How to stop industrial growth with minimal pain

In order to reach material equilibrium in the economy, one must be able to control the total production volume of industrial sectors. The paper discusses three ways of stabilizing the size of an industrial sector. The no-nonsense appraoch entails direct regulation of the capacity of industrial plants. The manipulative approach softens the negative employment effects of direct regulation through a subsidy scheme. The enlightened public approach implies reduced material standards, as does the manipulative approach, but insures stable employment even at constant sector output.     

Strategic Environmental Policy Under Incomplete Information

This paper introduces incomplete information into recent analyses of strategic environmental policy. It is shown how asymmetric information between planners and producers affects national incentives to impose strategic environmental standards on domestic industries in international oligopolistic competition. Relative to the full-information case, incomplete information is likely to mitigate allocative distortions originating from strategic behaviour. A countervailing effect, tending to raise distortion, is however revealed from the analysis. This effect is absent when governments intervene in free trade through direct production subsidies. The results suggest that incentives to capture foreign rents are less reduced due to private information, when environmental standards, rather than direct production subsidies, are the strategic instrument.     

Democracies and Inefficiency

A government-interest group model is presented. Voters are neither always rationally ignorant nor always fully informed. Voters' information is variable. Unlike other models that assume a vote production function, this model considers the voter's utility and shows how rational voters with limited information can sometimes vote for inefficient policies.
If voters can be informed inexpensively, then democracies are efficient. If the cost of informing voters is prohibitive, then pressure groups efficiently extract rent. If the cost of informing voters is low for efficient direct handouts, but high for inefficient policies, then inefficient redistributions will occur.     

The Effects of Pollution Taxes on Urban Areas with an Endogenous Plant Location

This paper has integrated space into the effect of a direct pollution control on the pollution damage of heavily populated areas like CBD. This integration gives us some new insights into the effectiveness of a pollution tax as a pollution control device when the plant location of the firm is endogenized. It is shown that when the plant location is endogenous, as pollution taxes become higher, the firm moves its plant towards the CBD, causing higher pollution damage to the CBD residents, if the production function exhibits decreasing returns to scale.     

Croatia’s Dairy Sector—Can it Compete in the European Market?

Croatia is very close to meeting the requirements for becoming a member of the European Union (EU). Obviously, the agricultural sector and food processing chain are core issues within the negotiation process. This paper discusses the competitiveness of Croatia’s agro-food sector, specifically dairy products, within the EU-25 market. Two analytical methods are employed: (1) the domestic resource costs (DRC) and (2) the revealed comparative export advantage index (RXA). The DRC analysis is based on a 2007 survey of dairy farms. Primary data was complemented with trade figures from 2000 to 2007. The analyses indicate that Croatia’s dairy production is not competitive in its present structure. This lack of competitiveness at the farm level can be compensated somewhat at the processing level.     

MONETARISM AND THE USE OF MARKET PRICES AS MONETARY POLICY INDICATORS

Recently proposed strategies for employing market price indicators as guides to monetary policy embody many key propositions of monetarism. Moreover, market price advocates' prescribed policy instruments and operating procedures for conducting monetary policy are not inconsistent with a monetarist perspective and fully incorporate the incentive structure of the money creation process. The market price approach differs from monetarism in three key areas: the data employed to measure intermediate indicators, the environments in which the approach works, and the policy role of the dollar. More specifically, the market price approach employs data that are readily available in unrevised form and that make better use of limited information than do monetary or reserve data. The approach produces the same results as does a monetarist approach when money demand is stable, and it produces monetarists' desired stable price results when money demand is unstable. Finally, the approach embodies a policy role for the U.S. dollar and (implicitly) recognizes the policy implications of the dollar as a reserve currency.     

Allocation of resources in a team

The informational efficiency of “price” and “demand” messages in a resource allocation mechanism is studied here with the aid of the theory of teams¹. In the usual analysis of adjustment mechanisms (tâtonnement, decomposition), the adjustment process is assumed to run to completion, so that all the allocation and resource decisions can be made on the basis of enough information to guarantee optimal decisions². If, however, decisions must be made before the adjustment process is completed, say, after only a few iterations, then the decisions must be taken with limited information, and thus under conditions of uncertainty. This paper discusses a simple model in an attempt to examine explicitly these problems of uncertainty and limited information. A set of enterprise managers are assumed to produce various commodities, using scarce resources allocated to the enterprises by a resource manager. The enterprise managers also make decisions that affect their individual outputs. Varous kinds of communication among the managers, together with the corresponding information structures, are formulated, including the communication of price and demand messages. Optimal decision rules for the managers are calculated for the objective of maximizing the expected value of an index of total output. (It is assumed that the production functions and the supplies of scarce resources are stochastic, but are observed by the respective managers.) It is shown that optimal decision rules based on a single exchange of price and demand messages, between the resource manager on the one hand and the enterprise managers on the other, produces as good results as rules based on (1) complete information for the resource manager, and (2) information about the supplies of resources on the part of the enterprise managers. Furthermore, these price and demand messages produce approximately fully optimal results when the number of enterprises is large. However, the optimal decisions of the enterprise managers do not maximize profits, at least relative to any price that is the same for all enterprises. An assumption that the production functions are quadratic plays a key role.     

国内研发投入、人力资本与OFDI逆向技术溢出效应

利用我国2005-2015年省际面板数据,引入国内研发投入、人力资本两个中介变量,通过中介效应模型检验了OFDI逆向技术溢出的直接效应与间接效应。结果显示,总体上我国OFDI未显现出积极的逆向技术溢出效应,而呈弱负效应,但通过以下两条路径会对全要素生产率产生一定正向效应,即“OFDI→国内研发投入→全要素生产率”和“OFDI→国内研发投入→人力资本→全要素生产率”;分区域看,东部地区OFDI的逆向技术溢出直接效应为负值,中部地区的正向直接效应最为显著,西部地区的OFDI逆向技术溢出直接效应未通过显著性检验。OFDI通过国内研发投入产生的间接效应,仅在西部地区较为显著;OFDI通过促进国内研发投入再带动人力资本产生的间接效应,在东中部为正、西部为负。     

Holdups and Efficiency with Search Frictions

A natural holdup problem arises in a market with search frictions: Firms have to make a range of investments before finding their employees, and larger investments translate into higher wages. In particular, when wages are determined by ex post bargaining, the equilibrium is always inefficient: Recognizing that capital-intensive production relations have to pay higher wages, firms reduce their investments. This can only be prevented by removing all the bargaining power from the workers, but this, in turn, depresses wages below their social product and creates excessive entry of firms. In contrast to this benchmark, we show that efficiency is achieved when firms post wages and workers can direct their search toward more attractive offers. This efficiency result generalizes to an environment with imperfect information where workers only observe a few of the equilibrium wage offers. We show that the underlying reason for efficiency is not wage posting per se, but the ability of workers to direct their search toward more capital-intensive jobs.     

Trade,environment, and income inequality: An optimal taxation approach

In a small open economy, how should a government pursuing both environmental and redistributive objectives design domestic taxes when redistribution is costly? And how does trade liberalization affect the economy's levels of pollution and inequalities, when taxes are optimally and endogenously adjusted? Using a general equilibrium model under asymmetric information with two goods, two factors (skilled and unskilled labor), and pollution, this paper characterizes the optimal mixed tax system (nonlinear income tax and linear commodity and production taxes/subsidies) with both production and consumption externalities. While optimal income taxes are not directly affected by environmental externalities, conditions are derived under which under‐ or over‐internalization of social marginal damage is optimal for redistributive considerations. Assuming that redistribution operates in favor of the unskilled workers and that the dirty sector is intensive in unskilled labor, simulations suggest that trade liberalization involves a clear trade‐off between the reduction of inequalities and the control of pollution when the source of externality is only production; this is not necessarily true with a consumption externality. Finally, an increase in the willingness to redistribute income toward the unskilled results paradoxically in less pollution and more income inequalities.     

Information regulation: Do the victims of externalities pay attention?

Individuals living in metropolitan areas are exposed to a large number of industrial risks. Information regulation is a new tool to manage such risks. We ask if large-scale information initiatives directed at the general public can affect individual risk perceptions. The answer is affirmative. Using the publication of the Toxics Release Inventory as a case study, we find a decline in predicted property values when new information on pollution became available, indicating that homebuyers adjusted their risk perceptions upward. The response, however, is limited to sources of toxic emissions that are located at a moderate distance from the properties in our sample.      

Relocation and investment in R&D by firms

The literature on foreign direct investment has analyzed corporate location decisions when firms invest in R&D to reduce production costs. Such firms may set up new plants in other developed countries while maintaining their domestic plants. In contrast, we here consider firms that close down their domestic operations and relocate to countries where wage costs are lower. Thus, we assume that firms may reduce their production costs by investing in R&D and likewise by moving their plants abroad. We show that these two mechanisms are complementary. When a firm relocates it invests more in R&D than when it does not change its location and, therefore, its production cost is lower in the first case. As a result, investment in R&D encourages firms to relocate.     

THIRD PARTIES, INFORMATION DISCLOSURE AND MONITORING INCENTIVES

Within an incomplete contract setting, the paper analyses the role of third parties in ameliorating incentive problems arising in the context of financial contracts with costly verification and lender's bargaining power. Contrary to the findings of the bilateral lender–borrower relationship, characterised by no information revelation and possibly a breakdown of the market, it is shown that, in the presence of third parties, an optimal contract exists featuring partial information revelation and random monitoring. The importance of third parties is therefore not limited to improving efficiency, as it is when the contract offer comes from the informed party, but to ensure project realisation, and thus to ensure that the surplus that can arise from the project does not get lost.     

On Environmental Policy and Permitting

The literature on environmental policy under adverse selection usually assumes that firms' profit vary monotonically with a private information parameter. However, it is easy to demonstrate using standard production setups that regularity is not the rule. We show that policy requirements are very sensitive to this assumption. In particular, the optimal instrument resembles more an “adaptable” pollution standard than the economic instrument of an environmental tax. We also show that permitting, which results in some firms overinvesting in pollution‐control equipment, does not serve the objective of improving the environment but rather allows the agency to increase the proceeds of the policy.     

We can't disagree forever

Under the assumption of common priors, if the information partitions of two agents are finite, then simply by communicating back and forth and revising their posteriors the two agents will converge to a common equilibrium posterior, even though they may base their posteriors on quite different information. Furthermore, given any integer, n, one can construct an example in which the revision process not only takes n steps to converge, but no evident revision occurs—for (n?1) steps both agents repeat the same conflicting posteriors—until the last step, when the two agents decide to agree. Common knowledge of each other's posterior does not necessarily lead agents to the posterior they would have agreed upon had information been directly exchanged. On the other hand, the examples that are characterized by a discrepancy between the direct and indirect communication equilibrium, are rare: with probability 1, the revision process constructed here leads the two agents in one step to the direct communication equilibrium.     

More for everyone: The effect of local interests on spending on infrastructure

A central question in political economy is whether decision-making in representative democracies is biased towards local public investments or other types of policies which have locally concentrated benefits. The model by Weingast et al. (1981) predicts that a legislature with members from different areas will spend more in total on local public goods when the geographic constituency of each member is small. I test this prediction using panel data on the 18 Norwegian regional councils, exploiting that the geographic allocation of regional council seats varies considerably over time. Consistent with the theory, I find robust evidence that investments in regional public roads are lower when many council members come from the more populated areas in the region. This gives a more direct test of the prediction by Weingast et al. (1981) than existing empirical evidence, which concerns the relationship between public spending and legislature size. I find similar but less robust results for the maintenance of existing roads.     

Inefficient Local Regulation of Local Externalities

The consequences of commitment failure have been missing from debates about the decentralized regulation of automobile emissions and other sources of local consumption externalities. Even when the direct external effects of such products are limited to a single jurisdiction, the presence of increasing returns‐to‐scale production causes one jurisdiction's choice of regulatory standard to affect the prices and availability of goods elsewhere. Decentralized regulatory equilibria may be inefficient as a result. Because of a commitment failure, production may be split between standards—and consumers denied the full range of products—when it is efficient to have standards that allow products to be consumed everywhere. Coordination failures may cause similar inefficiencies. The results question the usefulness of the principle of subsidiarity as commonly employed.     

The competitive firm and the role of information about uncertain factor prices

This paper studies the role of information about uncertain input prices for a competitive firm. The production decision has to be taken when the price of an input factor is perceived as random. However, a signal is observable in advance, conveying some information about the future factor price. Transparency is linked to the informational content of this signal. The impact of a higher level of transparency is analyzed from an ex ante perspective, i.e. before the information signal is observed. The change of factor use, production amount and cost are determined by comparing the strength of the curvatures of total and marginal product. By contrast, ex ante profit always increases, independently of the shape of the production function.     

Gains from configuration: The transboundary protected area as a conservation tool

Nearly two hundred transboundary protected areas comprise a portion of the global conservation landscape the size of India, with further expansion anticipated. Proponents claim that transboundary protected areas outperform isolated protected areas in achieving conservation objectives, while regional case studies have led critics to challenge this claim. Empirical investigation into the relative performance of transboundary protected areas is fundamentally limited since these areas cannot be directly compared to the isolated protected areas that might otherwise have emerged in the same location. This paper develops a game theory model of park formation to compare counterfactual transboundary and isolated protected areas. The model suggests that under certain conditions, transboundary protected areas can achieve greater conservation and production objectives, even in the absence of international cooperative park management. The paper establishes five sufficient conditions for transboundary protected areas to provide greater national welfare, domestic conservation value, or global conservation value than counterfactual isolated protected areas. These conditions are tested for three common conservation objectives. The results suggest that when the objective of conservation is species persistence or interior habitat, conservation groups should encourage transboundary protected areas. However, when the objective of conservation is to extend reserve coverage to the maximum number of species, conservation groups should encourage protected areas where species richness is greatest, whether or not these areas span international borders.     

Bottom-up or direct? Forecasting German GDP in a data-rich environment

In this paper, we investigate whether there are benefits in disaggregating GDP into its components when nowcasting GDP. To answer this question, we conduct a realistic out-of-sample experiment that deals with the most prominent problems in short-term forecasting: mixed frequencies, ragged-edge data, asynchronous data releases and a large set of potential information. We compare a direct leading indicator-based GDP forecast with two bottom-up procedures—that is, forecasting GDP components from the production side or from the demand side. Generally, we find that the direct forecast performs relatively well. Among the disaggregated procedures, the production side seems to be better suited than the demand side to form a disaggregated GDP nowcast.