The Hotelling Principle,backwardation of futures prices and the values of developed petroleum reserves — the production constraint hypothesis

We explore the practitioner-stylized facts that petroleum wells require large initial investments, have daily production capacities, and have small marginal costs for production rates meaningfully below these capacities. Long-run backwardation of futures prices is required to induce drilling new wells. In contrast to Miller and Upton (1985a,b) and Litzenberger and Rabinowitz (1995), production from developed reserves is essentially a corner solution at capacity regardless of backwardation or price volatility. Economically interesting supply decisions take the form of investment in exploration and drilling. Empirical evidence strongly rejects the Miller and Upton hypothesis in favor of our more general model.     

Equality of interest rates revisited: the multi‐country evidence

One influential aspect of international integration of financial markets is the possibility of reducing divergences between domestic interest rates and foreign interest rates or increasing the degree to which yields in different financial markets move together over time. In this study, we investigate the convergence of the real interest rates using the Kalman filter. Applying the modified Hall et al. () approach, we model the risk premium and convergence of real interest rates using the time‐varying parameter estimation techniques. We present evidence of risk premium and convergence for two blocks of countries—The Asian‐Pacific countries including the US, Japan, Taiwan and South Korea and the US‐European group including France, the UK, Germany and the US.     

Canada–US productivity gap: The role of competition intensity differential

The relative lack of competitive pressure in product markets and lower investment in both fundamental and applied innovation are among the potential factors that have been put forward to explain Canada’s weak productivity performance with respect to the US. Since competition is generally seen as the single leading catalyst for fundamental and applied innovation, this paper analyzes the role of product market competition in the Canada–US productivity level gap. We develop an empirical framework in which competition exerts both direct and indirect effects on productivity, with the indirect impact coming through fundamental and applied innovation. We find statistically significant evidence that the competition intensity differential (between Canada and the US) has contributed to the Canada–US productivity level gap directly, as well as indirectly through lower investment in both R&D activities and M&E (including ICT) investment. We also find statistically significant evidence that Canada’s relatively poor performance in both productivity and M&E (including ICT) investment have acted as a self-reinforcing mechanism, which further causes detriment to the country’s productivity.     

Minsky’s financial instability hypothesis and the role of equity: The accounting behind hedge,speculative, and Ponzi finance

Hyman Minsky’s primary legacy to Keynesian macroeconomics involves two related features. He emphasized that real (market) analysis and financial (market) analysis should be analyzed together, not separately; and that the macro economy is inherently unstable (his “financial instability hypothesis”). He melded financial analysis and the “real” market economy to interpret cycles in economic activity. An economy in boom (euphoria, animal spirits) eventually runs out of steam, reaches a peak, and descends into recession. The recession after the Minsky-moment peak segues through several financial stages based on the financial conditions of individual firms; he termed these stages as hedge, speculative, and Ponzi finance. The fragility of the economy depends on the relative weights or importance of the economy’s firms in each of the three stages.     

Does competition foster trust? The role of tournament incentives

Members of organizations are often called upon to trust others and to reciprocate trust while at the same time competing for bonuses or promotions. We suggest that competition affects trust not only within dyads including direct competitors, but also between individuals who do not compete against each other. We test this idea in a trust game where trustors and trustees are rewarded based either on their absolute performance or on how well they do relative to players from other dyads. In Experiment 1, we show that competition among trustors significantly increases trust. Competition among trustees decreases trustworthiness, but trustors do not anticipate this effect. In Experiment 2, we additionally show that the increase in trust under competition is caused by a combination of increased risk taking and lower sensitivity to non-financial concerns specific to trust interactions. Our results suggest that tournament incentives might have a “blinding effect” on considerations such as betrayal and inequality aversion.     

Determinants of bank’s interest margin in the aftermath of the crisis: the effect of interest rates and the yield curve slope

Empirical Economics - This paper analyses the determinants of net interest margin, focusing on the impact of interest rates and the slope of the yield curve, using a broad panel of data from 32...     

The Hicks‐Malinvaud average period of production and ‘marginal productivity’: A critical assessment

Abstract

Malinvaud took up the concept of the average period of production introduced by Hicks in Value and Capital and then Capital and Time, in an article of 2003 celebrating Wicksell's contribution to the theory of capital, where he observed that once techniques are ranked according to the average period for a given initial rate of interest, a rise in the rate of interest entails the use of a technique with a shorter average period. After a brief reconstruction of Malinvaud's argument, it is shown that the result is far less encouraging for neoclassical theory than it might seem. The most important problem is not the fact that change in the interest rate affects the average period of production associated with a technique, despite the concern this aroused in Hicks and Malinvaud, but rather that it affects the ranking of techniques. An example with two techniques is used to show that a rise in the rate of interest entails the use of a technique with a shorter average period even in the case of reswitching simply because the ranking of techniques is inverted at the two switch points.     

From central planning towards a market economy: The role of ownership and competition in Vietnamese firms’ productivity

This paper examines the role of ownership and market competition in Vietnamese firms’ total factor productivity (TFP) from 2001 to 2011. Making use of a large panel dataset of manufacturing firms, we find that, on average, both foreign-owned enterprises (FOEs) and state-owned enterprises (SOEs) have performed better than privately owned enterprises (POEs) in terms of their TFP levels. However, while FOEs’ TFP ranked the highest in the period 2001–2006, SOEs “closed the gap” in the period 2007–2011. Moreover, we find that market competition has been effective in enhancing average firm productivity and in reducing the gaps in efficiency across ownership types. SOEs’ remarkable performance may be linked to several concurrent factors experienced during the period 2001–2011, namely, the process of restructuring the state sector during the 2000s, the increased economic integration due to the country's accession to the World Trade Organization (2007) and, finally, the preferential access to financial capital and land granted to SOEs. While some evidence supports SOEs’ equitization as an explanation for their remarkable productivity performance, WTO accession and cheaper access to inputs do not fully explain it.     

Financial‐industrial groups in Russia: Emergence of large diversified private companies

Slovenia is the most developed transition country and it is believed that this is due to the gradualist economic policy which has dominated the transition period. But what does the gradual economic policy mean for further development? Was the choice of gradual economic policy a good decision for the short term only, and not for the long term as well? This article provides some deeper insight into industry–science relations and competition policy in the context of gradualism, and shows that the results of such policy are ambiguous, sheltering some market participants at the expense of others. The consequence might be Slovenia lagging behind other transition countries in the future. In other words, the gradualist concept that was seen as a rational choice for policy makers at the beginning of transition has come to its end.     

Improving the predictability of the oil–US stock nexus: The role of macroeconomic variables

In this study, we revisit the oil–stock nexus by accounting for the role of macroeconomic variables and testing their in-sample and out-of-sample predictive powers. We follow the approaches of Lewellen (2004) and Westerlund and Narayan (2015), which were formulated into a linear multi-predictive form by Makin et al. (2014) and Salisu et al. (2018) and a nonlinear multi-predictive model by Salisu and Isah (2018). Thereafter, we extend the multi-predictive model to account for structural breaks and asymmetries. Our analyses are conducted on aggregate and sectoral stock price indexes for the US stock market. Our proposed predictive model, which accounts for macroeconomic variables, outperforms the oil-based single-factor variant as well as the constant returns (historical average) model for both in-sample and out-of-sample forecasts. We find that it is important to account for structural breaks in our proposed predictive model, although asymmetries do not seem to improve predictability. In addition, we show that it is important to pre-test the predictors for persistence, endogeneity, and conditional heteroscedasticity, particularly when modeling with high-frequency series. Our results are robust to different forecast measures and forecast horizons and are useful for making effective hedging decisions in the US stock market.     

The process and a simple logic of ‘meso’. Emergence and the co-evolution of institutions and group size

‘Summing-up’ aggregation of micro decisions contrasts with structural emergence in complex systems and evolutionary processes. This paper deals with institutional emergence in the ‘evolution of cooperation’ framework and focuses on its size dimension. It is argued that some ‘meso’ (rather than ‘macro’) level is the proper level of cultural emergence and reproduction. Also Schumpeterian economists have discussed institutions as ‘meso’ phenomena recently, and Schelling, Axelrod, Arthur, Lindgren, and others have dealt with ‘critical masses’ of coordinated agents and emergent segregations. However, emergent group size has rarely been explicitly explored so far. In an evolutionary and game-theoretic frame, ‘meso’ is explained in terms of a sustainably cooperating group smaller than the whole population. Mechanisms such as some monitoring, memory, reputation, and active partner selection loosen the total connectivity of the static and deterministic ‘single-shot’ logic and thus allow for emergent ‘meso’ platforms, while expectations ‘to meet again’ remain sufficiently high. Applications of ‘meso-nomia’ include the deep structure of ‘general trust’ and macro-performance in ‘smaller’ and ‘well networked’ countries which helps to explain persistent ‘varieties of capitalism’.     

An extension of the Tiebout hypothesis of voting with one’s feet: the Medicaid magnet hypothesis

This study empirically extends the Tiebout hypothesis of ‘voting with one’s feet’ in two ways. First, it provides updated estimates using net migration data for the period 2000–2008. Second, in addition to investigating variables reflecting public education outlays, property taxation and income taxation, it investigates whether migrants are attracted to states with higher Medicaid benefits per recipient. The latter hypothesis is referred to as the ‘Medicaid magnet hypothesis’. The analysis includes three economic variables, three quality of life variables and three Tiebout-type factors in addition to Medicaid benefits. Results indicate that consumer voters were attracted to states with higher per pupil public school spending, lower property and income tax rates, and that certain consumer-voters may be attracted to states that offer higher levels of Medicaid benefits.     

Does economic growth benefit the poor? The role of institutions and religions

This paper seeks to explain the difference across countries of the impact of national growth on the growth of the income of the poor. Traditionally, studies attempting to explain such differences investigate only the impact of some additional variables on the income level of the poor. Here, we introduce interaction terms to explain the change in the elasticity of income of the poor to national income. We focus on the role of formal and informal institutions and religions; variables which have rarely been considered in this context. The results show that only formal institutions (i.e., Resistance to corruption) and, to some extent, informal institutions (i.e., Trust all) explain the differences. Religion has no impact. The findings also show that improvements in the Resistance to corruption benefits the extremely poor more than the poor.     

The puzzle of aid and growth: any role for investment?

This paper explores the relationship between aid and growth, through the explicit inclusion of the investment component. We construct a new database, which adds to the previous papers’ variables (policy, institutional quality and civil unrest) some capital accumulation indicators. Partly based on the main literature, a simultaneous equations model is constructed to account for endogeneity and different methods are applied for a robustness check. Although in line with previous literature, in this paper we find that the capital accumulation process is a significant and fundamental channel to understand the link between development assistance and growth. In low-income countries aid effectiveness seems to be significantly lower.     

Trade liberalization,intra-industry trade and the environment: competition mode and the order of firms’ moves

This paper explores the implications of trade liberalization by extending the intra-industry trade framework à la Fung and Maechler (J Int Trade Econ Dev 16(1):53–69, 2007) to the case of sequential move and taking the mode of firms’ competition into consideration as well. It is shown that the existing results obtained for the case of simultaneous price competition are robust in quantity competition and sequential move cases. Moreover, it studies the likelihood that the environmental effects of trade liberalization occur.

Macroeconomic expectations and consumer sentiment during the COVID-19 pandemic: The role of others’ beliefs

This paper investigates the effect of information about cross-country ratings of the government’s and the public’s reaction to the COVID-19 pandemic on consumers’ macroeconomic expectations and sentiment. We conduct consumer surveys with randomized control trials (RCTs) in two waves in Thailand and Vietnam. The information treatments have the strongest effect when the information shown contradicts consumers’ prior beliefs. In the first survey, conducted when the first lockdown was eased, treatment effects are stronger in Vietnam, causing more optimistic expectations and sentiment. In the second survey, conducted at the start of the second wave of infections, treatment effects are stronger in Thailand, causing a more pessimistic outlook.     

Reconsidering Wagner’s law: evidence from the functions of the government

We revisit Wagner’s law by function of government expenditure. Using data of 14 European countries between 1996 and 2013, we apply panel data and SUR methods to assess public expenditure–income elasticities. We find that some functions of government spending for a few countries (e.g. Austria, France, the Netherlands and Portugal) validate Wagner’s law. For the Netherlands, expenditures with environment protection increase more than proportionately to economic growth, and for France that is the case of spending in housing and community amenities. In addition, Greece is the only country where two public spending items react more than one to one to growth.     

The wages‐and‐profits fund: Classical remnants in Marshall's early theory of distribution

Abstract

This paper traces the development of Marshall's theory of wages from the late 1860s to the publication of the first edition of the Principles of Economics (1890). Section one attempts to unravel Marshall's recollections of early intellectual influences, many of which were often distorted or wrong. Specifically, J. S. Mill's, Fleeming Jenkin's and J. H. von Thünen's influence on Marshall's early theory of distribution is explored in this context. In section two, analyses of Marshall's theory of wages in Economics of Industry (1879) and in other published writings is presented. This section draws attention to the similarity between Marshall's treatment of wages and the classical wage fund doctrine. In the final section, we re‐examine Marshall's defence of his theory of value and distribution in the Economics of Industry in the face of criticism of it by American economists S. M. MacVane and J. L. Laughlin in the Quarterly Journal of Economics.     

Equalizing tax bases or tax revenues under tax competition? The role of formula apportionment

This paper contributes to the literature on fiscal equalization and corporate tax competition. The innovation is that we explicitly model multinational enterprises and a corporate tax system that is designed according to formula apportionment. Two main results are obtained. First, in contrast to previous studies we identify cases where tax revenue equalization is better in mitigating detrimental tax competition than tax base equalization. Second, tax base equalization nevertheless has the advantage that it may render tax rates efficient, depending on the shape of the apportionment formula. A pure payroll formula does not ensure efficiency, but a back‐of‐the‐envelope calibration of our model to Canadian provinces suggests that a pure sales formula may be optimal.