DOES BIG GOVERNMENT HURT GROWTH LESS IN HIGH‐TRUST COUNTRIES?

Social trust is linked to both public sector size and to economic growth, thereby helping to explain how some countries combine high taxes with high levels of economic growth. This paper examines if social trust insulates countries against the negative effects of public sector size on growth, documented in several studies. We note that the effect is theoretically ambiguous. In panel data from 66 countries across 40 years, we find no robust evidence of insulation effects: when excluding countries with uncertain trust scores, our results suggest that big government hurts growth also in high‐trust countries, and that the mechanism is by lowering private investments. (JEL H10, O11, P16, Z10)     

Optimal forecasts in the presence of structural breaks

This paper considers the problem of forecasting under continuous and discrete structural breaks and proposes weighting observations to obtain optimal forecasts in the MSFE sense. We derive optimal weights for one step ahead forecasts. Under continuous breaks, our approach largely recovers exponential smoothing weights. Under discrete breaks, we provide analytical expressions for optimal weights in models with a single regressor, and asymptotically valid weights for models with more than one regressor. It is shown that in these cases the optimal weight is the same across observations within a given regime and differs only across regimes. In practice, where information on structural breaks is uncertain, a forecasting procedure based on robust optimal weights is proposed. The relative performance of our proposed approach is investigated using Monte Carlo experiments and an empirical application to forecasting real GDP using the yield curve across nine industrial economies.     

CO2 Speicherung in Deutschland: Eine Brückentechnologie als Klimalösung?

The technology for CO₂ capture, transport and storage (CCTS) in the power plant and industrial sector are considered as an important component in a portfolio of technologies for CO₂ reduction. However, delayed or canceled demonstration projects show that the cost of the capture unit, the necessary pipeline infrastructure and the scarce storage potential in geological formations restrict the CCTS potential. In addition, growing public resistance could lead a further reduction of the CO₂ abatement potential. In this paper the contribution of the CCTS technology for CO₂ reduction in the energy and industrial sectors in Germany is calculated using the model CCTSMOD. It turns out that the application of CCTS is economically interesting for selected industrial sectors under CO₂ certificate prices of 50 €/t and for the power sector under certificate prices of 75 €/t. Because of the limited storage potential, lack of alternative mitigation options and low cost of the deposition, a predominant use of technology in the steel and cement sector is recommended.     

Do “blacklists” enhance aviation safety?

For some time now, discussions have been under way in the EU on the possible publication of an official “blacklist” of unsafe airlines or countries where accident rates are above average. How effective is this instrument? What are the conceivable alternatives?     

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.     

Dynamic hedging of paper with T bill futures

Despite the growing importance of the commercial paper market there is no empirical work investigating the hedging performance of dynamic hedging strategies versus traditional static hedging strategies. This article proposes a dynamic hedging model for commercial paper that takes advantage of time dependencies present in the joint density of commercial paper and T-bill futures. The hedging effectiveness of the dynamic model is compared to that of the static regression model. There is clear evidence that dynamic hedging is superior to static hedging in terms of both total variance reduction and expected utility maximization. These results hold even when transactions costs are explicitly taken into account. © 1998 John Wiley & Sons, Inc. Jrl Fut Mark 18:925–938, 1998     

The development of critical capabilities in foreign subsidiaries: disentangling the role of the subsidiary’s business network

Within business literature in general, capabilities have advanced to the prime determinant of the corporation’s economic rents. Within international business literature, it is further assumed that multinational corporations can enhance their pool of capabilities through foreign subsidiaries. Foreign subsidiaries are seen as means to assimilate new capabilities from their local, external network and integrate these capabilities into the multinational corporation. Data from more than 2000 foreign subsidiaries shows that some foreign units actually are endowed with superior capabilities which are useful for other corporate entities. It is argued that the development of critical capabilities within these subsidiaries is driven not only by internal corporate actors, but also by external actors. The analysis provides evidence that the role of different internal and external network partners for capability development varies according to the functional activity under consideration. Thus, subsidiaries benefit from various internal and external network actors in very different ways. The contribution ends with some conclusions and some avenues for future research.     

The social value of income information in a model with market power and endogenous variety

The present paper analyzes the value of public information in a general equilibrium economy with imperfect competition. The welfare effects of an improved information system for perfectly competitive economies have been extensively investigated in the published literature. Schlee (2001) shows that the value of information is always negative in exchange economies if an efficient risk sharing mechanism exists. In contrast, in economies with production, better information reduces welfare provided consumers are sufficiently risk-averse ( Eckwert and Zilcha 2000, 2003 ). In the present paper it will be shown that this result is robust if the production sector exhibits monopolistic competition in the Chamberlinian sense. Even so, the inefficiency of equilibria adds further potential for positive welfare effects of improved information. A model is presented where the degree of market imperfection is positively linked to the value of information. If the markup on competitive prices is sufficiently high, the value of information is positive; that is, better information increases economic welfare.     

Product variety, competition and economic growth

In this paper, we study the relationship between competition and economic growth using a model of economic development through the creation of new sectors. In our model, competition has both an intra- and an inter-sector component. We find that the best conditions for economic development are achieved when a suitable ratio of inter- to intra-sector competition is achieved. This ratio constitutes a compromise between providing a temporary monopoly to the first entrepreneur (low inter-sector competition) and creating enough imitation to expand the sector (intra-sector competition).     

Exploring Value‐Based Management Sophistication: The Role of Potential Economic Benefits and Institutional Influence

The complexity of value‐based management (VBM) is often not captured in empirical research. In particular, potential differences in the extent of VBM implementation are not considered. Firms are predominantly classified dichotomously into either VBM “adopters” or “non‐adopters.” In this study, we aim to fill this gap by introducing a framework to assess differences in the extent of VBM implementation (VBM‐sophistication) based on publicly available data. This approach enables us to study determinants of VBM‐sophistication based on a hand‐collected data set comprising 2,683 firm‐year observations from 16 European countries between 2005 and 2014. Specifically, we investigate (i) whether potential economic benefits associated with VBM implementation lead to a higher level of VBM‐sophistication, and (ii) if this relation is influenced by extra‐organizational institutions (e.g., industry norms). Our results indicate that companies exhibit higher VBM‐sophistication if certain firm characteristics that increase the potential economic benefits of VBM are present. Moreover, our study provides evidence that this effect is enhanced by extra‐organizational institutions that pressure and support firms in realizing the potential benefits of higher VBM‐sophistication.