Accidental Bequests: A Curse for the Rich and a Boon for the Poor*

When accidental bequests signal otherwise unobservable individual characteristics, such as productivity and longevity, the population should be partitioned into two groups: those who do not receive an inheritance and those who do. The first tagged group receives a Mirrlees second‐best tax schedule; the second group, when its type is fully revealed, faces a first‐best tax schedule. Receiving an inheritance makes high‐ability types worse off and low‐ability types better off. High‐ability individuals face a bequest tax of more than 100 percent, while low‐ability types face a bequest tax that can be smaller, as well as larger, than 100 percent, and it might even be negative.     

Regulatory Policy Design in an Uncertain World

The paper examines principal–agent relationships in uncertain environments where beliefs of the contracting parties (the regulator and the firm) are represented by sets of probabilities. In addition to fully characterizing the first‐best and the second‐best solutions, we examine optimality of zero‐risk, fixed‐payment schemes and the relationship between the first‐best and the second‐best solutions. In the second‐best world, where the regulator can only contract on the quality of the good, a zero‐risk standard is optimal when the firm has beliefs that are so ambiguous that the firm’s marginal rate of transformation belongs to the set of the firm’s relative probabilities.     

Ramsey,Pigou, Heterogeneous Agents,and Nonatmospheric Consumption Externalities

This paper analyzes the effects of nonatmospheric consumption externalities on optimal commodity taxation and on the social cost and optimal levels of public good provision. A negative consumption externality, by lowering the social cost of public good provision, may require the second‐best level of public good provision to exceed the first‐best level. If those households who are most important for building up the consumption reference level respond the least to commodity taxation, the second‐best commodity tax rate may fall short of the first‐best rate. Moreover, in this case, heterogeneity may imply an equity‐efficiency tradeoff. This tradeoff is present only if the consumption externality is of the nonatmospheric type.     

PRICING,CAPACITY, AND CONSTRUCTION BOUNDARY OF A CONGESTIBLE HIGHWAY WITH AN ELASTIC DEMAND: SOCIAL OPTIMUM,SECOND BEST,PRIVATIZATION, AND VERTICAL DISINTEGRATION*

This paper uses a spatial model to analyse first‐ and second‐best policies, impacts of privatization and vertical disintegration of a congestible highway with elastic demand. The paper also uses simulation methods to analyse the welfare cost of a uniform‐toll constraint. Results show, inter alia, that the social optimum requires the marginal cost of highway extension to be equal to the net consumer benefit at the boundary, while in the second‐best case the aggregate user cost must be measured in terms of the shadow price. In turn, a profit‐maximizing firm equates the marginal extension cost to the markup revenue at the boundary.     

Product Differentiation,Competitive Toughness,and Intertemporal Substitution

Standard measures of competitive toughness fail to capture the fact that, as consumers optimize intertemporally, firms operating today compete with (as yet non‐existent) businesses, which will be started tomorrow. We develop a two‐tier constant elasticity of substitution (CES) model of dynamic monopolistic competition in which the impact of product differentiation on the market outcome depends crucially on the elasticity of intertemporal substitution (EIS). The degree of product differentiation per se fails to serve as a meaningful indicator of competitive toughness: what matters is its cross‐effect with EIS. We also extend the model to the case of non‐CES preferences in order to capture variable mark‐ups.     

租售比与中国城市住房泡沫*

本文在住房消费性和投资性需求基础上,通过泡沫和无泡沫租售比测度住房泡沫。本文对中国1996-2013年35个大中城市数据分析发现：第一,北京、上海等16个城市存在住房泡沫;第二,房价预期易催生东部和一线城市而非中西部和二三线城市住房泡沫;第三,利率政策对抑制中西部和二三线城市住房泡沫比东部和一线城市更有效;第四,住房存量过大引发住房泡沫;第五,房贷和开发成本助长住房泡沫;第六,土地财政助长住房泡沫,但股票市场回报率抑制住房泡沫。     

Optimal Income Taxation and Job Choice

In this paper, we study optimal income taxation when different job types exist for workers of different skills. Each job type has some feasible range of incomes from which workers choose by varying labor supply. Workers are more productive than others in the jobs that suit them best. The model combines features of the classic optimal tax literature with labor variability along the intensive margin, with the extensive‐margin approach where workers make discrete job choices and/or participation decisions. We find that first‐best maximin utility can be achieved in the second‐best, and marginal tax rates below the top can be negative or zero.     

Multistage Contracting with Applications to R&D and Insurance Policies

An agent undertakes a nonobservable first‐stage effort. The principal observes whether the effort results in a successful project or not. If the project succeeds, only the firm observes its interim quality, and can further improve it with a nonobservable second‐stage effort. If the agent accepts penalties when the first‐stage fails, moral hazard and asymmetric information do not prevent the principal from implementing her first‐best outcome. However, if the agent is bounded by the maximum loss he can bear when the first‐stage fails (limited liability), the principal induces the agent to exert a first‐stage effort below the first‐best level and a second‐stage effort above the first‐best level when the interim quality of his project is low. This distortion in efforts implies that the ex post rent left to the agent with a project of high interim quality is above the first‐best level. This provides a rationale for the optimality of expanding the use of the “carrot” (second‐stage rent) when the use of the “stick” (first‐stage penalty) is restricted. Implications of the theory for R&D, bank, job, and insurance contracts are discussed.     

The Political Feasibility of Privatizing Old-Age Insurance

Though a transition to a fully funded pension system is favoured by many economists, it is not even considered by politicians in Germany. This paper examines the hypothesis that this is in accordance with the preferences of the population. By performing a dynamic CGE analysis referenda on pension policies are simulated. They show that a fully privatizing scheme is not politically feasible in Germany, however long the pre‐announcement period, if the alternatives are the current policy or a partially privatizing policy. This explains why a fully privatizing policy is not an issue in the political debate in Germany. In order to examine what are the reasons for this outcome, the German Bismarckian System is compared to a Beveridge‐System which is similar to the British pension system. Actually, in the latter case, a transition to a fully funded system is what the majority opts for in a dynamically consistent equilibrium. This is evidence that the future of the pension system depends on its history.     

FIXED‐WAGES,WAGE DIFFERENTIALS AND WORKER HETEROGENEITIES

We study incentive‐compatible labour contracts in the case where individual productivity, preference for leisure and time preference rate are unobservable by the principal in a two‐period model. We first reduce this three‐dimensional problem to a standard one‐dimensional screening problem. Features of second‐best labour contracts provide a rationale for both fixed‐wages and wage differentials.     

Spillovers,subsidies, and second‐best socially optimal R&D

This paper provides a thorough second‐best welfare analysis of the standard two‐stage model of R&D/product market competition with R&D spillovers. The planner's solution is compared to the standard non‐cooperative scenario, the R&D cartel, and the cartelized research joint venture (or joint lab). We introduce the notion of a social joint lab, as a way for the planner to avoid wasteful R&D duplication. With no spillovers, the non‐cooperative scenario, the joint lab, and the second‐best planner's solutions coincide. However, with spillovers, all three scenarios yield R&D investments that fall short of the socially optimal level. To shed light on the role of the spillover level on these comparisons, we observe that the gaps between the market outcomes and the planners solutions widen as the spillover parameter increases. Finally, we establish that a social planner and a social joint lab solutions may be achieved starting from any of the three scenarios by offering firms respective suitably weighted quadratic R&D subsidization schedules.     

China's housing bubble burst?

In this paper, we developed the recursive unit root tests to identify the beginning and end of potential speculative bubbles in the Chinese housing price cycles during 2006–2013 for the 70 major cities of China. The method is best suited for a practical implementation with a time series and delivers a consistent date‐stamping strategy for the origination and termination of multiple bubbles. Simulations demonstrate that the test significantly improves discriminatory power and leads to distinct power gains when multiple bubbles occur. Overall, the results indicate that the speculative housing price bubbles in China are not bursting, and they indicate that the stationarity of the housing price level varies across the different city sizes. Between the cities, approximately one‐fourth of the bubbles have burst up to December 2013, while the first‐tier city bubble may not burst due to the urbanization process.     

Optimal Age-Specific Income Taxation

This paper studies optimal earnings taxation in a three‐period life‐cycle model where taxes can be differentiated according to age. Agents choose their level of education when young and their retirement age when old. I study the problem both without and with borrowing constraints. It is shown that, without borrowing constraints, a first‐best optimum can be decentralized by setting a zero tax rate in the third period and a first‐period tax lower than the second‐period one. With borrowing constraints, the first best can no longer be achieved. The gap between the first‐ and second‐period tax rates is larger, while the third‐period tax rate is generally different from zero.     

Old‐Age Income Insecurity in Singapore: A Problem of Non‐Inclusive Development

With a growing old‐age population, ensuring income security for the elderly is becoming an increasingly important element of public policy worldwide. The World Bank report proposed a three‐tier system to avert old‐age crisis, which was extended into a five‐tier system by Holzmann et al. Our analysis of Singapore's old‐age income security system in light of these two systems shows that it lacks the basic zero and first pillars of protection against old‐age hardships. We show that a budget allocation of less than half a percent of national gross domestic product (GDP) can ensure that no elderly citizen suffers from poverty in Singapore. As Singapore occupies the status of a developed country, a government‐financed pension system that is adequate, affordable, sustainable and robust is long overdue.     

Fiscal Policy in an Overlapping Generations Model with Bequest-as-Consumption

This paper analyzes an overlapping generation (OLG) growth model wherein saving finances second period consumption and bequest‐as‐consumption. First, it looks at the market equilibrium and at the optimal solution; then it turns to the issue of decentralizing the optimal solution with various taxes and transfers. Depending on the available instruments, either a first‐best or a second‐best optimum can be achieved. Throughout the paper, the results are contrasted with those obtained in the standard OLG model without intergenerational transfers.     

Housing price,talent movement,and innovation output: Evidence from Chinese cities

How housing costs would influence the job‐housing choice of talent and associated city‐level innovation performance is a question of interest for urban development policies. Recently, considerable attention has been paid to the influence of rising housing prices on the attraction of talent and the associated innovation output in major Chinese cities. In this paper, we use the housing price data of 51 cities from the China Real Estate Index System database and the corresponding macro data of China City Statistical Yearbooks from 2005 to 2014 to analyze this focal research question. The empirical analysis shows that the increase in city housing prices generally correlates positively with city innovation outcome and talent attraction, suggesting no crowding‐out effect on the innovative performance of the city. However, the positive association between housing prices and innovation outcome and talent attraction has started to disappear in first‐tier cities in recent years, suggesting potential crowding‐out effect if the increasing housing prices transform to bubbles. This research thus provides considerable policy implications concerning the impacts of housing prices on talent movement and innovation output.     

Value chains in the informal sector: income shares of home‐based subcontracted workers in Pakistan

This article attempts to contribute to the literature by carefully documenting home‐based work in four sectors in Pakistan in a value chain context. We attempt to isolate and compare the unit remuneration of workers relative to unit value added at the lowest tier of the chain as a measure of income share. These income shares are not adequate to move home‐based workers above the poverty line.     

Selective incentives and intragroup heterogeneity in collective contests

A group taking part in a contest has to confront the collective action problem among its members, and devices of selective incentives are possible means of resolution. We argue that heterogeneous prize‐valuations in a competing group normally prevent effective use of such selective incentives. To substantiate this claim, we adopt cost‐sharing as a means of incentivizing the individual group members. We confirm that homogeneous prize valuations within a group result in a cost‐sharing rule inducing the first‐best individual contributions. As long as the cost‐sharing rule is dependent only on the members’ contributions, however, such a first‐best rule does not exist for a group with intragroup heterogeneity. Our main result clarifies how unequal prize valuations affect the cost‐sharing rule and, in particular, the degree of cost‐sharing. If the relative rate of change of the marginal effort costs is decreasing, it is reduced by intragroup heterogeneity. If the rate is increasing, the cost is fully shared, but it cannot induce the first‐best contributions for the group.     

Service Deregulation,Competition, and the Performance of French and Italian Firms

This article reports estimates of the impact of service regulation reform on the productivity of French and Italian firms in retail, transports and professional services over the period 1998–2007. We implement a two‐stage least squares estimation: the first‐stage instruments mark‐ups, a financial measure of rents, with barriers to entry and the second stage estimates the impact of instrumented mark‐ups on total factor productivity (TFP), a real measure of firm efficiency. We find that entry barriers lower firm productivity by raising mark‐ups and rents. These estimates imply that, if French and Italian regulators had adopted the OECD best practices in terms of entry barriers, firms in these sectors would have increased their TFP level by five percentage points. We do not find any robust evidence of a non‐linear relation between mark‐up and productivity.     

Pension Reform and Economic Performance Under Imperfect Capital Markets

We consider an overlapping generations model where heterogeneous agents take decisions on consumption and investment in education under the assumption of imperfect capital markets. We study how the introduction of a pay-as-you-go and of a fully funded pension scheme affects output and lifetime opportunities, and then analyse the impact of a pension reform. The standard neutrality result for fully funded pension schemes does not hold in this framework. We establish the conditions under which a fully funded scheme is associated with a higher investment in human capital. We show that the transition path may involve poverty traps