Hybrid Contests

This paper examines hybrid contests where participants commit two types of resources to improve their probability of winning the prize. The first type is forfeited ex ante, before the prize is allocated, by winners and losers alike, while the second is committed ex ante by all contenders but expended ex post, after the prize is allocated, and only by the contestant that wins the prize. The model yields a number of interesting results. Among them is the finding that, as the number of contestants increases, the ex ante expenditures of individual contestants decrease while the ex post expenditure increases. Even more interesting, the total of the ex ante and ex post expenditures by the contenders in a hybrid contest may decrease with the number of competitors. The study also finds that there is no rent overdissipation, and compares the total expenditures in the contest and “all‐pay” allocation mechanisms.     

Vertical integration and transaction-specific sunk costs

The purpose of this paper is to analyze vertical integration, long-term contracts and spot markets as institutional alternatives when transaction-specific investments are involved. Firm activities are divided into two periods. In the first period (the ex ante world), decisions on the amount of transaction-specific sunk costs are made, whereas after realization of a random state of the world, short-run production decisions are made (in the ex post world). The problem analyzed is to determine what form of organizations and/or contracts will emerge between upstream and downstream firms in the ex ante world to regulate their ex ante transaction-specific investments, if any, as well as their ex post production decisions and the distribution of resulting profits.     

Random biographical notes

These notes, written in 1965 for Tadeusz Kowalik, provide anapt introduction to this issue of the Cambridge Journal of Economicswhich is dedicated to the memory of Maurice Dobb, for they revealthe political commitment and humanity of a modest but essentiallycourageous man. The essays which follow examine a variety ofaspects of the wide range of Maurice Dobb's contributions toeconomic knowledge. All display a spirit of constructive criticismwhich is appropriate in approaching the work of such a majorfigure.     

A NOTE ON THE PROPERTY RIGHTS THEORY AND THE EX ANTE VALUE OF INFORMATION

This paper examines the ex ante value of information in the property rights model where the possibility exists that an investing agent can be provided with relevant information before investments are undertaken. When contracts are incomplete, from an ex ante perspective, informing the investing agent does not necessarily increase the expected surplus resulting from a relationship between two economic agents. The paper highlights the fact that the second‐best nature of the problem that arises from contractual incompleteness can ensure this.     

MEASURING VARIATIONS IN LIFETIME WELFARE EX ANTE AND EX POST: SOME EXPLORATORY CALCULATIONS

Whereas longevity‐adjusted consumption measures have become increasingly used as indicators of lifetime standards of living, it remained unnoticed that those measures, by relying on period – rather than cohort – life tables, constitute indicators of expected – rather than actual – lifetime standards of living. In order to estimate the actual gap between ex ante and ex post measures of lifetime welfare, this paper computes, for 19th‐century European economies, longevity‐adjusted consumption measures based on period and cohort life tables. It is shown that the gap between ex ante and ex post measures is statistically significant, and that attempts to reduce it are likely to be unsuccessful, because standards of living tend to exhibit, over temporal horizons as long as a human life, structural breaks, which make the ex ante measurement of lifetime welfare highly speculative.     

Discrepancies between ex ante and ex post efficiency under identical subjective probabilities

Summary. Starr (1973) showed that, if people have different subjective probabilities, ex ante and ex post efficiency conflict. Conversely, under the simple preferences that he considered, the discrepancy between ex ante and ex post efficiency disappears when subjective probabilities are identical. Here I consider identical subjective probabilities, but more general preferences. First, risk attraction is admitted. Second, I dispense with the double requirement (dubbed IZU) of additive separability and state-independence of the utility of zero-date consumption, an unrealistic requirement when modeling the investment in durable goods. I find that, under IZU, and as long as ex post preferences satisfy the natural assumption of quasiconcavity (and satisfy some technical qualifications), an ex ante efficient allocation is indeed ex post efficient, but the converse is not necessarily true under risk attraction. If, on the other hand, IZU is violated, then one can have ex ante efficient allocations that are not ex post efficient, and vice-versa, even under risk aversion. Received: June 25, 1999; revised version: March 2001     

Fiscal Policy in Real Time*

In this paper, I estimate the ex ante or intentional cyclical stance of fiscal policy in OECD countries. I use the fiscal plans reported at the time of budgeting, together with other information available to fiscal policy‐makers in real time. Indeed, fiscal plans might be significantly different from ex post outcomes because governments do not have complete control over their implementation, which is influenced by several exogenous factors. When fiscal‐policy rules are estimated using real‐time data, I show in this paper that OECD countries have often planned a counter‐cyclical fiscal stance, especially during economic expansions. This contrasts with conventional findings based on actual data, which tend to point towards a‐cyclicality or pro‐cyclicality. Forecast errors for the government structural balance and the output gap play a central role in explaining the differences between estimates based on ex ante and ex post data.     

累积创新中的内生许可证

This paper analyzes the endogeneity of licensing arrangements in cost-reducing cumulative innovation. There exists the following results. First, for the first-generation patentee, ex post licensing matters for rent extraction while ex ante licensing matters for efficiency. Second, if the second-generation innovator does not exit, then the firms’ profits as well as social welfare are all irrelevant to whether ex ante licensing is allowed. Third, costly litigation can occur on the equilibrium path and its occurrence is also irrelevant to ex ante licensing. Interestingly, the conditional probability of the first-generation patentee winning litigation first decreases and then increases in patent breadth. Fourth, optimal patent breadth depends on the tradeoff between litigation costs and antitrust effect. Translated from Shijie Jingji Wenhui 世界经济文汇 (World Economic Papers), 2006, (6): 1–29     

Transparency in the Foreign Exchange Market and the Volume of International Trade

In this paper we study the impact of more transparency in the foreign exchange market on the ex ante expected volume of international trade. Transparency is measured by the informational content of publicly observable signals. These signals convey information about the use of policy instruments which affect the future exchange rate. We find that a higher level of transparency may increase or decrease the volume of international trade. In particular, the impact of greater transparency depends on the curvature of the firms’ marginal cost function. Furthermore, the firms’ex ante expected profits are higher when the foreign exchange market is more transparent.     

Do judges react to the probability of appellate review? Empirical evidence from trial court procedures

The appellate review system is intended to serve as an efficient remedy for imperfect judicial decision making. However, it can fulfil this task only when appeals are ex ante unpredictable to the judge, and thus can be expected to occur primarily in case of a bad verdict. Using data from case records of a German trial court, we show that the probability of appeal can be predicted based on easily observable exogenous factors. Controlling for the complexity of a legal case, we find that judges also tend to decrease their effort when the ex ante probability of appeal is low. Thus, our empirical evidence indicates an inefficiency in the appellate review system because trial judges allocate their effort to cases not exclusively according to case complexity, but particularly according to the ex ante probability of being reviewed.     

Uncertainty,Learning and Heterogeneity in International Environmental Agreements

This paper concerns the formation of International Environmental Agreements under uncertainty about environmental damage with different models of learning (complete learning, partial learning or no learning). The results of the existing literature are generally pessimistic: the possibility of either complete or partial learning generally reduces the level of global welfare that can be achieved from forming an IEA relative to no learning. That literature regards uncertainty as a parameter common to all countries, so that countries are identical ex ante as well as ex post. In this paper we extend the literature to the case where there is no correlation between damage costs across countries; each country is uncertain about a particular parameter (in our case the benefit-cost ratio) drawn from a common distribution but, ex post, each country’s realized parameter value is independently drawn. Consequently, while countries remain identical ex ante, they may be heterogeneous ex post. We show that this change reinforces the negative conclusions about the effects of partial learning on international environmental agreements, but, under certain conditions, moderates the negative conclusions about the effects of complete learning.     

Economic Calculation: Private Property or Several Control?

Abstract

As the centenary of the 1917 Russian revolution approaches, it is worth reviewing the past 100 years’ discussion amongst economists on the possibility—or otherwise—of economic planning under socialism. The socialist calculation debate is of fundamental importance, not merely as a specialist application of economic ideas, but as an investigation of the foundations of economic activity. Every economic action is premised upon calculation, every choice depends upon an assessment of the costs and benefits of each alternative between which the agent must choose. The view of that choice and its attendant calculation is constitutive of the schools of thought—Marxian, neoclassical and Austrian—which have contributed to the debate. An understanding of the calculation debate is therefore required to understand how these paradigms stand in relation to each other. This article addresses one aspect of that debate—the claim by Austrian economists that socialism is impossible because the absence of private property in the means of production precludes economic calculation. The article suggests that several control rather than private property is required for economic calculation, and that several control is consistent with public ownership of the means of production. The Austrian argument on this point, therefore, is without force.     

Growth with many agents and wages paid ex ante

In this paper, we consider a one-sector model of economic growth with several infinitely-lived heterogeneous agents, who are endowed with diverse discount factors as well as preferences over consumption. In line with the classical Ramsey model, agents are not allowed to borrow against future income. Unlike the traditional assumption of ex post wage payment, wages are paid ex ante in our model. We first explain the difference between the assumptions of wages being paid ex ante and wages being paid ex post in the framework of a simple illustrative two-class model. Our main result shows that in contrast to the many-agent Ramsey model with ex post wage payment, the capital stock sequence converges to the steady state stock irrespective of production technology employed by the firms. Further, all impatient agents own zero capital stock, whereas the most patient agent owns the entire capital stock from some time onward. Thus, we have shown that a slight modification in the timing of wage payment in growth models can lead to significant changes in the stability properties of equilibrium dynamics.     

Correct cointegration tests of the long-run relationship between nominal interest and inflation

The Fisher (1930) hypothesis suggests that a long-run equilibrium relationship exists between the non-stationary series: nominal interest and expected inflation. Testing such a cointegrating relationship is complicated by the presence of the unobserved ex antereal rate of interest in residuals from the cointegrating regression. Assumptions concerning the stochastic properties of the expected real rate of interest are examined, and two proxies for the ex antereal rate are employed in multivariate cointegration tests of the Fisher hypothesis.     

Abortion Access and Risky Sex Among Teens: Parental Involvement Laws and Sexually Transmitted Diseases

Laws requiring minors to seek parental consent or to notifya parent prior to obtaining an abortion raise the cost of riskysex for teenagers. Assuming choices to engage in risky sex aremade rationally, parental involvement laws should lead to lessrisky sex among teens, either because of a reduction of sexualactivity altogether or because teens will be more fastidiousin the use of birth control ex ante. Using gonorrhea rates amongolder women to control for unobserved heterogeneity across states,our results indicate that the enactment of parental involvementlaws significantly reduces risky sexual activity among teenagegirls. We estimate reductions in gonorrhea rates of 20% forHispanics and 12% for whites. Although we find a relativelysmall reduction in rates for black girls, it is not statisticallysignificant. We speculate that the racial heterogeneity hasto do with differences in family structure across races.     

Urban Planning,Smart Growth,and Economic Calculation: An Austrian Critique and Extension

This paper takes a critical look at the Smart Growth movement and its reliance on traditional central planning to achieve its goals. Using statewide planning in Oregon, Florida, and Washington State as examples, the paper examines the planning focus of recent efforts to manage growth through land-use planning at the state level. It then applies the Austrian critique of economic planning to the contemporary Smart Growth movement in the United States as it is reflected in statewide planning laws. The calculation debate focused primarily on the technical question of whether bureaucratic planning could, in fact, achieve market outcomes. In the current debate over Smart Growth, planning combines political and bureaucratic decisionmaking. The political context in which planning decisions are made fundamentally alters the decision making process, shifting the emphasis to articulate knowledge as the foundation for policymaking. To be relevant in the current debate over planning, the calculation debate needs to be extended to include a political dimension to its critique of planning.     

Risk sharing and industrial specialization in China

We investigate how risk sharing shapes industrial specialization across prefecture-level cities in China. By unbundling the mechanisms of risk sharing, we find that ex ante risk sharing generates a first-order stimulant effect on the geographical concentration of manufacturing industries, particularly for non-state-owned enterprises and cyclical industries. Ex post risk sharing matters only for state-owned enterprises. This result remains robust to instrument variable estimation and controlling for other determinants of industrial specialization. Finally, we show that interregional labor migration (special fiscal transfers) plays an important role in promoting interregional ex ante (ex post) risk sharing. The study implies that much more risk sharing and efficiency gains from industrial specialization would be achieved if capital markets and credit markets are better developed.     

Barriers to Global Free Trade through Bilateral Agreements

This paper examines the formation of bilateral free trade agreements (FTAs) in the context of a dynamic noncooperative bargaining game with a random proposer. We show that global free trade (a grand coalition) does not necessarily occur unless transfer payments among countries are allowed. When transfer payments are possible, bilateral FTAs always achieve global free trade, but the ex‐ante and ex‐post inequalities of social welfare among countries are larger than those when all countries are independent because of the strategic bargaining behavior.     

Rational Speculative Bubbles: An Empirical Investigation of the London Stock Exchange

In recent years, a sharp divergence of London Stock Exchange equity prices from dividends has been noted. In this paper, we examine whether this divergence can be explained by reference to the existence of a speculative bubble. Three different empirical methodologies are used: variance bounds tests, bubble specification tests, and cointegration tests based on both ex post and ex ante data. We find that, stock prices diverged significantly from their fundamental values during the late 1990's, and that this divergence has all the characteristics of a bubble.