Testing for homogeneity in demand systems when the regressors are nonstationary

An implication of optimizing theory is that demand functions are homogeneous of degree zero in prices and nominal income. Evidence based on estimations of demand systems has repeatedly found this restriction to be rejected by the data. However, the hypothesis is often formulated in terms of regressors that are non-stationary. This paper re-examines the evidence for homogeneity in light of recent developments in time-series econometrics with special emphasis on the treatment of trends. We find the demand system to be stochastically but not deterministically cointegrated. Using techniques developed for estimating cointegrating vectors in the presence of deterministic trends, we re-estimate the demand system and find that homogeneity holds in many cases.     

Trade Policies for Exporting Industries under Free Entry

This paper computes optimal export taxes and domestic production subsidies for exporting industries under free entry. We show that domestic welfare is not at maximum, as is typically believed, when the export price is a monopoly price, and the domestic price is a competitive price, because a market structure effect has to be taken into account. Furthermore, we show that the optimal tax/subsidy formulas for an oligopoly coincide with those under perfect competition, if foreign and domestic demand functions are both linear. We also discuss optimal trade policies when only one instrument is available, and we run numerical simulations to determine and compare optimal trade taxes under endogenous and exogenous market structures.     

Construction of voting situations concordant with ranking patterns

Decisions in Economics and Finance - Referring to a standard context of voting theory, and to the classic notion of voting situation, here we show that it is possible to observe any arbitrary set...     

Tracing the source of liquidity for distressed housing markets

We show that profit-seeking institutional investors provide valuable liquidity and spur the recovery of distressed housing markets. Using a quasi-natural experiment wherein investors purchased prepackaged distressed home portfolios from government-sponsored enterprises, we find that transaction prices of properties located within 0.25 miles of bulk-sale properties increased by 1.4% more than homes located farther away. This positive price spillover effect helped reverse the discounts at which such properties were being sold prior to the bulk-sale event. The price spillover effect due to the bulk-sale event is greater for foreclosed homes (4.1%), homes similar to the bulk-sale homes (2.5%), and homes in highly distressed neighborhoods (7.0%). Our results highlight asset disposition through pooling and institutional participation as a potential market-driven channel for the recovery of distressed housing markets.