Make Trade Not War?

This paper analyses theoretically and empirically the relationship between military conflicts and trade. We show that the conventional wisdom that trade promotes peace is only partially true even in a model where trade is economically beneficial, military conflicts reduce trade, and leaders are rational. When war can occur because of the presence of asymmetric information, the probability of escalation is lower for countries that trade more bilaterally because of the opportunity cost associated with the loss of trade gains. However, countries more open to global trade have a higher probability of war because multilateral trade openness decreases bilateral dependence to any given country and the cost of a bilateral conflict. We test our predictions on a large data set of military conflicts on the 1950–2000 period. Using different strategies to solve the endogeneity issues, including instrumental variables, we find robust evidence for the contrasting effects of bilateral and multilateral trade openness. For proximate countries, we find that trade has had a surprisingly large effect on their probability of military conflict.     

The political agenda effect and state centralization

We provide a potential explanation, based on the “political agenda effect”, for the absence of, and unwillingness to create, centralized power in the hands of a national state. State centralization induces citizens of different backgrounds, interests, regions or ethnicities to coordinate their demands in the direction of more general-interest public goods, and away from parochial transfers. This political agenda effect raises the effectiveness of citizen demands and induces them to increase their investments in conflict capacity. In the absence of state centralization, citizens do not necessarily band together because of another force, the escalation effect, which refers to the fact that elites from different regions will join forces in response to the citizens doing so. Such escalation might hurt the citizen groups that have already solved their collective action problem (though it will benefit others). Anticipating the interplay of the political agenda and escalation effects, under some parameter configurations, political elites strategically opt for a non-centralized state. We show how the model generates non-monotonic comparative statics in response to the increase in the value or effectiveness of public goods (so that centralized states and public good provision may be absent precisely when they are more beneficial for society). We also suggest how the formation of a social democratic party may sometimes induce state centralization (by removing the commitment value of a non-centralized state), and how elites may sometimes prefer partial state centralization.     

Strong,bold, and kind: self-control and cooperation in social dilemmas

We develop a model that relates self-control to cooperation patterns in social dilemmas, and we test the model in a laboratory public goods experiment. As predicted, we find a robust association between stronger self-control and higher levels of cooperation, and the association is at its strongest when the decision maker’s risk aversion is low and the cooperation levels of others high. We interpret the pattern as evidence for the notion that individuals may experience an impulse to act in self-interest—and that cooperative behavior benefits from self-control. Free-riders differ from other contributor types only in their tendency not to have identified a self-control conflict in the first place.     

Group Contests with Internal Conflict and Power Asymmetry

We investigate simultaneous inter‐ and intra‐group conflict in the shadow of within‐group power asymmetry and complementarity in members' group‐conflict efforts. A more symmetric group faces a higher degree of internal conflict, and might expend more effort in external conflict when the group‐conflict effort technology is highly complementary. Depending on the degree of complementarity, the stronger player's relative contribution to external conflict might be higher in a more asymmetric group and, as a result, it is possible for the weaker player to earn a higher payoff. In the absence of any complementarity, the rent‐dissipation is non‐monotonic with the within‐group power asymmetry.     

Population aging,the costs of health care for the elderly and growth

Employing an overlapping-generations model with endogenous growth in which altruistic young agents take care of the health level of their aged parents at risk of illness, this paper examines how population aging influences the long-run growth rate of the economy. We show that life expectancy, when relatively low (high), positively (negatively) affects economic growth. This paper also investigates public policy on long-term care and demonstrates the existence of an intergenerational conflict between current and future generations. We also point out that population aging may mitigate the extent of this conflict.     

It takes two to cheat: An experiment on derived trust

Social life offers innumerable instances in which trust decisions involve multiple agents. Of particular interest is the case when a breach of trust is not profitable if carried out in isolation, but requires an agreement among agents. In such situations the pattern of behaviors is richer than in dyadic games, because even opportunistic trustees who would breach trust when alone may act trustworthily based on what they believe to be the predominant course of action. Anticipating this, trusters may be more inclined to trust. We dub these motivations derived trustworthiness and derived trust. To capture them, we design a “Collective Trust Game” and study it by means of a laboratory experiment. We report that overall levels of trustworthiness are almost thirty percentage points higher when derived motivations are present, and this generates also higher levels of trust. In our set-up, the effects of derived trustworthiness are comparable in size to positive reciprocity, and more important than concerns for equality.     

Religiosity versus rationality: Depositor behavior in Islamic and conventional banks

This study investigates the behavioral aspects of Islamic bank depositors in a dual banking system. By categorizing depositors into groups based on the amount of their deposited funds, we estimate the responses of these groups to interest rate changes. We take the findings of conventional banks as a comparative baseline and investigate the extent to which the changes in different Islamic depositor groups differ from conventional depositor groups. The findings show that depositors in both Islamic and conventional banks respond to interest rate changes. The analysis indicates that Islamic bank depositors are more responsive when their deposit sizes are larger. When Islamic bank depositors’ opportunity costs rise due to a rise in the interest rate, they do not hesitate to withdraw deposits. The relation between interest rate changes and deposits is more robust in Islamic banks than in conventional banks.     

Rivalry, Exclusion, and Coalitions

This paper analyzes a model where groups can attain exclusive ownership of a resource by means of a contest. We show that more concave production technologies and more egalitarianism within groups induce higher levels of social conflict. We then study endogenous coalition formation. Under cooperative exploitation of the resource, the grand coalition is the efficient partition but there exists a strong tendency toward bipartisan conflicts. Under noncooperative exploitation, conflict can ex ante Pareto dominate peaceful access and it becomes more difficult to support the grand coalition as a stable structure.     

The Impact of Regret on Exports

We examine optimal production and export decisions of a firm facing exchange rate uncertainty, where the firm's management is not only risk averse but also regret averse, i.e., is characterized by a utility function that includes disutility from having chosen ex post suboptimal alternatives. Experimental and empirical results support the view that managers tend to be regret averse. Under regret aversion a negative risk premium need not preclude the firm from exporting which would be the case if the firm were only risk averse. Exporting creates an implicit hedge against the possibility of regret when the realized spot exchange rate turns out to be high. The regret‐averse firm as such has a greater ex ante incentive to export than the purely risk averse firm. Finally, we use a two‐state example to illustrate that the firm optimally exports more (less) to the foreign country than in the case of pure risk aversion if the low (high) spot exchange rate is more likely to prevail. Regret aversion as such plays a crucial role in determining the firm's optimal allocation between domestic sales and foreign exports.     

Appropriation,Formal and Informal Sectors,and Efficient Endowment Distribution

By adding an informal sector whose output is not subject to appropriative interactions and assuming complementarity in the inputs for market production, this paper investigates how possible asymmetries in conflict affect the allocation of resources. It is shown that when the existing gap in relative appropriative skills is being closed, more resources are allocated to appropriative activities in the economy. We are, in this case, more likely to see a reduction in market activities but an increase in home activities. A poorer party is a natural producer rather than a natural fighter, which is the usual characterization of a less endowed party in the conflict analysis. By conducting a welfare analysis, this paper shows that a market-output-maximizing initial distribution of resources endowment is such that when one party has a comparative advantage in market production over appropriation, its initial fraction of total resource endowment should be greater than its relative productivity in market production.     

Fiscal policies, environmental pollution and economic growth

This paper develops a model of endogenous economic growth with special consideration to the role of productive public expenditure and environmental pollution; and analyses the properties of optimal fiscal policy in the steady state growth equilibrium. We consider the level of consumption as the source of pollution. Government allocates its tax revenue between pollution abatement expenditure and productive public expenditure. Optimum ratio of productive public expenditure to national income is equal to the competitive output share of the public input, when productive public expenditure is depicted as tax revenue minus abatement expenditure. However, the proportional income tax rate exceeds the competitive output share of the public input. There is no conflict between the social welfare maximizing solution and the growth rate maximizing solution in the steady state growth equilibrium. The unique steady state growth equilibrium appears to be a saddle-point when the growth rate is above a critical level and the steady state equilibrium growth rate in the market economy is not necessarily lower than the socially efficient growth rate.     

Risk preference and indirect utility in portfolio-choice problems

We consider a portfolio-choice problem with one risky and one safe asset, where the utility function exhibits decreasing absolute risk aversion (DARA). We show that the indirect utility function of the portfolio-choice problem need not exhibit DARA. However, if the (optimal) marginal propensity to invest is positive for both assets, which is true when the utility function exhibits nondecreasing relative risk aversion, then the DARA property is carried over from the direct to the indirect utility function.     

Poverty Dynamics,Violent Conflict,and Convergence in Rwanda

This paper analyzes the poverty impact of the violent events that affected Rwanda in the 1990s. The main objective of the paper is to identify systematically potential mechanisms linking violent conflict with changes in poverty across provinces and households in Rwanda before and after a decade of violence. In accordance with emerging literature on the long‐term economic effects of violent conflict, we find empirical evidence for economic convergence between richer and poorer Rwandan provinces and households following the conflict shocks. Using a small but unique panel of households surveyed before and after the conflict period, we find that households whose house was destroyed or who lost land ran a higher risk of falling into poverty. We do not find much evidence for an economic effect of violent deaths at the household level due to substitution effects of labor within the household. Non‐violent deaths however seem to increase income per adult equivalent for the survivors. Results are shown to be robust to sample selection and IV models.     

Assessing Sino-Indian Economic Relations in an Interdependence Framework: 1992-2008

This study situates Sino-Indian economic interaction under the interdependence framework.By mapping conflict behavior in this dyad against the trends in the economic interdependence,we find a discernible shift away from escalation(high-level conflict)towards bargaining(diplomatic contestation).This paper argues that interdependence has only recently emerged in the India-China dyad and that lingering strategic distrust,national security consideration,and protectionist tendency have prevented the deepening of economic interdependence.The findings challenge the direction of interdependence in this dyad normally gleaned from nominal trade data.This paper also highlights key issue-areas that inhibit strategic coupling in the bilateral economic interaction.     

实际汇率与就业--基于内生劳动力供给的跨期均衡分析

文章在个体跨期最优模型中引入内生劳动力供给,并同时假定对资本流动存在限制,以此来分析实际汇率变动对就业的影响。结果发现:只有当消费者对商品消费的相对风险规避程度比较大,即消费的跨期替代弹性比较小时,本币实际贬值才会促进就业的增加,反之贬值会使就业减少。考虑到中国当前的具体情况,消费者商品消费的相对风险规避程度会比较大,因而人民币实际贬值会有利于就业。对中国的实证分析支持了这一结论,且该实证分析通过了实际汇率的超外生性检验。鉴于从长期来看中国消费者的相对风险规避程度有下降的趋势,过分的依赖于低币值的汇率政策来解决失业问题是不可行的。     

Egalitarian norms,economic development,and ethnic polarization

Economic development generally implies that traditional egalitarian norms and beliefs are replaced by modern individualistic values. Particularly when opportunities for advancement are unequally presented to people, this transformation may be accompanied by polarization and violent conflict. We illustrate this point by describing the processes of land privatization in Sub-Saharan Africa and then present two models that capture some salient aspects of this transformation in rural communities, including the possibility of polarization. We find that the support of egalitarian norms is notably strong when new opportunities are available for only a few people or when the community is socially unstable. Moreover, in unstable communities, polarization is strongest when the group with the most lucrative opportunities comprises half the population.     

Bivariate risk attitudes,informal care and saving

The article examines choices of saving and caregiving for informal caregivers who will face uncertainty in health status of elderly parents. The caregivers have a general form of utility with two attributes: wealth and parental health. Informal care will substitute for future need of formal care when parents are in good health. The article first studies the optimal levels of saving and of caregiving and the link between them. Comparative statics results depending on partial risk aversion or correlation attitude are then presented. These results concern the effects of changes in the opportunity cost of caregiving, the share of expected bequest, the health status and the interest rate. The analysis is also extended to investigate the role of cross-prudence/imprudence in wealth when a background health risk is introduced.     

Altruism, equity, and reciprocity in a gift-exchange experiment: an encompassing approach

Considerable experimental evidence suggests that non-pecuniary motives must be addressed when modeling behavior in economic contexts. Recent theories of non-pecuniary motives can be classified as altruism-, equity-, or reciprocity-based. We outline the qualitative differences in prediction these alternative explanations yield in a gift-exchange game. We estimate and compare leading approaches in these categories, using experimental data. We then offer a flexible approach that nests the above three approaches, thereby allowing for nested hypothesis testing and for determining the relative strength of each of the competing theories. In addition, the encompassing approach provides a functional form for utility in different settings without the restrictive nature of the approaches nested within it. Using this flexible form for nested tests, we find that intentional reciprocity, distributive concerns, and altruistic considerations all play a significant role in players' decisions.     

TERRORISM AND THE RETURNS TO OIL

The effect of terrorism on global oil prices has been largely explained through demand-side effects. We estimate an empirical model to re-examine the effect of terrorism on the price of global oil stocks across oil market regimes that reflect different supply constraints. We believe that terrorism will have larger impacts when global capacity is tight (i.e. when global demand is close to global supply). This means that any shock to capacity (say by conflict) should have the largest impact on profits before the first OPEC shock in the early 1970s. Since then, conflict shocks would not allow firms to exploit production in the same way, thus reducing the available profits that could be garnered by such production manipulation. If capacity constraints are binding when a conflict occurs, then we predict that a positive stock price reaction can be expected for oil firms from such a shock. We exploit a new panel dataset to investigate the relationship between oil profitability and conflict, using conflict data from the top 20 oil producing and exporting countries in the world. We show that in the later part of our sample, 1974–2005, as cartel behavior of OPEC member countries has diminished and as conflict has become more regular and thus the information surrounding it noisier, oil stock prices do not increase in response to conflict. However, in earlier capacity constrained eras, we find that oil stocks can in fact increase in response to conflict. In some cases, the impact of conflict may cause the return of oil stocks to increase by as much as 10 percentage points.