Recession, inflation and the international monetary system

The difficult circumstances being faced by the world economy and its uncertain prospects for the 1980s make it necessary to take a new look at the present financial mechanisms and international institutions for monetary cooperation, with a view to adapting them to current needs and to developments in the near future. The industrial countries will have more modest rates of growth than in earlier decades, and this will have significant consequences for the developing countries: (a) stagnation of official development aid flows; (b) possible intensification of protectionist trends; (c) slow growth of producers of raw materials whose export markets will be seriously limited; (d) gradual shift of world economic and political activity toward oil-producing developing countries and, to a lesser extent, toward the exporters of manufacturers; (e) industrial countries and raw materials producers will become increasingly interdependent; (f) oil-producing and other higher income developing countries will increase their participation in regional economic cooperation and official development aid efforts. Some of the more specific problems which require attention from the international community are inflation and recession; structural disequilibria, recycling and external debt; adjustment process; creation of liquidity and transfer of resources; and participation of the developing countries in the monetary system.     

Cofinanced Public Extension in Nicaragua

How effective is agricultural extension? Is it worth the vastsums governments spend to provide it, mostly as a free service,to farmers worldwide? Relatively few studies exist that measureand compare the benefits of extension activities against theircosts. In the absence of such data, this pilot activity concentratedinstead on demand. Would demand for extension services be highif they were no longer free? The existence of solid demand wouldpresuppose some benefits from the service. Further, might chargingfor the service actually improve its quality and sustainability? The pilot program in Nicaragua described here set out to testwhether a truly demand—driven extension system aimed atfarmers with small-and medium-size holdings could be developed.The principal mechanism was a contribution by the farmer paidas a bonus to the extensionist: the aim was to introduce incentivesfor providers to improve the service through rewards linkedto the quality of their work and to establish direct accountabilityof extensionist to client. The outcomes showed that the cofinancingconcept can be successful. The article describes the design,implementation, and results in the expectation that the lessonslearned may be of interest elsewhere.      

World War II to 2011: Changes and Challenges in the Global Economy

This paper discusses six major changes and challenges that have emerged since World War II that will shape the global economy for the indefinite future. These are the changing economic role of women, the emergence of the global economic and financial system, the re-emergence of state-supported enterprises, the impact of the Internet, the global diffusion of opportunity and innovation, and globalization as an opportunity and a threat. How these challenges are addressed will have important consequences for business and for public policy. In addition to the prepared remarks, this paper also has a summary of the question-and-answer session that followed Dr. Hormats’ address.     

A general equilibrium analysis of conjunctive ground and surface water use with an application to Morocco

Groundwater resources (GW) account for nearly 30% of the world's sustainable water supplies. Yet, this resource, which is fraught with externalities, has largely been left unregulated. The economic literature on GW is predominantly of a partial equilibrium type. We analyze GW regulation in a general equilibrium setting, focusing on the stabilization value of GW under natural (drought) and economic (rural–urban water transfer) shocks. A general equilibrium approach allows evaluating direct and indirect effects of GW regulation on agriculture and nonagriculture sectors and extends the scope for water policy. The analysis is applied to Morocco by extending an existing computable general equilibrium (CGE) model to include ground and surface water (SW) resources. We study effects of (i) an increase in GW extraction cost (e.g., as a result of prolonged extraction beyond natural recharge that lowers the aquifer's water table), (ii) a transfer of SW from rural (irrigation) to urban (domestic) use, and (iii) a reduction of water availability due to severe drought. We estimate the value of GW and assess the direct (partial equilibrium) and indirect (general equilibrium) impacts. We find that GW plays a critical role in mitigating the negative effects of these types of shocks.     

Ronald Seavoy. Origins and Growth of the Global Economy: From the Fifteenth Century Onward. Westport, Conn.: Praeger, 2003. 275 pp. ISBN 0-275-97912-1, $70.95.

Few scholars are confident enough to believe that they can describethe history of the "origins and growth of the global economy"in 275 pages. But Ronald Seavoy, an emeritus professor of historyat Bowling Green State University, uses that history to illuminatetwo themes: to show that the global economy is built on thefoundation of European commercial imperialism and "to show thatthe global economy as it is currently evolving is capable ofproducing     

Diffusion of Kyoto's clean development mechanism

To date, developed countries can only tap mitigation opportunities in developing countries by investing in projects under the Clean Development Mechanism (CDM). Yet CDM investments have so far failed to reach all of the high-potential sectors identified in IPCC reports. This raises doubts about whether the CDM will be able to generate an adequate supply of credits from the limited areas where it has proved successful. Our paper examines the current trajectory of potential mitigation entering the CDM pipeline and projects it forward under the assumption that the diffusion of the CDM will follow a path similar to other kinds of innovations. Projections are then compared to pre-CDM predictions of the mechanism's potential market size used to assess Kyoto's cost, in order to discern whether limits on the types of project entering the pipeline will also limit the eventual supply of certified emission reductions (CERs). The main finding of the paper is that the mechanism is on track to deliver an average annual flow of roughly 700 million CERs by the close of 2012 and nearly to 1100 million tons by 2020. Parameter tests suggest that currently identified CDM investments will exceed early model predictions of the potential market for CDM projects.     

A model of boundedly rational “neuro” agents

We consider a model in which each agent in a population chooses one of two options. Each agent does not know what the available options are and can choose an option only after observing another agent who has already chosen that option. In addition, the agents’ preferences over the two options are correlated. An agent can either imitate an observed agent or wait until he meets two agents who made different choices, in which case he can compare their choices and choose accordingly. A novel feature of the model is that agents observe not only the choices made by others, but also some information about the process that led them to those choices. We study two cases: In the first, an agent notes whether the observed agent imitated others or whether he actually compared the available alternatives. In the second, an agent notes whether the observed agent’s decision was hasty or not. It is shown that in equilibrium the probability of making a mistake is higher in the second case and that the existence of these nonstandard “neuro” observations systematically biases the equilibrium distribution of choices.     

The Design of ``Smart' Water Market Institutions Using Laboratory Experiments

One of the problems with proposals for substantialinstitutional change in water systems is thatmodification and irreversibility make the processslow, cautious and costly to society. In this paper,we discuss the role that experimental economics canplay in evaluating proposed institutional changes tohelp facilitate a more rapid and smooth adoption ofchanges in the water system. Experimental economicsyields a formal and replicable system for analyzingalternative market structures before they are actuallyimplemented. For example, a water market can bedeveloped and tested in the laboratory under supplyand demand constraints that reflect drought conditionsthat might occur in California, or other arid regionsin the world. We present a prototype of a Californiawater transfer model and the results from a series ofwater market experiments. Results include realizedmarket efficiency and surplus distribution, as well asan analysis of market price volatility. Theimplications of this research extend well beyondCalifornia water markets, not only to water markets inother arid regions, but also to the design of marketsfor other environmental goods, including tradablepollution permits and fishery ITQs.     

Markov decision processes under model uncertainty

We introduce a general framework for Markov decision problems under model uncertainty in a discrete-time infinite horizon setting. By providing a dynamic programming principle, we obtain a local-to-global paradigm, namely solving a local, that is, a one time-step robust optimization problem leads to an optimizer of the global (i.e., infinite time-steps) robust stochastic optimal control problem, as well as to a corresponding worst-case measure. Moreover, we apply this framework to portfolio optimization involving data of the . We present two different types of ambiguity sets; one is fully data-driven given by a Wasserstein-ball around the empirical measure, the second one is described by a parametric set of multivariate normal distributions, where the corresponding uncertainty sets of the parameters are estimated from the data. It turns out that in scenarios where the market is volatile or bearish, the optimal portfolio strategies from the corresponding robust optimization problem outperforms the ones without model uncertainty, showcasing the importance of taking model uncertainty into account.     

Stochastic vs. deterministic frontier distance output function: Evidence from Brazilian higher education institutions

Journal of Productivity Analysis - Using data from the Brazilian Higher Education Census and other public institutions, this study aims to obtain and compare efficiency scores from stochastic...