The Italian financial cycle: 1861–2011

In this paper, we investigate the main features of the Italian financial cycle, extracted by means of a structural trend-cycle decomposition of the credit-to-GDP ratio, using annual observations from 1861 to 2011. In order to draw conclusions based on solid historical data, we provide a thorough reconstruction of the key balance sheet time series of Italian banks, considering all the main assets and liabilities over the last 150 years. We come to three main conclusions. First, while there was close correlation between loans and deposits (relative to GDP) until the mid-1970s, over the last 30 years, this link became more tenuous and the volume of loans has increased in relation to deposits. The banks covered this “funding gap” mainly by issuing new debt securities. Second, the Italian financial cycle has a much longer duration than traditional business cycles. Third, taking into account the deviation of the credit-to-GDP ratio from its trend, an acceleration of credit preceded or accompanied a banking crisis in 8 out of the 12 episodes listed by Reinhart and Rogoff (This time is different: eight centuries of financial folly. Princeton University Press, Princeton, 2009). A Logit regression confirms a positive association between the probability of a banking crisis and a previous acceleration of the credit-to-GDP gap. However, there were also periods—such as the early 1970s—in which the growth of the credit-to-GDP ratio was not followed by a banking crisis.     

The best-shot all-pay (group) auction with complete information

We analyze an all-pay group contest in which individual members’ efforts are aggregated via the best-shot technology and the prize is a public good for the winning group. The interplay of within-group free-riding and across-group competition allows for a wide variety of equilibria, according to how well groups overcome internal free-riding. In contrast with the existing literature, we derive equilibria of a symmetric model in which multiple agents per group are active. Our findings differ qualitatively from those of the individualistic all-pay auction: rents are not necessarily dissipated in equilibrium, total expected efforts vary across equilibria, and participation is expected to be greater. Moreover, equilibria with greater symmetry of behavior within a group are shown to have more “wasted” effort but also greater payoffs as overall efforts are lower. In contrast to standard economic intuition, free-riding can be beneficial for players as it reduces competition among groups. Examples of asymmetric group contests are also studied.     

A Capital Controversy in Early Twentieth Century: Veblen vs. Clark

This article aims to assess the debate between John Bates Clark and the “old” institutionalist scholars — Thorstein Veblen, above all — with particular reference to the nature of capital and the functioning of the labor market. Although studies on both authors are numerous, relatively little attention has been paid to finding the crucial elements at the heart of their radical disagreement. A.J. Cohen (2014 Cohen, A.J. “Veblen Contra Clark and Fisher: Veblen-Robinson-Harcourt Lineages in Capital Controversy and Beyond.” Cambridge Journal of Economics 38, 6 (2014): 1493-1515.[Crossref], [Web of Science ®] , [Google Scholar]) convincingly argues that Veblen’s attack on Clark is in the center of the capital controversy of the 1960s and 1970s. We propose an extension of this argument, based on the idea that Veblen’s attack on Clark follows three steps. First, Veblen defined capital in money terms and, at the same time, he saw it as the accumulated technological and institutional experience of a community. Second, insofar as capital cannot be reduced to a stock of physical goods, it is logically impossible to derive a function of the marginal labor productivity from the existing stock of capital. Third, insofar as the marginal productivity of labor cannot be measured, it follows that the equality between real wage and marginal labor productivity cannot logically hold. It also follows that, since it does not exist, this equality cannot be used as a basis for establishing that the equilibrium wage is a just wage.     

Does player specialization predict player actions? Evidence from penalty kicks at FIFA World Cup and UEFA Euro Cup

Penalty kicks are analysed in the literature as ‘real life experiments’ for assessing the use of rational mixed strategies by professional players. However, each penalty kick cannot be considered a repetition of the same event because of the varying background conditions, in particular the heterogeneous ability of different players. Consequently, aggregate statistics over data sets composed of a large number of penalty kicks mediate the behaviour of the players in different games, and the properties of optimal mixed strategies cannot be tested directly because of aggregation bias. In this article, we model the heterogeneous ability of players. We then test the hypothesis that differently talented players randomize over different actions. To achieve this aim, we study a data set that collects penalties kicked during shoot-out series in the last editions of FIFA World Cup and UEFA Euro Cup (1994–2012) where kickers are categorized as specialists and non-specialists. The results support our theoretical predictions.     

Embedded markets: A dialogue between F.A. Hayek and Karl Polanyi

The recent economic crisis has once more underscored the close connection between markets and social life, thrusting this point at the centre of the analysis of economic and political activity and has once more asked the question of whether and how individuals are embedded in both. Here I argue that an analysis and partial reconciliation of the positions of F.A. Hayek and Karl Polanyi on the topic can help in this debate.