and Work Opportunity Reconciliation Act dramatically altered the economic incentive to bear children out-of-wedlock for economically disadvantaged women or couples most likely to avail themselves of welfare programs. We use data from vital statistics and a difference-in-differences research design to investigate whether state and federal welfare reform in the 1990s reduced rates of non-marital childbearing among women aged 19 to 39 at highest risk of welfare use, relative to women at lower risk. We find little consistent evidence for an effect of welfare reform on non-marital childbearing. This finding is similar to the literature that found little or mixed evidence for an effect of AFDC benefits. If anything, federal welfare reform has been associated with a small positive effect of two to three percent for white and black women ages 19 to 39.
Using Placebo Laws to Test "More Guns, Less Crime"
Authors: Helland Eric , Tabarrok Alexander
Published: December 2005

We reexamine Mustard and Lott’s controversial study on the effect of “shall-issue” gun laws on crime using an empirical standard error function randomly generated from “placebo” laws. We find that the effect of shall-issue laws on crime is much less well-estimated than the Mustard and Lott (1997) and Lott (2000) results suggest. We also find, however, that the cross equation restrictions implied by the Lott-Mustard theory are supported. A boomlet has occurred in recent years in the use of quasi-natural experiments to answer important questions of public policy. The intuitive power of this approach, however, has sometimes diverted attention from the statistical assumptions that must be made, particularly regarding standard errors. Failing to take into account serial correlation and grouped data can dramatically reduce standard errors suggesting greater certainty in effects than is actually the case. We find that the placebo law technique (Bertrand, Duflo and Mullainathan 2002) is a useful addition to the econometrician’s toolkit.
What Do We Know About Cross-subsidization? Evidence from Merging Firms.
Authors: Chevalier Judith
Published: December 2005

A substantial empirical literature documents value-destroying “cross-subsidization” among the divisions of diversified firms. However, this literature relies upon two maintained hypotheses: that divisions of diversified firms are randomly allocated to their corporate parents and that the investment opportunities facing conglomerate divisions are identical to those of stand-alone firms in their industries. I examine the investment behavior prior to merger of a sample of firms that undertook diversifying mergers between 1980 and 1995. I show that, in my sample, investment patterns that the literature has attributed to cross-subsidization between divisions are apparent in the pairs of merging firms prior to their mergers. Thus, some of the cross-subsidization results in the literature may be attributable to selection bias. I also examine stock market responses to announcements of diversifying acquisitions. The event responses are largely independent of measures of the extent to which the merger is diversifying.
Cash Constraints and Business Start-Ups: Deutschmarks Versus Dollars
Authors: Holtz-Eakin Douglas , Rosen Harvey S
Published: December 2005

In this paper we analyze microdata to explore differences in the rates at which American and German workers leave their salaried jobs to become self-employed. We document that the rate of self-employment is lower in Germany than in the United States, and the rate of transition from wage-earning to self-employment is lower as well. Our results suggest that German workers face liquidity constraints that are more severe than those of their American counterparts and an environment that discourages transitions to self-employment. The difference in transition rates cannot be attributed to observable differences between German and American workers.
Collusive Bidding in the FCC Spectrum Auctions
Authors: Cramton Peter , Schwartz Jesse A
Published: December 2005

This paper describes the bid signaling that occurred in many of the FCC spectrum auctions. Bidders in these auctions bid on numerous spectrum licenses simultaneously, with bidding remaining open on all licenses until no bidder is willing to raise the bid on any license. Simultaneous open bidding allows bidders to send messages to their rivals, telling them on which licenses to bid and which to avoid. This “code bidding” occurs when one bidder tags the last few digits of its bid with the market number of a related license. We examine how extensively bidders signaled each other with retaliating bids and code bids in the DEF-block PCS spectrum auction. We find that only a small fraction of the bidders commonly used retaliating bids and code bids. These bidders won more than 40% of the spectrum for sale and paid significantly less for their overall winnings.
Cigarette Demand, Structural Change, and Advertising Bans: International Evidence, 1970-1995
Authors: Nelson Jon P.
Published: December 2005

Using panel data for a cross-section of countries, several previous studies estimate the effect of advertising bans on cigarette consumption. These studies suffer from three problems: (1) structural change in cigarette demand functions; (2) endogeneity of advertising bans; and (3) non-stationarity of cigarette consumption data. Using annual data for 20 OECD countries, this study tests for unit roots. Growth rates of cigarette consumption (log differences) are stationary, but levels data are not. I estimate single-equation panel models for 1970-1995 and test formally for structural change. The tests and recursive coefficient estimates confirm a regime change beginning in 1985. Results for different time periods are reported for the effects of price, income, health warnings, country fixed-effects, and moderate and strong advertising bans. The study also considers the possibility of endogenous advertising bans. A public-choice model is estimated as a two-equation model of advertising legislation and cigarette demand. The adoption of advertising bans is modeled as a Poisson count regression, and fitted values for the number of banned media are used as instruments in the demand equation. The results in the paper fail to demonstrate that advertising bans reduce aggregate cigarette consumption. Empirical results in previous studies are not robust to use of stationary data; refinements in model specification; different time periods; and endogeneity of advertising bans. Due to a decline in smoking prevalence, especially among males, there was a change in the political climate in favor of stronger restrictions on cigarette advertising. Overall, advertising bans have had no effect on cigarette consumption, regardless of the time period considered or the severity of the bans.
Forming Voting Blocs and Coalitions as a Prisoner's Dilemma: A Possible Theoretical Explanation for Political Instability
Authors: Gelman Andrew
Published: December 2005

Individuals in a committee or election can increase their voting power by forming coalitions. This behavior is shown here to yield a prisoner's dilemma, in which a subset of voters can increase their power, while reducing average voting power for the electorate as a whole. This is an unusual form of the prisoner's dilemma in that cooperation is the selfish act that hurts the larger group. Under a simple model, the privately optimal coalition size is approximately 1.4 times the square root of the number of voters. When voters' preferences are allowed to differ, coalitions form only if voters are approximately politically balanced. We propose a dynamic view of coalitions, in which groups of voters choose of their own free will to form and disband coalitions, in a continuing struggle to maintain their voting power. This is potentially an endogenous mechanism for political instability, even in a world where individuals' (probabilistic) preferences are fixed and known.
How Does Job Loss Affect the Timing of Retirement?
Authors: Chan Sewin , Stevens Ann H
Published: December 2005

This paper estimates the extent to which reduced employment following job loss among older workers can be explained as a response to altered pension incentives and earnings opportunities. Using data from the Health and Retirement Study, we first examine how workers earnings, assets, pensions and the resulting financial incentive to retire are affected by job loss. We find important effects of job loss on the main financial components of workers incentive to retire. We then examine retirement behavior after job loss, controlling for these changed retirement incentives, along with any additional effects of displacement not captured by retirement incentives. We find that the observed increased rates of retirement among displaced workers go far beyond these purely financial considerations. Very little of the reduced employment among older job losers can be explained by changes in wages and pension-related retirement incentives. Other barriers to reemployment may be more important explanations for the low employment rates of recently displaced older workers.
Why Do the Poor and the Less-Educated Pay More for Long-Distance Calls?
Authors: Hausman Jerry A. , Sidak J. Gregory
Published: December 2005

The benefits of competition among the long-distance interexchange carriers (IXCs) are not realized equally by all their customers. Despite the declines in rates under the discount plans, we document that basic message toll service (MTS) rates have been rising for several years. We show that poorer and less educated customers pay more than better educated and more affluent customers. We suspect that the reason for this correlation is that they are more apt to pay the MTS rates or other high rates, and we present some preliminary evidence that this tendency explains the correlation that we find. We also present evidence that the payment differences exist even after controlling for usage. These findings are significant because it seems likely to us that these two patterns (rising MTS rates and higher payments by the poor and the less educated) will each be ameliorated by the entry of the regional Bell operating companies (RBOCs) into long-distance marketsa state-by-state regulatory process that was nearly complete as of the beginning of 2004.
Ethnicity and Networks in African Trade
Authors: Fafchamps Marcel
Published: December 2005

This paper investigates the role of ethnicity, religion, gender, and networks in domestic agricultural trade in Africa. Using a theoretical model of self-disciplining markets, we begin by demonstrating that statistical discrimination and networks can generate similar patterns of ethnic concentration. The model also predicts that traders who start with an ethnic or network advantage grow faster. We then test these ideas using original survey data collected in Benin, Malawi, and Madagascar. We find no evidence that members of a particular sex or ethnic group are more easily trusted by suppliers and trust clients more easily. In contrast, network effects have a strong and systematic effect on trust and information sharing. We also find some evidence that religion matters, but the effect is not due to discrimination or better networks. Ethnicity also has little effect on start-up networks and working capital but women accumulate working capital slower than men, including in Benin where women represent 80% of surveyed traders. Agricultural trade appears fairly open to all, irrespective of gender, ethnicity, or religion.
Adjustment Costs and Irreversibility as Determinants of Investment: Evidence from African Manufacturing
Authors: Bigsten Arne , Collier Paul , Dercon Stefan , Fafchamps Marcel , Gauthier Bernard , Gunning Jan Willem , Oostendorp Remco , Pattillo Catherine , Söderbom Måns , Teal Francis
Published: December 2005

In this paper we investigate if the predictions of three different models of capital adjustment costs are consistent with the observed investment patterns among manufacturing firms in five African countries. We document a high frequency of zero investment episodes, which is consistent with both fixed adjustment costs and irreversibility and inconsistent with quadratic adjustment costs. We model the decision to invest using a dynamic discrete choice model and find evidence of irreversibility and not fixed costs. We finally model the investment rate as a function of the size of the capital disequilibrium. The results confirm that irreversibility is an important factor affecting the investment behaviour of African manufacturing firms. Some implications of this finding are discussed.
Do Parents Value Changes in Test Scores? High Stakes Testing in Texas
Authors: Dills Angela K.
Published: December 2005

Texas evaluates, accredits, and financially rewards schools based on student test scores. Test scores increased dramatically following this implementation of high stakes testing. This paper examines whether homebuyers valued these test score increases. The results show little or no relation between changes in test scores and changes in total housing value in a district. Strikingly, improved performance on college entrance exams is associated with increased total housing value. Using the college entrance exams as a benchmark, the results on the state test suggest that high stakes testing failed to increase perceived school quality.
The Effect of the Nonprofit Motive on Hospital Competitive Behavior
Authors: Harrison Teresa D. , Lybecker Kristina M.
Published: December 2005

In this paper, we employ three simple theoretical models of nonprofit hospitals to investigate equilibrium behavior when hospitals compete. Utilizing a differentiated Bertrand model, we examine how prices, quantity of patients served, service to the uninsured, and quality of care are affected as nonprofits place more weight on profit maximization. We find that the specification of the nonprofit motive greatly impacts the results. When the nonprofit motive is maximizing output, prices rise for both hospitals as the nonprofit moves away from its nonprofit motive. However, if the nonprofit cares about serving the uninsured, prices in the market fall. Finally, when hospitals compete on price and quality, more emphasis on profits results in an increase in price at the for-profit hospital and a decrease in price at the nonprofit hospital. These results suggest that the importance of the nonprofit motive has been underestimated and should be further investigated.
A Test for Collusion between a Bidder and an Auctioneer in Sealed-Bid Auctions
Authors: Ingraham Allan T
Published: December 2005

This paper derives a regression-based test to detect bidder-auctioneer cheating in sealed bid auctions. I apply this regression test to data from the New York City School Construction Authority auctions, an approximate one billion dollar per year auction market in which an auctioneer engaged in bidder-auctioneer cheating. Using the regression analysis to compare lots where bid rigging occurred with certainty to all other auctions allows one to conclude that bidder-auctioneer cheating significantly distorted the bid distribution. Comparing specific auctioneer lots before news of the cheating scandal became public with those after the scandal, I find significant differences in bidding, at the 10 percent level of significance, for two auctioneers. Therefore, bidder-auctioneer cheating may not have been limited to the one auctioneer charged with rigging bids.
On Vertical Differentiation Under Bertrand and Cournot: When Input Quality has Upward Sloping Supply
Authors: Frascatore Mark R.
Published: December 2005

This paper compares Bertrand and Cournot duopolies in which firms can vertically differentiate their products and in which input quality has upward sloping supply. Contrary to previous results, if supply is either linear or convex with a high coefficient, firms differentiate their products equally under Bertrand and Cournot, with one firm choosing the minimum quality. If supply is convex with a low coefficient, firms differentiate more under Bertrand. Profit and welfare implications are discussed, as is the strategic choice of quality as an entry deterrence strategy.
Pension systems in integrated capital markets
Authors: Casarico Alessandra
Published: December 2005

The paper studies the effects on factor prices and welfare of the integration in a perfect world capital market of countries that differ in the degree of funding of their pension systems. It focuses on two large economies running respectively a pay-as-you-go and a fully funded pension system and it first analyzes the open economy implications of the different pension designs under the assumption that the pay-as-you-go system is balanced and in steady state equilibrium. It then elaborates on the institutional structure of the pay-as-you-go system to analyze how its degree of maturity, its expenditure profile and the presence of debt financing affect factor prices and welfare in open economy. Finally, it focuses on pension reform issues. The paper shows that, under perfect capital mobility, the differences in the degree of funding of the pension systems cause divergent welfare effects across generations and across countries. It shows that the design features of the pay-as-you-go scheme play a role in the world equilibrium and it identifies which of them can amplify or reduce the open economy linkages operating through the pension schemes.
Ambient environmental inspections and commitment towards enforcement policies: substitutes or complements?
Authors: Franckx Laurent
Published: December 2005

We consider an inspection game between polluting firms and an environmental enforcement agency that can inspect ambient pollution before inspecting individual firms. We assume that the enforcement agency's objectives do not perfectly correspond with the objectives of the legislative body who determines the standards for compliance and the fines for non-compliance, and that the enforcement agency can determine its inspection policy independently. However, contrary to Franckx (2002), we assume that the agency can commit to inspection probabilities. We show that this commitment power radically changes the value of ambient inspections.

If the legislator imposes an infinite fine, commitment power and ambient inspections are perfect substitutes: both allow the agency to obtain perfect compliance without actually inspecting firms. However, with upper limits to the fine, ambient inspections and commitment power are complements. Indeed, if the agency does not conduct ambient inspections, it can only obtain perfect compliance by announcing high probabilities of firm inspections. With stringent upper limits to the fine, this implies high inspection costs. However, if the agency conducts ambient inspections, it can announce probabilities of firm inspections that are conditional on behavior that will not be observed in equilibrium, and all firms will comply.