Market Selection and Asymmetric Information

We consider a dynamic general equilibrium asset pricing model with heterogeneous agents and asymmetric information. We show how agents' different methods of gathering information affect their chances of survival in the market depending upon the nature of the information and the level of noise in the economy.     

Entry and price dynamics in a perfect foresight model

This paper studies firms' entry and price dynamics in a model that combines the assumptions of free entry and perfect foresight with the hypothesis of consumer's loyalty postulated by Phelps and Winter. The analysis of the transition to long-run equilibrium reveals that, in such a model, the entry of firms is related to the difference between current prices and costs. In relation to the growth of the firms' output, it is shown that the model is consistent with Gibrat's Law. Finally, it is shown that the size distribution of firms approaches asymptotically a Pareto distribution.     

Latin America in the rearview mirror

Latin American countries are the only Western countries that are poor and that are not gaining ground on the U.S. This paper evaluates why Latin America has not replicated Western economic success. We find that this failure is primarily due to TFP differences. Latin America's TFP gap is not plausibly accounted for by human capital differences, but rather reflects inefficient production. We argue that competitive barriers are a promising channel for understanding low Latin TFP. We document that Latin America has many more international and domestic competitive barriers than do Western and successful East Asian countries. We also document a number of microeconomic cases in Latin America in which large reductions in competitive barriers increase Latin American productivity to Western levels.     

Why some firms never invest in formal R&D

In this paper we study the frequency of formal R&D investments. We link real options theory to the knowledge‐based view to explain how a firm's knowledge resources influence its frequency of investing in R&D to establish technological options. Specifically, we propose that a firm that lacks internal knowledge resources is more likely to never invest in R&D, a firm that has both internal and external knowledge resources is more likely to sometimes invest in R&D, while a firm that has internal knowledge resources but lacks external knowledge resources is more likely to always invest in R&D. Copyright © 2010 John Wiley & Sons, Ltd.     

Corruption and private participation infrastructure projects: The influence of vicarious experience and national animosity

This paper investigates the influence of vicarious experience and national animosity on the relationship between corruption and the performance of private participation infrastructure projects. Our analysis of 27,264 projects in 114 countries from 1997 to 2013 shows that higher levels of corruption are associated with higher risk of project failure. We also find that this effect is weakened by the presence of other firms from the same industry, as firms may learn from other companies how to deal with corruption. In contrast, we find the effect is strengthened by the presence of other firms from different industries. This result is due to a lower applicability of knowledge and to an increase in national animosity and discrimination from local stakeholders.     

Revealed preferences and aspirations in warm glow theory

In warm glow models, an agent may prefer one alternative but aspire to choose another. The agent chooses her aspiration if she gets a sufficiently large warm glow payoff for acting as she aspires. This basic framework is widely used in models of turnout in elections and contributions to public goods, but is often criticized for being ad hoc. In this paper, we provide choice-theoretic foundations for warm glow theory. We characterize the empirical content of warm glow theory, show how to infer the core elements of the model from data and show that it is possible to predict behavior even when preferences and aspirations are not revealed. Our results provide support for assumptions often made in the literature and suggest new applications for warm glow models.     

The Investment Development Path and FDI From Developing Countries: The Role of Pro-Market Reforms and Institutional Voids

We study the applicability of the investment development path to multinationals from developing countries and illustrate these arguments by analyzing the evolution of Brazilian outward foreign direct investment. This model argues that as countries develop, their firms will develop sophisticated capabilities and eventually become multinational firms. In the case of emerging countries, two additional factors accelerate this process. One is the push of pro-market reforms, whereby firms upgrade their capabilities to compete in the home country, thus becoming multinationals earlier than expected. The second is the push of institutional voids, whereby firms avoid excessive and misguided regulations of the local institutional environment.     

Oil Prices: Governance Failures and Geopolitical Consequences

This article links two major areas of work on the geographies of oil: socially produced scarcity and the ‘new realities’ of oil, with wider geographical inquiries, mainly global energy governance. It explores how in the current context characterised by oversupply, power stands out as a key factor in the geopolitics of prices, the interactions amongst energy institutions, the role of supply and demand, and the preferences of the actors involved. Geopolitical approaches find a niche in the gaps left by the increasing complexities of global energy governance. In this regard, energy geopolitics may be thought of as ‘governance by other means’, an alternative to failed external energy governance solutions. The article then focuses on the consequences of the drop in oil prices on producer countries and how it will impact the major issues that dominate the literature on energy security. It concludes by stating that there is a need to rethink the geopolitics of energy security in order to incorporate the global governance institutions’ failure to facilitate cooperation as another cause of the re-securitisation of energy policies.     

Towards a circular economy: insights based on the development of the global ENGAGE-materials model and evidence for the iron and steel industry

A number of recent economic modelling studies have attempted to analyse resource efficiency and the circular economy. However, modelling analysis in this area is relatively underdeveloped. In particular, many CGE models are unable to provide significant insight given their aggregated sectoral coverage. Here we describe the development of the Environmental Global Applied General Equilibrium (ENGAGE-materials) model created to consider the economic and sectoral effects of potential policies on a circular economy and resource efficiency, which affect materials and resources at the stages of extraction, production and recycling. Our policy scope is global with a special emphasis on China and Europe, as both regions have dedicated policies in place and indicate their willingness to take the lead. The case of steel is relevant as it is a key material for all economies across the world and offers a range of interesting features for circularity and sustainability. ENGAGE-materials models iron ore mining, primary production of iron and steel, secondary production of iron and steel, and steel scrap recycling at the global level. We utilise this technology rich framework to provide preliminary results on scenarios comprising economic insights into a saturation effect and straightforward policy such as doubling the availability of secondary steel.     

An assessment of another decade of capital controls in Colombia: 1998–2008

We explore the effectiveness of capital controls in Colombia. We analyze the impact of administrative restrictions to capital flows on aggregate capital flows, the composition of capital flows, the real exchange rate, and economic activity using restricted versions of vector error correction models (VEC) that control for exogenous global financial conditions. The models are estimated using monthly data ranging from August of 1998 to May of 2008. In addition we estimate GARCH models to identify if capital controls have had relevant impacts on the volatility of the nominal exchange rate and of other relevant asset prices. These models are estimated using weekly data covering the same time period. Results suggest that the capital controls used since 1998 have been ineffective in reducing capital flows and the trend of the Colombian peso to appreciate. In addition there is no evidence suggesting a change in the composition of capital flows induced by capital controls. We find some evidence in favor of capital controls reducing nominal exchange rate volatility at high frequencies.