Robust political economy

This paper introduces the idea of “robust political economy.” In the context of political economic systems, “robustness” refers to a political economic arrangement's ability to produce social welfare-enhancing outcomes in the face of deviations from ideal assumptions about individuals' motivations and information. Since standard assumptions about complete and perfect information, instantaneous market adjustment, perfect agent rationality, political actor benevolence, etc., rarely, if ever actually hold, a realistic picture and accurate assessment of the desirability of alternative political economic systems requires an analysis of alternative systems' robustness. The Mises-Hayek critique of socialism forms the foundation for investigations of robustness that relax ideal informational assumptions. The Buchanan-Tullock public choice approach complements this foundation in forming the basis for investigations of robustness that relax ideal motivational assumptions. JEL Code B53, P16, P26     

SIAM: Strategic Impact and Assumptions-Identification Method for project,program, and policy planning

This paper presents a method, called SIAM, for assessing the “social soundness” of projects, programs, and policies (with emphasis here on the first two). It is based on work by R.O. Mason, I.I. Mitroff, and J.R. Emshoff. SIAM was applied initially as one part of a computer-assisted framework for the socioeconomic assessment of highway infrastructure plans. It has since proven useful in a wide range of projects and programs.A development project at the planning stage is a future scenario. Its final form and impact will be conditioned not only by its structural and economic characteristics, but also by the characteristics of the environment in which it is embedded. It is vital therefore to assess not only a project's technical and economic viability, but also its strategic viability involving sociopolitical considerations. A project embodies certain expectations about the present and future behavior of a variety of interests. These assumptions are implicit in the technical design and projected impacts, including the estimated benefits. The success of the project hinges on the validity and stability of these assumptions. SIAM provides a procedure for the comprehensive identification of relevant stakeholders, stakeholder-project linkages, and for identifying the critical assumptions implicit in the technical design of the project and in its economic assessment.     

Credibility of propensity score matching estimates. An example from Fair Trade certification of coffee producers

Propensity score matching (PSM) is an increasingly popular method for evaluation studies in agricultural and development economics. However, statisticians and econometricians have stressed that results rely on untestable assumptions, and therefore, guidelines for researchers on how to improve credibility have been developed. We follow one of these guidelines with a data set analysed by other authors to evaluate the impact of Fair Trade certification on the income of coffee producers. We provide thereby a best practice example of how to evaluate the credibility of PSM estimates. We find that a thorough assessment of the assumptions made renders the data we use not suitable for a credible PSM estimation of the effects of treatment. We conclude that the debate about the impact of Fair Trade certification would greatly benefit from a detailed reporting of credibility checking.     

Methods for analyzing data from Delphi panels: Some evidence from a forecasting study

Delphi and other methods of using expert opinion to generate forecasts can be a useful tool for planning, impact assessment, and policy analysis. Unfortunately, little is known about the accuracy of forecasts produced using these methods, so their utility is limited at present. Based on the logic of the Delphi method, I suggest that: 1) forecast accuracy should increase across rounds of a Delphi iteration, 2) there is a positive correlation between a panelist's uncertainty about a forecast and his or her shift in forecast from round to round, 3) forecasts weighted by self-reported confidence will be more accurate than unweighted forecasts, and 4) the use of robust estimates of location as summaries of expert opinion yield better forecasts than nonrobust measures. A Delphi experiment provides little support to any of these hypotheses. This finding suggests that traditional assumptions about the proper methods for analyzing a Delphi study may be inappropriate.     

Proposed changes to the Index of Sustainable Economic Welfare: An application to Belgium

This paper presents the results of a Belgian case study on the Index of Sustainable Economic Welfare (ISEW). The index is first compiled using the standard methodology applied in other international studies. Owing to the short period in which Belgium's ‘traditional’ ISEW has recently declined, it is not possible to draw any solid conclusion regarding Max-Neef's ‘threshold hypothesis’. After a brief review of the criticism that the ISEW has attracted over the years, the paper then explains and discusses the rationale for omitting the ‘net capital growth’ and ‘change in net international investment position’ items. It is argued that these items do not comply with the theoretical foundation underpinning the ISEW. The paper also puts forward new valuation methods for several items within the index: the escalation factor in the valuation of natural capital depletion is dropped, long-term environmental damage is valued using a stock-based approach and considerably more government expenditures are considered to be non-defensive. The results of the ‘revised’ ISEW show significant improvements in sustainable economic welfare over the entire study period. These findings are not in line with the ‘threshold hypothesis’. Finally, the paper offers some guidelines for communicating about the ISEW — namely that (a) all methodological assumptions should be made explicit and (b) all raw (unadjusted) data used should be included in any final ISEW report so as to enable the reader to make his or her own assessment about the assumptions the researcher has employed.     

On the role of the production and consumption assumptions for optimum taxation

The sensitivity of optimum tax rates to a variety of factors has sustained many different lines of enquiry. This paper attempts to demonstrate by computational procedures the role of the production and consumption–leisure assumptions in the light of recent research. In particular the work of Stern will be extended to provide an assessment of the Allen analysis. It will be shown that optimum negative marginal tax rates are no longer a curiousity and that our production and consumption–leisure assumptions are of considerable importance for variable wage tax models.     

Per Capita Income and the Mystery of Missing Trade

The literature on the Heckscher–Ohlin–Vanek (HOV) model has concentrated on the production side, particularly the unrealistic assumptions of identical techniques and factor price equalization. However, less is known about the demand side. In this paper, we compare the supply side assumptions versus the demand side assumptions as a cause of the empirical failures in the HOV prediction. While the relaxation in the supply side assumptions is crucial to predict the direction of factor trade, the demand side assumptions are shown to play an important role in explaining why factor trade is “missing” in relation to the HOV prediction. For example of the slope test for labor, the supply side repair improves from 0.026 to 0.162, whereas the demand side repair improves significantly from 0.162 to 0.891.     

Let׳s talk it over: Coordination via preplay communication with level-k thinking

This paper reconsiders Farrell׳s (1987) and Rabin׳s (1994) analyses of coordination via preplay communication, focusing on Farrell׳s analysis of Battle of the Sexes. Replacing their equilibrium and rationalizability assumptions with a structural non-equilibrium model based on level-k thinking, I reevaluate Farrell and Rabin׳s assumptions on how players use language and their conclusions on the limits of communication in bringing about coordination. The analysis partly supports their assumptions about how players use language, but suggests that their “agreements” do not reflect a full meeting of the minds. A level-k analysis also yields very different conclusions about the effectiveness of communication.     

组合、套利和资本市场的均衡特征——对资本市场均衡“异化”现象的一种解释

无套利均衡是新古典主义理论在特定条件下所界定的市场均衡特征。考察卖空限制和借款约束行为对资本市场上的组合和套利行为的影响,并结合市场从非均衡向均衡的调整过程,定性考察不同行为假设之下资本市场均衡特征的变化,可以发现,资本市场均衡和套利机会之间的共存或排斥状态,直接受制于有关市场参与者的初始行为假设。在不同的行为假设之下,市场参与者的组合和套利行为具有不同的特征和不同的影响。     

多指标决策分析在卫生技术评价中的应用研究

目的多指标决策分析法作为一种重要的决策分析方法,其在卫生技术评价中的应用引起了国内外许多学者的关注。本文主要研究多指标决策分析在卫生技术评价中应用的可能性。方法选取多指标决策分析的两种类型,将其应用于具体的卫生技术评价案例中进行分析。结果在满足一定的假设条件下,多指标决策分析可以应用于卫生技术评价。结论在卫生技术评价中引用多指标决策分析,仍有许多相关问题有待深入研究和探索。     

Tax revenue and the marginal cost of public funds in Sweden

We assess the welfare cost of raising a marginal unit of tax revenue in a balanced-budget, general-equilibrium framework. The calculated social cost of an increment of public funds is sensitive to both the specific type of tax increase and the type of public spending used on the margin. ‘Best-guess’ assumptions on labor supply elasticities yield marginal costs of public funds for different fiscal mixes of between 0.67 and 4.51 at prevailing tax rates in Sweden. Alternative labor supply assumptions well within the range of current estimates substantially affect the results and can imply infinite marginal welfare costs. Marginal welfare costs are also sensitive to assumptions about both the income and substitution effects of labor supply.     

U or Inverted‐U? That Is the Question

Fields ( The Economic Journal , vol. 103, 1993, pp. 1228–35) provides a forceful argument in favor of a U-shaped path for inequality during a period of high-income-sector enlargement in a dual-economy model. This paper explores the assumptions necessary to derive Fields's controversial result and demonstrates that in fact a U-shaped pattern is possible using the Atkinson index, but some bizarre assumptions about inequality aversion are required.     

The Rise, Fall and Sustainability of Capital-Resource Economies

In debates about green accounting it is sometimes argued that a positive value of aggregate investments indicates that an economy is developing sustainably. Asheim (1994) and Pezzey (1994) have shown that this is wrong, using a version of the well-known Dasgupta–Heal economy (with one capital and one non-renewable resource stock) as a counterexample. Asheim's proof referred to the unproved assumptions that in such an economy a higher rate of time preference induces higher initial consumption and vice versa, and that "optimal" consumption is initially rising and then falling. Here we show that these assumptions do hold true under certain circumstances, thereby also proving some of Dasgupta and Heal's other conjectures about sustainability.     

Population Ageing and Social Expenditure in Australia

Projections of the social expenditure to GDP ratio indicate the extent of the ‘burden’ of population ageing on future workers and have been used by governments to aid policy decisions in such areas as immigration and superannuation. This article shows that the social expenditure to GDP ratio is heavily dependent on assumptions made about real spending growth, productivity growth, unemployment and participation rates. It produces a framework that makes the assumptions underlying the projections clear and enables the results of changing the assumptions to be easily compared. The projected ratios are significantly higher than those obtained in previous Australian studies.     

The cost of equity capital: A simplification

Modigliani-Miller's theorem, which asserts that corporate financing policy is of no consequence, has been shown to hold true under a set of assumptions which is less restrictive than the original set used by MM. Preceding proofs were based on the theory of general equilibrium. Basically, this paper examines MM's second proposition—the linearity of the cost of equity capital with respect to financial leverage—when dropping a few of their basic assumptions but retaining their assumption about incomplete markets. In particular, this paper relaxes the assumptions that (a) the inflows are perpetual and that (b) the firm's future returns belong to the same risk class. The results of the analysis indicate that the linearity will be sustained. The nature of the financial risk premium (the slope), however, has to be modified.     

Socio-economic Research in Personnel versus Personnel Economics

This paper argues that personnel economics is still dominated by the assumptions of orthodox microeconomics, and also that newer fields such as transaction cost theory are far removed from socio-economics. Personnel economics is characterised by assumptions of unbounded rationality, stable preferences and functioning markets; power differences are seen as unimportant for explanations. By contrast, a socio-economic perspective works with the assumption of bounded rationality; it takes preferences into account, assumes that markets are characterised by ‘non-equilibrium’ states and power differences. The paper outlines a socio-economic mode of explanation and suggests that any explanation should include assumptions about three theoretical mechanisms: pursuit of utility, power and sense-making.     

How relevant are nominal contracting schemes for monetary policy?

Due to the scarcity of pertinent evidence, there is currently no general agreement on how to introduce nominal rigidities into monetary macroeconomic models. We examine the role of alternative assumptions about the wage and price setting mechanisms for the assessment of the welfare costs of nominal rigidities and the performance of alternative monetary policy rules in an otherwise standard New Keynesian general equilibrium model. We find that the choice of a particular price and wage setting scheme matters quantitatively for the welfare costs of nominal rigidities. However, the ranking of the welfare costs associated with alternative wage and price setting schemes is robust to changes in the monetary policy rule, and the ranking of the welfare costs associated with alternative monetary policy rules is robust to changes in the wage and price setting scheme. The difference between sticky nominal contracts and sticky information matters more than the difference in the age distribution of prices wages and information implied by alternative price and wage setting schemes.     

薪酬因素对中国企业国际成长的影响:董事与高管的视角

在对企业国际化影响因素文献回顾的基础上,结合治理结构等理论,提出了董事和高管薪酬对中国企业国际成长影响的相关假设,然后运用电子信息百强上市公司相关数据对假设进行检验后发现,董事薪酬与中国企业国际成长负相关;高管薪酬与中国企业国际成长正相关。     

An investigation of issues relating to where energy should enter the production function

This paper examines the impact of imposing different separability assumptions in the specifications of the standard hierarchical KLEM production function in a computable general equilibrium (CGE) model. The appropriate means of introducing energy to production functions has been a source of debate for a number of years. However, while modellers often subject results to parametric sensitivy analysis regarding the values associated with elasticities of substitution between inputs, it is rarely the case that the structure of the production function is subjected to testing. However, the chosen structure reflects the modeller's view about elasticity between different inputs and will have implications for model results wherever there are changes in relative prices. We illustrate our argument by introducing a simple demand shock to a CGE model of the Scottish economy (targeted at the energy supply sector) under different assumptions regarding the structure of the KLEM production function and separability assumptions therein.     

Rural Public Works and Poverty Alleviation--the case of the employment guarantee scheme in Maharashtra

This paper focuses on the poverty alleviating potential of the Employment Guarantee Scheme (EGS) in (the Indian state of) Maharashtra. A point of departure is the shift of emphasis from the static to the dynamic effects of the EGS targeting, measured in terms of individuals moving into and out of poverty, over the period 1979-84. An assessment is made of whether the EGS prevents the vulnerable from falling into poverty or enables the poor to move out of poverty, by distinguishing between the protective and promotional roles of the scheme. Simulations involving a wide range of poverty thresholds and different assumptions about the distribution of EGS earnings reveal that the poverty alleviating potential is limited in most cases. If, however, a larger EGS outlay is combined with more accurate targeting, the potential is substantially greater. Larger outlays are feasible if other rural public works are merged under the EGS. If this is combined with a reallocation in favour of backward areas, the targeting may improve substantially.