The cycles approach

The cycles approach uses linear algebra, graph theory, and probability theory to study common prior existence and analyze models of knowledge, which are characterized by a state space, a set of players, and their partitions. In finite state spaces, there is a simple formula for the cyclomatic number, i.e., the dimension of cycle spaces of a model. We prove that the cyclomatic number is the minimum number of cycle equations that must be checked to guarantee the existence of a common prior, and explain why some cycle equations are automatically satisfied. There is an isomorphism taking cycles into cycle equations; adding cycles is the counterpart of multiplying the corresponding cycle equations. If the cyclomatic number is zero, a common prior always exists, regardless of the probabilistic information given by players’ posteriors.     

Structural change and foreign direct investment: globalization and regional economic integration

This paper investigates flows of inward and outward foreign direct investment (FDI) and FDI-to-GDP ratios in a sample of 62 countries over a 30 year time span. Using several endogenous structural break procedures (allowing for one and two break points), we find that: (1) the great majority of the series have structural breaks in the last 15 years, (2) post-break FDI and FDI/GDP ratios are substantially higher than the pre-break values, and (3) most breaks seem to be related to globalization, regional economic integration, economic growth, or political instability. Static and dynamic panel-data analyses accounting for and/or addressing endogeneity, simultaneity, nonstationarity, heterogeneity and cross-sectional dependence show that FDI is negatively related to exchange rate volatility and GDP per capita, but positively related to some regional integration agreements, trade openness, GDP, and GDP growth. Most notably, the European Union is the only regional economic integration unit found to consistently have significant and positive effects on FDI.     

Gender divisions of domestic labour and paid domestic services

ABSTRACT

This article investigates the relationship between the sharing of domestic tasks in dual-earner mixed-sex couples and the use of paid domestic services. Using results from a small-scale survey of the domestic outsourcing practices of employees of a large service-sector organisation in the UK, we find that in households: full-time working by women and presence of younger children is positively associated with the use of paid domestic services; there is no association between the gender division of traditionally female domestic tasks carried out within the couple and use of paid services; but in contrast, greater male involvement in traditionally male and traditionally gender-neutral tasks is positively associating with using paid domestic services. These findings tentatively suggest that a new arrangement may be emerging in which some couples address a heavy workload and a desire for a less traditional division of domestic labour by men participating more in close-ended domestic tasks and outsourcing the more time-consuming tasks traditionally undertaken by women to paid-service providers.     

On the local stability of the solution to optimal control problems

New conditions for the local stability of optimal control problems are presented. The conditions are an extension of the results of a previous study focusing on the solution to problems solvable using calculus of variations. A comparison is made between the conditions introduced here and those presented in the literature. It is shown that our condition is roughly as powerful as the one presented by Sorger (J. Math. Anal. Appl. 148 (1990) 191) but it is easier to check.     

The valuation of GMWB variable annuities under alternative fund distributions and policyholder behaviours

In this paper, we present a dynamic programming algorithm for pricing variable annuities with Guaranteed Minimum Withdrawal Benefits (GMWB) under a general Lévy processes framework. The GMWB gives the policyholder the right to make periodical withdrawals from her policy account even when the value of this account is exhausted. Typically, the total amount guaranteed for withdrawals coincides with her initial investment, providing then a protection against downside market risk. At each withdrawal date, the policyholder has to decide whether, and how much, to withdraw, or to surrender the contract. We show how different policyholder’s withdrawal behaviours can be modelled. We perform a sensitivity analysis comparing the numerical results obtained for different contractual and market parameters, policyholder behaviours and different types of Lévy processes.     

Assessing inflation targeting through intervention analysis

The aim of this paper is to deal with the empirical aspectsof the ‘new’ monetary policy framework, known asInflation Targeting. Applying Intervention Analysis to multivariateStructural Time Series models, which avoids certain biases encounteredin the use of conventional regression estimators, new empiricalevidence is produced in the case of a number of OECD countries.These results demonstrate that although Inflation Targetinghas gone hand-in-hand with low inflation, the strategy was introducedwell after inflation had begun its downward trend. But, then,Inflation Targeting ‘locks in’ low inflation rates.The evidence produced in this paper suggests that non-InflationTargeting central banks have also been successful on this score.     

Tolerance of tax evasion

We present a formal model in which individuals want the government to tolerate tax evasion because, in a context of limited state capacity, evasion provides insurance. Also, preferred tolerance of tax evasion increases with income, because government programs are redistributive, and decreases with perceived state capacity, because taxation is less distortionary in more capable states. We test the model using a question in the World Values Survey (WVS) about how justifiable cheating on taxes is. We find that tax evasion justifiability views present an inverted-U shape in perceived risk and increase with individuals’ income.

     

Water scarcity and the impact of improved irrigation management: a computable general equilibrium analysis

Increasing water scarcity combined with an increasing demand for food and water for irrigation call for a careful revision of water use in agriculture. Currently, less than 60% of all the water used for irrigation is effectively used by crops. Based on the new version of the GTAP‐W model we analyze the effect of potential water savings and the welfare implications of improvements in irrigation efficiency worldwide. The results show that a water policy directed to improve irrigation efficiency led to global and regional water savings, but it is not beneficial for all regions. The final effect on regional welfare will depend on the interaction of several different causes. For instance, higher irrigation efficiency changes opportunity costs and reverses comparative advantages, modifying regional trade patterns and welfare. For water‐stressed regions the effects on welfare are mostly positive. For nonwater scarce regions the results are more mixed and mostly negative. The results show that exports of virtual water are not exclusive of water abundant regions.