Public inputs and the credit market

This paper studies the impact of public goods provision in an adverse selection environment. Public inputs used collectively by firms have indirect spillovers in imperfect credit markets by affecting the random returns of borrowers in this market. Public inputs change the nature of the binding incentive constraint and mitigate distortions in the credit market. The magnitude of such indirect benefits depends upon the ‘type’ of the public input being considered. Public inputs targeted to benefit the less-efficient borrowers in the economy have greater indirect benefits as compared to pure public inputs that benefit all. These additional efficiency gains, emerging out of information-asymmetries in the credit market, should be considered in the cost-benefit analysis of such public inputs. JEL Classification: H4 · D8 · O16     

Does Government Subsidy Affect Firm Survival? Evidence from Chinese Manufacturing Firms

ABSTRACT

This article applies a matching approach to deal with the selection bias and use the complementary log-log model to analyze the impacts of subsidy on Chinese manufacturing firms’ survival from 1998 to 2007. Our empirical results show that government subsidies significantly decrease the likelihood of firm exit. However, the effect decreases as the level of subsidies increases for private and foreign firms, but displays a nonlinear relationship across subsidy levels for SOEs. We also show the effects vary across the levels of institutional quality measured by the prevalence of rent seeking and government intervention. Further results suggest that the potential channels include increased investment in intangible and fixed assets as well as enhanced profitability.     

Candidate quality

We analyze the topical question of how the compensation of elected politicians affects the set of citizens choosing to run. To this end, we develop a sparse and tractable citizen-candidate model of representative democracy with ability differences, informative campaigning and political parties. Our results suggest that primaries, campaign costs and rewards have previously overlooked interactions that should be studied in a unified framework. Surprisingly, increasing the reward may lower the average candidate quality when the campaigning costs are sufficiently high. JEL Classification D70 · D72 · D79     

A comment on the role of prices for excludable public goods

Blomquist and Christensen [(2005). The role of prices for excludable public goods, International Tax and Public Finance, 12 ,61–79] argue that welfare is initially decreasing in the price of an excludable public good and that the case for a positive price for an excludable public good price is weak. We argue that this result follows from their particular characterization of the public good and that an alternative and equally reasonable characterization overturns their result. Hence, the policy case for a positive price on the public good is stronger than Blomquist and Christiansen suggest. JEL Classification H21 · H41     

Migration and the welfare state: The economic power of the non-voter?

This paper investigates the impact of emigration on the political choice of the size of the welfare state. Mobility has two countervailing effects: the political participation effect and the tax base effect. With emigration, the composition of the constituency changes. This increases the political influence of the less mobile part of the population. But the new political majority then also has to take into account that emigration reduces tax revenues and thereby affects the feasible set of redistribution policies. We find that the direction of the total effect of migration depends on the initial income distribution in the economy. Our results also contribute to the empirical debate on the validity of the median-voter approach in cross-country studies for explaining the relation between income inequality and redistribution levels. JEL Classification F22 · H50 · D31 · D72     

Politicians’ motivation,political culture,and electoral competition

We study electoral competition among politicians who are heterogeneous both in competence and in how much they care about (what they perceive as) the public interest relative to the private rents from being in office. We show that politicians may have stronger incentives to behave opportunistically if other politicians are more likely to behave opportunistically. A political culture may therefore be self-reinforcing and multiple equilibria may arise. We also show that politicians’ incentives to behave opportunistically increase with politicians’ pay and with polarization of policy preferences. JEL Code D72 · D78     

An equitable,efficient and implementable scheme to control global carbon dioxide emissions

We design an international scheme to control global externalities in which autonomous regions choose their own emissions levels in anticipation of interregional resource transfers implemented by an international agency. This agency follows a proportional equity principle, which preserves the status-quo ratio of regional welfare levels. We show that it is individually rational for each region to participate in the proposed international scheme and that regional environmental authorities choose policies that fully internalize the global externality. Although based on an admittedly ideal scheme, these results are especially noteworthy in light of the call for various forms of transfers in international agreements such as the Kyoto Protocol. JEL Code: C72 · D62 · D78 · H41 · H77 · Q28     

Performance of Foreign and Global Mutual Funds: The Role of Security Selection,Region‐Shifting,and Style‐Shifting Abilities

We examine the performance of U.S.‐based foreign and global funds after controlling for their regional and style exposure. We show that, on average, the total performance (TP) and security selection abilities of both foreign and global funds are significantly negative and exhibit short‐term predictability. Additionally, R² reflects funds’ security selection abilities, consistent with previous findings for domestic mutual funds. Investors can earn higher abnormal returns and TP in the short run by purchasing past winners with low R² than by purchasing past losers with high R². However, there is no evidence of predictability in the funds' region‐shifting and style‐shifting abilities.     

Policy-induced internal migration: An empirical investigation of the Canadian case

We investigate the influence of public policy on interprovincial migration in Canada using new aggregated migration data for 1974–1996, the longest period studied so far. We consider the consequences of regional variation in a variety of policies, and also investigate the effects of certain extraordinary events in Quebec and in the Atlantic provinces. The results indicate that while the changing bias in the unemployment insurance system may have induced some people to move to the relatively high unemployment Atlantic region, the resulting flows are likely too small to have altered regional unemployment rates. In contrast, political events in Quebec in the 1970's and the closing of the cod fishery in 1992 appear to be associated with large changes in migration patterns. JEL Classification H0 · H7 · J41 · J65 · R23 · R58     

Aggregating risk capital, with an application to operational risk

We describe a numerical procedure to obtain bounds on the distribution function of a sum of n dependent risks having fixed marginals. With respect to the existing literature, our method provides improved bounds and can be applied also to large non-homogeneous portfolios of risks. As an application, we compute the VaR-based minimum capital requirement for a portfolio of operational risk losses. JEL Classification G20 · 60E15 · 91B30