Spatial social networks

We introduce a spatial cost topology in the network formation model analyzed by Jackson and Wolinsky, Journal of Economic Theory (1996), 71: 44–74. This cost topology might represent geographical, social, or individual differences. It describes variable costs of establishing social network connections. Participants form links based on a cost-benefit analysis. We examine the pairwise stable networks within this spatial environment. Incentives vary enough to show a rich pattern of emerging behavior. We also investigate the subgame perfect implementation of pairwise stable and efficient networks. We construct a multistage extensive form game that describes the formation of links in our spatial environment. Finally, we identify the conditions under which the subgame perfect Nash equilibria of these network formation games are stable. We are very grateful for the constructive comments of Matt Jackson and an anonymous referee. We also like to thank Vince Crawford, Marco Slikker, Edward Droste, Hans Haller, Dimitrios Diamantaras, and Sudipta Sarangi for comments on previous drafts of this paper.We acknowledge Jay Hogan for his programming support. Part of this research was done while visiting the CentER for Economic Research, Tilburg University, Tilburg, The Netherlands.Financial support from the Netherlands Organization for Scientific Resrarch (NWO), grant B46-390, is gratefully acknowledged.-->,     

Network potentials

A network payoff function assigns a utility to all participants within a social network. In this paper we investigate network payoff functions that admit an exact network potential or an ordinal network potential. We also investigate exact and ordinal potentials of Myerson’s non-cooperative network formation game based on consent in link formation. We show that the admittance of certain of these network and game-theoretic potentials implies the existence of pairwise stable networks and the convergence of network formation processes. Our main results extend and strengthen the current insights in the literature on game theoretic approaches to social network formation. We thank Matt Jackson and Sudipta Sarangi for extensive discussions on the subject of this paper. Part of this research was done while S. Chakrabarti was at Bonn on a post-doctoral research fellowship. We thank the Department of Economics at the University of Bonn for their hospitality and financial support. Part of this research was done at the Center for Economic Research at Tilburg University, Tilburg, the Netherlands. R. P. Gilles financially supported from the Netherlands Organization for Scientific Research (NWO), grant # 46-550, is gratefully acknowledged.     

Cost-Output Relation,Technological Progress,and Clinical Activity Mix of US Hospital Pharmacies

The fairly recent discovery and growing use of costly, revolutionary biotechnology drugs (e.g., GM-CSFs) in hospitals represent a major technical innovation in clinical pharmacy intervention. This paper models the translog production cost impacts of ten distinct clinical pharmacy tasks including pharmacokinetics, consultations with MDs, monitoring drug interactions,..., and presents results on decomposed technical change, economies of scope, scale economies, total factor productivity, and the alternatively defined pairwise factor substitution possibilities. The model was fitted to 1981–1990 time-series/cross-sectional data of US hospital pharmacies (source: Eli-Lilly Co.®). Zellner's ISURE (Iterative Seemingly Unrelated Regression Equations) system estimates reveal a non-homothetic underlying technology with biased and pure technical change effects dominating scale-augmentation. Certain clinical tasks increase costs but are cost-saving if jointly produced with selective others. One of the largest and statistically significant economies of scope estimates is between monitoring drug interactions and consultations with MDs. Cost implications of findings are given in light of the recent trends in hospital pharmacy clinical activities, related professional health manpower, and piecemeal health policy reforms.     

Calibration procedure and the robustness of CGE models: Simulations with a model for Poland

Calibration is commonly used in order to specify a numerical computable general equilibrium model. As it involves the evaluation of model parameters on the basis of a single observation, there is a concern about the reliability of the results obtained from the model. A one-sector model for the Polish economy is specified and calibrated using various years as a benchmark equilibrium. Different assumptions are also made about some elasticity parameters. The model response is examined by simulating an increase in government expenditure. The results are quite robust to the choice of the base year but very sensitive to some elasticity parameters such as trade substitution elasticities.The financial support of the A.C.E. Project Econometric Inference into the Macroeconomic Dynamics of East European Economies is gratefully acknowledged.     

Economies of scale and scope in French banking and savings institutions

In this study, we analyze the costs incurred by French commercial banks and savings institutions. One of the main distinctions between these two types of financial entities concerns management costs, which are higher for commercial bank demand deposits than for the savings institutions' tax-free livret A passbook accounts. Taking this differential into consideration by constructing separate models based on different principles, we find that the average overall and operating costs of the savings institutions are half those of commercial banks. As regards operating costs, small savings institutions enjoy a significant cost advantage over small commercial banks, but this cost advantage is smaller when one compares the performance of large savings institutions to the large banks. The results of our econometric estimates suggest a possible explanation, as we find increasing returns to scale for the banks and diminishing returns for the savings institutions. The value of the returns-to-scope parameter at the mean point appears to indicate a complementarity between certain pairs of outputs. Therefore, ouptut diversification appears to have a positive impact on cost levels for both savings institutions and commercial banks; while institution size, measured by the total assets, has a different impact in these two industries.     

Manipulation of the Walrasian mechanism in production economies with unbounded short-selling

Hurwicz (1979) and Otani and Sicilian (1982, 1990) characterized the Nash equilibrium allocations of the Walrasian demand manipulation game in successively more general exchange environments. In this paper, I extend the analysis to production economies with short-selling. First, I generalize Hurwicz’s and Otani and Sicilian’s theorem that any allocation at which each agent’s consumption bundle lies above her true offer curve can be supported in Nash equilibrium. I then show that for finite economies of any size the set of such allocations is often topologically large.Received: 17 January 2003, Accepted: 4 April 2005, JEL Classification: D51, D82For comments on this and earlier versions of the paper, I wish to thank Rick Bond, Bhaskar Chakravorti, Tom Gresik, Costas Syropoulos and William Thomson. I would especially like to thank Mike Jerison for helping to overcome a difficulty with a previous version. Also, the comments of the anonymous referees are gratefully acknowledged.     

Optimal speculative trade among large traders

A collection of large traders holds heterogeneous prior beliefs regarding market fundamentals. This gives them a motive to engage in speculative trade with respect to market prices. Rather than assuming a particular institution or market for speculative trade, we take a mechanism-design approach by attempting to characterize the mechanism that maximizes the traders’ gains from speculative trade, subject to the incentive constraints that result from the traders’ ability to manipulate market prices. Within a stylized market model, we show that this mechanism affects price volatility without destroying ex-post efficient allocations. We also characterize the implementability of optimal speculative trade when the traders’ prior beliefs are private information. Financial support from the US-Israel Binational Science Foundation, Grant No. 2002298 is gratefully acknowledged.     

Reform economics and western economic theory: Unexploited opportunities

The theory of economic reforms in Soviet Union and Eastern Europe did not follow the development of western economic theory. Although the fundamental economic issues are different in the West and in the East (employment and inflation versus shortages and lack of technological progress) the reform economics is concerned with the optimal mix of centralisation and decentralisation, of market and hierarchy, of autonomy and control, and-more recently-of public and private. All these issues have been extensively treated in western economic literature.This paper overviews those fields in contemporary economics which could offer the East European reformers an enlightening perspective and useful tools in their search for a new institutional solution. Four such fields are presented: comparative economic systems, theory of incentives, literature stressing relative costs and benefits of different institutional solutions and comparing market and nonmarket failures, and the theory of property rights.An earlier version of this paper was presented at the conference Plan and/or Market. A Comparative Study of Reform Economics in Soviet-Type Societies, organized by the Institut für die Wissenschaften von Menschen in Vienna in December 1988. Useful comments by Pierre-André Chiappori, Ellen Comisso, Roger Guesnerie, Pavel Pelikan, Richard Portes, Kazimierz Poznanski and Gérard Roland are gratefully acknowledged.     

Corporatism,policies and growth

We investigate whether corporatist wage setting and policy making institutions negatively affect a) the slope of the growth path of the economy, by yielding decisions that resist the introduction of technological progress; b) the position of the growth path, through higher transaction costs involved in the policy decision making process. The estimates reveal: a) a negative partial correlation between corporatism and growth; b) a robust correlation between growth, union pervasiveness and other policy regressors; c) no significant correlation between corporatism and output level.Received: October 1999, Accepted: October 2002, JEL Classification: J51, P41We wish to thank Sebastiano Bavetta, Domenico da Empoli, Ernesto Felli, Massimo Finoia, Gianluigi Galeotti, Kevin B. Grier, Alenka Kajzer, Hannelore Weck-Hanneman, the participants to the 1999 Meeting of the European Public Choice Society and to the seminars of the Center for Research on Economics of Institutions, as well as three anonimous referees for comments on previous versions of this paper. Financial support from the Consiglio Nazionale delle Ricerche, grant n. 98.01482.CT10 is gratefully acknowledged. The usual caveat applies.     

Do institutions care about market structure? A case study of listing firms

Trading by institutions on the NSYE and Nasdaq markets has grown dramatically. Yet, while listing effects for firms moving to an exchange have been studied for more than 60 years, evidence on whether listing is beneficial is mixed. This study focuses on listing effects to institutional traders by examining different factors that capture changes in block execution. Results indicate price impacts and liquidity costs decline for various types of block trades and block trade sizes, the average volume of which increases after listing.(JEL G20)     

On simplifying the calculations leading to designs with general minimum lower-order confounding

Motivated by the effect hierarchy principle, Zhang et al. (Stat Sinica 18:1689–1705, 2008) introduced an aliased effect number pattern (AENP) for regular fractional factorial designs and based on the new pattern proposed a general minimum lower-order confounding (GMC) criterion for choosing optimal $2^{n-m}$ designs. Zhang et al. (Stat Sinica 18:1689–1705, 2008) proved that most existing criteria can be obtained by functions of the AENP. In this paper we propose a simple method for the calculation of AENP. The method is much easier than before since the calculation only makes use of the design matrix. All 128-run GMC designs with the number of factors ranging from 8 to 32 are provided for practical use.     

Equilibrium in a market with intermediation is Walrasian

We show that a profit maximizing monopolistic intermediary may behave approximately like a Walrasian auctioneer by setting bid and ask prices nearly equal to Walrasian equilibrium prices. In our model agents choose to trade either through the intermediary or privately. Buyers (sellers) trading through the intermediary potentially trade immediately at the ask (bid) price, but sacrifice the spread as gains. A buyer or seller who trades privately shares all the gains to trade with this trading partner, but risks costly delay in finding a partner. We show that as the cost of delay vanishes, the equilibrium bid and ask prices converge to the Walrasian equilibrium prices. Received: 2 February 1996 / Accepted: 28 March 1997     

Technology and Cost Efficiency in Universal Banking A “Thick Frontier”-Analysis of the German Banking Industry

Using 1992 data of 1490 banks covering about 40% of German banking, we specify a multi-product translog cost function and follow the thick frontier-approach to control for cost inefficiency when evaluating the technology of banking. Scale economies are found to exist up to a size of about 5 billion DM of total assets, with diseconomies being caused by non-operating costs. There is hardly any evidence of economies of scope. Compared to cost inefficiency external factors play a surprisingly strong role in explaining cost differences between high-cost and low-cost banks. Smaller banks turn out to be more responsive to input prices.     

Asymptotic and Bootstrap techniques for testing the expected value of a fuzzy random variable

In this paper we will consider hypothesis-tests for the (fuzzy-valued) mean value of a fuzzy random variable in a population. For this purpose, we will make use of a generalized metric for fuzzy numbers, and we will develop an approach for normal fuzzy random variables, and two different approaches for the case of fuzzy random variables taking on a finite number of different values. A real-life example illustrates the use of the last two approaches. Finally, a comparison between the introduced techniques is developed by means of simulation studies leading to close inferential conclusions.Acknowledgements.The research in this paper has been partially supported by MCYT Grants BFM2002-01057 and BFM2001-3494. Their financial support is gratefully acknowledged. The authors are sincerely grateful to their colleague Gil González-Rodríguez for all his comments and suggestions in connection with this paper; his scientific support has been very valuable. The authors want also thank the referees of the first version of the paper because of their useful hints to improve it.     

The geography of new firm formation: Evidence from independent start-ups and new subsidiaries in the Netherlands

This paper investigates to what extent determinants of the rate of independent start-ups and the rate of new subsidiaries are different. Using a regional database for the Netherlands over the period 1988–2002, we investigate the impact of two types of agglomeration effects, localization and urbanization, while controlling for a range of economic variables. We find urbanization economies to be particularly important for the creation of new subsidiaries while localization economies are more important for the creation of independent new ventures. Finally, the effect of agglomeration variables is found to be stronger for manufacturing industries compared to services industries.

Tax Competition with Heterogeneous Firms

Abstract

This paper studies tax competition in an economic geography model that allows for agglomeration economies with trade costs and heterogeneous firms. We find that the Nash equilibrium involves a large country charging a higher tax than a small nation. Lower trade costs lead to an intensification of competition, a drop in Nash tax rates and a narrowing of the gap. Since large, productive firms are naturally more sensitive to tax differences in our model, large firms are the crux of tax competition in our model. This also means that tax competition has consequences for the average productivity of big and small nations' industries; by lowering tax rates, a small nation can attract high-productivity firms.     

New perspectives on intersectoral relationships between manufacturing and services

This study advocates the explicit incorporation of the production of in-house information services into input-output tables in order to overcome the limitations imposed by conventional accounting frameworks which distort the relationship between manufacturing and services. This relationship is analysed using a well-known impact methodology. The importance of consumption induced multiplier effects, i.e. demand linkages, is also emphasised. The shift in perception of intersectoral relationships which adoption of our methodology provides is demonstrated using Japan in 1980 as a case study. It is shown that conventional analysis seriously underestimates the importance of services for output and employment creation. Comparisons to a recent study by Park and Chan (1989) are drawn which provided the stimulus for this paper.An earlier version of the study appeared as Massey Economic Paper No. A9101, January 1991. Comments from two anonymous referees are gratefully acknowledged.     

Coevolution of Institutions and Corporations in Emerging Economies: How the Salim Group Morphed into an Institution of Suharto's Crony Regime

abstract We investigate whether large family groups in emerging economies can proactively change their environment. We use a coevolutionary approach, which accounts for the influence of context on the entrepreneur and for the freedom of the latter to modify it. We find that entrepreneurs can shape institutions to their advantage, illustrated by the Salim Group, which achieved growth by aligning with and influencing politicians, eventually ‘morphing into an institution’. We unravel unique coevolutionary patterns, which we use to extend existing theories. Our first contribution is to initiate a new line of inquiry in coevolution theory, focusing on individual companies coevolving with institutions. Secondly, we document factors that increase and decrease strategic choice for family groups in emerging economies. Thirdly, we find that the Salim Group became part of the crony Suharto regime. The group became both an institutional entrepreneur and an entrepreneurial institution, demonstrating that companies and institutions are not necessarily mutually exclusive.     

Efficiency measurements and the gains from trade under transaction costs

The paper investigates the measurement of economic efficiency under transaction costs in a second best world. New measurements of technical efficiency, allocative efficiency, and price efficiency are proposed. They have three desirable properties. First, they measure efficiency loss in monetary units. Second, they are additive and can be conveniently summed into an overall efficiency measure. Third, they allow for transaction costs and their effects on prices and trade incentives. The paper investigates the welfare effects of technology choice, government pricing and trade policy, and market imperfections on efficiency. It provides new insights on the measurement of benefits from trade liberalization when trade affects not only price efficiency, but also technical and allocative efficiency.

On financial equilibrium with intermediation costs

This paper studies the set of competitive equilibria in financial economies with intermediation costs. We consider an arbitrary dividend structure, which includes options and equity with limited liabilities. We show a general existence result and upper-hemi continuity of the equilibrium correspondence. Finally, we prove that when intermediation costs approach zero, unbounded volume of asset trades is a necessary and sufficient condition, provided that, there is no financial equilibrium without intermediation costs.