Privatization and Labor Cost Savings: Evidence from Health Care Services

This study examines whether privatization is associated with low public sector health care wages and with low probability of public sector employment for health care providers. Findings suggest that privatization contributes significantly to low wages of union health care providers in the public sector. Privatization also contributes to a low probability of public sector employment in this industry, especially to unionized workers. These results indicate that competition enhancing policy can promote lower labor costs even in a service sector that employs a highly skilled work force.

The takeover and selection effects of foreign-owned establishments: an analysis using linked employer–employee data

We provide the first estimates of the effect of foreign ownership on wages in Germany, controlling for the observed and unobserved characteristics of workers and plants. We also test whether the wage gains from joining a foreign-owned firm are subsequently lost when leaving that firm, and we examine whether wage gains vary across the sample. We find large selection effects in terms of worker and plant components of wages. Once the selection effect is taken into account, the takeover effect is small and in some cases insignificantly different from zero.

Labour Market Adjustments to Exchange Rate Fluctuations: Evidence from Canadian Manufacturing Industries

This paper provides some of the first empirical evidence on labour market adjustments to exchange rate movements in Canadian manufacturing industries. Controlling for endogeneity using generalized method of moments estimation, it is found that during the 1981–1997 period, exchange movements have a substantial impact on labour input and that this impact has grown over time as the manufacturing industries have become more exposed to trade. In contrast, the exchange rate effect on real wages is estimated to be virtually zero for all manufacturing industries.

On Tax Over-Shifting in Wage Bargaining Models

It has frequently been noted in the wage bargaining literature that increasing average labour taxes may in fact be over-shifted in the pre-tax wage that is negotiated between unions and firms, raising workers post-tax wages. In this paper, we study the precise conditions for such tax over-shifting to occur under both Nash and Right-To-Manage bargaining structures, and considering both competitive and imperfectly competitive output market conditions. In the case of competitive output markets, we derive and interpret the conditions for over-shifting to occur and show that they hold for an entire class of commonly used production functions. Moreover, under monopolistically competitive output markets we show that tax over-shifting will occur when the firm has sufficient market power. The conditions on the production function, that were necessary and sufficient for tax over-shifting to occur under perfect competition, are shown to be no longer necessary. These findings hold for all bargaining structures considered.

Policy coordination in East Asia and across the Pacific

In this paper, we construct a macro-econometric model that describes the economic activity in the Asia-Pacific area and provide quantitative insights into the recent policy debates on monetary and currency coordination among the East Asian economies. The model includes a wide variety of monetary and currency policy rules that the East Asian economies adopt and allows for one country's policymaking to have substantial effects on foreign countries. We apply the model to three current policy issues: (1) the desirability of currency basket pegs in East Asia, (2) the anticipated effects of China's currency policy reform, and (3) the non-negativity constraint on Japanese nominal interest rates. The simulation analyses show the external economy effects of policy rules quantitatively and suggest the difficulty of monetary and currency policy coordination among the East Asian economies.

---

Minorities’ Fields of Expertise in Economics and Employment Demand in These Fields

Efforts by public and private institutions to increase the number of minorities participating in graduate economics programs has contributed to a growing supply of Ph. D. trained minority economists. However, minorities are still under-represented as faculty members in economics departments. This presidential address explores whether the concentration of minorities in a few fields of specialization creates a demand-supply mismatch for these individuals.

On the Equality of Real Interest Rates Across Borders in Integrated Capital Markets

The purpose in this note is first to review briefly the empirical results on the relationship between real interest rates and real exchange rates; this empirical literature provides little support for the hypothesis of Roll that expected real interest rates are equal in general. Our second aim is to discuss the theoretical conditions that have to be met for his hypothesis to hold.

The Portuguese Economy in the Irish Mirror, 1960–2004

The deepening of economic and financial integration in the European Union has led to different responses in the group of ‘cohesion’ countries. Ireland and Portugal stand out as the two extreme examples, as Ireland caught-up to the forerunners after the launching of EMU, in 1992, whereas Portugal lost ground. This paper looks at structural shifts in order to explain different economic performances within Europe. We conclude that Portugal’s labour productivity lag was the outcome of a less favourable structure of employment; that differences in the structure of employment are not clustered in specific industries; and that such structural differences are associated with different factor endowments, namely physical and human capital. Portugal has a rising competitiveness problem in international markets as real wages have increased faster than labour productivity in the 1990s. That has to be changed by policy measures, by the market through higher levels of unemployment, or by a combination of both.

International Risk Sharing and Government Moral Hazard

This paper analyzes incentive problems caused by international risk sharing. They arise because international risk sharing contributes to the insurance of domestic consumption and thus lowers governments’ incentives to increase output. We show that the resulting distortions can lead to substantial efficiency losses. Complete risk sharing is, therefore, undesirable and the optimal degree of risk sharing may be low. Furthermore, we show that households’ risk sharing decisions are socially inefficient and are effectively maximizing government moral hazard. As a result, financial innovation and integration may reduce welfare by increasing households’ risk sharing opportunities.

Fear of Floating and Pegging: A Simultaneous Choice Model of De Jure and De Facto Exchange Rate Regimes in Developing Countries

We present an analysis of the determinants of de jure and de facto exchange rate regimes based on a panel probit model with simultaneous equations. The model is estimated using simulation-based maximum likelihood methods. The empirical results suggest a triangular structure of the model such that the choice of de facto regimes depends on the choice of de jure regimes but not vice versa. This gives rise to a novel interpretation of regime discrepancies.

Saving–investment Correlations in Response to Monetary Policy Shocks: New Insights into the Feldstein–Horioka Puzzle?

In this paper, it is argued that the observed high positive correlation between national savings and investment which is found in the data can in part be explained by shocks to monetary policy. This hypothesis, which is established by reviewing some empirical findings, is tested in a two-country DSGE-model framework in the tradition of the New Open Economy Macroeconomics. The simulation results obtained support the idea that shocks to monetary policy might contribute to the explanation of the Feldstein-Horioka puzzle.

Partitions and Coalitional Stability with Non-dominant and Dominant Members

The analysis presented in this paper applies coalitional game theory to an analysis of imperfectly competitive firms producing a homogeneous product. Coalitions consisting of equal partners and no capacity constraints tend to be stable. Grand coalitions consisting of unequal members tend to be unstable. In this case, an intra-coalitional utility transfer may cement the coalition, but the outcome tends to be the same as that in coalitions consisting of equal partners. Coalitions consisting of fewer, unequal members may be possible, however, even in the absence of intra-coalitional utility transfers. Finally, grand coalitions may be possible if subordinate members are capacity constrained.

Pump Prices and Oil Prices: A Tale of Two Directions

It has been argued that retail gasoline prices adjust more quickly to crude oil price increases than to price decreases. We investigate this issue using the statewide data on weekly retail gasoline prices in the United States between January 2000 and June 2007. Our analysis does not confirm the prediction that gasoline prices adjust more quickly to price increases in crude oil prices. On the contrary, the results suggest that in some geographic areas gasoline prices could change faster when crude oil prices decrease. These findings suggest that a national or a one size fits all energy policy for the United States may be misguided.

Monetary Policy in Illiquid Markets: Options for a Small Open Economy

Two impediments to effective monetary policy operation include illiquidity in bond markets and the zero bound of interest rates. Under these conditions alternative means of enacting monetary policy may be required. This paper empirically explores policy options implemented through equity and currency markets that will generate similar inflation responses at different time horizons. In terms of GDP loss the least costly means of achieving a particular long run inflation outcome is via the current monetary policy arrangements. Currency market alternatives are volatile but less expensive than the equity market in terms of output loss for short term inflation horizons.

Rational Inattention and Choice Under Risk: Explaining Violations of Expected Utility Through a Shannon Entropy Formulation of the Costs of Rationality

We propose a model of stochastic choice in which the error term is derived from a maximizing framework in which it is costly for agents to make decisions optimally. We argue that the model has testable implications, and is closely related to other models used in the literature on choice under risk. We test this model over experimental data, replicate some conclusions of the existing literature, and show our model to perform well against models in the field in current use.

Realism Versus Statistical Efficiency: A Note on Contingent Valuation with Follow-up Queries

This paper shows that we can improve the statistical efficiency of dichotomous choice contingent valuation surveys by asking a second open question (anchored open-ended approach) instead of the traditional double-bounded approach. The former approach is shown to be more efficient than conventional single and double-bounded approaches using a Monte Carlo experiment, even when we allow for strategic behavior from respondents such as protest votes and yea-saying behavior.

Do Patent Protection and Technology Transfer Facilitate R&D in Developed and Emerging Countries? A Semiparametric Study

This paper examines if patent protection and technology transfer facilitate R&D in a sample that includes both developed and emerging countries. A semiparametric model is used to estimate the relevant parameters using country level data from 21 countries, of which six are emerging, for the period 1981–1997. The results suggest thresholds in patent protection and technology transfer: patent protection has a positive effect which weakens at high levels of protection, and FDI has a positive effect only if the country depends heavily on FDI.

Cantor’s Diagonal Argument: An Extension to the Socialist Calculation Debate—A Comment

In a recent article Robert P. Murphy (2006) uses Cantor’s diagonal argument to prove that market socialism could not function, since it would be impossible for the Central Planning Board to complete a list containing all conceivable goods (or prices for them). In the present paper we argue that Murphy is not only wrong in claiming that the number of goods included in the list should be uncountable, but also that the number of equations/prices is irrelevant from the point of view of market socialism.

Ability, Openness, and Managerial Decision Making

Impact of the ability and the degree of openness of a manager on decision making is studied. Whether a more able manager increases or decreases the effort of a subordinate depends on the relative quality of information. Greater openness is a two-edged sword: it increases the likelihood that more information will be employed, but it reduces the manager’s incentive to expend effort on obtaining better information. A more open manager is more desirable when the position is relatively more important or the prior information is not very accurate.

International mixed duopoly and strategic commitments

This paper examines an international mixed model in which a social-welfare-maximizing domestic public firm competes against a profit-maximizing foreign private firm. First, the public firm can adopt either a lifetime employment contract or a wage-rise contract as strategic commitments. Second, the foreign private firm decides whether or not to enter the market. Third, if the foreign private firm enters, each firm independently chooses its actual output, while if the foreign private firm does not enter, the public firm acts as a monopolist. The paper shows the equilibrium of the international mixed model.