Consistent planning under quasi-geometric discounting

We study properties of stationary Markov-perfect equilibria in a general model of intertemporal choice under quasi-geometric discounting. The dynamics generated by stationary Markov-perfect equilibria can be very complicated, even if the model satisfies strict convexity and smoothness properties and the decision maker is arbitrarily patient. If there exist multiple stationary Markov-perfect equilibria, then it is in general possible to construct infinitely many non-degenerate stationary sunspot equilibria as well.     

On the long-run wealth distribution in a simple Ramsey model with heterogeneous households

This paper analyzes the long-run wealth distribution in a Ramsey model where individuals have a common rate of time preference but different intertemporal elasticities of substitution. As a result, it is shown that heterogeneity among households in intertemporal substitution is sufficient for the existence of a non-degenerate long-run wealth distribution. We also investigate the properties of the long-run wealth distribution and the transition of capital and consumption using the phase diagram.     

R&D INCENTIVES UNDER BERTRAND COMPETITION: A DIFFERENTIAL GAME*

We investigate dynamic R&D for process innovation in an oligopoly where firms invest in cost‐reducing activities. We focus on the correlation between R&D intensity and market structure, proving that the industry R&D investment at equilibrium monotonically increases in the number of firms. This result contradicts the established wisdom acquired from static games on the same topic. We also prove that, if competition is sufficiently tough, any increase in product substitutability reduces R&D efforts.     

TESTING CATCHING‐UP BETWEEN THE DEVELOPING COUNTRIES: “GROWTH RESISTANCE” AND SOMETIMES “GROWTH TRAGEDY”

This paper provides empirical evidence that there is no convergence between the GDP per‐capita of the developing countries since 1950. Relying upon recent econometric methodologies (non‐stationary long‐memory models, wavelet models and time‐varying factor representation models), we show that the transition paths to long‐run growth (the catch‐up dynamics) are very persistent over time and non‐stationary, thereby yielding a variety of potential steady states (conditional convergence). Our findings do not support the idea according to which the developing countries share a common factor (such as technology) that eliminates per‐capita output divergence in the very long run. Instead, we conclude that growth is an idiosyncratic phenomenon that yields different forms of transitional economic performance: growth tragedy (some countries with an initial low level of per‐capita income diverge from the richest ones), growth resistance (with many countries experiencing a low speed of growth convergence), and rapid convergence.     

ENDOGENOUS TIMING AND STRATEGIC CHOICE: THE COURNOT‐BERTRAND MODEL

Cournot establishes a Nash equilibrium to a duopoly game under output competition; Bertrand finds a different Nash equilibrium under price competition. Both treat the strategic choice variable (output versus price) and the timing of play as exogenous. We investigate Cournot‐Bertrand models where one firm competes in output and the other competes in price in both static and dynamic settings. We also develop a general model where both the timing of play and the strategic choice variables are endogenous. Consistent with the conduct of Honda and Scion, we show that Cournot‐Bertrand behaviour can be a Nash equilibrium outcome.     

INTERACTION TERMS IN POISSON AND LOG LINEAR REGRESSION MODELS

This paper develops a difference‐in‐semielasticities (DIS) interpretation for the coefficients of dichotomous variable interaction terms in nonlinear models with exponential conditional mean functions, including but not limited to Poisson, Negative Binomial, and log linear models. We show why these interaction term coefficients cannot be interpreted as a DIS or semielasticity in the same manner as continuous coefficients, which has been overlooked by some empirical researchers. Then we show how interaction terms can be easily transformed into a DIS and derive the asymptotic distribution of this estimator. We illustrate the discrepancy between the interaction term coefficient and the DIS using an empirical example evaluating the relationship between employment, private health insurance and physician office visits. Our results can be applied in treatment effect models when the outcome variable is logged and the dichotomous variables indicating treatment participation and the post‐treatment time period.     

Country governance,corruption, and the likelihood of firms’ innovation

Using a sample of firms from the World Bank Enterprise Survey for the period 2006–2016 in emerging and developing countries, we find that corruption has a negative impact on the likelihood of innovations, thus supporting the “sanding-the-wheels” hypothesis. Our empirical results also show that corruption at the firm level, in the manufacturing industry, and in regions with the worst governance or that are more corrupt has a significant negative effect on innovation. In addition, country governance plays a particularly important role in innovative activity for corrupt firms. The policy implication is that the government or authority should strengthen the positive role of government effectiveness, rule of law, regulatory quality, and control of corruption in order to improve firms’ innovation within an environment of corruption.     

Best-shot network games with continuous action space

This paper presents a model of public good provision in networks where the level of public good that an agent has access to depends on the maximum of contributions by the agents in her neighbourhood. Our analysis shows that the game always has an equilibrium in pure strategies and all equilibria are specialised and stable. Welfare analysis shows that formation of new links in a prevailing network may not always be useful.     

Has Nguyen Phu Trong's Leadership Curbed Economic Reform? Economic Reform Trends in Vietnam

This paper argues how the features of Vietnam's political‐administrative system and their recent changes have affected economic reform, particularly reform of state‐owned enterprises. After the 12th Party Congress in 2016, the Party Secretary General Nguyen Phu Trong's administration has seemed to exaggerate its conservative and totalitarian‐looking rule in the political arena. In contrast, the economic reform policies introduced by Trong's administration seem more transformative and progressive. This paper suggests that this contradiction must indicate changes in the policies relating to the state management of economic entities and/or a disguised form of reform to retain state influence over economic management, both of which tend to end up with pervasive rent‐seeking practices.     

HOW TO MEASURE LIVING STANDARDS AND PRODUCTIVITY

I set out a general algorithm for calculating true cost‐of‐living indices when demand is not homothetic and when the number of products may be large. The non‐homothetic case is the important one empirically (Engel's Law). The algorithm can be applied in both time series and cross section. It can also be used to estimate true producer price indices and Total Factor Productivity in the presence of input‐biased economies of scale and technical change. The basic idea is to calculate a chain index of prices but with actual budget (cost) shares replaced by compensated shares, i.e. what the shares would have been if consumers (firms) faced actual prices but their utility (output) were held constant at some reference level. The compensated shares can be derived econometrically from the same data as are required for the construction of conventional index numbers. The algorithm is illustrated by applying it to estimating true PPPs for 141 countries and 100 products within household consumption, using data from the World Bank's latest International Comparison Program.     

CORRUPTION AND FOREIGN DIRECT INVESTMENT: A PANEL GRAVITY MODEL APPROACH

This paper investigates the relationship between corruption and foreign direct investment (FDI) in the case of 15 transition countries by using a panel gravity model approach and suggests that corruption does not deter FDI.     

A DYNAMIC ENTRY AND PRICE GAME WITH CAPACITY INDIVISIBILITY

Strategic market interaction is here modelled as a two‐stage game in which potential entrants choose capacities and next active firms compete in prices. Due to capital indivisibility, the capacity choice is made from a finite grid and there are economies of scale. In the simplest version of the model with a single production technique, the equilibrium turns out to depend on the ratio between the level of total output at the long‐run competitive equilibrium and the firm's minimum efficient scale: if that ratio is sufficiently large (the market is sufficiently ‘large’), then the competitive price emerges at a subgame‐perfect equilibrium of the capacity and price game; if not, then the firms randomize in prices on the equilibrium path. The role of the market size for the competitive outcome is shown to be even more important if there are several available production techniques.     

THE PERSISTENCE OF INCOME POVERTY AND LIFESTYLE DEPRIVATION: EVIDENCE FROM ITALY

This article estimates poverty persistence over an individual's lifetime, using two definitions: income poverty and a multidimensional index of lifestyle deprivation. We stress the ability of the two definitions to provide a generally consistent characterization of poverty persistence risks faced by various population subgroups, but also the additional insights to be gained by analysing the two definitions in parallel in a longitudinal context. The results of multiple‐spell hazard rate models highlight the weaknesses of the Italian labour market, the insufficiencies of the existing social security system, and the deep territorial dualism in generating persistent poverty for certain groups of the population.     

PUBLIC INVESTMENT,TAXATION AND TRANSFER OF TECHNOLOGY

A low‐wage developing economy (South) is interested in accessing and attracting superior technology from a high‐wage developed economy (North) with firms having heterogeneous quality of technology. To improve upon the initial market equilibrium, which shows that relatively inefficient technologies will move to the South, the host government invests in infrastructure financed through taxing the foreign firms. We discuss the problem of existence of such a tax‐transfer mechanism within a balanced budget framework. We argue that such a policy can increase tax revenue as well as instigate the transfer of better quality technology. It turns out that this policy is more likely to be successful when the production concerns high‐value, high‐price products in low‐wage economies. Our results improve upon the conventional strategy of a tax break.     

Life Cycle Price Trends and Product Replacement: Implications for the Measurement of Inflation

The paper explores the extent to which products follow systematic pricing patterns over their life cycle and the impact this has on the measurement of inflation. Using a large U.S. scanner data set on supermarket products and applying flexible regression methods, we find that on average prices decline as items age. This life cycle price change is often attributed to quality difference in the construction of CPI as items are replaced due to disappearance or during sample rotations. This introduces a systematic bias in the measurement of inflation. For our data we find that the life cycle bias leads to the underestimation of inflation by around 0.30 percentage points each year for the products examined.     

SELF‐REPORTED ECONOMIC CONDITION AND HOME PRODUCTION: INTRA‐HOUSEHOLD ALLOCATION IN ITALY

This paper applies a collective model of intra‐household welfare distribution using individual self‐reported data. The model accounts for household production, and self‐reported information on economic condition is used to identify the sharing rule governing the bargaining process in the family. The theoretical framework implies a broad concept of full income, which includes household production as time allocated to domestic activities. We find that self‐reported data on economic status are useful in recovering individual shares of household income and that both wages and non‐strictly‐economic individual variables play an important role in the bargaining process determining the sharing rule in Italy.