Preponderance of evidence

This paper investigates the incentive properties of the standard of proof for a finding of negligence when evidence about injurers’ behavior is imperfect. We show that a “more-likely-than-not” decision rule provides maximal incentives for potential tort-feasors to exert care. An injurer is then held liable whenever inadequate care appears more likely than due care, and not liable otherwise. Our analysis provides a deterrence rationale for the exclusionary rules of evidence found in common law and the preponderance of evidence standard of proof.     

The determinants of pollution levels: Firm-level evidence from Chinese manufacturing

Using a large, unique, firm-level dataset from the Chinese manufacturing sector, we study important factors that are related to emission intensity for three pollutants in China – sulfur dioxide, wastewater, and soot. Our main findings are as follows: (1) compared to state-owned enterprises (SOEs), both foreign-owned firms and domestic public-listed firms exhibit less intensive pollutant emissions; (2) firms in regions with less local protection have lower pollution intensity; (3) better property rights protection is negatively correlated with pollutant discharge over and beyond the national standards; and (4) larger firms, firms in industries that export more, and firms with more educated employees pollute less. These results suggest that China should not target foreign firms more harshly in its effort to reduce industrial pollution. Better institutions in the form of more effective law enforcement and lower entry barriers across regional markets are also means of curbing China’s pressing environmental problems during its current stage of economic development.     

Crime and moral hazard: Does more policing necessarily induce private negligence?

Even risk-neutral individuals can insure themselves against crimes by combining direct expenditure on security with costly diversification. In such cases — and even when one of these options is infeasible — greater policing often actually encourages private precautions.     

Hormone beef, chlorinated chicken and international trade

We study international trade in innovative goods subject to uncertain consumer health effects. Such goods are often at the center of international trade disputes. We show that an interesting form of protectionism may arise because of scientific uncertainty. A free-riding effect is identified, implying more conservative behavior by countries. We also study the role of producers (lobbies) in providing valuable information, finding that the innovative lobby has an advantage in providing information as compared with the lobby producing the ‘traditional’ good. Moreover, lobbies disclose more information when the health effects are long lasting.     

Asymmetry and revenue in first-price auctions

We show by an example that in first-price IPV auctions, asymmetry in bidders' valuations need not reduce the revenue compared to a benchmark symmetric model with the same amount of social surplus. Asymmetry need not reduce competition in first-price auctions.     

Trade and product market policies in upstream sectors and productivity in downstream sectors: Firm-level evidence from China

This paper explores the heterogeneous productivity impact of trade, product market and financial market policies over the last decade in China. The paper makes a critical distinction between downstream and upstream industries, focusing on the indirect effects of regulation in upstream industries on firm performance in downstream manufacturing industries. We identify the differential effect of these policies on firm productivity growth depending on how far incumbents are relative to the technological frontier. Trade and product market reforms are found to deliver stronger gains for firms that are closer to the industry-level technological frontier, while the reverse holds for financial market reforms. The key conclusion that can be derived from the empirical analysis is that further product, trade and financial market reforms would bring substantial gains in China and could therefore speed up the convergence process. Taken at face value, the empirical estimates would imply that aligning product, trade and financial market regulation to the average level observed in OECD countries would bring aggregate manufacturing productivity gains of respectively 9%, 3% and 6.5% after 5 years.     

European competition policy modernization: From notifications to legal exception

Council Regulation (EC) 1/2003 came into force in May 2004 and replaced the mandatory notification of agreements by a regime of ex post monitoring. This paper shows that ex post monitoring is the optimal audit regime when the competition authority's probability of error is low. On the other hand, the notification system becomes optimal when the competition authority's probability of error is high. The paper also shows that block exemptions and black list (regimes of per se (il)legality) should be implemented when the agreements’ expected welfare impact is very high and very low, respectively.     

Recreational versus professional bettors: Performance differences and efficiency implications

Using a novel dataset, which allows comparisons across heterogeneous sub-groups of pari-mutuel bettors, we demonstrate significant behaviour and performance distinctions between recreational and professional investors. Professionals’ ability to earn abnormal returns on short odds horses in high volume markets challenges the existing empirical consensus, which offers very limited evidence of betting market inefficiency. The results offer important lessons for betting operators and regulators and highlight the potential for similar avenues of investigation in other speculative markets.     

International transmission of business cycles: Evidence from dynamic correlations

We exploit dynamic correlations to estimate determinants of output comovement between OECD countries. Trade intensity, financial integration, and specialization patterns have significantly different effects on comovements at different frequencies. This sheds more light on previous results based on statistical filters.     

Foreign direct investment in services and manufacturing productivity: Evidence for Chile

This paper examines the impact of substantial foreign direct investment (FDI) inflows in producer service sectors on the total factor productivity (TFP) of Chilean manufacturing firms. Positive effects are obtained in firm fixed effects instrumental variables regressions and show that forward linkages from FDI in services explain 7% of the observed increase in Chile's manufacturing users' TFP. Our findings also suggest that service FDI fosters innovation activities in manufacturing. Moreover, we show that service FDI offers opportunities for laggard firms to catch up with industry leaders.     

Imperfect Competition and Growth with Entrepreneurial Risk

Abstract. This paper analyzes an overlapping generations endogenous growth model of occupational choice under risk in a two-sector economy with intermediate and final goods. Agents choose between business ownership in the monopolistically competitive intermediate goods industry or employment as a worker in this sector. Firm-specific profits are stochastic. Occupational choice under risk endogenizes the number of firms and products in the intermediate goods industry. The analysis shows that economic performance and growth both depend on the entrepreneurship rate and are inefficiently low compared with an economy with perfect markets for pooling risks. Monopolistic competition partly offsets the negative income effects from a too low level of entrepreneurial risk-taking.     

Stochastic Growth and Factor Income Risk

Abstract. This paper examines the effects of aggregate factor income risk in a tractable version of the stochastic Romer endogenous growth model. Labor supply is endogenous. The presence of labor income risk unambiguously increases savings and growth due to precautionary motives. Households not only underaccumulate but also work less along the balanced growth path of the competitive economy when compared with the Pareto-efficient allocation. The paper also discusses distributive disturbances for the case of inelastic labor supply. Here, growth effects are negative for empirically plausible correlations of the underlying shocks.     

Search and endogenous concentration of liquidity in asset markets

We develop a search-based model of asset trading, in which investors of different horizons can invest in two assets with identical payoffs. The asset markets are partially segmented: buyers can search for only one asset, but can decide which one. We show the existence of a “clientele’’ equilibrium where all short-horizon investors search for the same asset. This asset has more buyers and sellers, lower search times, and trades at a higher price relative to its identical-payoff counterpart. The clientele equilibrium dominates the one where all investor types split equally across assets, implying that the concentration of liquidity is socially desirable.     

Global factor trade with differentiated factor prices and factor intensities

Abstract .  Relaxing the assumption of internationally identical factor intensity techniques in the HOV model creates two challenges. First, computing actual factor intensity techniques of different countries requires detailed input-output tables and factor usage data, which are not always available. Second, determinants of the factor intensity technique differences across countries need to be identified. This paper explores the role of relative factor price differences in the determination of factor intensity technique differences across countries and proposes an inferring method that infers factor intensity techniques of different countries based on relative factor price differences. The HOV model is then modified accordingly.