DOES THE PROVISION OF PUBLIC GOODS CORRESPOND TO LOCAL DEMAND?

Recently China's central government has promoted public goods investment in pursuit of rural development and poverty reduction. However, the top down nature of investment planning may lead to mismatches between public goods projects and the demands of local residents. Using village‐ and household‐level survey data, this study seeks to identify the determinants of project implementation, focusing on investments in roads, drinking water, and irrigation. Contrary to some popular perception, our results suggest symmetry between farmers' reported demand and the types of projects implemented in their villages. The relative contribution of local demand to project implementation is seen to vary, however, across different types of public goods. (JEL D71, H41, H77, P35)     

IS THERE BIAS IN COMPUTING HOUSEHOLD EQUIVALENCE SCALES?

Household equivalence scales are often used to help perform welfare comparisons across households with different demographic composition. Abstracting from the problems of value judgments and ethical standards, the use of equivalence scales to perform welfare comparisons still faces several measurement problems, namely the identification problem and the endogeneity problem. This paper introduces and estimates an unconditional demand system that simultaneously addresses these two problems. By explicitly considering the demand for leisure, and the fact the household can choose some of its demographic characteristics, we deal with the endogeneity problem and obtain consistent estimates. We identify unconditional equivalence scales by estimating the demand for endogenous demographic variables along with the demand for leisure and consumer goods. More general equivalence scales allowing for better comparability are estimated and used for welfare comparisons.     

IS THE PHILLIPS CURVE DIFFERENT IN POOR COUNTRIES?

It has been suggested that the Phillips curve (positive output‐inflation correlation) is inverted in poor countries. It is argued here that the truth is more complex. In poor countries temporary supply‐side shocks, for example to agricultural output, induce a negative correlation between prices and output rather than between inflation rates and output. Empirical evidence supports this hypothesis.     

IS IT IS OR IS IT AIN'T MY OBLIGATION? REGIONAL DEBT IN A FISCAL FEDERATION*

This article studies the repayment of regional debt in a multiregion economy with a central authority: Who pays the obligation issued by a region? With commitment, the central government will use its economy‐wide taxation power in support of its objective to smooth distortionary taxes and consumption across regions. Absent commitment, this tool of the central government may be exploited to induce it to bail out regional government deficits. We characterize the conditions under which bailouts occur and their welfare implications. In particular, we show when the gains from a federation may outweigh the welfare costs of a bailout. We use these insights to comment on actual fiscal relations in three quite different federations: the United States, the European Union, and Argentina.     

IS NORTH‐SOUTH TRADE‐RELATED TECHNOLOGY DIFFUSION REGIONAL?

There is an influential literature on trade-related technology diffusion. This article contributes to that literature by investigating whether north-south trade-related technology diffusion has a regional dimension. To do so, we build a weighted foreign research and development index at the industry level to account for international and interindustry technology spillovers. Using parallel analysis for nine developing countries, we find: (1) north-south trade-related technology diffusion is strong and significant and (2) north-south technology diffusion tends to have a regional dimension: developing countries in Asia, Latin America, and the Middle East tend to benefit, respectively, more from trade with Japan, North America, and Europe than from trade with other northern regions. ( JEL F1, F15)     

WHEN IS A GOOD TIME TO RAISE THE MINIMUM WAGE?

I analyze changes in the target efficiency of the federal minimum wage over the past 25 years. Using static simulation methods I find that minimum wage target efficiency is currently close to its 25‐year peak—of the total monetary benefits generated by a 12% increase in the federal minimum wage, 16.8% would flow to workers in poverty. This exceeds the least target efficient year over this period by 4.7 percentage points and is only 0.6 percentage points below the peak. Furthermore, I find a very strong positive relationship between minimum wage target efficiency and the real federal minimum wage. The implication is that, from an efficiency standpoint, a good time to raise the minimum wage is when it is already high. This discovery raises the possibility that the minimum wage increases the employment of low‐skilled poor individuals relative to the employment of low‐skilled non‐poor individuals. Moreover, this discovery may bolster the rationale for an indexed minimum wage whereby it is prevented from falling to less efficient levels. (JEL J21, J31, J38)     

STRATEGIC TRADE AND DELEGATED COMPETITION WITH ENDOGENOUS QUALITY CHOICE: IS EXPORT POLICY NEEDED?

This paper introduces the relative‐performance contract into a vertically differentiated product market and examines how the optimal trade policy and quality choice respond to the incentive mechanism. We find that the high quality firm makes better use of the delegation than the low quality firm in a cross‐border decentralized model. The main difference between the present paper and the strategic trade theory literature is that in this paper the optimal policy is free trade, which does not depend on whether firms compete by prices or quantities, and on whether the goods are substitutes or full complements.     

RETAKING IN HIGH STAKES EXAMS: IS LESS MORE?

Placement, both in university and in the civil service, according to performance in competitive exams is the norm in much of the world. Repeat taking of such exams is common despite the private and social costs it imposes. We develop and estimate a structural model of exam retaking using data from Turkey's university placement exam. Limiting retaking results in all agents gaining ex ante and most gaining ex post. This result comes from a general equilibrium effect: Retakers crowd the market and impose negative spillovers on others by raising acceptance cutoffs.     

TO LIST OR TO MERGE? ENDOGENOUS CHOICE OF PRIVATIZATION METHODS IN A MIXED MARKET

When and how to privatize a public firm? This paper suggests that a welfare‐enhancing privatization may be triggered by a negative demand shock. When the shock is relatively mild, it is optimal to privatize a public firm by means of stock market listings; when the shock is sufficiently large, a public–private‐firm merger becomes optimal. This paper also considers a government that cares about privatization revenues and about social welfare. It characterizes how the weight attached to privatization revenues and the improvement in production efficiency of the privatized public firm through a stock market listing may affect the government's choices concerning privatization.     

BANKING UNION IN EUROPE: HOW MUCH CENTRALISATION IS NEEDED?

We examine the efficiency of banking regulation in a federation with two tiers of government and highly integrated banking systems. We assume that policy makers have incomplete information about banks’ true health, and banking sector turmoil can generate cross‐border spill‐over effects. We show that, in such an environment, the decentralisation of policy responsibilities for the regulation of banks can achieve the first‐best allocation and ensure financial stability. While national governments design banking regulations, the federal policy maker authorises inter‐regional income redistribution payments throughout the federation. Our results suggest that strengthening national responsibilities in banking regulation and supervision in the course of the further development of the European banking union may be advisable.     

IS HISPANIC POPULATION DISPERSION INTO RURAL COUNTIES CONTRIBUTING TO LOCAL ECONOMIC GROWTH?

In the 1990s, rural counties in the United States, which had been losing population, became the destinations for an increasing number of Hispanics, slowing and in some cases reversing population declines. In this paper, we examine whether faster growth in the Hispanic population is linked to faster growth in income per capita in rural counties. Our results indicate strong support for the hypothesis that population growth caused by the increase in Hispanics, whether from international immigrants, migrants from within the United States, or from natural growth in families, has fueled increased economic growth in those small, rural communities whose populations had been in decline during the 1970s or the 1980s. (JEL J15, J61, R11)     

TO REGULATE OR TO DEREGULATE? THE ROLE OF DOWNSTREAM COMPETITION IN UPSTREAM MONOPOLY VERTICALLY LINKED MARKETS

This paper attempts to cast light to the effect of monopoly regulation in Cournot markets compared to its effect in Bertrand markets. To this purpose, we use a simple model of a vertically linked market, where an upstream regulated natural monopoly is trading via two‐part tariff contracts with a downstream duopoly. Combining our results to those of the existing literature on deregulated markets, we argue that when the downstream competition is in prices, efficiency dictates regulating the monopoly with a marginal cost based pricing scheme. However, this type of regulation leads to significant welfare loss, when the downstream market is characterized by Cournot competition.     

TRADE ASSOCIATIONS: WHY NOT CARTELS?

The relevance of special interests lobbying in modern democracies can hardly be questioned. But if large trade associations can overcome the free riding problem and form effective lobbies, why do they not also threaten market competition by forming equally effective cartels? We argue that the key to understanding the difference lies in supply elasticity. The group discipline, which works in the case of lobbying, can be effective in sustaining a cartel only if increasing output is sufficiently costly—otherwise the incentive to deviate is too great. The theory helps organizing a number of stylized facts within a common framework.     

IS CORPORATE R&D INVESTMENT IN HIGH‐TECH SECTORS MORE EFFECTIVE?

This paper discusses the link between R&D and productivity across the European industrial and service sectors. The empirical analysis is based on both the European sectoral OECD data and on a unique micro‐longitudinal database consisting of 532 top European R&D investors. The main conclusions are as follows. First, the R&D stock has a significant positive impact on labor productivity; this general result is largely consistent with previous literature in terms of the sign, the significance, and the magnitude of the estimated coefficients. More interestingly, both at sectoral and firm levels the R&D coefficient increases monotonically (both in significance and magnitude) when we move from the low‐tech to the medium‐ and high‐tech sectors. This outcome means that corporate R&D investment is more effective in the high‐tech sectors and this may need to be taken into account when designing policy instruments (subsidies, fiscal incentives, etc.) in support of private R&D. However, R&D investment is not the sole source of productivity gains; technological change embodied in gross investment is of comparable importance on aggregate and is the main determinant of productivity increase in the low‐tech sectors. Hence, an economic policy aiming to increase productivity in the low‐tech sectors should support overall capital formation.     

IS MINIMUM WAGE AN EFFECTIVE ANTI‐POVERTY POLICY IN JAPAN?

This paper considers whether the minimum wage is a well‐targeted antipoverty policy by examining the backgrounds of minimum‐wage workers. Whether raising the minimum wage reduces employment for unskilled workers is also investigated. An examination of micro data from a large‐scale government household survey, the Employment Structure Survey (Shugyo Kozo Kihon Chosa), reveals that approximately half of minimum‐wage workers belong to households with annual incomes of more than 5 million yen as a non‐head of household. A regression analysis indicates that an increase in the minimum wage moderately reduces the employment of male teenagers and middle‐aged married women, while it encourages the employment of high‐school age youth.     

DO “CAPITALIZATION EFFECTS” FOR PUBLIC GOODS REVEAL THE PUBLIC'S WILLINGNESS TO PAY?

This article develops a welfare theoretic framework for interpreting evidence on the impacts of public programs on housing markets. We extend Rosen's hedonic model to explain how housing prices capitalize exogenous shocks to public goods and externalities. The model predicts that trading between heterogeneous buyers and sellers will drive a wedge between these “capitalization effects” and welfare changes. We test this hypothesis in the context of changes in measures of school quality in five metropolitan areas. Results from boundary discontinuity designs suggest that capitalization effects understate parents’ willingness to pay for public school improvements by as much as 75%.     

IS FULL EFFICIENCY ACHIEVABLE? AN EMPIRICAL STUDY OF THE BANKING INDUSTRY IN TAIWAN

This paper aims to propose a feasible framework for estimating the efficiency of input factors for banks and the adjustment of these factors necessary to achieve full efficiency in the short and long term. Based on a sample of 39 Taiwanese banks during 1999–2011, the framework recommends a scheme along with a set of adjustments empirically that allow the banks to not only achieve full efficiency but also save 10.3% of the total costs in the short term and 8.8% in the long term. This scheme amounts to short‐term and long‐term savings of NT$3.6 billion and NT$3.1 billion, respectively. (JEL C23, D24, G21)