Rank based cointegration testing for dynamic panels with fixed <Emphasis Type="Italic">T</Emphasis>

In this paper, we show that the cointegration testing procedure of Binder et al. (Econom Theory 21:795–837, 2005) for Panel Vector Autoregressive model of order 1, PVAR(1) is not valid due to the singularity of the hessian matrix. As an alternative we propose a method of moments based procedure using the rank test of Kleibergen and Paap (J Econom 133:97–126, 2006) for a fixed number of time series observations. The test is shown to be applicable in situations with time-series heteroscedasticity and unbalanced data. The novelty of our approach is that in the construction of the test we exploit the “weakness” of the Anderson and Hsiao (J Econom 18:47–82, 1982) moment conditions. The finite-sample performance of the proposed test statistic is investigated using simulated data. The results indicate that for most scenarios the method has good statistical properties. The proposed test provides little statistical evidence of cointegration in the employment data of Alonso-Borrego and Arellano (J Bus Econ Stat 17:36–49, 1999).     

<Emphasis Type="Italic">Resourceship</Emphasis>: An Austrian theory of mineral resources

Economists inside and outside of the Austrian-school tradition have formulated a subjectivist theory of mineral resources. While von Mises (1940) presented a rudimentary theory, institutionalist Zimmermann (1933 and after) provided an in-depth mind-centered approach distinct from the objective, neoclassical theory for minerals developed by Jevons (1865, 1866), Gray (1913), and Hotelling (1931). A full-fledged Austrian theory identifies the fixity/depletionism view of minerals as incompatible with entrepreneurship. Mineral resourceship, praxeologically akin to manufacturing, or the making of capital goods, demotes the distinction between depletable and nondepletable resources for the sciences of human action. Instead of nonreproducibility, the interplay of geography and institutions becomes the locus of mineral-resource theory, given the nonuniform distribution of deposits. An Austrian-institutional theory is more robust for explaining changes in mineral-resource scarcity than neoclassical depletionism, and offers a wide research agenda for current debates over resource production, usage, and future availability.

Endogenous timing in a mixed oligopoly with semipublic firms

An endogenous order of moves is analyzed in a mixed market where a firm jointly owned by the public sector and private domestic shareholders (a semipublic firm) competes with n private firms. We show that there is an equilibrium in which firms take production decisions simultaneously. This result is strikingly different from that obtained by Pal (Econ Lett 61:181–185, 1998), who shows that when a public firm competes with n private firms all firms producing simultaneously in the same period cannot be sustained as a Subgame Perfect Nash Equilibrium outcome. Our result differs from that of Pal (Econ Lett 61:181–185, 1998) for two reasons: firstly, we consider that there is a semipublic firm rather than a public firm. Secondly, Pal (Econ Lett 61:181–185, 1998) considers that the public firm is less efficient than private firms while in our paper all firms are equally efficient.     

Agreeing on generalised Darwinism: a response to Pavel Pelikan

Pelikan (J Evol Econ 21:341–366, 2011) develops an interesting conceptual framework that adds to prior work on generalised Darwinism. Despite claims to the contrary we show that it is similar to the approach developed by Hodgson and Knudsen (J Evol Econ 16(4):343–366, 2006a, J Econ Behav Organ 75(1):12–24, 2010a, b), Aldrich et al. (J Evol Econ 18(5):577–596, 2008) and others. Pelikan also mischaracterises the Hodgson–Knudsen position over Lamarckism. We show why the term is misleading (rather than strictly wrong) when applied to social evolution.     

Is the monetary policy rule responsive to exchange rate changes? The case of Indonesia,Malaysia, the Philippines,and Thailand

Extending Obstfeld and Rogoff (J Econ Perspect 9:73–96, 1995), Ball (Monetary policy rules, University of Chicago Press, pp. 127–144, 1999), Svensson (J Int Econ 50: 155–183, 2000), Taylor (Am Econ Rev 91: 263–267, 2001), Gali and Gertler (J Econ Perspect 21:25–46, 2007), and others, this paper finds that central banks in the Philippines and Thailand respond negatively to the current real exchange rate and positively to the lagged real exchange rate whereas central banks in Indonesia and Malaysia do not react to the current or lagged real exchange rate. For the Philippines and Thailand, the null hypothesis that the sum of the coefficients of the current and lagged real exchange rates is zero cannot be rejected at the 5% level. Central banks in these four countries respond positively to the inflation rate and the output gap, suggesting that the concept of a simple or an extended Taylor rule would apply to these countries. Monetary policy reaction functions for Indonesia and Thailand are steeper than those for Malaysia and the Philippines and would be more responsive to a change in the inflation rate.      

On <Emphasis Type="Italic">Private Governance</Emphasis>

Edward Peter Stringham’s book Private Governance: Creating Order in Economic and Social Life (2015) is a compelling defense of the proposition that private governance is more widely used and more effective than most people think. Stringham looks to history to see how people solved problems of fraud and cheating without government intervention and provides example after compelling example to contradict the strong claim that a government or any third-party enforcer is necessary for voluntary exchange. While Stringham doesn’t take on the tough problem that private governance is not sufficient for its task, his book is intended to be the beginning, not the end, of thinking about private governance.     

Detrimental externalities, pollution rights, and the “Coase theorem”

This paper, which builds on Chipman (The economist’s vision. Essays in modern economic perspectives, 131–162, 1998), analyzes a simple model formulated by Hurwicz (Jpn World Econ 7:49–74, 1995) of two agents—a polluter and a pollutee—and two commodities: “money” (standing for an exchangeable private good desired by both agents) and “pollution” (a public commodity desired by the polluter but undesired by the pollutee). There is also a government that issues legal rights to the two agents to emit a certain amount of pollution, which can be bought and sold with money. It is assumed that both agents act as price-takers in the market for pollution rights, so that competitive equilibrium is possible. The “Coase theorem” (so-called by Stigler (The theory of price, 1966) asserts that the equilibrium amount of pollution is independent of the allocation of pollution rights. A sufficient condition for this was (in another context) obtained by Edgeworth (Giorn Econ 2:233–245, 1891), namely that preferences of the two agents be “parallel” in the money commodity, whose marginal utility is constant. Hurwicz (Jpn World Econ 7:49–74, 1995) argued that this parallelism is also necessary. This paper, which provides an exposition of the problem, raises some questions about this result and provides an alternative necessary and sufficient condition.     

Sustainable markets with short sales

Market objectives can conflict with long-term goals. Behind the conflict is the impatience axiom introduced by T. Koopmans to describe choices over time. The conflict is resolved here by introducing a new concept, sustainable markets. These differ from Arrow-Debreu markets in that traders have sustainable preferences and no bounds on short sales. Sustainable preferences are sensitive to the basic needs of the present without sacrificing the needs of future generations and embody the essence of sustainable development (Chichilnisky in Soc Choice Welf 13(2):231–257, 1996a; Res Energy Econ 73(4):467–491, 1996b). Theorems 1 and 2 show that limited arbitrage is a necessary and sufficient condition describing diversity and ensuring the existence of a sustainable market equilibrium where the invisible hand delivers sustainable as well as efficient solutions (Chichilnisky in Econ Theory 95:79–108, 1995; Chichilnisky and Heal in Econ Theory 12:163–176, 1998). In sustainable markets prices have a new role: they reflect both the value of instantaneous consumption and the value of the long-run future. The latter are connected to the independence of the axiom of choice at the foundations of mathematics (Godel 1940).     

Tobin <Emphasis Type="Italic">q</Emphasis>: Forecast performance for hierarchical Bayes,shrinkage, heterogeneous and homogeneous panel data estimators

This paper reconsiders the Tobin q investment model studied by Hsiao et al. (1999) using a panel of 337 U.S. firms over the period 1982–1998. It contrasts the out-of-sample forecasts performance of hierarchical Bayes, shrinkage, as well as heterogeneous and homogeneous panel data estimators. We are very grateful to Cheng Hsiao and A. Kamil Tahmiscioglu for providing us with the data set and computer code for the Hierarchical Bayes estimator as well as useful suggestions and comments.     

Regulatory economics and the journal of regulatory economics: a 30-year retrospective

Over the 30 year history of the Rutgers University CRRI Eastern Conference the regulatory scene has changed dramatically. In 1989 the first Issue of the Journal of Regulatory Economics appeared. This paper builds on Crew and Kleindorfer (J Regul Econ 21(1):5–22, 2002), which reviewed 20 years in the development of regulatory economics. In addition, this aricle outlines the history and assesses the significance of the JRE in the literature of regulatory economics.     

Evolution of networks—an experimental analysis

It is the main aim of our paper to study network formation in experimental setups in discrete and continuous time. Our design is inspired by the theoretical model on network formation by Bala and Goyal (Econometrica, 68(5): 1181–1229, 2000) as well as the experiments by Callander and Plott (J. Public Econ., 89: 1469–1495, 2005) and Falk and Kosfeld (IEW Working Paper, University of Zürich, Zürich, Switzerland, No. 146, 2003). In particular, we analyze the role of star-shaped networks which are strict Nash-equilibria of the corresponding network formation game. Our experimental results show that strict Nash networks prove to be a good indicator for predicting network formation, particularly in continuous time. In explaining our results, it turns out that, among others, the complexity in coordinating on stars, the inequity aversion against unequal payoff distribution in the network, and the groups’ degrees of activity are the most important determinants for the formation of strict Nash networks.      

On economic growth and minimum wages

We offer an analysis of the existence of a positive relationship between minimum wages and economic growth in a simple one-sector overlapping generations economy à la Romer (J Polit Econ 94:1002–1037, 1986), in the case of both homogeneous and heterogeneous labour and without considering any growth-sustaining externalities which the minimum wage can generate. Assuming also the existence of unemployment benefits financed with balanced-budget consumption taxes not conditional upon age, we show that the minimum wage can promote economic growth and welfare despite the occurrence of unemployment. There may also exist a growth- and welfare-maximising minimum wage.     

State-owned enterprises as indirect instruments of entry regulation

In the context of mixed markets, Matsumura and Kanda (J Econ 84(1): 27–48, 2005) show that social welfare in free entry equilibrium is maximized when there exists a public firm in the market. En passant, these authors state that this outcome is connected to the entry-deterring influence of a public firm. In this way, they counter-act the excess entry problem of Mankiw and Whinston (Rand J Econ 17(1): 48–58, 1986). We explain this result arguing that the state-owned firm can be an indirect instrument to regulate entry. In fact, under free entry equilibrium welfare may be greater with the presence of a public firm than with a social planner.      

A tale of two tails: peakedness properties in inheritance models of evolutionary theory

In this paper, we study transmission of traits through generations in multifactorial inheritance models with sex- and time-dependent heritability. We further analyze the implications of these models under heavy-tailedness of traits’ distributions. Among other results, we show that in the case of a trait (for instance, a medical or behavioral disorder or a phenotype with significant heritability affecting human capital in an economy) with not very thick-tailed initial density, the trait distribution becomes increasingly more peaked, that is, increasingly more concentrated and unequally spread, with time. But these patterns are reversed for traits with sufficiently heavy-tailed initial distributions (e.g., a medical or behavioral disorder for which there is no strongly expressed risk group or a relatively equally distributed ability with significant genetic influence). Such traits’ distributions become less peaked over time and increasingly more spread in the population. The proof of the results in the paper is based on the general results on majorization properties of heavy-tailed distributions obtained recently in Ibragimov (Econom Theory 23: 501–517, 2007) and also presented in the author’s Ph.D. dissertation (Ibragimov, New majorization theory in economics and martingale convergence results in econometrics. Yale University, 2005) and several their extensions derived in this work.      

Compatibility of expected utility and <Emphasis Type="Italic">μ/σ</Emphasis> approaches to risk for a class of non location–scale distributions

Proofs of compatibility of the expected utility and μ/σ approaches to incorporating uncertainty in decision making exist for at least some utility functions and location–scale distributions. But there are severe constraints and it is desirable to investigate compatibility more widely. We do so for the class of distributions that are transformable to location–scale form by concave transformation and where the utility functions remain concave under transformation. The class is important, containing distributions such as the lognormal and Pareto, usually considered more appropriate for modelling income or wealth than those in the location–scale family. We are grateful to Jack Meyer for very helpful comments and discussions and also to an anonymous referee for useful remarks.     

Ambiguity attitude, R&D investments and economic growth

The process aimed at discovering new ideas is an economic activity the returns from which are intrinsically uncertain. We extend the neo-Schumpeterian growth framework to investigate the role of strong uncertainty in the innovative process. In particular, we postulate that, when deciding upon R&D efforts, investors hold ‘ambiguous beliefs’ about the exact probability of arrival of the next vertical innovation, and that they face ambiguity via the α −MEU decision rule (Ghirardato et al., J Econ Theory 118:133–173, 2004). Along the balanced growth path, the higher the agent’s ambiguity aversion (α), the lower the R&D efforts and the economic performance. Consistent with cross-country empirical evidence, this causal mechanism suggests that, together with the profitability conditions of the economy, different ‘cultural’ attitudes towards ambiguity may help explain the different R&D efforts observed across countries.     

A new model of income distribution: the κ-generalized distribution

This paper proposes a three-parameter statistical model of income distribution by exploiting recent developments on the use of deformed exponential and logarithm functions as suggested by Kaniadakis (Phys A 296:405–425, 2001; Phys Rev E 66:056125, 2002; Phys Rev E 72:036108, 2005). Formulas for the shape, moments and standard tools for inequality measurement are given. The model is shown to fit remarkably well the personal income data for Great Britain, Germany and the United States in different years, and its empirical performance appears to be competitive with that of other existing distributions.     

The Impact of Climate Change on the Balanced Growth Equivalent: An Application of <Emphasis Type="Italic">FUND</Emphasis>

The Stern Review added balanced growth equivalents (BGE) to the economic climate change research agenda. We first propose rigorous definitions of the BGE for multiple regions and under uncertainty. We show that the change in the BGE is independent of the assumed scenario of per capita income. For comparable welfare economic assumptions as the Stern Review, we calculate lower changes in BGE between a business as usual scenario and one without climate impacts with the model FUND than the Stern Review found with the model PAGE. We find that mitigation policies give even lower changes in BGE and argue that those policy choices should be the focus of the research effort rather than total damage estimates. According to our results, the current carbon tax should be below $55/tC. Sensitivity analyses show that the Stern Review chose parameters that imply high impact estimates. However, for regionally disaggregated welfare functions, we find changes in BGE that are significantly higher than the results from the Stern Review both for total damage as for policy analysis. With regional disaggregation and high risk aversion, we observe fat tails and with that very high welfare losses.      

Optimal pricing of a two-sided monopoly platform with a one-sided congestion effect

This paper studies the optimal pricing of a two-sided monopoly platform when one side is affected by congestion. We show that the divide-and-conquer pricing strategy (or skewed pricing) depends not only on the relative magnitude of the sides’ price elasticities of demand but it also depends on the marginal congestion cost that an agent imposes on the others. Compared with the no-congestion case, this pricing strategy gives rise to some interesting features that violate the results of Rochet and Tirole (J Eur Econ Assoc 1:990–1029 in 2003, Rand J Econ 37:645–667 in 2006). In the case of equal price elasticities of demand, the no-congested side is charged the highest price. On the other hand, in the case of different price elasticities, the platform congestion pricing depends on a certain threshold of the marginal congestion cost. We show, under some conditions, that the divide-and-conquer pricing strategy is reversed. In the social context, the Rochet and Tirole’s (J Eur Econ Assoc 1:990–1029 in 2003) cost allocation condition is modified by the congestion cost. We show that the congestion does not only affect the buyers’ contribution to the sellers’ surplus, but it also affects the sellers’ contribution to the buyers’.     

Strategic manipulation of a pollution permit market and international trade

We consider a framework where firms which compete in an international product market are not all submitted to a pollution permit market. Using the Brander and Spencer’s framework (J Int Econ 18:83–100, 1985), we seek to determine the optimal strategies of both a dominant firm in the pollution permit market and the regulator in a such context. We first show that the dominant firm pursues a strategic manipulation to increase its profit. We also find that the regulator uses a sophisticated strategic policy to increase the domestic welfare by using two instruments: the initial allocation of pollution permits and the pollution cap.