Asymmetric effects of shocks on TFP

We study the TFP distribution and examine the non-stationarity of productivity series at various quantiles. Using the quantile autoregression unit root test, we find that the US TFP exhibits an asymmetric adjustment dynamics, that is, positive and negative shocks might have different (permanent or temporary) effects on the TFP. Shocks dissemination depends on the local behaviour of the TFP. We find that positive shocks have permanent effects on the TFP, while negative shocks can potentially have only transitory effects.     

Portugal’s banking and financial crises: unexpected consequences of monetary integration?

Portugal’s current financial crisis might be related to a banking crisis resulting from joining the Euro. The new-currency eliminated the exchange rate risk, but not the credit or liquidity risks within the Euroarea. However, Portuguese banks acted as if all of these risks had disappeared. They began pumping money in Portugal, by borrowing intensively in Euros abroad at low interest rates. The ensuing liquidity generated a capital-flow bonanza boom that culminated in a bust phase. Private and sovereign debt dramatically increased, which further soared when the government rescued banks. Portugal was then compelled to take extreme measures to address extraordinary debt-levels.     

Endogenous mechanisms and Nash equilibrium in competitive contracting games

We model strategic competition in a market with asymmetric information as a noncooperative game in which each firm competes for the business of a buyer of unknown type by offering the buyer a catalog of products and prices. The timing in our model is Stackelberg: in the first stage, given the distribution of buyer types known to all firms and the deducible, type-dependent best responses of the agent, firms simultaneously and noncooperatively choose their catalog offers. In the second stage the buyer, knowing his type, chooses a single firm and product-price pair from that firm’s catalog. By backward induction, this Stackelberg game with asymmetric information reduces to a game over catalogs with payoff indeterminacies. In particular, due to ties within catalogs and/or across catalogs, corresponding to any catalog profile offered by firms there may be multiple possible expected firm payoffs, all consistent with the rational optimizing behavior of the agent for each of his types. The resolution of these indeterminacies depends on the tie-breaking mechanism which emerges in the market. Because each tie-breaking mechanism induces a particular game over catalogs, a reasonable candidate would be a tie-breaking mechanism which supports a Nash equilibrium in the corresponding catalog game. We call such a mechanism an endogenous Nash mechanism. The fundamental question we address in this paper is, does there exist an endogenous Nash mechanism—and therefore, does there exist a Nash equilibrium for the catalog game? We show under fairly mild conditions on primitives that catalog games naturally possess tie-breaking mechanisms which support Nash equilibria.     

Informality in an economy with active labour courts

Job regulations and the justice branch interfere on several aspects of labour contracts. We build a model which explores the role of labour courts on the wage distribution in both formal and informal sectors. We obtain that the presence of active labour courts produces a negative relation between the wage gap and the productivity of the worker, a regularity documented in the empirical literature. Active labour courts also reduce informality of unskilled workers but do not have an impact on informality of skilled workers. Some elements and implications of our model are tested using Brazilian data.     

Catalog competition and Nash equilibrium in nonlinear pricing games

We model strategic competition in a market with asymmetric information as a noncooperative game in which each seller competes for a buyer of unknown type by offering the buyer a catalog of products and prices. We call this game a catalog game. Our main objective is to show that catalog games have Nash equilibria. The Nash existence problem for catalog games is particularly contentious due to payoff discontinuities caused by tie-breaking. We make three contributions. First, we establish under very mild conditions on primitives that no matter what the tie-breaking rule, catalog games are uniformly payoff secure, and therefore have mixed extensions which are payoff secure. Second, we show that if the tie-breaking rule awards the sale to firms which value it most (i.e., breaks ties in favor of firms which stand to make the highest profit), then firm profits are reciprocally upper semicontinuous (i.e., the mixed catalog game is reciprocally upper semincontinuous). This in turn implies that the mixed catalog game satisfies Reny’s condition of better-reply security—a condition sufficient for existence (Reny in Econometrica 67:1029–1056, 1999). Third, we show by example that if the tie-breaking rule does not award the sale to firms which value it most (for example, if ties are broken randomly with equal probability), then the catalog game has no Nash equilibrium. This paper was written while the second author was Visiting Professor, Centre d’Economie de la Sorbonne, Universite Paris 1, Pantheon-Sorbonne. The second author thanks CES and Paris 1, and in particular, Bernard Cornet and Cuong Le Van for their support and hospitality. The second author also thanks the C&BA and EFLS at the University of Alabama for financial support. Both authors are grateful to Monique Florenzano and to participants in the April 2006 Paris 1 NSF/NBER Decentralization Conference for many helpful comments on an earlier version of the paper. Finally, both authors are especially grateful to an anonymous referee whose thoughtful comments led to substantial improvements in the paper. Monteiro acknowleges the financial support of Capes-Cofecub 468/04.     

Arbitrage, equilibrium, and gains from trade: A counterexample

We present a counterexample to a theorem due to Chichilnisky (Bulletin of the American Mathematical Society, 1993, 29, 189–207; American Economic Review, 1994, 84, 427–434). Chichilnisky's theorem states that her condition of limited arbitrage is necessary and sufficient for the existence of an equilibrium in an economy with unbounded short sales. Our counterexample shows that the condition defined by Chichilnisky is not sufficient for existence of equilibrium. We also discuss difficulties in Chichilnisky (Economic Theory, 1995, 5, 79–107).     

Preventive maintenance of road pavement with microsurfacing—an economic and sustainable strategy

To ensure a good quality level of road pavements, it is essential to perform preventive maintenance before they are irreparably damaged. Treatments for preventive maintenance are a solution that is recognized but still in the acceptance phase; effective models covering different combinations of techniques and intervention times and assessing economic and environmental benefits are lacking. The present study aimed to respond to the abovementioned issues, using microsurfacing as the subject of analysis. Several structures and different interventions were evaluated, conducting an economic analysis over their life cycles and an environmental study evaluation using emission factors. The most advantageous solution included the maximum possible number of treatments of preventive maintenance with microsurfacing applied consecutively. This scenario ensures economic and environmental benefits. Additionally, it became clear that it is economically advantageous to design pavements for longer lifetimes.     

Reducing Brazilian greenhouse gas emissions: scenario simulations of targets and policies

This paper aims to evaluate the economic impacts of greenhouse gas emission reduction on the Brazilian economy. To this end, we developed an integrated input–output linear programming model for 2009 using the Supply and Use Tables and emissions data of the Brazilian Ministry of Science and Technology and Innovation. We simulated emissions targets for various potential scenarios in which the adopted policy design took account of sectoral composition in terms of emissions and available production technology. The results were directly affected by the high level of livestock emissions, counterbalancing this sector’s economic importance for Brazil. In the short term, sectoral emissions targets associated with taxation policy or emission permits could be developed in order to create private incentives to mitigate emissions. In this sense, the results also show that different sectoral targets may be able to balance environmental benefits with the possible economic losses incurred by such policies.     

Real wages and labor-saving technical change: evidence from a panel of manufacturing industries in mature and labor-surplus economies

Recent theories have provided a persuasive account of a key stylized fact of mature economies: the common long-run trends of average real wages and labor productivity, and the ensuing stationarity of functional distribution. Central to these theories is the notion of directed technical change, which claims that a rise in labor costs sparks the adoption of labor-saving innovations. This paper empirically examines a core prediction of these theories, namely that shocks to functional distribution elicit compensatory adjustments in real product wages and labor productivity. Using two disaggregated data-sets of manufacturing industries (EU-Klems and Unido), I find evidence of cointegration and two-way, long-run Granger causality between these two variables. These findings suggest that directed technical change is indeed key for producing stationarity in functional distribution, and they complement the recent empirical literature on distributive cycles and productivity growth. Preliminary evidence from the Unido data-set also suggests the importance of directed technical change in developing countries. To illuminate the empirical procedure, I present a theoretical model of growth and distribution with directed technical change.     

Determining the utility functions of criteria used in the evaluation of real estate

This article presents an application of the UTA method and its variant UTA-CR to determining utility functions for the multicriteria evaluation of residential real estate. Data for the city of Volta Redonda, Brazil, were used in this study. Unlike UTA, UTA-CR makes use of the decision agents’ preferences in relation to a set of criteria to determine a ranking of the alternatives. It was concluded that UTA-CR manages to obtain utility functions closer to the preferences of the decision agents as compared to these that result from the use of UTA. This demonstrates an important advantage of UTA-CR over UTA.