‘Us’ and ‘Them’: the origin of identity,and its economic implications

Abstract We investigate the origins of identity and the innate proclivity to draw a distinction between ‘insiders’ and ‘outsiders’. We propose an evolutionary explanation: we argue that identity arises because it facilitates survival. In an evolutionary setting we endogenize preferences and demonstrate that the evolutionarily stable preferences fashioned by natural selection would distinguish between insiders and outsiders. We then work out the implications of such preferences in two contemporary scenarios, one entailing rent‐seeking behaviour and the other involving public good provision. Our results are in conformity with empirical evidence.     

HYSTERESIS HYPOTHESIS IN UNEMPLOYMENT AND LABOUR FORCE PARTICIPATION RATES: EVIDENCE FROM AUSTRALIAN STATES AND TERRITORIES *

This article simultaneously investigates the hysteresis hypothesis of unemployment and labour force participation using regional level data in Australia. The conventional univariate and panel unit root tests indicate that the hysteresis hypothesis cannot be rejected for most of the regions in Australia. To further confirm if the hysteresis finding in unemployment and labour force participation results from not considering structural breaks. We employ a panel stationarity test recently developed by Carrion‐i‐Silvestre et al. (2005 ), which considers multiple structural breaks and cross‐sectional dependence. The test results lend support for unemployment hysteresis and participation regime‐wise stationarity. Accordingly, the findings imply that a temporary shock may have permanent effects on the unemployment rate but not on labour force participation in Australia and thus call for policies aimed at improving the adjustment mechanism in unemployment.     

Accumulative pollution, “clean technology,” and policy design

This paper addresses the optimal long-term management of an accumulative but assimilable pollutant through economic incentive policies that restrict more damaging production processes and induce more benign alternatives. Using a simple general equilibrium approach, we consider the possibility that the assimilative capacity of the environment is eventually exhausted by pollution accumulation. In this case, there is a nonconvexity in the problem that gives rise to multiple potential optima; environmental quality may be preserved or completely degraded in the long term. We characterize the circumstances under which phasing out dirty production is consistent with an intertemporally optimizing path and we discuss the design of price-based and quantity-based policies for supporting an optimal solution with the nonconvexity.     

INTER‐REGIONAL MIXED OLIGOPOLY WITH A VERTICAL STRUCTURE OF GOVERNMENT *

This paper incorporates the vertical structure of governments into a mixed oligopoly model by considering the public firms owned by different government levels, namely, a state‐owned public firm and a local public firm. As in the existing literature, a state‐owned public firm is assumed to maximise the welfare of an entire country comprising two regions. On the other hand, a local public firm is assumed to maximise the welfare of only one region. In such a setting, we find that when the central and local governments independently consider whether to privatise their respective public firms, only the state‐owned public firm should be privatised. Furthermore, we show that for the welfare of a country, a mixed oligopoly with a vertical structure of government can be more desirable than a mixed oligopoly without it.     

Money, prices, and causality: The Chinese hyperinflation, 1945–1949

This paper empirically examines causality between money and prices during the Chinese hyperinflation, 1945-49. The major issue concerning the interrelationship between money and prices is the endogeneity of money supply and the rate of inflation. Both the Sims test and the Granger test indicate that there was strong feedback causation between money creation and inflation during the Chinese hyperinflation. The mutual feedback between money creation and the rate of inflation is an important cause of the development of hyperinflation.     

Identity,Utility, and Cooperative Behaviour: An Evolutionary Perspective*†

This paper provides an argument for the advantage of a preference for identity‐consistent behaviour from an evolutionary point of view. Within a stylized model of social interaction, it is shown that the development of cooperative social norms is greatly facilitated if the agents possess a preference for identity‐consistent behaviour. As compliance with cooperative norms (in the long run) has a positive effect on the agents’ pay‐offs, it is argued that such a preference is evolutionarily advantageous. Notably, the argument, which assumes that agents always act in accordance with their preferences, also accounts for the cost of those features that are crucial for the selection process.     

Optimal Incentive Schemes for Altruistic Providers

We study the optimal design of incentive schemes in the presence of adverse selection and altruistic providers. We assume that providers differ in efficiency, are partially altruistic, and have limited liability. Three types of separating equilibrium emerge. (1) For low levels of altruism the quantity of the efficient and inefficient types is distorted upwards and downwards, respectively; the inefficient type makes zero profits. (2) For moderate levels of altruism the first best is attained: no distortions and profits are zero. (3) For high levels of altruism the quantity of the inefficient type is distorted upwards, and the quantity of the efficient type is distorted either upwards or downwards; the efficient type makes zero profits. Our main result is that the first best can be obtained for some values of altruism, but not necessarily for the highest values. The purchaser is better off with providers with moderate rather than high altruism.     

‘Time-series’ versus ‘econometric’ forecasts : A non-linear regression counterexample

A non-linear regression model is presented in which a deterministic, model-based forecast of the dependent variable may have greater mean square error than a purely extrapolative forecast, in contrast to the result on relative forecast efficiency in linear models.     

Lifetime versus Annual Tax‐and‐Transfer Progressivity: Sweden, 1968–2009

In this paper, we analyze the evolution of tax‐and‐transfer progressivity in Sweden over both annual and lifetime horizons. Using a rich micro panel covering the period 1968–2009, we calculate tax rates over a cohort's entire working life cycle. Our main finding is that taxes are considerably less progressive over the lifetime than in any single year. Social insurance transfers to transitory low‐income earners account for most of this result. We offer a number of robustness checks of the measurement of lifetime incomes and progressivity, but none of them changes our overall findings.     

Stabilizations, crises and the “exit” problem – A theoretical model

Exchange-rate-based stabilizations, even if successful, usually lack credibility initially. This is reflected in high (ex post) real interest rates and some degree of real exchange rate appreciation. Empirical observation suggests that wage inflation declines smoothly over time whilst interest rates are volatile. Our model captures these features and provides insights into: the eruption of exchange rate crises after a long period of apparently successful stabilization; the potential advantages of a heterodox approach; when to delay a stabilization attempt; and the optimal date for “exit” to a floating exchange rate.