Somatic distance,trust and trade

Somatic distance, or differences in physical appearance, proves to be extremely important in the gravity model of bilateral trade in conformity with results in other areas of economics and outside in the social sciences. This is also true independently of survey evidence about bilateral trust. These findings are obtained in a sample of the 15 members of the European Economic Area in 1996. Robustness tests also show that somatic distance, as well as co‐ancestry, has a more reliable influence on bilateral trade than the other customary cultural variables. The article finally discusses the interpretation and breadth of application of these results.     

Optimal Patent Protection in a Two-Sector Economy

This article addresses the issue of optimal patent protection in an economy with a downstream and an upstream sector. The key insight is that higher patent protection in the downstream sector raises the incentives of agents to do R&D in that sector but discourages innovation in the upstream sector because of a market size effect. Hence, higher patent protection in the upstream sector accelerates growth whereas higher patent protection in the downstream sector slows it down. If some innovation is socially desirable, optimal patent protection is necessarily higher in the upstream than in the downstream sector.     

Women's relative wage rate in The Netherlands, 1950–1983: A test of alternative discrimination theories

Summary This article presents the results of an inquiry into the relationship that is to be expected on theoretical grounds between women's wage rate compared to men's on the one hand and some macroeconomic variables on the other. Becker's discrimination theory is confronted with alternative theories. On the base of data for the Netherlands the authors investigate which theory is most suited to explain the development of women's relative wage rate for the period 1950–1983. They conclude that the results of the empirical analysis predominantly support Becker's theory.The authors wish to thank Mr. R. Haagsma and Professor C.K.F. Nieuwenburg for their comments on an earlier draft of this article. Furthermore, they are grateful to Miss M.J.R. Key for computational assistance.     

Interdisciplinary economics

Summary Starting from Robbins and Hennipman and with the help of Becker and Lindenberg a theoretical framework has been constructed within which the strong points of economics and sociology are combined,viz,. the formal but relatively bare-bones modelling of economics and the often so much richer, in terms of social content, analysis of sociology. This theoretical framework also appears to enable more balanced analyses of the effectiveness and efficiency of legislation and regulation than the kind of law and economics so much in fashion at the moment, which is often not devoid of economism and in whichhomo econornicus still all too often figures as the prototype of man.(Economic Institute/Centre for Interdisciplinary Research on Labour Market and Distribution Issues (CIAV)); Associate of The Netherlands Interdisciplinary Demographic Institute (NIDI) in The Hague and the Interuniversity Center for Social Science Theory and Methodology (ICS). This article is an adapted version of my inaugural lecture.     

Measuring Hospital Performance in the Presence of Quasi-Fixed Inputs: An Analysis of Québec Hospitals

This research proposes an approach to measure hospital performance based on a generalization of Banker and Morey (1986) and Førsund (1996). This approach considers quasi-fixed inputs explicitly, calculates their implicit cost, and quantifies returns to scale. The performance measure is decomposed into allocative and technical inefficiencies. Based on a very complete data set of Québec hospitals, we find that significant inefficiencies of up to 17% ($700 CAN million) could have been saved through improved performance. Postestimation analyses that include qualitative measures of care suggest that differences in performance are attributable to differences in management or unobservable quality of care rather than patient case mix.     

Multiple Species Boreal Forests – What Faustmann Missed

Recent research in natural sciences shows that the dynamics in boreal forests are much more complex than what many models traditionally used in forestry economics reflect. This essay analyzes some challenges of accounting for such complexity. It shows that the optimal harvesting strategy for forest owners is history dependent and for some states of the forest, more than one strategy may be optimal.This paper confirms earlier literature on shallow lakes and coral reefs and shows that this kind of phenomena seem much more common than previously thought. They are valid for a wide range of ecosystems that cover large surfaces and they do not depend on the choice of some specific function to model the non-linearity. There are also indications that theses results could be obtained even for resources with concave growth if at least one species with non-linear growth affects their dynamics.     

The Last Word on the Wage Curve?

Abstract.  Since 1990, there has been extensive international research on the responsiveness of wages of individuals to changing local labour market conditions. For many countries, an inverse relationship between wages and local unemployment rates has been found. In their book, The Wage Curve , Blanchflower and Oswald argued that the unemployment elasticity of pay is around −0.1 in most countries. In a 1995 literature survey, Card referred to this striking empirical regularity as being close to an 'empirical law of economics'. Nonetheless, reported elasticities do vary, even excluding outliers, between about −0.5 and +0.1. There is also considerable heterogeneity among wage curve studies in terms of data and model specification. This paper carries out meta‐analytic techniques on a sample of 208 elasticities derived from the literature to uncover the reasons for the differences in empirical results across studies. Several causes of variation are identified. There is also clear evidence of downward publication bias. In addition, many reported t ‐statistics are biased upwards due to the use of aggregate unemployment rates. A maximum likelihood method and a trimming procedure are used to correct for these biases. Both methods give similar results for our sample. An unbiased estimate of the wage curve elasticity at the means of study characteristics is about −0.07.     

On the impact of leverage constraints on asset prices and trading volume

Abstract. Researchers have used stylized facts on asset prices and trading volume in stock markets (in particular, the mean reversion of asset returns and the correlations between trading volume, price changes and price levels) to support theories where agents are not rational expected utility maximizers. This paper shows that this empirical evidence is in fact consistent with a standard infinite horizon – perfect information – expected utility economy where some agents face leverage constraints similar to those found in todays financial markets. In addition, and in sharp contrast to the theories above, we explain some qualitative differences that are observed in the price-volume relation on stock and on futures markets. We consider a continuous-time economy where agents maximize the integral of their discounted utility from consumption under both budget and leverage constraints. Building on the work by Vila and Zariphopoulou (1997), we find a closed form solution, up to a negative constant, for the equilibrium prices and demands in the region of the state space where the constraint is non-binding. We show that, at the equilibrium, stock holdings volatility as well as its ratio to stock price volatility are increasing functions of the stock price and interpret this finding in terms of the price-volume relation. We would like to thank the editor and two anonimous referees for valuable substantive comments. Our gratitude also to Franklin Allen, Kerry Back, Domenico Cuoco, Xavier Freixas, Sanford Grossman, Michel Habib, Lutz Hendricks, Richard Kihlstrom, Fernando Restoy, Mary Thomson, Jean-Luc Vila, participants to seminars at Birkbeck College, Carnegie-Mellon, Columbia, ESSEC, HEC, IAE, INSEAD, London Business School, London School of Economics, McGill, Michigan, National University of Singapore, Pompeu Fabra, North Carolina, Washington-St-Louis, Wharton, the Jornadas de Economía Financiera BBV, and the Meetings of the Society for Economic Dynamics and Control and the American Finance Association. Special thanks are due to Süleyman Basak for his enthusiastic support and many helpful suggestions. The usual disclaimer applies. We gratefully acknowledge the support of the BBV and Caja de Madrid Foundations and CREF (both authors) and of the Spanish Ministry of Education under DGICYT grant no. PB93-0388 (first author).