Market power and fiscal policy in OECD countries

We compute average markups as a measure of market power throughout time and study their interaction with fiscal policy and macroeconomic variables in a VAR framework. From impulse-response functions, the results, with annual data for a set of 14 OECD countries, show that the markup (i) depicts a pro-cyclical behaviour with productivity shocks and (ii) a counter-cyclical behaviour with fiscal spending shocks. We also use a PVAR, increasing the efficiency in the estimations, which confirms the country-specific results.     

On the dynamics of an endogenous growth model with learning by doing

Summary. The paper studies the local dynamics of an endogenous growth model with externalities of investment. It is demonstrated that, in case of sustained per capita growth, the competitve economy is characterized by a situation with a unique balanced growth path which is saddle point stable or by a situation with two balanced growth paths. If there are two balanced growth paths, the one with the higher growth rate is a saddle point whereas the path with the lower growth rate is either completely stable, with convergence to a rest point or limit cycle, or completely unstable. In the social optimum the existence of a balanced growth path implies that it is unique and that this path is a saddle point. Received: May 15, 2000; revised version: December 14, 2001     

On preferences with infinitely many subjective states

Models with subjective state spaces have been extremely useful in capturing novel psychological phenomena that consist of both a preference for flexibility and for commitment. Interpreting the utility representations of preferences as capturing these phenomena requires one to use the notion of a sign of a state. For linear preferences, we completely characterise the sign of a state in terms of its analytic representation as an integral with respect to a signed measure. In models with finitely many states, a state is either positive or negative, but never both. We show that in models with infinitely many states, a state can be both positive and negative. Thus, models with finitely many states may not capture all the behavioural features of an infinite model. Our methods are also useful in constructing utility functionals over menus with desired local properties.     

Stochastic optimization applied to self-financing portfolio: does bequest matter?

The article studies stochastic optimization of an intertemporal consumption model to allocate financial assets between risky and risk-free assets. We use a stochastic optimization technique, in which utility is maximized subject to a self-financing portfolio constraint. The papers in literature have estimated the errors of Euler equations using data from financial markets. It has been shown that it is sufficient to test the first order Euler equation implied by the model. However, they all assume a constant consumption–wealth ratio that constrains the boundary conditions, hence influencing the coefficient of the risk premium. The main contribution of our article is that we drop the assumption of a constant consumption–wealth ratio. We have an analytical solution using a utility maximization model with a stochastic self-financing portfolio. We introduce a terminal condition of wealth with and without bequests. We also simulate the stochastic optimization with a self-financing portfolio, distinguishing risk neutral investors (γ-low) from high risk averse investors (γ-high). We show that the model with bequest has a higher level of wealth and a smoother decline of consumption over time than the model with no bequest at the end of the period. The model with no bequest has the same level of consumption and a sharp fall at the end of the period. Risk averse agents with high return assets have a higher amount of wealth than risk-neutral agents with lower return assets.     

Lobbying and the power of multinational firms

Can multinational firms exert more power than national firms by influencing politics through lobbying? To answer this question, we analyze the extent of national environmental regulation when policy is determined in a lobbying game between a government and a firm. We compare the resulting equilibrium regulation levels, outputs and welfare in a game with a multinational firm with those in an otherwise identical game with a national firm. For low transportation costs, output and pollution of a national firm are always as least as high as for a multinational; this changes for high transportation costs and intermediate damage parameters. When there is no lobbying, welfare levels are always higher with multinationals than with national firms. However, the existence of lobbying may reverse this ordering.     

The supercore for normal-form games

This paper analyzes the supercore of a system derived from a normal-form game. For the case of a finite game with pure strategies, we define a sequence of games and show that the supercore coincides with the set of Nash equilibria of the last game in that sequence. This result is illustrated with the characterization of the supercore for the n-person prisoner's dilemma. With regard to the mixed extension of a normal-form game, we show that the set of Nash equilibrium profiles coincides with the supercore for games with a finite number of Nash equilibria.     

The enfranchisement of women and the welfare state

We offer a rationale for the decision to extend the franchise to women within a politico-economic model where men are richer than women, women display a higher preference for public goods, and women's disenfranchisement carries a societal cost. Men and women are matched within households which are the center of the decision process. We derive the optimal tax rate under two alternative regimes: a males-only enfranchisement regime and a universal enfranchisement regime. The latter is associated with a higher tax rate but, as industrialization raises the reward to intellectual labor relative to physical labor, women's relative wage increases, thus decreasing the difference between the tax rates. When the cost of disenfranchisement becomes higher than the cost of the higher tax rate which applies under universal enfranchisement, the male median voter is better off extending the franchise to women. A consequent expansion of the size of government is only to be expected in societies with a relatively high cost of disenfranchisement.We empirically test the implications of the model over the 1870–1930 period. We proxy the gender wage gap with the level of per capita income and the cost of disenfranchisement with the presence of catholicism, which is associated with a more traditional view of women's role and thus a lower cost. The gender gap in the preferences for public goods is proxied by the availability of divorce, which implies marital instability and a more vulnerable economic position for women. Consistently with the model's predictions, women's suffrage is correlated positively with per capita income and negatively with the presence of catholicism and the availability of divorce, while women's suffrage increases the size of government only in non-catholic countries.     

Intertemporal pricing in laboratory posted offer markets with differential information

Summary. This paper analyzes intertemporal seller pricing and buyer purchasing behavior in a laboratory retail market with differential information. A seller posts one price each period that a buyer either accepts or rejects. Trade occurs over a sequence of "market periods" with a random termination date. The buyer and seller are differentially informed: The seller's cost of producing a unit of a fictitious good is known and constant in all periods, but the buyer's value for the good (demand) is a random variable governed by a Markov Process whose structure is common knowledge. At the beginning of each period the unit's value is determined by "nature" and is privately revealed only to the buyer. The market termination rule is a binary random variable. We conduct 32 laboratory experiments designed to study intertemporal pricing by human subjects in the Posted Offer Institution when demand follows a stochastic process. There are four series of experiments: 8 with simulated buyers, 8 with inexperienced subjects, 8 with once experienced subjects, and 8 with twice experienced subjects.     

Credit Chains and Mortgage Crises

Here I examine a production economy with a financial sector that contains multiple layers of credit. The latter constitute credit chains that include a simple mortgage market. The focus is on the nature and contagion properties of credit chains in an economy where the financial sector plays a real allocating role, and agents have a serious choice of whether to default on mortgages or not. Multiple equilibria with different rates of default are observed, due to the presence of strategic complementarities. A liquidity crunch is associated with higher rates of default that can trigger a financial crisis as well as constrain the purchase of production factors, leading to reductions in welfare, together with potentially serious effects on real economic activity with the potential of causing deep and widespread recessions.     

Ownership advantages,home production,foreign production and exports of direct investing firms—Some evidence from austrian firms

This paper formulates a simple model of a monopolistic, horizontally integrated, multinational firm with multiplant economies of scale generated by inputs with public good characteristics. The econometric analysis of the model conducted with a sample of Austrian firms points to a substitutive relationship of foreign production and home production with foreign production significantly lowering exports. The estimation results, however, indicate in accordance with the economic model that multiplant economies of scales significantly lower the magnitude of substitution. Holding exports constant a complementary relationship between home production and foreign production would appear indicating that substitution would be much higher in the absence of multiplant economies of scale.     

The determinants of NCAA basketball recruiting outcomes

Using recruiting rankings from Rivals.com, the authors examine the determinants of recruiting success among D1 NCAA men’s basketball programmes. After controlling for a host of potentially relevant variables, the authors find that recruiting outcomes are correlated with recent on-court success, historical on-court success, stadium size and playing in a ‘power’ conference. Additionally, teams with a history of sending players to the NBA receive heightened recruiting outcomes. A team with a new coach can expect difficulties with recruiting, while head coaches with national championships receive a recruiting boost. Finally, the authors show that recruiting strategies for guards may differ from recruiting strategies for other players.     

China’s rise,asymmetric trade shocks and exchange rate regimes

China’s rapid growth provides a natural experiment to study the effects of asymmetric trade shocks on the competitiveness of OECD countries. The different levels of exposure to Chinese trade competition, as measured using an index of export similarity, triggered asymmetric shocks as China’s trade surged. Motivated by a Ricardian framework, this paper finds that countries with exports similar to those of China experience a loss in competitiveness compared with countries with a different trade structure. Once an additional layer of distinction is introduced between fixed and flexible exchange rate regimes, I find that countries with a fixed exchange rate and with relatively high similarity to China experience a real appreciation.     

Preferential Trade and Welfare with Differentiated Products

We consider analytically and numerically the welfare tradeoffs inherent in a preferential trade area (PTA) with products differentiated by region of origin. For a small open economy in such a setting, welfare gains are associated with higher trade volumes within the PTA. However, welfare losses are induced by declining tariff revenues on trade with non‐member countries. We show that both effects are concave, while one is a non‐monotonic and the other a potentially non‐monotonic function of pre‐PTA partner trade shares. Therefore, the relationship between initial partner import shares and direct static welfare impacts of a PTA are theoretically ambiguous. This finding contrasts with conventional results in the homogeneous‐goods case, whereby the smaller is the pre‐agreement trade volume with a potential partner the more beneficial is a PTA.     

Intermediate Preferences and Behavioral Conformity in Large Games

Motivated by Wooders, Cartwright, and Selten (2006) , we consider games with a continuum of players and intermediate preferences. We show that any such game has a Nash equilibrium that induces a partition of the set of attributes into a bounded number of convex sets with the following property: all players with an attribute in the interior of the same element of the partition play the same action. We then use this result to show that all sufficiently large, equicontinuous games with intermediate preferences have an approximate equilibrium with the same property. Our result on behavior conformity for large finite game generalizes Theorem 3 of Wooders et al. (2006) by allowing both a wider class of preferences and a more general attribute space.     

Improving the business impact of foresight

Achieving an impact on business decision-makers with foresight does not appear to be an easy task. Therefore, the Macro Trends team at Deutsche Bank Research has formulated some criteria to guide foresight projects. They should aim to produce plausibility, provide convenience and inspiration as well as an appropriate time perspective with regard to the content of foresight results. In addition, a structured way of producing and delivering foresight, a seamless inclusion in organisational procedures, a high level of interaction with decision-makers, ideational entrepreneurship, innovation regarding communication with business people, and persistence and synchronisation with the business organisation are the key criteria for achieving a higher impact from foresight projects. To live up to these criteria, the Macro Trends team has developed a 'trend map' which provides a conceptual aggregation of trends - to provide orientation for decision-makers and stakeholders.     

Roundworm obstruction: Sonographic diagnosis

We describe the sonographic findings in five pediatric patients with roundworm obstruction. All patients were referred with a clinical diagnosis of acute appendicitis. On ultrasonography (US), an individual worm, when viewed along its longitudinal axis, appeared as a hypoechoic tubular structure with well-defined, echogenic walls. Frequently, the individual body segments could be distinctly visualized. The alimentary canal of the worm was seen either as a single central echogenic line (when in a collapsed state) or as two parallel hyperechoic bands with a hypoechoic center (when distended). When examined transaxially, the individual worm resembled a target with its circular, echogenic body wall and its central dot-like alimentary canal. On prolonged scanning, the worms always showed curling movements. In two patients, a bolus of worms mixed with fecal matter and air produced an unusual appearance of a complex, echogenic mass (helminthoma). Although, an individual worm occasionally resembled an inflammed appendix, visualization of the alimentary canal and individual body segments along with its curling movements helped establish the correct diagnosis. All patients promptly responded to a hypertonic saline enema and no patient was subjected to surgery. Sonographic findings in roundworm obstruction are fairly characteristics to advocate the routine use of sonography for diagnosing this entity.     

Cheap talk with multiple audiences: An experimental analysis

We examine strategic information transmission in a controlled laboratory experiment of a cheap talk game with one sender and multiple receivers. We study the change in equilibrium behavior from the addition of another audience as well as from varying the degree of conflict between the senderʼs and receiversʼ preferences. We find that, as in cheap talk games with just one receiver, information transmission is higher in games with a separating equilibrium, than in games with only a babbling equilibrium. More interestingly, we find clear evidence that the addition of another audience alters the communication between the sender and the receiver in a way consistent with the theoretical predictions. There is evidence of the presence of agents that are systematically truthful as senders and trusting as receivers: deviations from the theoretical predictions, however, tend to disappear with experience, and learning is faster precisely in the games where deviations are more pronounced.     

Habit persistence and stagnation

Using a money-in-the-utility function model that incorporates habit formation in consumption, we consider the question of how allowing for habit formation affects the possibility of a persistent shortage of consumption. We then contrast the model without habits with a model with habits. The main findings of our analysis are that i) when the degree of habit formation is important, a high degree of habit persistence opens up the possibility of a shortage of consumption, and ii) in the steady state with stagnation, the equilibrium consumption in the model with habit formation is smaller than the corresponding consumption without habits.     

The optimality of a control band policy

Consider a firm with an arbitrary profit function whose relative price follows a Brownian motion with negative drift. When the firm faces a fixed cost of price adjustment, we prove the optimal pricing policy is a control band if the following sufficient conditions are met: the profit function is continuous, strictly concave and single-peaked; moreover, together with its first and second derivatives, it is bounded in absolute value by a polynomial. We also demonstrate various ways of constructing the value function associated with the control band policy and show it has certain properties carried over from the profit function. Numerical examples are found to be consistent with empirical estimates regarding the frequency of price adjustments.     

国际贸易与中国的实际经济周期——基于封闭与开放经济的RBC模型比较分析

本文先确定中国宏观经济波动的特征事实:消费波动与产量高度相关、投资波动大于产出的波动、净出口与GDP呈反周期变化。然后分别用封闭经济模型、小国开放经济模型和考虑了政府购买冲击的小国开放经济模型对中国经济进行实证检验。研究发现,封闭经济模型仅能解释产出、消费和投资波动的48.26%、24.39%和98.50%;而小国开放经济模型分别可以解释68.70%、69.51%、98.50%和TB/GDP率的97.42%;考虑了政府购买的小国开放经济模型的解释程度分别是83.91%、81.95%、99.63%和TB/GDP率的209.68%。比较分析表明开放经济模型比封闭经济模型能较好地解释中国的经济现象,并且随着政府购买引入到开放经济模型,该模型对经济的解释能力显著提高,说明这一模型更符合中国经济的特征事实。