Selective immigration policies, human capital accumulation and migration duration in infinite horizon

An increasing literature fosters selective immigration policies as a tool to increase human capital in both source and destination countries. These policies are supposed to prompt incentives to education, and–if selection is sufficiently severe–to increase the human capital stock in source countries. Nonetheless, when compared to open migration, selective policies make returns to education uncertain, and they may harm incentives to invest in human capital. As a consequence, they may reduce the human capital stock even though selection is “severe”. Moreover, when repeated migration is possible, they backfire on migration duration. We obtain our results in an infinite-horizon model that, unlike the current literature, places no restriction on the number of possible migration spells and allows for the possibility of a forced emigration.     

Financial markets, specialization, and learning by doing

This paper considers three questions: (1) what is the role of financial markets in development, (2) why do some economies have such poorly developed financial markets, and (3) can government policy be used to promote financial market development? With respect to the first question, we formalize the widely-held notion that financial markets promote entrepreneurship, specialization, and learning-by-doing. However, if economic incentives for specialization are absent, financial markets may fail to form. This occurs when real interest rates are too low. We also discuss policies that can be used to promote financial market development. When these policies are successful, they will be growth promoting. Finally, we examine policies intended to manipulate returns on savings, which are often important components of “financial liberalizations”. We describe conditions under which such policies will be conducive to growth.     

On optimality in collective institutional choice

Conditions are investigated under which democratic choice of the division of land between collective and “private” use and of the distribution of collective income between “needs” and “work” payments will produce a Pareto-optimal land allocation and optimal collective labor incentives. Sen's optimal rule for the degree of “needs” distribution is found to result from self-interested voting on this parameter when the distribution of labor inputs is unskewed or when votes are weighted by labor contributions. This in turn increases the optimality of land allocation, which can be further improved by a simple rental scheme. J. Comp. Econ., Dec. 1981, 5(4), pp. 392–403. Brown University, Providence, Rhode Island.     

Pitfalls to avoid when measuring institutions: Is Doing Business damaging business?

Over recent years, both governments and international aid organizations have been devoting large amounts of resources to “simplifying” the procedures for setting up and formalizing firms. Many of these actions have focused on reducing the initial costs of setting up the firm, disregarding the more important role of business registers as a source of reliable information for judges, government departments and, above all, other firms. This reliable information is essential for reducing transaction costs in future dealings with all sorts of economic agents, both public and private. The priorities of reform policies should therefore be thoroughly reviewed, stressing the value of the legal institutions rather than trivializing them as is often the case. Journal of Comparative Economics 35 (4) (2007) 729–747.     

Experimental technology assessment: Explorations in processes of interdisciplinary team research

Technology assessment (TA) is team research that entails the cooperative effort of professionals from diverse disciplines. Whether this effort can be truly integrated into an interdisciplinary assessment is problematic, based on analyses of 24 actual TAs. To probe the situational and process factors that impinge on this interdisciplinary research process, we have performed laboratory simulations on TA-like problems. By controlling several key factors, these sessions have yielded insights into small group interactions and offer suggestive evidence for the conduct of future TAs. In these exercises the role of expertise was downplayed as groups preferred to operate in a “common-group learning” mode; epistemological differences emerged in the form of a “pecking order” favoring more quantitative sciences; and performing the leadership role reduced an individual's intellectual contribution to the problem-solving process. These exploratory TA simulations suggest merit in further efforts at controlled study of complex interdisciplinary processes.     

Private R&;D and Spillovers in European Agriculture

The objective of this paper is to present econometric evidence of the effects of economic incentives, public policies, and institutions on national aggregate private agricultural R&D investments. The main hypothesis we will test in this paper is whether agricultural R&D spillovers represent a disincentive for national private R&D. More specifically, we will test if the spillovers function, which is a determinant of private R&D, follows a quadratic form and if private R&D is determined by the role of incentives and institutions.A previous draft of this paper was presented at the 57th International Atlantic Economic Conference, Lisbon, Portugal, 10–14 March 2004. Comments from participants have been very useful to improve the paper.     

The “greening” of trade unions and the demand for eco-taxes

By embedding labour market bargaining considerations in an influence-seeking framework, we show how a union's stance on environmental policy depends on the exposure of their members to the risk of job loss. With a risk of unemployment, unions lobby with employers to resist stricter environmental policies. When employment is secure, unions may support policies that reduce employment opportunities for nonunion workers. “Environmentalism” can therefore arise without explicit environmental concerns among workers. Consequently, pollution taxes may yield a negative welfare dividend in the form of inefficiently high unemployment.     

Corruption,intrinsic motivation,and the love of praise

Do higher wages prevent corruption (bribe taking)? We investigate a setting where individuals who apply for public sector jobs are motivated not just by monetary incentives but also by intrinsic motivation and concern for the collective reputation of their profession. We show that an increase in monetary compensation may cause reputation‐concerned individuals to be more prone to participate in corruption due to an “overjustification” effect. The overall effect of monetary incentives on fighting corruption crucially depends on the composition of the pool of public sector workers for two reasons: first, different types of workers react differently to the same policy; second, the composition of the pool of workers affects individual behavior through its effect on collective reputation. These results imply in particular that policies to fight corruption should focus more on increasing the collective reputation of the public sector rather than using monetary incentives, which have perverse effects on some agents.     

Absenteeism: A comparison of incentives in alternative organizations

This paper uses a game-theoretic model to analyze the incentives workers may have to play “hookey” from work given that there is an outwardly unobservable probability of being sick and thus being unable to work. We compare incentives and equilibria in labor-managed firms (LMFs) and in profit-maximizing firms (PMFs), both in single-period and repeated games. We show, among other things, that in an egalitarian LMF there are circumstances under which members will not work when it is optimal to work, while the PMF suffers from the opposite problem; daily paid workers will work even when it would be better if they did not.     

Sovereign rents and quality of tax policy and administration

Windfall revenues from foreign aid or natural resource exports can weaken governments’ incentives to design or maintain efficient tax systems. Cross-country data for developing countries provide evidence for this hypothesis, using a World Bank indicator on “efficiency of revenue mobilization.” Aid’s negative effects on quality of tax systems are robust to correcting for potential reverse causality, to changes in the sample, and to alternative estimation methods. Revenues from natural resources are also associated with lower-quality tax systems, but results are somewhat sensitive to the choice of resource dependence indicators, and to a few extreme values in the data. Disaggregating by resource type, revenues from fuel exports are found to be more strongly associated than revenues from metals and ores exports with inefficient tax systems.     

When punishment fails: Research on sanctions, intentions and non-cooperation

People can become less cooperative when threatened with sanctions, and previous research suggests both “intentions” and incentives underlie this effect. We report data from an experiment aimed at determining the relative importance of intentions and incentives in producing non-cooperative behavior. Participants play a one-shot investment experiment in pairs. Investors send an amount to trustees, request a return on this investment and, in some treatments, can threaten sanctions to enforce their requests. Decisions by trustees facing threats imposed (or not) by investors are compared to decisions by trustees facing threats imposed (or not) by nature. When not threatened, trustees typically decide to return a positive amount less than the investor requested. When threatened this decision becomes least common. If the request is large relative to the sanction then most trustees return nothing. If the request is small, trustees typically return the requested amount. These results do not vary with investors' intentions.     

Influence and inefficiency in the internal capital market

I model inefficient resource allocations in M-form organizations due to influence activities by division managers that skew capital budgets in their favor. Corporate headquarters receives two types of signals about investment opportunities: private signals that can be distorted by managers, and public signals that are undistorted but noisy. Headquarters faces a tradeoff between the cost of attaining an accurate private signal and the value of the information the signal provides. In contrast to existing models of “socialism” in internal capital markets, I show that investment sensitivity to Tobin's Q is higher than first-best in firms where division managers hold equity (a result consistent with evidence presented in Scharfstein, 1998). When managers face high private costs from distorting information (equity holdings), headquarters may commit to investment contracts that place “too little” weight on private signals and “too much” weight on public signals (i.e. Q). This result has implications for managers in the design of capital budgeting processes and incentive compensation systems.     

The macroeconomics of social pacts

In this paper we analyze macroeconomic interactions between trade unions, the central bank and the fiscal policymaker. We explicitly model unions’ concern for public expenditure, paving the way for an analysis of the potential gains from cooperation between the fiscal policymaker and the unions, i.e. the so-called corporatist or social pacts that have characterized economic policies in a number of European countries in the last few decades. We also highlight the profoundly different incentives generated by institutional arrangements such as the Maastricht criteria and the Stability and Growth Pact. The former has unambiguously induced more efficient outcomes; the latter is likely to backfire!     

Green consumers and public policy: On socially contingent moral motivation

“Green” consumers appear to accept individual responsibility for the provision of public goods. The propensity to take such responsibility may depend on beliefs about others’ behavior, even for consumers motivated by internalized moral norms, not by social sanctions. This effect can produce multiple equilibria with either high or low demand for “green” products. Permanent increases in green consumption may be achieved by imposing temporary taxes or subsidies, or through advertising that influences beliefs about others’ behavior or about external effects. If a tax is interpreted as taking responsibility away from the individual, however, taxes can reduce the influence of moral motivation.     

Asymmetric Decentralization,Intergovernmental Transfers,and Expenditure Policies of Local Governments

Although China’s asymmetric fiscal decentralization system has been criticized for many years, there have been few studies giving direct evidence of its negative incentives on local government spending policies. By introducing the mechanism of asymmetric decentralization and fiscal transfers to the objective function of local government, this paper studies the incentive effects of asymmetric decentralization and fiscal transfers on spending policies of local governments, and uses the provincial panel data to carry out an empirical test. The conclusion shows that the asymmetric decentralization significantly weakens the incentives of local government to increase social expenditure, and as a solution to asymmetric decentralization, fiscal transfers fail to play a good role. Due to the relatively large income effect, the financing mechanism of fiscal transfers not only significantly reduces the incentives of local government to provide social public goods, but also weakens the constraint effect of fiscal competition on expenditure policies of local governments because of the increase in the relative cost. Although the distribution mechanism of fiscal transfers has a significant positive incentive to local government in regions where the net inflow of fiscal resources is more than zero, because of common pooling effects, the comprehensive effects of fiscal transfers in the distribution of incentives of local governments to provide social public goods are negative in all regions.     

Government spending, capital accumulation and the optimal policy rule: The role of public service capital

In this paper, we modify the Djajić [Djajić, S., 1987. “Government Spending and the Optimal Rates of Consumption and Capital Accumulation,” Canadian Journal of Economics 20, 544–554.] model in such a way that government consumption expenditure provides utility to households via the total stock of government services rather than the government consumption flow alone. By using such a framework, we show that the optimality condition for the public service capital stock is the marginal rate of substitution between public service capital and consumption that equals the intertemporal marginal rate of transformation between the two goods. In addition, we show that the relationship between private consumption and public service capital in a household's utility plays an important role in determining the transitional behavior of relevant variables. We also examine the second-best government consumption expenditure policy. By contrast, in the standard flow specification, e.g., Turnovsky and Brock [Turnovsky, S.J. and Brock, W.A., 1980. “Time Consistency and Optimal Government Policies in Perfect Foresight Equilibrium,” Journal of Public Economics 13, 183–212.], Ihori [Ihori, T., 1990. “Government Spending and Private Consumption,” Canadian Journal of Economics 23, 60–69.], and Turnovsky and Fisher [Turnovsky, S.J. and Fisher, W.H., 1995. “The Composition of Government Expenditure and its Consequences for Macroeconomic Performance,” Journal of Economic Dynamics and Control 19, 747–786.], the second-best government consumption expenditure is decided on the basis that the marginal utility of consumption is equal to the discounted sum of the marginal utility of the government's flow spending.     

Altruism,Warm Glow and the Willingness-to-Donate for Green Electricity: An Artefactual Field Experiment

The ongoing liberalization of electricity markets in most western countries forms the background of our artefactual field experiment. Using a Cheap talk design [R.G. Cummings and L.O. Taylor. American Economic Review 89 (1999) 649–665] with supplementary monetary incentives, we test for presence of “warm glow” motivations [J. Andreoni. Journal of Political Economy 97 (1989) 1447–1458; Economic Journal 100 (1990) 464–477] in the willingness-to-donate for electricity generated from renewables. Our data from 200 participants supports impure altruism, that is, individuals benefit from both contributing to environmental quality and its current level when opting in favor of green electricity. Furthermore, we find evidence of crowding-out as well as crowding-in effects. Depending on the knowledge of people about electricity markets and the types of electricity contracts offered, “all-or-none” contracts are most likely to bring about crowding-out effects.     

The endowment effect and the reference state: Evidence and manipulations

Recent reports suggest that the “endowment effect” may be due to conditions under which it is observed and explained by incentives long recognized in standard theory. Evidence from new experiments, reported here, provides empirical support for the role of the economic environment on people's perceived reference state and consequently on their valuations, as suggested by Köszegi and Rabin [Köszegi, B., Rabin, M., 2006. A model of reference-dependent preferences. Quarterly Journal of Economics 121, 1133–1165], and indicates that the disappearance of the valuation disparity is more likely due instead to conditions that weaken the perception of reference states. Further, these conditions appear to be poor approximations of those that prevail in most cases for which valuations are normally made.     

Neurally reconstructing expected utility

While the concept of “expected utility” informs many theories of decision making, little is known about whether and how the human brain might compute this quantity. This article reviews a series of functional magnetic resonance imaging (FMRI) experiments designed to localize brain regions that respond in anticipation of increasing amounts of monetary incentives. These studies collectively suggest that anticipation of increasing monetary gains activates a subcortical region of the ventral striatum in a magnitude-proportional manner. This ventral striatal activation is not evident during anticipation of losses. Actual gain outcomes instead activate a region of the mesial prefrontal cortex. During anticipation of gain, ventral striatal activation is accompanied by feelings characterized by increasing arousal and positive valence. These findings affirm the role of emotion in the anticipation of incentives, and may provide an initial step towards a neural reconstruction of expected utility.     

Technological generalizations and leitbilder—the anticipation of technological opportunities

Recent national technology foresight studies as well as the Millennium Project of the American Council for the United Nations University are very much based on “nodes of discussion.” These short statements are called, e.g., topics, issues, or developments. This article provides a framework for the classification and analysis of nodes related to future technological development. Key concepts of the article are “technological generalization” and “leitbild.” The topics in the technology foresight Delphi studies can be seen as different kinds of generalizations from already realized technological developments. Leitbild is a German word. Its most general meaning is a guiding image. Like a common vision, a leitbild creates a shared overall goal, offers orientation toward one long-term overall goal, and provides a basis for different professions and disciplines to work in the same direction. The analysis of leitbilder and emerging technological paradigms might contribute to the construction of topics and issues and to the argumentation processes related to them.