Information technologies, embodiment and growth

This paper studies the conditions under which an IT revolution may occur and have permanent effects on long-term growth. To this end, we construct a multi-sectoral growth model with endogenous embodied technical progress. The R&D sector expands the range of softwares. The capital sector produces efficient capital combining hardware with available softwares. Technological progress is therefore embodied: New softwares can only be run on the most recent generations of hardware. The new softwares are copyrighted during a fixed period of time. First, we analytically characterize the balanced growth paths of the model. Then we focus on the dynamic response of the economy to technological shocks. Substitution effects favorable to the IT sectors are shown to arise when positive supply shocks affect the production of efficient capital and/or the creation of new softwares. Positive shocks specific to the capital sector are unable to produce effects on long-term growth, in contrast to the shocks specific to the R&D sector.     

Price support and spreads in the IPO aftermarket: An empirical microstructure study

Using the inventory components of spreads as a measure of inventory holding-risk, we test the hypothesis of Hanley et al. [Hanley, K. W., Kumar, A., & Seguin, P. J. (1993). Price stabilization in the market for new issues. Journal of Financial Economics, 34, 177–197] that price supports reduce market makers’ inventory holding-risk in the aftermarket of initial public offerings (IPOs). We find that both spreads and their inventory components are significantly smaller in the earlier periods of the IPO aftermarket than those in the later periods. More importantly, the inventory components of spreads are significantly smaller for stocks without over-allotment options (OAOs) exercised, and for stocks with lower or negative initial returns which are more likely to have price supports. The results are consistent with the price support hypothesis.     

Shifts in autonomy, responsibility and control from centre to periphery in public administration: the case of the ministry of finance in Italy

In tackling administrative reform and in the hope of improving the effective allocation of resources, most European governments have shown a growing interest in adopting private sector management models in the public administration. The assumption underlying this paper is that the decisive variables in the different national contexts have to do with the relationships between the central and the peripheral administrative levels, and the way in which administrative actors at the two levels interpret their roles and participate in the reform process. The paper examines the case of the reform of the Italian Ministry of Finance. In seeking to improve its performance and the services it provides, the ministry reform is intended to introduce a management system in which the key concepts are the planning, programming and control of administrative action and results. According to reform rhetoric, shaping a new class of administrative managers at the local level is the crux of the question. However, research results hint that the “creation” of this new local executive staff is yet to be completed. The working hypothesis advanced is that this is due to local executives’ lack of confidence in the “system”, inasmuch as the reform process has so far been characterised by a tendency to give them responsibility without autonomy and autonomy without control. The greater their lack of trust, the lesser their willingness to risk the consequences of failure and the greater their tendency to stick to defensive positions and to return to previous “bureaucratic” conceptions and ways of operating.     

Fiscal News, State Budget Rules, and Tax-Exempt Bond Yields

This paper investigates how state fiscal institutions such as balanced-budget rules and restrictions on state debt issuance mediate the bond market reaction to state fiscal news. We analyze data on the yields of bonds issued by different states, as reported in the “Chubb Relative Value Survey,” along with data on state budget forecasts for the period 1988–1998. We find that unexpected deficits are correlated with higher state bond yields. This effect is smaller for states with tight antideficit rules than for states without these fiscal rules. Unexpected deficits have a particularly large effect in raising bond yields of states with tax limits. These results suggest that bond market participants view fiscal institutions as relevant in assessing the risk characteristics of tax-exempt bonds and that the economic significance of these institutions depends on the state's economic and fiscal circumstances.     

From quality to innovation: Evidence from two French Employer Surveys

In this article we investigate the impact of quality systems on innovation performance using the method of propensity matching. We use two French microeconomic surveys, the “Organizational Changes and Computerization” (COI 1997) and the “Community Innovation Survey” (CIS3 1998–2000). The first hypothesis indicating that quality (ISO 9000 certification) impacts positively on innovation is supported for certain areas of innovation performance. Furthermore, the second hypothesis states that different levels of quality differentially improve innovation performance. Results indicate that the innovation performance of firms with Top Quality Level is higher than that of firms with Medium Quality Level which is also higher than that of firms with Low Quality Level for certain areas of innovation. However, we found that the difference in innovation performance between firms with Medium and Low Quality Levels is not of a great magnitude. This study implies that in order to achieve a significant innovation performance improvement via quality systems, a very well-established quality system is needed within a firm.     

Monetary policy for rationally inattentive economies with staggered price setting

The paper examines the optimal monetary policy when firms are constrained by information processing capability and infrequent price adjustments. Firms' information processing limit gives rise to imperfect knowledge about macroeconomic aggregates and endogenous information learning contingent on the monetary policy. Staggered price setting introduces the observed price duration and additional policy tradeoffs resulting from the interactions between nominal rigidities and imperfect information processing. The integrated model implies an optimal policy that commits to complete price stabilization in response to natural rate shocks but not in response to markup shocks. In the presence of markup shocks, it is optimal for the central bank to focus on price stabilization in the initial periods following markup shocks and shifts the emphasis to output gap stabilization later. Moreover, larger information capacity, stronger complementarities and more persistent shocks require more aggressive price stabilization in the short-run.     

Household production, full consumption and the costs of children

Recent work criticises both the logic and relevance of the theoretical basis of the approach to estimating the costs of raising children adopted in much of the economics literature. This tends to be restricted purely to models in which the household members consume market goods with given household income. The “costs of children” are perceived essentially as market consumption costs. This ignores the fact that an important, possibly preponderant element of child costs takes the form of parental time, which must be diverted from alternative uses such as market work, other household production activities, and leisure, to care for children. The studies also ignore the question of the differential incidence of child costs on adult members of the household. In this paper, we first of all argue that a satisfactory theoretical approach to modelling child costs must simultaneously incorporate an “individualistic” formulation of the household and a formal treatment of household production. We then provide such a model. Using data from a time use survey we estimate specialised versions of the model for families with two children and use the results to derive the intra-family distribution of resources and implied child-rearing costs.     

Value investing anomalies in the European stock market: Multiple Value, Consistent Earner, and Recognized Value

Empirical academic studies have consistently found that value stocks outperform glamour stocks and the market as a whole. This article extends prevailing research on existing value anomalies. It evaluates simple value strategies for the European stock market (compared to many other studies that test market data on a country-by-country basis) as well as sophisticated multi-dimensional value strategies that also include capital return variables (Consistent Earner Strategy) and momentum factors (Recognized Value Strategy), the latter reconciling intermediate horizon momentum and long-term reversals of behavioral finance theories. It can be shown that these “enhanced” value strategies can produce superior returns compared to returns of the whole market or “simple” value strategies without capturing higher risks applying traditional risk measures.     

Residential choice and the local public sector: An alternative test of the “Tiebout Hypothesis”

This paper provides an empirical test of the hypothesis, commonly referred to as the “Tiebout Hypothesis,” that locally provided public services and the level of local taxes influences residential choice decisions of households. This hypothesis has previously been tested by looking at the capitalization of fiscal factors into housing prices. This study analyzes the determinants of residential choice by looking at household moving data. The results provide support for the Tiebout hypothesis, even in cases when no capitalization is expected. Support was developed for the hypothesis that at any point of time significant fiscal disequilibrium exists for residents of some communities, resulting in a reduction of the efficiency properties of the Tiebout mechanism.     

Cyclical output,cyclical unemployment,and Okun's coefficient: A new approach

Estimates of Okun's coefficient are obtained using new estimates of cyclical GNP and cyclical unemployment rates for the post-war USA. Empirical estimates of the coefficient are near —0.25, somewhat smaller in magnitude than other recent estimates obtained applying similar econometric techniques to different estimates of cyclical output and unemployment. Tests fail to reject the hypothesis of parameter stability across an hypothesized break between the third and fourth quarters of 1973, suggesting similar relationships between cyclical output and unemployment both before and after the supply shocks of the 1970s.     

Expert systems in production management: An assessment

Over the last several years expert systems (ES) have gained almost sensational interest. Within business administration, production management might be one of the most fruitful application areas for ES. There already exist a number of interesting pilot systems, and reports of research projects are beginning to appear in the literature.The main goal of this study is to identify systematically those areas in production management where an ES approach might be most promising. This is important to both researchers and practitioners because it helps pinpoint where research and development resources would be best allocated.In this article the authors provide a taxonomy for production management activities. They then combine this taxonomy with a well-known list of eight “expert tasks” to provide what they call an “applications map” to guide the discussion.After discussing existing research efforts and potential production management applications of expert systems, the authors employ a Likert scoring procedure to quantify their subjective ratings as to problem importance, potential for improved solution, and ease of development, for expert systems development efforts in a given production management decision situation.One conclusion here is that the applicability of expert systems to production management appears to be broadly based. This is particularly true for what the authors have labeled as “technological” activities. An interesting finding is the apparent lack of applicability of expert systems to inventory management. The authors found no existing system or research proposals applying expert systems to inventory management. Finally, systems that combine technological with logistical knowledge seem to be a fertile (but difficult) application area for ES.     

Informal thinkering — how is it important?: Case studies of technical change processes: an industrialized–industrializing country comparison

This paper examines innovation processes or technical change-generation processes at the firm level. It emphasizes the notion that the element of technical and technological change that is a determinant of productivity growth is strongly induced by internal factors related to the firm's behavior, via investment in R&D but also, and importantly, on the basis of “informal thinkering” within plants.This research is unique in that it seeks first, to examine the pattern of technical change and its ensuing productivity growth, and second, to make a comparison between an industrialized and an industrializing country. This comparison is conducted by empirically comparing mills in the pulp and paper manufacturing sector in two countries: Canada and India. The overall analysis is based on direct observations at the mill level, face-to-face interviews and on analysis of mill documentary records.This paper highlights the importance of managing change as a continuous process. The introduction of intermittent, “step-jump” technical changes contributed little to explain the differences in performance between the mills. Much more important are (i) the continuing sequences of smaller investments in technical change, often linked to the larger step-jumps, and (ii) the existence of steady streams of changes and improvements that are unrecorded as capital expenditure.     

Externalities, Indivisibility, Nonreplicability, and Agglomeration

In this paper we argue that the impact of external scale economies and diseconomies on city size is not nearly as clear-cut as it is tacitly believed in urban economics. Similarly, city-size distortions are not caused by externalities alone. Indivisibility and nonreplicability, which prevent establishing the “right” number of cities, may represent a source for city-size distortions which can be stronger than the standard resource misallocation resulting from external scale economies and diseconomies. It follows that a direct population dispersion policy is not just an inferior substitute to Pigouvian taxes and subsidies but rather a useful complement.     

A Simple Test for Convergence of Metropolitan Income in the United States

The prevalent test for income convergence used in many recent studies of convergence across spatial economic units in the United States is to use a regression equation in which income growth is regressed against the initial level of income (this is known as β convergence). That method, however, has been crtiticized as an instance of Galton's fallacy of regression. We devise a simple test for the income β-convergence hypothesis which does not suffer from “Galton's fallacy” and apply it to all of the metropolitan areas of the United States for the period 1969–1995. For the test we use two income measures: per capita personal income and average wages. Our results conclusively support convergence of per capita personal income and of wage per worker for metropolitan areas in the United States. We also test for σ convergence, the hypothesis of diminishing dispersion in income among places over time, and find no support for the hypothesis.     

Property taxation and local public spending: the renter effect

The point of departure for this study is the pervasive finding that, other things equal, local jurisdictions tend to spend more on local services the larger the fraction of renters among their residents. This paper seeks to determine the approximate magnitude of this “renter effect” by posing the question “How much smaller would local public budgets be if all residents were home-owners?” Making use of two quite different approaches, the paper finds a typical renter effect on local public expenditure on the order of ten percent. This finding suggests that we might do well to reform the administration of the property tax so that changes in property tax liabilities on rental dwellings are directly and visibly transformed into changes of monthly rental payments.     

Subprime lending and the housing bubble: Tail wags dog?

The cause of the “housing bubble” associated with the sharp rise and then drop in home prices over the period 1998–2008 has been the focus of significant policy and research attention. The dramatic increase in subprime lending during this period has been broadly blamed for these market dynamics. In this paper we empirically investigate the validity of this hypothesis vs. several other alternative explanations. A model of house price dynamics over the period 1998–2006 is specified and estimated using a cross-sectional time-series data base across 20 metropolitan areas over the period 1998–2006. Results suggest that prior to early 2004, economic fundamentals provide the primary explanation for house price dynamics. Subprime credit activity does not seem to have had much impact on subsequent house price returns at any time during the observation period, although there is strong evidence of a price-boosting effect by investor loans. However, we do find strong evidence that a credit regime shift took place in late 2003, as the GSE’s were displaced in the market by private issuers of new mortgage products. Market fundamentals became insignificant in affecting house price returns, and the price-momentum conditions characteristic of a “bubble” were created. Thus, rather than causing the run-up in house prices, the subprime market may well have been a joint product, along with house price increases, (i.e., the “tail”) of the changing institutional, political, and regulatory environment characteristic of the period after late 2003 (the “dog”).     

Zoning and the exercise of monopoly power: A reevaluation

One reason for excessive zoning restrictions is said to be the desire of existing residents to raise the value of their homes. This strategy will be more successful if their community controls a large fraction of the land in a metropolitan area. This study critically examines this “monopoly zoning” hypothesis in a property rights framework. A re-examination of current empirical evidence for monopoly zoning and an additional study cast some doubt on the existence of such motivations.     

The dynamics of regional inequalities

This paper analyses the link between regional inequalities and GDP per capita at the country-level. Our starting hypothesis is that the evolution of regional inequalities should follow a bell-shaped curve as national GDP per capita rises since growth by its very nature is unlikely to appear everywhere at the same time, as has been argued by a number of authors, from Kuznets [Kuznets, S., (1955), Economic growth and income inequality, American Economic Review 45(1), 1–28] to Lucas [Lucas, R.E., (2000), “Some macroeconomics for the 21st century”, Journal of Economic Perspectives 14 (1), 159–168]. We test this hypothesis econometrically using semi-parametric estimation techniques and regional data for a panel of European countries. Our results provide strong support for such a bell-shaped curve and are robust to changing the regional administrative units and the time period, as well as controlling for other possible determinants of regional inequalities. We also find support for this hypothesis when considering non-European countries.     

A review of estimates of the schooling/earnings relationship, with tests for publication bias

In this paper we provide an analytical review of previous estimates of the rate of return on schooling investments and measure how these estimates vary by country, over time, and by estimation method. We find evidence of reporting (or “file drawer”) bias in the estimates and, after due account is taken of this bias, we find that differences due to estimation method are much smaller than is sometimes reported, although some are statistically significant. We also find that estimated returns are higher in the US and they have increased in the last two decades.     

Transport subsidies, system choice, and urban sprawl

This paper analyzes the effect of transport subsidies on the spatial expansion of cities, asking whether such subsidies are a source of undesirable urban sprawl. Even though the cost-reducing effect of transport subsidies is offset by a higher general tax burden (which reduces the demand for space), the analysis shows that subsidies nevertheless lead to spatial expansion of cities. If the transport system exhibits constant returns to scale, the subsidies are inefficient, making the urban expansion they entail undesirable. The paper also studies transport “system choice,” with the city portrayed as selecting its transport system from along a continuum of money cost/time cost choices. The analysis shows that subsidies inefficiently bias choice in the direction of a high money cost/low time cost option. Lastly, the paper considers system choice in a city with rich and poor groups, showing that the rich favor a system with a high money cost and low time cost, but that their choice, if implemented, leads to a city whose spatial size is smaller than optimal. Thus, rich control of system choice does not lead to urban sprawl.