Contract enforcement and the size of the informal economy

This paper describes a model where the size of the informal sector decreases as the degree to which financing contracts can be enforced in the formal sector rises. Agents who choose to operate in the informal sector can evade taxes, but they have no access to official means of contract enforcement. Numerical simulations of the model suggest that lax tax enforcement alone does not suffice to generate a large informal sector. Contractual imperfections, on the other hand, can generate a large informal sector and account for several distinguishing features of the organization of production in developing economies. I would like to thank Tim Kehoe, Ed Prescott and Manuel Santos for their guidance, and seminar participants at ITAM, the Universidad Torcuato di Tella and the University of Montréal for their valuable comments. The views expressed herein are those of the authors and may not reflect the views of the Federal Reserve Bank of Dallas or the Federal Reserve System.     

Rural-to-urban migration, human capital, and agglomeration

A new general-equilibrium model that links together rural-to-urban migration, the externality effect of the average level of human capital, and agglomeration economies shows that in developing countries, unrestricted rural-to-urban migration reduces the average income of both rural and urban dwellers in equilibrium. Various measures aimed at curtailing rural-to-urban migration by unskilled workers can lead to a Pareto improvement for both the urban and rural dwellers. In addition, the government can raise social welfare by reducing the migration of skilled workers to the city. Moreover, without a restriction on rural-to-urban migration, a government's efforts to increase educational expenditure and thereby the number of skilled workers may not increase wage rates in the rural or urban areas.     

Compensation payments for habitat heterogeneity: Existence, efficiency, and fairness considerations

Compensation payments for voluntary conservation measures have become an important tool for biodiversity conservation worldwide. Each year substantial financial resources are spent on such measures, particularly in the context of agri-environmental schemes. In Europe, a debate has started on whether this money is spent effectively. In response to this debate it has been suggested that a portfolio of measures leading to habitat heterogeneity be implemented. Although payments for heterogeneous conservation measures have been analysed in the literature, it has never been questioned that payments can be designed in a way that encourages enough land users to carry out each conservation measure within a portfolio of measures. The purpose of this paper is to demonstrate that such payments do not always exist. Moreover, in cases where payments for habitat heterogeneity exist the payment scheme may require overcompensation of the land users, posing a limit to both efficiency and fairness considerations.     

The objective of a privately owned firm under imperfect competition

This paper proposes a model of imperfect competition among privately owned firms that act in the best interest of their shareholders. The existence of a solution for the model is proved under weaker conditions than the ones generally used in the literature. In particular, the results did not require the existence of a continuous equilibrium price selection or concavity assumptions on the profit function.      

On the (non-)lattice structure of the equilibrium set in games with strategic substitutes

This paper studies models where the optimal response functions under consideration are not increasing in endogenous variables, and weakly increasing in exogenous parameters. Such models include games with strategic substitutes, and include cases where additionally, some variables may be strategic complements. The main result here is that the equilibrium set in such models is a non-empty, complete lattice, if, and only if, there is a unique equilibrium. Indeed, for a given parameter value, a pair of distinct equilibria are never comparable. Therefore, with multiple equilibria, some of the established techniques for exhibiting increasing equilibria or computing equilibria that use the largest or smallest equilibrium, or that use the lattice structure of the equilibrium set do not apply to such models. Moreover, there are no ranked equilibria in such models. Additionally, the analysis here implies a new proof and a slight generalization of some existing results. It is shown that when a parameter increases, no new equilibrium is smaller than any old equilibrium. (In particular, in n-player games of strategic substitutes with real-valued action spaces, symmetric equilibria increase with the parameter.)      

Is Asian per capita GDP panel stationary?

The goal of this paper is to examine whether per capita GDP for 15 Asian countries is panel stationary. We apply a panel test for stationarity that allows for multiple structural breaks developed by Carrion-i-Silvestre et al. (Econ J 8: 159–179, 2005). Our main findings are: (1) when we apply conventional tests, such as the ADF and KPSS univariate tests without structural breaks, we find little evidence for stationarity; (2) when we apply the KPSS univariate test with multiple structural breaks, we find evidence of stationarity for 10 out of 15 countries; and (3) when we apply the KPSS panel test with multiple structural breaks, we find overwhelming evidence of panel stationarity of per capita real GDP for different panels of Asian countries.      

Selection and network effects—Migration flows into OECD countries 1990-2000

This paper presents empirical evidence on immigration flows into the OECD countries during the period 1990-2000. Our results indicate that network effects are strong, but vary between different groups of welfare states and between countries according to the type of immigration policy being applied. Network effects seem to be less important in the Nordic countries which also seem to attract immigrants from the lowest income level source countries. We do not find clear evidence that selection effects measured by migration flows being sensitive to differences in public social expenditures have had a major influence on the observed migration patterns until now. This may partly be explained by restrictive migration policies which may have dampened the potential selection effects.     

Assessing information provision and respondent involvement effects on preferences

We develop a test of the effect of information and respondent involvement on preferences for passive-use values using three treatments. Individuals from a rural community participated in one of three groups, each with a different level of involvement in the valuation assessment. The first group was highly involved, attending three meetings which allowed for information acquisition and preference construction. The second group was involved in a single meeting, and the third group was minimally involved through telephone contact and the completion of a mail administered survey. The hypothesis examined was that the degree of involvement in the exercise would affect the magnitude and consistency of preferences across the groups. The hypothesis that the preferences differ was not accepted. Furthermore, the hypothesis that variances in preferences would be higher in less involved groups was also rejected. While the analysis is based on relatively small samples the findings suggest caution in claiming that increasing degrees of respondent involvement improve economic measures of trade-offs.