Relative risk aversion, relative prudence and comparative statics under uncertainty: The case of (μ, σ)‐preferences

From the expected‐utility approach, relative risk aversion being smaller than one and relative prudence being smaller than two emerge as preference restrictions that fully determine the optimal responses of decisions under uncertainty to certain shifts in probability distributions. We characterize the magnitudes of relative risk aversion and relative prudence in terms of the two‐parameter, mean‐standard deviation approach. We demonstrate that this characterization is instrumental in obtaining comparative static results in the two‐parameter setting. We further relate our findings to the results in the expected‐utility framework.     

Economic Implications of Alternative Allocation Schemes for Emission Allowances*

For reasons of political feasibility, emission trading systems may have to rely on free initial allocation of emission allowances in order to ameliorate adverse production and employment effects in dirty industries. Against the background of an emerging European‐wide emission trading system, we examine the trade‐off between such compensation and economic efficiency under output‐based and emissions‐based allocation rules. We show that the emissions‐based allocation rule is more costly than the output‐based rule in terms of maintaining output and employment in energy‐intensive industries. When the international allowance price increases, the inferiority of emissions‐based allocation vis‐à‐vis output‐based allocation becomes more pronounced, as emission subsidies drastically restrict efficiency gains from international trade in emission allowances.     

Unanticipated exchange rate variability and the growth of international trade

Zusammenfassung Unerwartete Wechselkursschwankungen und das Wachstum des internationalen Handels. - Der Verfasser untersucht die oft zitierte These, die Wechselkursvariabilit?t habe den internationalen Handel beeintr?chtigt. Im Gegensatz zu früheren Arbeiten formuliert und sch?tzt er ein Modell mit zwei Gleichungen. Davon sch?tzt die erste die Bestimmungsgründe der Variabilit?t der realen Wechselkurse mit dem Ziel, zwischen den erwarteten und den unerwarteten Komponenten dieser Variabilit?t unterscheiden zu k?nnen. Die zweite ist eine Gleichung in reduzierter Form für die Bestimmungsgründe des Wachstums realer Exporte. Diese wird zum Testen der Hypothese benutzt, da? nur die unerwarteten Schwankungen der realen Wechselkurse das Wachstum der realen Exporte signifikant beeinflussen. Die Ergebnisse best?tigen diese Hypothese.

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Résumé La variabilité non-prévue des taux de change et l’accroissement du commerce international. - Dans cette étude l’auteur examine l’hypothèse souvent-citée que la variabilité des taux de change a empêché l’accroissement du commerce international. Contraire aux études antérieures, il formule et estime un modèle à deux équations. La première équation évalue les facteurs déterminants de la variabilité des taux de change réels pour différencier entre les éléments prévus et non-prévus de la variabilité des taux de change réels. La deuxième est une équation à forme réduite et contient les facteurs déterminants de l’accroissement des exportations réelles. Ce mod?le est utilisé pour vérifier l’hypothèse que seulement la variabilité non-prévue des taux de change réels a un effet significatif sur l’accroissement des exportations réelles. Les résultats confirment l’hypothèse.

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Resumen Variabilidad no anticipada de la tasa de cambio y el crecimiento del comercio international. - En este trabajo se investiga la muy citada hipótesis de que la variabilidad de la tasa de cambio ha inhibido el crecimiento del comercio internacional. A diferencia de trabajos previos, se formula y estima un modelo biecuacional. La primera ecuación estima las determinantes de la variabilidad de la tasa de cambio real (REER), con el fin de distinguir entre los componentes anticipados y no anticipados de la variabilidad de la REER. La segunda es una ecuación en forma reducida para las déterminantes del crecimiento real de las exportaciones. Se utiliza este modelo para llevar a cabo un test de la hipótesis de que sólo la variabilidad no anticipada de la REER afecta significativamente el crecimiento real del volumen de exportaciones. Los resultados indican que la variabilidad no anticipada de la REER ha inhibido el crecimiento de las exportaciones, mientras que la variabilidad anticipada no ha tenido efecto alguno.

     

Models for which the MLE and the conditional MLE coincide

The MLE, CMLE and MMLE coincide in a linear regression model with fixed individual effects. In this case, there is no incidental parameters problem and the MLE is consistent. The equivalence of these estimators is important because CMLE=MLE implies both the consistency of the MLE and the efficiency of the CMLE. In general, we cannot expect to find a CMLE or MMLE, since there may be no fixed-dimension sufficient statistic for the effects, nor an appropriate transformation of the data whose distribution does not depend on the effects. However, we show that the MLE, CMLE and MMLE do coincide in systems of seemingly unrelated regressions and in systems of simultaneous equations. We establish this result for systems in which (exogenous) variables in addition to (or other than) the intercept may have coefficients which vary over individuals, provided that the set of such variables is the same in every equation.The financial support of the National Science Foundation is gratefully acknowledged.     

Factor Taxation, Income Distribution and Capital Market Integration

This paper addresses the optimal mix of capital and wage taxation when policymakers maximize the political support of workers and capitalists, subject to a fixed revenue requirement. Capital market integration increases the efficiency costs of a tax on capital but simultaneously changes the political equilibrium through its effect on the distribution of factor incomes. These distributional effects are directly opposed in the capital importing and the capital exporting region. While the capital tax rate will always be lowered in the capital importing region, the tax rate in the exporting country will rise when political resistance to market-induced changes in the distribution of income is sufficiently high.     

When in Rome ... Moral Maturity and Ethics for International Economic Organizations

A number of multinational enterprises have come under ethical scrutiny over the recent decades. In some cases, this may be due to a lack of maturity of corporate moral reasoning. The article is based on a framework developed by Lawrence Kohlberg. He suggested three main stages of moral development: They are (1) pre-conventional moral reasoning, (2) conventional and (3) post-conventional moral reasoning. The article places different approaches to business ethics into the framework developed by Kohlberg. It is argued that the first two stages form an insufficient basis for ethical guidance for multinational organizations. Five post-conventional ethical perspectives are presented to assist MNC's in their analysis in order to uncover the possible dilemmas, to avoid harming others and also to avoid costly embarrassment at the hands of critics.     

Extending working hours: why not work 42 h rather than 38?—a CGE analysis for Germany

Faced with a record level of unemployment, the present debate in Germany is to extend the weekly hours of work. In this paper the employment effects of an economy-wide increase in weekly hours are quantified on the basis of a computable general equilibrium model for different specifications of the wage setting rule and the use of additional policy-induced public income. The simulation results back the argument of the opponents of longer working time that not more jobs will be created. However, when the higher tax revenues from GDP growth are used to reduce social security contributions, then the claim of the proponents that more jobs will be created can be supported.