Two Cheers and a Qualm for Behavioral Environmental Economics

Behavioral economics can gain more in-roads into environmental economics if we better understand why exchange institutions fail, more effectively reduce health risks and environmental conflicts, encourage more coordination and cooperation, design better incentive systems, more accurately estimate economic measures of value, and promote more protection at less cost. Behavioral economics deserves two cheers for advancing ideas of context-dependence and social preferences, which we illustrate with two examples of recent research.     

Semiparametric binary regression models under shape constraints with an application to Indian schooling data

We consider estimation of the regression function in a semiparametric binary regression model defined through an appropriate link function (with emphasis on the logistic link) using likelihood-ratio based inversion. The dichotomous response variable Δ$\Delta$ is influenced by a set of covariates that can be partitioned as (X,Z)$(X,Z)$ where Z$Z$ (real valued) is the covariate of primary interest and X$X$ (vector valued) denotes a set of control variables. For any fixed X$X$, the conditional probability of the event of interest (Δ=1$\Delta =1$) is assumed to be a non-decreasing function of Z$Z$. The effect of the control variables is captured by a regression parameter β$\beta$. We show that the baseline conditional probability function (corresponding to X=0$X=0$) can be estimated by isotonic regression procedures and develop a likelihood ratio based method for constructing asymptotic confidence intervals for the conditional probability function (the regression function) that avoids the need to estimate nuisance parameters. Interestingly enough, the calibration of the likelihood ratio based confidence sets for the regression function no longer involves the usual χ²${\chi }^2$ quantiles, but those of the distribution of a new random variable that can be characterized as a functional of convex minorants of Brownian motion with quadratic drift. Confidence sets for the regression parameter β$\beta$ can however be constructed using asymptotically χ²${\chi }^2$ likelihood ratio statistics. The finite sample performance of the methods are assessed via a simulation study. The techniques of the paper are applied to data sets on primary school attendance among children belonging to different socio-economic groups in rural India.     

Growth in India’s Service Sector: Implications of Structural Breaks

The paper is an attempt to identify the multiple structural breaks in India’s GDP, as well as its main growth enhancing sector i.e., services and its components and subsequently calculate the growth rate in different regimes. The paper uses the Bai-Perron (Econom 66(1), 1998, J Appl Econom 18(1), 2003) methodology of estimating multiple endogenous structural breaks (both pure and partial) in India’s service sector and its components and GDP during 1950–2010. Further, the paper uses the Boyce (Oxf Bull Econ Stat 48:385–391, 1986) methodology of estimating kinked exponential model of the growth rate, and further uses the Banerjee, Lumsdaine and Stock (J Business Econ Stat 10:271–287, 1992) test and the Lumsdaine and Pappel (Rev Econ Stat 79:212–218, 1997) test to check for the stationarity in the presence of structural breaks. The data used in this paper are the components of subsectors of services GDP and GDP at factor cost (with 2004–2005 as base). It is found that there is very little difference between the estimation of pure and partial structural break dates in India’s services GDP and its subsectors and four such breaks have been identified with help of Bai-Perron (Econom 66(1), 1998, J Appl Econom 18(1), 2003) methodology. The Boyce methodology of estimation of growth rates finds that mainly in the third and fourth regimes, the growth rates are highest in the subsectoral as well as at the aggregate levels of services GDP. The Banerjee, Lumsdaine and Stock test (J Business Econ Stat 10:271–287, 1992) and the extended Lumsdaine and Pappel test (Rev Econ Stat 79:212–218, 1997) cannot negate the presence of unit root in the data, irrespective of the presence of multiple structural breaks. The paper concludes with the identification of four broad regimes of growth of India’s services GDP and in the subsectors with possible explanations thereof.

     

Financial development and the instability of open economies

This paper introduces a framework for analyzing the role of financial factors as a source of instability in small open economies. Our basic model is a dynamic open economy model with a tradeable good produced with capital and a country-specific factor. We also assume that firms face credit constraints, with the constraint being tighter at a lower level of financial development. A basic implication of this model is that economies at an intermediate level of financial development are more unstable than either very developed or very underdeveloped economies. This is true both in the sense that temporary shocks have large and persistent effects and also in the sense that these economies can exhibit cycles. Thus, countries that are going through a phase of financial development may become more unstable in the short run. Similarly, full capital account liberalization may destabilize the economy in economies at an intermediate level of financial development: phases of growth with capital inflows are followed by collapse with capital outflows. On the other hand, foreign direct investment does not destabilize.     

Responsible Marketing and Its Impact on Business Performance: A Longitudinal Study

This research article explores, analyzes, and justifies the requirement of socially responsible activities of the corporation in the light of alternative approach to marketing promotion. In fact, this research claims for more societal activity-based promotion (responsible marketing) in place of product driven advertisement-based marketing (traditional) only. Thus, this research refutes the combined impact of societal activities (donation and employee expenditure) and advertisement (Advertisement Expenditure) on business performance (Profit/Sales). This has been analyzed with longitudinal (time series) data for 15 year period of the available 9 companies in capitaline database. Appropriate methodologies in regards to time series data have been performed. The findings are thought-provoking since the evidence of combined effect is not that much visible, though its impact in comparison with marginal effect is quite more. Finally, to conclude this research refutes the utility of advertising as a means of promotion, but at the same time, it indicates the changing direction of advertisement content from product feature-based to more societal activity-based.     

Determinants of Nominal Interest Rates in India

Journal of Quantitative Economics - This paper examines the role of monetary factors in the variation of nominal interest rates in India for the deregulated regime of interest rates and the...     

Is it the wage premium that targets worker turnovers?

The literature on FDI shows that there exists a wage premium that multinational enterprises (MNEs) pay to local workers and link this to a technology spillover argument. The MNEs pay higher wages to prevent worker turnovers and technology leakages. Literature relates the wage premium aspect of FDI using worker mobility data and uses worker turnovers and the technology spillover argument. We relate stock options in the FDI context of worker mobility and find in a simplified framework that the turnover of workers would depend on the relative payments of stock options.     

Optimal Organization of Surrogacy Contracts and Underinvestment

We develop a theoretical model of commercial gestational surrogacy in which a childless couple approaches a prospective surrogate, who is willing to gestate for the couple. We use a Principal-Agent framework with continuous effort to argue the following: in presence of limited liability of the surrogate, provision of optimal incentives (under non-contractible effort) is not feasible. Hence, a surrogate facing low outside option and having limited wealth is always found to put in sub-optimal care for the fetus. Put differently, the surrogate cannot be made a residual claimant (cannot be entitled with custody rights of the fetus) and therefore eliciting first best care is never optimal. But this result dramatically changes when the model is cast in discrete effort where inefficiency is likely only when the surrogate faces low outside option whereas we get multiple efficient contracts for higher outside option. Moreover, we see first-best efficient contracts may be implemented even without full transfer of custody rights to the surrogate.