Inequality aversion and separability in social risk evaluation

This paper examines how to satisfy “independence of the utilities of the dead” (Blackorby et al. in Econometrica 63:1303–1320, 1995; Bommier and Zuber in Soc Choice Welf 31:415–434, 2008) in the class of “expected equally distributed equivalent” social orderings (Fleurbaey in J Polit Econ 118:649–680, 2010) and inquires into the possibility to keep some aversion to inequality in this context. It is shown that the social welfare function must either be utilitarian or take a special multiplicative form. The multiplicative form is compatible with any degree of inequality aversion, but only under some constraints on the range of individual utilities.     

A competitive equilibrium for a warm-glow economy

The warm-glow model (Andreoni in J Political Econ 97:1447–1458, 1989; Econ J 100:464–477, 1990) of public goods provision has received widespread interest, yet surprisingly most attention has focused on the voluntary contribution equilibrium of the model, and only very little attention has been devoted to the competitive equilibrium. In this paper, we introduce the concept of competitive equilibrium for a warm-glow economy (henceforth, warm-glow equilibrium) and establish both existence and welfare properties. The warm-glow equilibrium concept may prove to be very useful to the normative and positive theory of public goods provision. First, it is a price-based mechanism achieving efficient outcomes. Second, not only could the warm-glow equilibria outcomes serve as a point of reference to measure free-riding and welfare loss but also, as suggested by Bernheim and Rangel (Behavioral Economics and Its Applications, 2007), in large economies they may be approximated by Walrasian equilibria outcomes.     

The visible hand: finger ratio (2D:4D) and competitive bidding

In an experiment using two-bidder first-price sealed bid auctions with symmetric independent private values and 400 subjects, we scan also the right hand of each subject. We study how the ratio of the length of the index and ring fingers (2D:4D) of the right hand, a measure of prenatal hormone exposure, is correlated with bidding behavior and total profits. 2D:4D has been reported to predict competitiveness in sports competition (Manning and Taylor in Evol. Hum. Behav. 22:61–69, 2001, and H?nekopp et al. in Horm. Behav. 49:545–549, 2006), risk aversion in lottery tasks (Dreber and Hoffman in Portfolio selection in utero. Stockholm School of Economics, 2007; Garbarino et al. in J. Risk Uncertain. 42:1–26, 2011), and the average profitability of high-frequency traders in financial markets (Coates et al. in Proc. Natl. Acad. Sci. 106:623–628, 2009). We do not find any significant correlation between 2D:4D on either bidding or profits. However, there might be racial differences in the correlation between 2D:4D and bidding and profits.     

Institutional stickiness of democracy in post-communist states: Can prevailing culture explain it?

Structural explanation of political development offers a finite set of factors that cause democracy to consolidate or not (Acemoglu and Robinson 2006). This approach is, however, insufficient to explain political development of post-communist countries because it ignores a role of social arrangements in democratic consolidation. The field of comparative political economy is becoming more acceptable to the idea that social institutions have significant impact on political development (Boettke et al. Review of Austrian Economics 18(3–4): 281–304, 2005). Using transitional experience of post-communist countries, I demonstrate that institutional stickiness of democracy depends on a combination of causal factors, including underlying political culture (Boettke et al. American Journal of Sociology and Economics 67(2), 2008; Pejovich The Review of Austrian Economics 16(4):347–361, 2003).     

Fictitious students creation incentives in school choice problems

We identify a new channel through which schools can potentially manipulate the well-known student and school-optimal stable mechanisms. We introduce two fictitious students creation manipulation notions where one of them is stronger. While the student and school-optimal stable mechanisms turn out to be weakly fictitious student-proof under acyclic (Ergin in Econometrica 88:485–494, 2002) and essentially homogeneous (Kojima in Games Econ Behav 82:1–14, 2013) priority structures, respectively, they still lack strong fictitious student-proofness. We then compare the mechanisms in terms of their vulnerability to manipulations in the sense of Pathak and Sönmez (Am Econ Rev 103(1):80–106, 2013) and find out that the student-optimal stable mechanism is more manipulable than the school-optimal one. Lastly, in the large market setting of Kojima and Pathak (Am Econ Rev 99(3):608–627, 2009), the student-optimal stable mechanism becomes weakly fictitious student-proof as the market is getting large.     

Definitions of ambiguous events and the smooth ambiguity model

We examine a variety of preference-based definitions of ambiguous events in the context of the smooth ambiguity model. We first consider the definition proposed in Klibanoff et?al. (Econometrica 73(6):1849?C1892, 2005) based on the classic Ellsberg two-urn paradox (Ellsberg Q J Econ 75:643?C669, 1961) and show that it satisfies several desirable properties. We then compare this definition with those of Nehring (Math Soc Sci 38(2):197?C213, 1999), Epstein and Zhang (Econometrica 69:265?C306, 2001), Zhang (Econ Theory 20:159?C181, 2002), and Ghirardato and Marinacci (J Econ Theory 102:251?C289, 2002). Within the smooth ambiguity model, we show that Ghirardato and Marinacci (J Econ Theory 102:251?C289, 2002) would identify the same set of ambiguous and unambiguous events as our definition while Epstein and Zhang (Econometrica 69:265?C306, 2001) and Zhang (Econ Theory 20:159?C181, 2002) would yield a different classification. Moreover, we discuss and formally identify two key sources of the differences compared to Epstein and Zhang (Econometrica 69:265?C306, 2001) and Zhang (Econ Theory 20:159?C181, 2002). The more interesting source is that these two definitions can confound non-constant ambiguity attitude and the ambiguity of an event.     

More equal but not so fair: an analysis of Brazilian income distribution from 1995 to 2009

This study measures unfair inequality in Brazil between 1995 and 2009. To achieve that, we used the statistical tool developed by Almås et al. (J Public Econ 95:488–499, 2011) and the concept of “responsibility-sensitive” fairness proposed by Bossert (Math Soc Sci 29:1–17, 1995), Konow (J Econ Behav Organ 31(1):13–35, 1996) and Cappelen and Tungodden (Fairness and the proportionality principle, Discussion paper SAM 31/2007. Norwegian School of Economics and Business Administration, 2007). The results indicate that the fairness level in Brazil remained unchanged throughout the analyzed period.     

On a closed-form solution to the stochastic Lucas–Uzawa model

Bucci et al. (J Econ 103:83–99, 2011) argue that under two parametric restrictions, there exists a closed-form solution path to the two-sector endogenous growth model of Lucas–Uzawa. However, they assume that the value function is a function of both the current and the initial values of the state variables. As Wälde (J Econ Dyn Control 35:616–622, 2011a) argues, the value function should depend only on the current state variables when the technology follows a geometric Brownian motion. I follow Wälde (J Econ Dyn Control 35:616–622, 2011a) and obtain, under some inequality constraints, a different value function.     

The effects of the take-option in dictator-game experiments: a comment on Engel’s (2011) meta-study

In this paper, we report a replication of Engel’s (Exp. Econ. 14(4):583–610, 2011) meta-study of dictator game experiments. We find Engel’s meta-study of dictator game experiments to be robust, with one important exception: the coding of the take-option (List in J. Polit. Econ. 115(3):482–493, 2007; Bardsley in Exp. Econ. 11(2):122–133, 2008; Cappelen et al. in Econ. Lett. 118(2):280–283, 2013). While Engel reports this as having no statistically significant effect, in our replications, we find an economically and statistically significant negative effect on giving in line with the relevant literature.     

The effect of currency unions on business cycle correlations: the EMU case

This paper examines empirically the effects of the introduction of the euro on the output correlation among the member economies. The similarity of shocks affecting the members is an important condition to minimize the costs from the loss of national monetary policy implementation. Eichengreen (Economic Policy 10:118–187; 1990) pointed that this is an important condition to be satisfied before joining a currency union. Frankel and Rose (Economic J 108:1009–1025 1998) state that membership could lead to an ex post rise in output correlations. In the current study, we employ ex post and ex ante data on output for 11 members and 11 non-members of the EMU and we test whether the adoption of the euro increased the output synchronization among members compared to non-members. The main findings of this paper are that there is not robust evidence for a decrease in average correlation among members compared to the co-movement among non-members. Our sensitivity analysis reveals that for a group of countries considered to be the core of the European Union, the effect is statistically insignificant. Any decrease in correlation could be attributed to some extend to the countries of the periphery, and also to some of the countries considered as members of the core, giving credit to Eichengreen (Economic Policy 10:118–187; 1990) and Krugman (1990) arguments about increased specialization giving rise to idiosyncratic shocks.     

Endogenous population with human and physical capital accumulation

This paper proposes an economic growth model with population growth and physical and human capital accumulation. The physical capital accumulation is built on the Solow growth model (Solow in Q J Econ 70:65–94, 1956). The education and human capital accumulation is influenced by the Uzawa–Lucas model (Uzawa in Int Econ Rev 6:18–31, 1965; Lucas in J Monet Econ 22:3–42, 1988). The population dynamics are influenced by the Haavelmo population model (Haavelmo in a study in the theory of economic evolution. Haavelmo, Amsterdam, 1954) and the Barro–Becker fertility choice model (Barro and Becker in Econometrica 57:481–501, 1989). We synthesize these dynamic forces in a compact framework, applying an alternative utility function proposed by Zhang (Econ Lett 42:105–110, 1993). The model describes a dynamic interdependence between population change, wealth accumulation, human capital accumulation, and division of labor. We simulate the model to demonstrate the existence of equilibrium points and to plot the motion of the dynamic system. We also examine the effects of changes in the propensity to have children, the mortality rate parameter, the propensity to receive education, the human capital utilization efficiency, and the mortality rate elasticity of human capital upon dynamic paths of the system.     

Pluralism(s) in economics: lessons from complexity and innovation. A review paper

My analysis focuses on two main observations. First, many competing schools of thoughts are currently present in economics with no predominant paradigm. We are experiencing an era of pluralism (Davis J Econ Methodol 14(3):275–290, 2007, Camb J Econ 32:249–366, 2008; Colander 2000; Colander et al. J Polit Econ 16(4):485–499, 2004). The term ‘pluralism’ is extremely interesting since, as I will show, it has different dimensions to it. These offer insights into interpreting the tangled universe of the economics. Second, there is a progressive intertwining of innovation economics with complexity economics, which I argue provides an instance of the above-described shift toward pluralism.     

Second-order ambiguous beliefs

This paper axiomatizes models of second-order ambiguous beliefs in the original domain of preferences of Anscombe and Aumann (Ann Math Stat 34:199–205, 1963) by weakening the first-stage independence postulate. The models we propose include the second-order subjective expected utility (SOSEU) of Seo (Econometrica 77:1575–1605, 2009) as a particular case. We characterize the intersection of our models of second-order ambiguity with the canonical models of (first-order) ambiguity aversion and provide a further generalization of SOSEU by relaxing the completeness axiom.     

The welfare effects of pre-arrangements in matching markets

We study the welfare effects of different types of pre-arrangements (as identified in Sönmez in J Econ Theory 86:148–156, 1999) under the intern-optimal and hospital-optimal stable mechanisms in matching markets. First, both mechanisms are manipulable via Type-2 pre-arrangements. Regarding the welfare consequences, they might cause inefficient outcomes to arise, and the welfare effects on each side are ambiguous in the sense that there might be agents from each side, apart from pre-arranging ones, being better and worse off. Then, for Type-1 pre-arrangements, due to Kojima and Pathak (Am Econ Rev 99(3):608–627, 2009), we know that the intern-optimal stable mechanism is immune to this type of manipulations. In contrast to this result, the hospital-optimal stable mechanism turns out to be manipulable. More interestingly, they do not result in inefficient outcomes, and the welfare effects on each side are unambiguous: All hospitals (interns) are better (worse) off.     

Transboundary Marine Resources and Trading Neighbours

The importance of space in analyzing issues pertaining to renewable resources can hardly be overstated. Many such resources are mobile and spatially heterogeneous with respect to bio-economic variables, with important implications for both domestic management regimes and for international externalities and policy interactions. This paper uses a simple general-equilibrium framework to show that acknowledging the inter-jurisdictional mobility of a resource such as fish has the potential to alter or qualify some of the conservation and welfare results obtained in the canonical models. The previous literature on trade and renewable resources has focused on cases where national resource stocks are independent. Brander and Taylor (Can J Econ 30(3):526?C552, 1997a; Resour Energy Econ 19(4):267?C297, 1997b; J Int Econ, 1998a; Am Econ Rev, 1998b) find that trade leads to resource stock depletion for an open-access resource-exporting country, while the non-resource exporter is necessarily diversified. In contrast, we find that the country with a comparative advantage in the resource good may gain from a conservation standpoint, while its partner can specialize in the manufactured good and may incur conservation and even welfare losses from trade.     

A note on the robustness of Card and Krueger (1994) and Neumark and Wascher (2000)

This note adds to the discussion originating from Card and Krueger (Am Econ Rev 84:772–793, 1994) and Neumark and Wascher (Am Econ Rev 90:1362–1396, 2000) by re-evaluating their results using the semiparametric difference-in-differences estimator introduced in Abadie (Rev Econ Stud 72:1–19, 2005). The note addresses the question of whether the differences in the original datasets can explain the differences in their conclusions. Although we observe heterogenous employment effects together with the differences in the distributions, the results show that the original findings on the overall employment effect of a minimum wage are fairly robust and just slightly changed when the differences in the distributions of the observed covariates are taken into account.     

Predicting U.S. recessions through a combination of probability forecasts

Recently De Luca and Carfora (Statistica e Applicazioni 8:123–134, 2010) have proposed a novel model for binary time series, the Binomial Heterogenous Autoregressive (BHAR) model, successfully applied for the analysis of the quarterly binary time series of U.S. recessions. In this work we want to measure the efficacy of the out-of-sample forecasts of the BHAR model compared to the probit models by Kauppi and Saikkonen (Rev Econ Stat 90:777–791, 2008). Given the substantial indifference of the predictive accuracy between the BHAR and the probit models, a combination of forecasts using the method proposed by Bates and Granger (Oper Res Q 20:451–468, 1969) for probability forecasts is analyzed. We show how the forecasts obtained by the combination between the BHAR model and each of the probit models are superior compared to the forecasts obtained by each single model.     

Promoting innovation and competition with patent policy

Recently the role of institutions on growth, and especially the influence of Intellectual Property Rights, has been integrated into the Schumpeterian Growth Framework. In this contribution, we highlight the possibility using one patent’s characteristic, the patent height, as an instrument for promoting innovation and growth. We introduce this possibility into the Segerstrom (Am Econ Rev 80:1290–1310, 1998)/Li (Am Econ Rev 93:1009–1018, 2003) quality ladders model of growth. The Li (Am Econ Rev 93: 1009–1018, 2003) generalized model overturns Segerstrom (Am Econ Rev 80:1290–1310, 1998) policy implication in terms of the size of innovations having to be taxed or subsidized by relaxing a crucial assumption on the value of the elasticity of substitution between goods. In this paper, we point out the fact that the innovation size requirement has to be considered as a policy instrument, so that it appears extremely important to consider the case when the innovation size has been made endogenous. A patent policy using the novelty requirement as an instrument for innovation policy enables implementation of the social optimum. The consequences of this policy for market structure and economic growth are then discussed. When the level of the patent novelty requirement is initially high, a patent policy that weakens the patent height can reinforce competition and promote innovation.     

Estimating noncooperative and cooperative models of bargaining: an empirical comparison

This paper examines the issue of model selection in studies of strategic situations. In particular, we compare estimation results from a noncooperative formulation of government formulation à la (Baron and Ferejohn in Am Poli Sci Rev 87:34–47, 1989) with those from two alternative cooperative formulations (Nash in Econometrica 18:155–162, 1950; Shapley and Shubik in Am Poli Sci Rev 48:787–792, 1954). Although the estimates of the ministerial ranking are similar, statistical testing suggests that the noncooperative formulation is best fitted to the observed data among the alternative models. This result implies that modeling the noncooperative structure in bargaining situations is crucially important at the risk of possibly misspecifying the details of the game.     

Bargaining over productivity and wages when technical change is induced: implications for growth, distribution, and employment

I study a model of growth and income distribution in which workers and firms bargain à la Nash (Econometrica 18(2):155–162, 1950) over wages and productivity gains, taking into account the trade-offs faced by firms in choosing factor-augmenting technologies. The aggregate environment resulting from self-interested, objective function-maximizing decision rules on wages, productivity gains, savings and investment, is described by a two-dimensional dynamical system in the employment rate and output/capital ratio. The economy converges cyclically to a long-run equilibrium involving a Harrod-neutral profile of technical change, a constant rate of employment of labor, and constant input shares. The type of oscillations predicted by the model is qualitatively consistent with the available data on the United States (1963–2003), replicates the dynamics found in earlier models of growth cycles such as Goodwin (A growth cycle, in C.H. Feinstein (ed). Socialism, Capitalism and Economic Growth. Cambridge University Press, Cambridge 1967. Cambridge University Press, Cambridge, 1967); Shah and Desai (Econ J 91:1006–1010, 1981); van der Ploeg (J Macroecon 9:1–12, 1987); Flaschel (J Econ: Zeitschrift für Nationalökonomie 44:63–69, 1984) and Sportelli (J Econ: Zeitschrift für Nationalökonomie 61(1):35–64, 1995), and can be verified numerically in simulations. Institutional change, as captured by variations in workers’ bargaining power, has a positive effect on the long-run rate of growth of output per worker but a negative effect on long-run employment. Economic policy can also affect the growth and distribution pattern through changes in the unemployment compensation, which also have a positive long-run impact on labor productivity growth but a negative long-run impact on employment. In both cases, employment can overshoot its new equilibrium value along the transitional dynamics.