Inflation and capital accumulation in an OLG model with money in the production function

This article analyses the consequences of the money supply growth rate on capital intensity and economic growth in an overlapping-generations model with real balances entering the production function. Within this theoretical framework, anticipated inflation generates an ambiguous effect on capital–labour ratio, because two forces work simultaneously in opposite directions: one driving towards a pure Tobin effect (due to the OLG demographic structure of the economy) and the other pushing down the capital stock (due to the productive role of real balances). Despite the unclear effects exerted on capital intensity, higher monetary growth rates unambiguously reduce real money demand, consumption, total wealth and welfare.     

Institutional design and governance of airport regulators: The case of Latin America

This paper offers a cross-country assessment of the governance of airport regulators in Latin America. The analysis links the institutional design of airport regulators, whether in the form of independent regulatory agencies or government departments, to their overall governance. It examines four dimensions of regulatory governance: autonomy, transparency, accountability, and bureaucratic quality. Independent regulatory agencies in the Latin American airport sector seem to provide a better framework for transparency and bureaucratic quality than government departments. It is not conclusively found, however, that independent regulatory agencies contribute to a more autonomous decision-making or to an enhanced accountability of regulators to other branches of government and airport users. Overall, governance indicators of airport regulators in Latin America are well below the threshold that defines good governance.     

Why do European consumers smoke? Responses from the rational addiction model

In this paper, we test whether European consumers are addictive smokers and, if this is the case, then whether such addictions can be explained by the rational addiction theory. To this end, we start from a non‐separable intertemporal utility function, which allows us to derive a demand function that is estimated using tobacco time‐series. The results are in accordance with the model of rational addiction for all European smokers. Thus, we observe the addictive character of tobacco consumption and, secondly, we note that the addiction is not the result of myopic consumer behaviour, but rather of the maximization of total utility, implying that consumers consider the future effects of their current decisions.     

Counter-intuitive effects of domestic law enforcement policies in the United States

In spite of the increase in domestic law enforcement policies in the U.S. drug related crime has followed a non-monotonic trend and cocaine and heroin prices, instead of increasing, have been dropping or remained stable over time. All this in a context of an increase in these drugs’ consumption during the 1980s and a small decrease during the 1990s. This paper provides an explanation to these counter-intuitive effects of domestic law enforcement policies. We model how drug lords respond to this type of policy within a conflict framework over the control of distribution activities for illegal drugs, which is novel. The model predicts drug distribution activities, drug prices and drug consumption. These predictions appear to be consistent with the empirical evidence in the United States.     

On Rothschild–Stiglitz as Competitive Pooling

Dubey and Geanakoplos (Q J Econ 117:1529–1570, 2002) have developed a theory of competitive pooling, which incorporates adverse selection and signaling into general equilibrium. By recasting the Rothschild–Stiglitz model of insurance in this framework, they find that a separating equilibrium always exists and is unique. We prove that their uniqueness result is not a consequence of the framework, but rather of their definition of refined equilibria. When other types of perturbations are used, the model allows for many pooling allocations to be supported as such: in particular, this is the case for pooling allocations that Pareto dominate the separating equilibrium.     

Multisensory design: Reaching out to touch the consumer

Touch plays an important, if often underacknowledged, role in our evaluation/appreciation of many different products. It is unsurprising, therefore, that there has been such a recent growth of interest in “tactile branding” and tactile marketing. This article reviews the evidence from the fields of marketing, psychology, and cognitive neuroscience, demonstrating just how important the feel of a product, not to mention the feel of its packaging, can be in determining people's overall product evaluation. Problems for tactile design associated with the growth of the aging population, and the growth of Internet‐based shopping, are highlighted. The critical role that touch can play in multisensory product design, appreciation, and marketing is also discussed, as is the increasingly frequent use by marketers of synesthetic correspondences to evoke tactile sensations via the visual and auditory modalities. We put forward the argument that tactile stimulation may influence multisensory product evaluation by means of affective ventriloquism: Our suggestion is that the hedonic attributes of a product perceived via one modality (such as touch) can “pull” (or bias) a person's estimates of the quality and pleasantness of the product derived from other sensory modalities into alignment, and by so doing, modulate a person's overall (multisensory) product experience. What is more, powerful mathematical modeling approaches now exist to predict the magnitude of this kind of intersensory (or crossmodal) interaction effect, hence offering the promise of a more scientific approach to tactile design/marketing in the coming years. © 2011 Wiley Periodicals, Inc.     

Foreign Market Entry Strategies under Asymmetric Information*

A home firm signals her private cost information by expanding in a foreign firm’s country. Credible signaling to deter counter‐entry may occur through a direct investment (but not through exports), and may even entail entering an unprofitable market. While this produces social benefits, uninformative signaling may be welfare‐reducing. Hence, we argue that moderate to high location costs may be socially desirable. We also show that there are not simple monotonic relationships between technology/demand conditions and firms’ entry modes. Thus, the signaling interpretation of international expansion makes it possible to explain some controversial empirical findings on a theoretical ground.     

Conflict, defense spending, and the number of nations

This paper provides a formal model of endogenous border formation and choice of defense spending in a world with international conflict. We examine both the case of democratic governments and of dictatorships. The model is consistent with three observations. First, breakup of countries should follow a reduction in the likelihood of international conflicts. Second, the number of regional conflicts between smaller countries may increase as a result of the breakup of larger countries. Third, the size of the peace dividend (the reduction in defense spending in a more peaceful world) is limited by the process of country breakup.     

The patterns of cross-border bank mergers and shareholdings in OECD countries

In recent years there has been a surge in mergers and acquisitions (M&As) in all sectors of economic activity. Cross-border operations have followed this trend, creating global companies operating in all major world markets. In this paper we study the pattern of cross-border M&As in the banking industry relative to the non-financial sector of the economy and investigate which factors make it more likely that a bank will expand its activities abroad. We find that cross-border M&As are rarer in banking than in other sectors, possibly owing to the importance of information asymmetries in banking relationships and to regulatory restrictions. Using data on almost 2500 banks from 29 OECD countries, we also show that the most significant features of banks with foreign equity interests relate to efficiency: banks with cross-border shareholdings are on average larger, more profitable, and based in countries with a more highly developed banking market.     

Coordination and the Provision of Discrete Public Goods by Correlated Equilibria

The strategic analysis of the private provision of a discrete public good has shown the existence of multiple Nash equilibria with the efficient number of players voluntarily contributing. However the coordination issue is left unexplained by this literature. The experimental evidence shows that communication among players is helpful in achieving cooperation. We claim that, from the theoretical point of view, this is equivalent to playing correlated equilibria in an extended public good game with communication, modeled as Chicken. We characterize such equilibria as feasible coordination mechanisms to achieve public goods provision in the general contribution game. We further introduce a second kind of game characterized by payoff externalities that may persist after the minimal threshold of contributors is achieved. While it is easy to show the existence of Pareto efficient correlated equilibria in the first game, in the second one players face incentive problems such that a first best cannot always be an equilibrium. Nevertheless there exist correlated equilibria that can qualify as incentive efficient mechanisms, once free riding is seen as a moral hazard issue. Finally, with an example, we discuss the impact of coalition formation in our framework.