General consumption constraints and regular economies

In the spirit of Smale’s work, we consider pure exchange economies with general consumption sets. In this paper, the consumption set of each household is described in terms of a function called possibility function. The main innovation comes from the dependency of each possibility function with respect to the individual endowments. We prove that, generically in the space of endowments and possibility functions, economies are regular. A regular economy has a finite number of equilibria, which locally depend on endowments and possibility functions in a continuous manner.     

Spatial concentration and plant-level productivity in France

This paper analyzes empirically the effect of spatial agglomeration of activities on plant-level productivity, using French firm and plant-level data from 1996 to 2004. We exploit short-run variations of variables by making use of GMM estimation. This allows us to control for endogeneity biases that the estimation of agglomeration economies typically encounters. This means that our paper focuses on a subset of agglomeration economies, the short-run ones. Our results show that French plants benefit from localization economies, but we find very little - if any - evidence of urbanization economies. We also show that those localization benefits are relatively well internalized by firms in their location choice: we find very little difference between the geography that would maximize productivity gains in the short-run and the geography actually observed.     

Why Are Concavity Conditions Not Satisfied in the Cost Function? The Case of Japanese Manufacturing Firms during the Bubble Period*

This paper examines empirically the reasons why Japanese manufacturing firms frequently fail to satisfy concavity of the cost function in input prices. We focus on the ‘bubble period’ in the 1980s when land was in great demand and land prices soared. By estimating the translog cost function with land as one of production inputs, we find that violation of concavity mainly resulted from weak bank–firm relationship and massive transactions of land. We also demonstrate that elasticities of substitution between land and other inputs are estimated quite differently if the firms violating concavity are not excluded from the analysis.     

The biennial Malmquist productivity change index

In this paper we introduce a new Malmquist productivity index that has three attractive features: it avoids linear programming infeasibilities under variable returns to scale, it allows for technical regress, and it does not need to be recomputed when a new time period is added to the data set. The proposed index is compared to both the adjacent Malmquist index and the global Malmquist index in an empirical example, which highlights the drawbacks of the existing indexes compared to the proposed biennial Malmquist index.Our results show that 13% of the observations in the data set may have to be ignored due to infeasibilities when decomposing the adjacent Malmquist index. Using only this reduced data set does at times lead to quite different results than those generated by applying the proposed biennial Malmquist index to the entire data set. The empirical example also shows that productivity change estimated between two time periods using the global Malmquist index change substantially when a third time period is added to the data set, whereas the proposed biennial Malmquist index is immune to this problem.     

The phantom of the opera: Cultural amenities, human capital, and regional economic growth

We analyze the extent to which endogenous cultural amenities affect the spatial equilibrium share of high-human-capital employees. To overcome endogeneity, we draw on a quasi-natural experiment in German history and exploit the exogenous spatial distribution of baroque opera houses built as a part of rulers' competition for prestigious cultural sights. Robustness tests confirm our strategy and strengthen the finding that proximity to a baroque opera house significantly affects the spatial equilibrium share of high-human-capital employees. A cross-region growth regression shows that these employees induce local knowledge spillovers and shift a location to a higher growth path.     

The productivity of transport infrastructure investment: A meta-analysis of empirical evidence

Investments in transport infrastructure have been widely used by decision makers to encourage economic growth, particularly during periods of economic downturn. There has been extensive research on the linkage between transport infrastructure and economic performance since the late 1980s, characterised by widely varying evidence. We conduct a meta-analysis of the empirical evidence on the output elasticity of transport infrastructure, based on a sample of 563 estimates obtained from 33 studies. Previous meta-analyses have focused on total public capital and hence cannot appropriately explain the wide variation in the productivity effect of transport infrastructure nor provide guidance to policymakers on the returns to investment in different types of transport infrastructure. Our results indicate that the existing estimates of the productivity effect of transport infrastructure can vary across main industry groups, tend to be higher for the US economy than for European countries, and are higher for roads compared to other modes of transport. The variation in the estimates of the output elasticity of transport is also explained by differences in the methods and data used in previous studies. Failing to control for unobserved heterogeneity and spurious associations tends to result in higher values, while failing to control for urbanisation and congestion levels leads to omitted variable bias. These findings can be used to inform future research on the choice of model specification and estimation and transport-related policy making.     

Measuring productivity growth, technical progress, and efficiency changes of CPA firms prior to, and following the Sarbanes–Oxley Act

This paper investigates productivity growth, technical progress, and efficiency change for a group of the 56 largest CPA firms in the US from the period 1996–1999 through the period 2003–2006, where the former preceded, and the latter followed, enactment of the Sarbanes–Oxley Act (SOX). Data envelopment analysis (DEA) is used to calculate Malmquist indices of three measures of interest: productivity growth, technical progress, and efficiency change. Results indicate that CPA firms, on average, experienced a productivity growth of approx. 17% from the pre- to post-SOX period. Consistent with the finding of Banker et al. [Banker RD, Chang H, Natarajan R. Productivity change, technical progress and relative efficiency change in the public accounting industry. Management Science 2005;51:291–304], this productivity gain can be attributed primarily to technical progress rather than a change in relative efficiency. In addition, results indicate that the “Big 4” firms underperformed their non-Big 4 counterparts in both productivity growth and technical progress.     

Estimation of collective household models with Engel curves

The structural consumer demand methods used to estimate the parameters of collective household models are typically either very restrictive and easy to implement or very general and difficult to estimate. In this paper, we provide a middle ground. We adapt the very general framework of [Browning, M., Chiappori, P.A., Lewbel, A., 2004. Estimating Consumption Economies of Scale, Adult Equivalence Scales, and Household Bargaining Power, Boston College Working Papers in Economics 588] by adding a simple restriction that recasts the empirical model from a highly nonlinear demand system with price variation to a slightly nonlinear Engel curve system. Our restriction has an interpretation in terms of the behaviour of household scale economies and is testable. Our method identifies the levels of (not just changes in) household resource shares, and a variant of equivalence scales called indifference scales. We apply our methodology to Canadian expenditure data.     

Inferential methods for elasticity estimates

Elasticities are often estimated from the results of demand analysis. However, drawing inferences from them may involve assumptions that could influence the outcome. In this paper we investigate one of the most common forms of elasticity which is defined as a ratio of estimated relationships and demonstrate how the Fieller method for the construction of confidence intervals can be used to draw inferences.     

Negative equity and wages

We examine the relationship between housing equity and wage earnings using nine waves of the national American Housing Survey from 1985 to 2003. Employing a rich set of time and place controls, a synthetic mortgage instrumental variable strategy, and a first difference estimator we find that people underwater on their mortgage command a significantly lower wage than other homeowners. The finding survives a number of robustness checks for reverse causality and unobserved heterogeneity. We also explore other determinants of “house lock” including loss aversion, a low existing mortgage interest rate and property tax assessment caps, but do not find these factors mitigate the effect of negative equity on wages.     

An index formula for production economies with externalities

We prove that the degree of the equilibrium correspondence of an economy with increasing returns and external effects is equal to (−1)^L−1${(-1)}^{L-1}$ where L is the dimension of the space of goods. This allows us to infer existence, finiteness and uniqueness results.     

Undesirable outputs and a primal Divisia productivity index based on the directional output distance function

Despite their great popularity, all the conventional Divisia productivity indexes ignore undesirable outputs. The purpose of this study is to fill in this gap by proposing a primal Divisia-type productivity index that is valid in the presence of undesirable outputs. The new productivity index is derived by total differentiation of the directional output distance function with respect to a time trend and referred to as the Divisia–Luenberger productivity index. We also empirically compare the Divisia–Luenberger productivity index and a representative of the conventional Divisia productivity indexes–the radial-output-distance-function-based Feng and Serletis (2010) productivity index–using aggregate data on 15 OECD countries over the period 1981–2000. Our empirical results show that failure to take into account undesirable outputs not only leads to misleading rankings of countries both in terms of productivity growth and in terms of technological change, but also results in wrong conclusions concerning efficiency change.     

Welfare and efficiency in incomplete market economies with a single firm

In the quasilinear case, surplus maximization leads to constrained efficient Drèze equilibria. We investigate the question of whether surplus maximization can be useful beyond the quasilinear case.     

On economies of scope in communication

A classic puzzle in the economic theory of the firm concerns the fundamental cause of decreasing returns to scale. If a plant producing product quantityX at costC can be replicated as often as desired, then the quantityrX need never cost more thanrC. Traditionally the firm is imagined to take its identity from a fixednon-replicable input, namely a ‘top manager’; as more plants or divisions are added, the communication and computation burden imposed on the top manager (who has information not possessed by the divisions) grows more than proportionately. Decreasing returns are experienced as the top manager hires more variable inputs to cope with the rising burden. Suppose it turns out, however, that when the divisions are assembled, and are given exactly the same totally independent tasks that they fulfilled when they were autonomous, then asaving can be achieved if they adopt a joint procedure for performing those tasks rather than replicating their previous separate procedures. Then the top manager's rising burden must be shown to be particularly onerous—otherwise there may actually beincreasing returns. We show that for a certain model of the information-processing procedure used by the separate divisions and by the firm, there may indeed be such an odd unexpected saving. The saving occurs with respect to the size of the language in which members of each division, or of the firm, communicate with one another, provided that language is finite. If instead the language is a continuum then the saving cannot occur, provided that the procedures used obey suitable ‘smoothness’ conditions. We show that the saving for the finite case can be ruled out in two ways: by requiring the procedures used to obey a regularity condition that is a crude analogue of the smoothness conditions we impose on the continuum procedures, or by insisting that the procedure used be a ‘deterministic’ protocol. Such a protocol prescribes a conversation among the participants, in which a participant has only one choice, whenever that participant has to make an announcement to the others. The results suggest that a variety of information-processing models will have to be studied before the traditional explanation for decreasing returns to scale is understood in a rigorous way.     

Sprawl and blight

The objective of this paper is to show how the same market failures that contribute to urban sprawl also contribute to urban blight. The paper develops a simple dynamic model in which new suburban and older central-city properties compete for mobile residents. The level of housing services generated by older properties depends on current maintenance or reinvestment expenditures. In this setting, market failures that reduce the cost of occupying suburban locations, thus leading to excessive suburban development, also depress central-city housing prices and undermine maintenance incentives, leading to deficient levels of central-city reinvestment. Corrective policies that shift population from the suburbs to the center result in higher levels of reinvestment in central-city housing, therefore reducing blight.     

Arbitrage and equilibrium in unbounded exchange economies with satiation

In his seminal paper on arbitrage and competitive equilibrium in unbounded exchange economies, Werner (1987) proved the existence of a competitive equilibrium, under a price no-arbitrage condition, without assuming either local or global nonsatiation. Werner’s existence result contrasts sharply with classical existence results for bounded exchange economies which require, at minimum, global nonsatiation at rational allocations. Why do unbounded exchange economies admit existence without local or global nonsatiation? This question is the focus of our paper. First, we show that in unbounded exchange economies, even if some agents’ preferences are satiated, the absence of arbitrage is sufficient for the existence of competitive equilibria, as long as each agent who is satiated has a nonempty set of useful net trades– that is, as long as agents’ preferences satisfy weak nonsatiation. Second, we provide a new approach to proving existence in unbounded exchange economies. The key step in our new approach is to transform the original economy to an economy satisfying global nonsatiation such that all equilibria of the transformed economy are equilibria of the original economy. What our approach makes clear is that it is precisely the condition of weak nonsatiation – a condition considerably weaker than local or global nonsatiation – that makes possible this transformation.     

Panel data models with multiple time-varying individual effects

This paper considers a panel data model with time-varying individual effects. The data are assumed to contain a large number of cross-sectional units repeatedly observed over a fixed number of time periods. The model has a feature of the fixed-effects model in that the effects are assumed to be correlated with the regressors. The unobservable individual effects are assumed to have a factor structure. For consistent estimation of the model, it is important to estimate the true number of individual effects. We propose a generalized methods of moments procedure by which both the number of individual effects and the regression coefficients can be consistently estimated. Some important identification issues are also discussed. Our simulation results indicate that the proposed methods produce reliable estimates.     

Asset allocation over the life cycle: How much do taxes matter?

We study the welfare effect of tax-optimizing portfolio decisions in a life cycle model with unspanned labor income and realization-based capital gain taxation. For realistic parameterizations of our model, certainty equivalent welfare gains from fully tax-optimized portfolio decisions are less than 2% of present financial wealth and lifetime income compared to a heuristic portfolio policy ignoring the taxation of profits (capital gains, interest and dividend payments). Compared to a heuristic portfolio policy that only ignores the realization-based feature of capital gain taxation and instead assumes mark-to-market taxation, these gains are less than 0.5%. That is, our work provides a justification for ignoring taxes in life cycle portfolio choice problems – a wide-spread assumption in that literature. However, if capital gains are forgiven at death (as in the U.S.), investors with strong bequest motives face substantial welfare costs when not tax-optimizing their portfolio decisions towards the end of the life cycle.