Volatility in the knowledge economy

Summary. We seek to explain the economic volatility of the last 6 years, in particular the rapid expansion and contraction of the knowledge sectors. Our hypothesis is that these sectors amplify the business cycle due to their increasing returns to scale, growing faster than others in an upswing and contracting faster in a downswing. To test this hypothesis we postulate a general equilibrium model with two sectors: one with increasing returns that are external to the firm and endogenously determined - the knowledge sector - and the other with constant returns to scale. We introduce a new measure of volatility of output, a real beta, and derive a resolving equation, from which we prove that the increasing return sectors exhibit more volatility then other sectors. We validate the main results on US macro economic data of real GDP by industry (2-3 digits SIC codes) of the 1977-2001 period, and provide policy conclusions.Received: 18 March 2002, Revised: 16 February 2004, JEL Classification Numbers: D5, D58, E10, L50, L52, O38, O51.Correspondence to: Graciela Chichilnisky     

Sustainable markets with short sales

Market objectives can conflict with long-term goals. Behind the conflict is the impatience axiom introduced by T. Koopmans to describe choices over time. The conflict is resolved here by introducing a new concept, sustainable markets. These differ from Arrow-Debreu markets in that traders have sustainable preferences and no bounds on short sales. Sustainable preferences are sensitive to the basic needs of the present without sacrificing the needs of future generations and embody the essence of sustainable development (Chichilnisky in Soc Choice Welf 13(2):231–257, 1996a; Res Energy Econ 73(4):467–491, 1996b). Theorems 1 and 2 show that limited arbitrage is a necessary and sufficient condition describing diversity and ensuring the existence of a sustainable market equilibrium where the invisible hand delivers sustainable as well as efficient solutions (Chichilnisky in Econ Theory 95:79–108, 1995; Chichilnisky and Heal in Econ Theory 12:163–176, 1998). In sustainable markets prices have a new role: they reflect both the value of instantaneous consumption and the value of the long-run future. The latter are connected to the independence of the axiom of choice at the foundations of mathematics (Godel 1940).     

Managers, investors, and crises: mutual fund strategies in emerging markets

We examine the trading strategies of mutual funds in emerging markets. We develop a method for disentangling the behavior of fund managers from that of underlying investors. For both managers and investors, we strongly reject the null hypothesis of no momentum trading: mutual funds systematically sell losers and buy winners. Selling current losers and buying current winners is stronger during crises, and equally strong for managers and investors. Selling past losers and buying past winners is stronger for managers. Managers and investors also practice contagion trading—they sell (buy) assets from one country when asset prices fall (rise) in another.     

Modelling with scenarios: Technology in North-South development

This article outlines work in progress on a study of technological choice in the context of North-South development. Its main purpose is to describe the methodology being developed in the pilot phase of the study. This is of interest because it links together a number of analytic techniques—sociopolitical scenario analysis, macroeconomic modelling, and certain microstudies. The methodological problems are general to much forecasting activity.     

Estimators for the common principal components model based on reweighting: influence functions and Monte Carlo study

The common principal components model for several groups of multivariate observations is a useful parsimonious model for the scatter structure which assumes equal principal axes but different variances along those axes for each group. Due to the lack of resistance of the classical maximum likelihood estimators for the parameters of this model, several robust estimators have been proposed in the literature: plug-in estimators and projection-pursuit (PP) type estimators. In this paper, we show that it is possible to improve the low efficiency of the projection-pursuit estimators by applying a reweighting step. More precisely, we consider plug-in estimators obtained by plugging a reweighted estimator of the scatter matrices into the maximum likelihood equations defining the principal axes. The weights considered penalize observations with large values of the influence measures defined by Boente et al. (2002). The new estimators are studied in terms of theoretical properties (influence functions and asymptotic variances) and are compared with other existing estimators in a simulation study.     

WHAT HAPPENED TO THE THREE‐LEGGED CENTIPEDE GAME?

Abstract.  In the last two decades, several frameworks have been proposed to analyze the question of whether common knowledge of rationality is sufficient to justify the play of backward induction (BI) in games of perfect information. Three strands of literature have addressed this issue: the literature on equilibrium refinements, the literature on knowledge-based epistemology and the literature on interactive epistemology. This paper surveys seminal frameworks within the first two strands of research and assesses the extent to which they provide a satisfactory solution to the problem. These approaches are illustrated using a three-legged version of Rosenthal's centipede game, which is the classical example in the literature. The paper argues that some of these frameworks provide sensible answers to the riddle of BI or, at least, succeed in bringing the paradox to another level. The paper also points at consistency problems in the body of refinements of Nash equilibrium revealed by the surveyed literature.     

A model of technology, domestic distribution, and North-South relations

This article describes the macroeconomic model used in an ongoing study of technology policies and North-South relations. Other aspects of the study have been described elsewhere [1,2]. We examine here the rationale for the theoretical structure used in the model, the details of the equations, and a computation of solutions. To illustrate the dynamics of the model, a brief discussion is also given of the preliminary results that indicate critical relationships between domestic technology and income distributions and the North-South terms of trade. The results are based on a calibration of the model using data for Brazil and the United Kingdom.     

Community preferences and social choice

This paper gives necessary and sufficient conditions for the aggregation of preferences, extending an earlier treatment of aggregation by Stolper, Gorman, Samuelson and Chipman. Such aggregation procedures are intended to deal with the problem of aggregating demand functions in econometrics, where the aggregate is required to be independent to the income distribution. Thus, it is usually assumed in this form of aggregation that all consumers face the same prices, but that the distribution of income is unrestricted.In order to establish the characterisation result, we present a new approach to preference aggregation which involves summing certain subsets of the graphs of the preferences, viewed as subsets of a Euclidean space. This procedure has a clear geometrical interpretation, and a number of useful applications. In particular, it enables us to analyse the possibility of aggregation when prices are not constrained to be the same for all consumers, a case of possible empirical significance. We also show that the Stolper-Gorman-Samuelson-Chipman construction of community indifference curves coincides with a special case of this procedure.Finally, this approach allows us to develop the relationship between these forms of aggregation and the preference aggregation problem as it occurs in social choice theory.     

Beyond ‘know-what’ and ‘know-how’ to ‘know-who’: enhancing human capital with social capital in an Australian start-up accelerator

Abstract

This study investigates the enhancement of human capital with social capital in a start-up accelerator and how this integration affects the entrepreneurial learning experience. In particular, it examines the relative importance of the three components ‘know-what’, ‘know-how’ and ‘know-who’. The study involved thematic analysis of semi-structured interviews with participants in an Australian start-up accelerator that is delivered using ideas such as Design Thinking, the Business Model Canvas and Lean Start-up methodology. We find that although the programme emphasised ‘know-what’ and ‘know-how’, ‘know-who’ was most significant for participant learning. The results indicate that mentors and experts were especially helpful in shaping learning and in developing entrepreneurial networks. Moreover, our results show that the processes of ‘know-what’, ‘know-how’ and ‘know-who’ are interrelated – by knowing ‘who’, participants learnt ‘what’ and ‘how to’ through social learning. The research contributes to entrepreneurial learning theory and application particularly in the Asia Pacific context, by providing evidence that ‘know-who’ closes the learning loop for ‘know-what’ and ‘know-how’ as ‘know-who’ can actually provide entrepreneurs with the means to enhance their entrepreneurial self-efficacy.     

Análisis del desnivel salarial entre hombres y mujeres con un modelo de equilibrio

Según un modelo de equilibrio generalde dos esferas (hogary mercado), la productividad de la mujer en el trabajo remunerado disminuye cuantas más tareas desempeña en el hogar. Partiendo del supuesto de que las aportaciones de hombres y mujeres a las labores domésticas son complementarias, las autoras comprueban que hay múltiples equilibrios posibles. En algunos, ellosy ellas asumen estas tareas por igualy ganan salarios iguales; en otros, se las reparten de manera dispar y ganan salarios diferentes. Por otraparte, los estereotipos acerca de la productividad de las mujeres perpetúan la desigualdad. Las autoras, valiéndose de ejemplos numéricos, demuestran que hay mayor bienestar cuando los cónyuges se reparten el trabajo a partes iguales. Para terminar, exponen algunas conclusiones.