Moments of truncated <Emphasis Type="Italic">t</Emphasis> and <Emphasis Type="Italic">F</Emphasis> distributions

Truncated distributions commonly arise in economics and related areas, see, for example, Lee (Econ Lett 3:165–169, 1979), Lien (Econ Lett 19:243–247, 1985; Econ Lett 20:45–47, 1986), Burdett (Econ Lett 52:263–267, 1996), Sercu (Insur: Math and Econ 20:79–95, 1997), Abadir and Magdalinos (Econom Theory 18:1276–1287, 2002), and Horrace (J Econom 126:335–354, 2005). In this note, we consider the most commonly encountered truncated distributions with heavy tails: the truncated t distribution and the truncated F distribution. For each of these distributions, we derive explicit expressions for the moments and estimation procedures by the method of moments and the method of maximum likelihood. An application is illustrated to a popular data set in the econometric literature.      

The <Emphasis Type="Italic">Acting</Emphasis> Person: Social Capital and Sustainable Development

Ron Stanfield has had a long and distinguished career as a social economist and commentator on the social economy. Of special concern to us in this article are Stanfield’s interests in social capital, sustainable development, and nurturance which we refer to as caring. We also take up several other virtues including sympathy, benevolence, and generosity that have been part of the economics literature from the time of Smith’s Moral Sentiments along with the associated vices of heartlessness, insensitivity, meanness, greediness, and others. This article attempts to show that (1) adding social capital to the machine-like individual of mainstream economics results in the acting person of personalist economics who becomes more fully a human person through social interactions that foster the development of several virtues or less fully a human person through other interactions that instill certain vices; and that (2) in matters relating to sustainability, becoming more fully a human person calls especially for the practice of the virtues of justice and moderation. In addition we have suggested a framework for thinking about sustainable development in terms of actuating and limiting principles and for developing critical values or performance standards for sustainable development that are person-centered.     

Revealing the depth of reasoning in <Emphasis Type="Italic">p</Emphasis>-beauty contest games

The aim of this study is to evaluate the impact of information on levels of reasoning on individuals' choices in p-beauty contest games. In the baseline design, subjects received information only on the average and target values from the previous period. In the alternative design, the winner(s) explained in a short message (30 words maximum) what reasoning he/she applied in selecting the target value and then stopped playing. The winner's message, the winning number, the target and average values were then displayed on all computer screens. The results show that non-winning players imitate the level of rationality of winners, and a significant proportion of the population adopt strategies which are best responses to other imitators' behaviour rather than to the average level of rationality. Both the imitative strategies and the best responses to the imitative strategies stimulate a strong acceleration of the learning process. Electronic Supplementary Material Supplementary material is available in the online version of this article at . JEL Classification C72, C91, C92     

Stability and bifurcations in <Emphasis Type="Italic">IS-LM</Emphasis> economic models

In this note, we analyze the local dynamics of a general non-linear fixedprice disequilibrium IS-LM model. We assume investment behavior as a general nonlinear function avoiding any Kaldor type assumption. By proving the existence of a family of periodic solutions bifurcating from a steady state, we confirm and extend some results in the literature for IS-LM models reducible to Leinard’s equation. We use bifurcation theory and study the effect of a change of the adjustment parameter in the money market upon the solutions of the model as the steady state loses stability. We establish analytically that the values of the adjustment parameter in the money market may affect the equilibrium relative to the product market and the government budget constraint. (JEL: C62, E32)     

Latent class count models of total visitation demand: <Emphasis Type="Italic">days out hiking in the eastern Alps</Emphasis>

We report preliminary results on the investigation of the hypothesis of the existence of latent classes in the total demand for days out in a vast section of the Italian Eastern Alps. Finite mixing is informed by socioeconomic variables and it is limited to the demand portion of a hurdle model of visitation. Gradually more flexible count models are estimated moving from the Poisson to the Negative Binomial -1 and -2, to the generalized negative binomial. The implications for expected consumers surplus, predicted visitation and choke prices are discussed for a plausible 2 class model where years of experience play an important role in class membership.      

The “hidden catch” in <Emphasis Type="Italic">The Invisible Hook</Emphasis>

In The Invisible Hook, Leeson argues that by devising a complex system of rules (called the “pirate code”) and procedures for electing their leaders, pirate societies created governance structures where the leaders were strong enough to “control the governed” but were not strong enough to break the constraints that bound them. There is, however, a “hidden catch” within The Invisible Hook. There are important differences between pirate crews and societies, between pirate captains and political leaders, and between the pirate code and constitutions. Moreover, understanding these differences is critical for understanding how criminal bands were able to accomplish a feat that still proves problematic for many societies.     

<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.

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.      

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.     

Can you do the wrong thing and still be right? Hypothesis testing in I(2) and near-I(2) cointegrated VARs

In this paper, we investigate the small-sample performance of LR tests on long-run coefficients in the I(2) model; we focus on a comparison between I(2) and near-I(2) data, i.e. I(1) data with a second root very close to unity, and report the results of some Monte Carlo experiments. With near-I(2) data, the finite-sample properties of the tests are (i) similar to those found with genuine I(2) data, (ii) systematically superior to those of the analogous tests constructed in the I(1) model, even if the latter is, in principle, correctly specified and the former is not. Therefore, there seems to be strong support to the idea that, in practice, modelling near-I(2) data using the I(2) model may be a good idea, despite the inherent misspecification.     

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.     

MODELLING TIME SERIES DATA OF MONETARY AGGREGATES USING I(2) AND I(1) COINTEGRATION ANALYSIS

The objective of this paper is to consider methodology for modelling time series data of monetary aggregates such as monetary base and broad money. A brief review is made with regard to the likelihood‐based cointegration analysis of I(2) (integrated of order 2) data and I(2)‐to‐I(1) transformations. The paper then investigates procedures for econometric modelling of monetary aggregates, which are in general deemed to be I(2) variables analogous to price indices. It is shown that I(2)‐to‐I(1) transformations centering on a money multiplier play an important role in the modelling procedures. Finally, the study presents an empirical illustration of the proposed methodology using monetary aggregate data from Japan.     

The economic agent as rule maker and rule user: <Emphasis Type="BoldItalic">Homo Sapiens Oeconomicus</Emphasis>

The paper discusses the micro foundations of evolutionary economics, introducing a unified concept of the economic agent as a rule maker and rule user. Based on recent findings of the neuronal, cognitive and behavioral sciences, Homo Sapiens Oeconomicus emerges as an alternative to Homo Oeconomicus. A taxonomy of rules distinguishing between cognitive, behavioral and blueprint rules and a set of theoretical propositions related to the structure and evolution of those rules are suggested.JEL Classification: A 12, B 41, B 52, B 53, D 00, D 64, D 80, D 83, E 11, L20The present paper had its origin in a research project on The Interdisciplinary Foundations of Economic Decision Making supported by the Swiss National Science Foundation during 1978-1980. The core of that work was a brain model whose architecture also serves as a corner stone for this paper. Since then there have been substantial developments in the respective areas; some of the major findings of the more recent research in the neuronal, cognitive and related sciences are discussed and integrated into the present paper. - I gratefully acknowledge insightful comments and criticisms from Georg D. Blind. Some ideas were discussed during my tenure as a Visiting Professor in the Department of Economics at the University of Queensland, in fall 2003, and I wish to record my appreciation of the hospitality during that visit. Particular thanks for the inspiring discussions go to Peter Earl, John Foster, and, as always, Jason Potts. Special thanks are due to Juli Lessmann and Charles R. McCann for their thoughtful corrections of my English prose and their editorial help. The usual disclaimer applies.     

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).     

Possible economic impacts of a shutdown of the thermohaline circulation: an application of <Emphasis Type="Italic">FUND</Emphasis>

Climate change can lead to a substantial reduction of the strength of the thermohaline circulation in the world oceans. This is often thought to have severe consequences particularly on the North Atlantic region and Northern and Western Europe. The integrated assessment model FUND is used to estimate the extent of these impacts. The results indicate that, owing to a slower warming (rather than cooling) of the regions most affected by a thermohaline circulation collapse, climate change induced damages in these regions would be smaller in case of a shutdown of the thermohaline circulation. However, even with a thermohaline circulation collapse, the total and marginal impacts of climate change are negative.JEL Classification: Q510, Q540We are grateful to Till Kuhlbrodt for providing the CLIMBER data and to Andre Krebber for processing them. The German Federal Ministry for Education and Research through the INTEGRATION project, the US National Science Foundation through the Center for Integrated Study of the Human Dimensions of Global Change (SBR-9521914) and the Michael Otto Foundation provided welcome financial support.     

Algebra of Integrated Time Series: Evidence from Unit Root Analysis

It is argued if x_t ~ I(1) and y_t ~ I(1), then running a regression x_t on y_t would produce spurious results because e _t would generally be I(1). However, there may exist a ‘b’ such that e _t  = x _t - by _t is I(0), then running a regression x _t on y _t would not produce spurious results. This special case of two integrated time series is known in the literature as cointegration. In this particular case, x _t and y _t are said to be cointegrated. In our review of the development of the concept of cointegration, we identified that the underlying reason for this special case to arise is the proposition that if x _t  ~ I(d _x ), y _t  ~ I(d _y ), then z _t  = bx _t  + cy _t  ~ I(max(d _x ,d _y )). In this research, we offer evidence against this proposition.     

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.     

State dependence,serial correlation and heterogeneity in the union membership dynamics

In order to distinguish the true and spurious state dependence from the complicated dynamics of union membership, the simulation estimators incorporating the lagged dependent variables, unobserved individual heterogeneity and correlations among the errors are implemented in this article to study union membership dynamics. It is found that the true state dependence of union membership under multivariate t assumption is much higher than the standard dynamic panel probit estimators which are under multivariate normal assumptions. On the other hand, the spurious state dependence (the variance of the unobserved individual heterogeneity) is estimated to be higher when using the standard dynamic panel probit estimators than under multivariate t assumption. Moreover, blacks and married men are found to have higher union membership true state dependence than whites and unmarried men.     

<Emphasis Type="Bold">Monopsony in Motion - Imperfect Competition in Labor Markets.</Emphasis>

Book Review

Monopsony in Motion - Imperfect Competition in Labor Markets.     

Hayek’s <Emphasis Type="Italic">Constitution of Liberty</Emphasis>—a guarded retrospective

Hayek’s Constitution of Liberty is justly regarded as making a comprehensive case for the protection of individual liberty against excessive government intrusion. But even as its ends are correct, its analysis of key conceptions of equality, coercion and monopoly is incomplete because of Hayek’s refusal to adopt a consistent theoretical framework that accounts for the difference between formal and substantive forms of regulation, on the one hand, and why the refusal to deal is critical in competitive markets but subject to regulation in monopolistic ones. His deep skepticism about central planning rests upon an overbroad account of collective ignorance that unwisely understates the dangers of self-interest in collective deliberations. That weakness then leads him to exhibit an excessive skepticism toward written constitutions on both matters of structure and individual rights, which in turn leads him toward undue deference to economic regulation of the economy.