Strategy-proof size improvement: is it possible?*

The number of assigned agents (i.e., size) is an important parameter in object allocations. While size maximality clashes with individual rationality and strategy-proofness, it can still be possible to increase the size over a mechanism while keeping these properties. To pursue this research, we devise a size comparison criterion to investigate the possibility of size increase. A mechanism size-wise dominates another mechanism if the latter never assigns more agents than the former, and at some problem, assigns more agents than . We obtain arguably mild conditions for a mechanism to not be dominated size-wise by an individually rational and strategy-proof mechanism. Moreover, whenever there are at least as many objects as the total number of agents, we find conditions, different from those previously mentioned, for a mechanism to not be dominated size-wise by an individually rational and group strategy-proof mechanism. These results have implications for deferred-acceptance, top trading cycles, efficiency-adjusted deferred-acceptance, serial dictatorship, and Boston mechanisms.     

Joining the World Trade Organization: What is the Impact?

Research has called into question the impact of the World Trade Organization (WTO) on trade. This research, however, has been called into question on both modeling grounds for and failing to utilize comprehensive fixed effects. Others have found that when these factors are accounted for, imports rise by significant amounts. This paper seeks to reconcile these findings. I find that the WTO has a larger, though uneven, impact on exports than imports. The results indicate that the WTO frequently causes imports and exports to move in opposite directions negating any increase in overall trade. The regressions with and without fixed country effects generally demonstrate pattern consistency for generalized results that are robust to change. Owing to the finding that imports rise modestly or even fall without country effects while exports rise, the results imply that countries may not be as interested in liberalizing trade as selling to the world.     

Transferable Licenses Versus Nontransferable Licenses: What is the Difference?

This paper questions the presumption that transferable licenses are worth more and result in higher welfare. We show that the price of a transferable license may be lower than that of its nontransferable counterpart if the underlying quota is not very severe. However, transferability is preferable to nontransferability if consumer surplus and license revenue have equal weight in the welfare function. We also examine whether licenses will be monopolized by domestic producers with market power. The models have implications for several issues, including the design of pollution permits and how to maximize revenue from ticket sales.     

Response to the Comment: “What is Heterodox Economics? Conversations with Historians of Economic Thought”

The comment to “What is Heterodox Economics? Conversations with Historians of Economic Thought” spotlights critical issues in the possibility and probability of articulation and proposes a compelling argument in the explanation of the “inability of heterodoxy to define itself...” The core argument suggests that heterodox groups of economic thought cannot successfully articulate the nature of its varied programs until it recognizes and articulates the metaphysically and ontologically different system of knowledge which serves as the foundation for heterodox thought.     

Sin City? Why is the Divorce Rate Higher in Urban Areas?*

Divorce rates are higher in cities. Based on Danish register data, this paper shows that of the marriages formed in the city, those couples who remain in the city have a 23% higher divorce rate than those who move out. In this paper, we test whether this observation is due to sorting of more stable marriages into rural areas or if there exists a causal effect of living in urban areas on marriage instability. Our identification strategy supplements the timing‐of‐events approach with an instrumental variable. Our findings suggest that the effect of living in an urban area on the divorce risks drops substantially and loses statistical significance once we address sorting.     

Oil,Growth, and Health: What Does the Cross‐Country Evidence Really Show?*

We show that previous results from the body of literature on the resource curse have primarily been driven by the collapse in oil prices during the mid‐1980s. By exploiting cross‐country variations in the size of initial oil endowments and the timing of oil discoveries, we find that there is a stable positive relationship between oil abundance and long‐run economic growth. Using dynamic panel data methods, we also find that there is no evidence that higher oil rents hinder growth. However, to focus on material gain means that the welfare gain from oil is understated, because oil‐rich countries benefit more by the reduction in infant mortality and the gain in longevity. Interestingly, such oil‐led health improvements are more pronounced in non‐democratic countries, where initial heath conditions were poor and oil wealth is concentrated among the ruling elites.     

What is the real size of China's economy?

On 20 December 2005, China's National Bureau of Statistics adjusted China's nominal GDP by CNY 2.3 trillion. The bulk of this upward adjustment was attributed to improved coverage of value added by services. The service industry now makes up 40% of GDP. Based on previous studies and other observations, this paper point outs that there is still significant underreporting of the service industry and, hence, China's GDP is likely to be underestimated. We find a plausible share of service industry in GDP to be in the range of at least 45% to 55%.     

What is the future of water quality trading?

A comprehensive review of experiences with water quality trading (WQT) programs worldwide is presented, spanning altogether more than 4 decades. A new WQT database is built, extracting data and information from existing review papers, complemented with gray and published literature about individual trading programs. Key aspects that affect trading volumes and program continuation are identified and categorized. No single success or fail factor emerges from this review, typically a mix of factors play a role. There is potential for WQT to evolve further and serve as a cost-effective pollution control instrument, but this requires nudging political will to regulate nonpoint source.     

What is a recession?: A reprise

This paper draws its title from a paper written over 35 years ago by Geoffrey H. Moore (1967). Why the need for a reprise? First, there would appear currently to be somewhat diverging views as to what properly constitutes a recession. Second, largely as a result of this, in many countries other than the US, there does not exist a single, widely accepted business cycle chronology for the country in question. This paper will argue that, in addition to output, there are other important aspects to aggregate economic activity that need to be taken into account in determining the business cycle, viz., income, sales and employment. As such, our perspective would seem to be at odds with the apparent position taken by some other recent commentators on this issue who argue that GDP is all that is needed to represent a country's business cycle. We will also argue against using the currently popular ‘two negative quarterly growth rate’ rule in dating the onset of a recession.     

Detecting Imbalances in House Prices: What Goes Up Must Come Down?*

I suggest a toolkit of four bubble‐detection methods that can be used to monitor developments in house prices. These methods are applied to US, Finnish, and Norwegian data. For the United States, all measures unanimously suggest a bubble in the early to mid‐2000s, whereas current US house prices are found to be aligned with economic fundamentals. One of the measures indicates imbalances in Finland, while there are no signs of a bubble in Norway. I find that large parts of the US house price bubble can be explained by the sharp increase in capital inflows and the extension of loans to the subprime mortgage market.     

What is the Real Story for Interest Rate Volatility?

What is the source of interest rate volatility? Why do low interest rates precede business cycle booms? Most observers tend to assume that monetary policy is largely responsible for it. Indeed, a standard real business cycle model delivers rather small fluctuations in real interest rates. Here, however, we present two models of the real business cycle variety, in which the fluctuations of real rates are of similar magnitude as in the data, while simultaneously matching salient business cycle facts. The second model also replicates the cyclical behavior of real interest rates. The models build on recent work by Danthine and Donaldson, Jermann, and Boldrin, Christiano and Fisher. We assume that there are workers and capital owners. The first model posits habit formation and adjustment costs to the stock of capital. The second model assumes that it takes time to plan investment and time to build capital.     

What is the optimal design for lottery-linked savings programmes?

In this article, we determine the optimal design of lottery-linked savings (LLS) programmes. LLS vehicles, such as lottery bonds, are financial instruments that preserve depositors’ principal but provide randomized variable returns to these depositors through periodic lottery drawings, in lieu of the regular coupon payments traditionally received by bondholders. This type of asset is very popular in Europe. We note that the framing of LLS instruments is linked to their popularity, and we attempt to elucidate that link and thereby determine the optimal structure of payments for LLS programmes. Our goal is to frame LLS programmes in a manner that both maximizes their investors’ satisfaction and preserves their ability to serve as inexpensive sources of capital for their issuers. We demonstrate that the optimal pay-off structure is characterized by a high level of skewness, as investors are willing to accept a decrease in the small and medium prizes of the lottery in exchange for an increase in the grand prize. Thus, to attract a maximum number of depositors, the issuers of LLS programmes should prioritize the jackpot size relative to the other lottery pay-offs and insist on high skewness for the lottery pay-offs relating to the LLS assets.     

What is Driving the Manufacturing FDI Wave in Asia?

This paper analyzes the dynamic pattern of Japanese manufacturing foreign direct investment (FDI) in Asia. Japanese electronics firms shifted manufacturing operations abroad in the 1990s. We focus on the timing of the surge in FDI: why in this period did Japanese electronics firms increase manufacturing FDI in Asia? The empirical findings indicate that, in addition to productivity improvements, learning experiences from FDI were the primary determinants of the FDI wave. Firms' own past FDI experiences, the experiences of other firms (spillovers), and the presence of own distribution services encourage manufacturing FDI.     

“More is less”: the tax effects of ignoring flow externalities

Using a model of non-linear, non-monotone decay of the stock pollutant, and starting from the same initial conditions, the paper shows that an optimal tax that corrects for both stock and flow externalities may result in a lower tax, fewer cumulative emissions (less decay in emissions) and higher output at the steady state than a corrective tax that ignores the flow externality. This “more is less” result emphasizes that setting a corrective tax that ignores the flow externality, or imposing a corrective tax at too low a level where there exists only a stock externality, may affect both transitory and steady-state output, tax payments and cumulative emissions. The result has important policy implications for decision makers setting optimal corrective taxes and targeted emission limits whenever stock externalities exist.     

Lone Mothers: What is to be done?

This Dialogue presents the views of four authors, from the US, the UK, and Norway, on the best policies to help lone mothers. Lone mothers face an inevitable dilemma in allocating their time between earning income and caring for their children. The low-earning capacity of women in an unequal labor market exacerbates the problem, causing material hardship for many lone mothers and their families. The policy solutions proposed lie along a spectrum, ranging from those that seek to enable all lone mothers to take employment to those that aim to let mothers choose whether to take employment or care for their children themselves. Other policies discussed concern ways to value and support caregiving, improve the low-wage labor market for women, and provide a set of income supports that would both boost income and provide time to care for children.     

What is the long run growth rate of the East Asian Tigers?

New panel data estimates for the four East Asian Tigers show that the contribution of Total Factor Productivity (TFP) to growth is much higher than past estimates. An extended production function with learning by doing implies that TFP is about 3.5% and these countries will grow at this rate in the long-run.     

What is really common in the run-up to banking crises?

Arguing that crises are similar if they are predictable from historical experience, we employ panel logit models to examine similarities in the run-ups to the current global financial crisis and historical banking crises. Asset bubbles are the most common precursors.     

What Is the Worth of “Comparable Worth”?

Should (could) jobs that are of equal value to an organization pay the same amount of compensation? The issues of this hotly debated controversy are carefully explained and evaluated.     

Institutional Economics and Chock-Full Employment: Reclaiming the “Right to Work” as a Cornerstone of Progressive Capitalism

In the United States, the “right to work” originally referred to a progressive call for the right to employment. For example, from the perspective of John R. Commons, the right to work included “the right of the unemployed to have work furnished by the government.” For Commons, that right was a logical outgrowth of Americans’ constitutional rights to life and liberty, “the next great human right.” This article reviews Commons’s right-to-work stance, the history of federal efforts to establish government as employer of last resort, and some key postwar institutionalist contributions to the literature on achieving jobs for all. Then it presents the case for reclaiming the right to work as a cornerstone of progressive capitalism.