Agglomeration and regional labour markets

Conclusion There is no such thing as ‘the labour market’. This term is usually used to describe a simplified combination of very different delimited markets, both regionally and in terms of employee qualifications. Different labour markets can develop quite differently. This insight was underlined by studies presented at the DIW Berlin workshop. Thus, the empirical studies are virtually unanimous in showing that those with higher qualifications benefit particularly from a concentration of economic activity. That investment in human capital is worthwhile particularly in regionally concentrated labour markets is, conversely, demonstrated by the theory. The workshop presentations have, nevertheless, also led to a large number of new questions. For example, the basis of each of the various countries’ experiences needs to be clarified. Among the most important tasks to be solved is undoubtedly also the quantification of the influence emanating from the different agglomeration factors. Can economic policy lessons be learned from the workshop contributions? The heterogeneity of labour markets, as has become evident from the different presentations, suggests that labour market policy would be ill advised to rely solely on an overall observation of a labour market seen as an entity. In light of the questions raised, especially as a result of the empirical studies, it nevertheless seems premature to consider conclusions that go any further as anything more than hypotheses.     

Do Stock Prices and Volatility Jump? Reconciling Evidence from Spot and Option Prices

This paper examines the empirical performance of jump diffusion models of stock price dynamics from joint options and stock markets data. The paper introduces a model with discontinuous correlated jumps in stock prices and stock price volatility, and with state-dependent arrival intensity. We discuss how to perform likelihood-based inference based upon joint options/returns data and present estimates of risk premiums for jump and volatility risks. The paper finds that while complex jump specifications add little explanatory power in fitting options data, these models fare better in fitting options and returns data simultaneously.     

Changes in work organization and public support: The case of the swedish work life fund

During the period from 1990 to 1995, a large fund for support to development in working life existed in Sweden: the Work Life Fund. Established as a temporary organization, it distributed about 10 billion Swedish crowns for development purposes. By the end of this period, close to 25 000 projects had been launched. The Fund, therefore, presents us with both a large and extensive set of experiences to examine the public support of workplace development. In short, is providing such support a legitimate role for the state and, if the answer is yes, how should it be done? The question is not new, nor are public efforts in support of work life development. With the widespread current discussion over the legitimacy of state action, an examination of the Fund provides us with an empirical base for such discussions and a practical base for developing policy in the area for innovative and high-performance workplaces.     

Towards a general theory of bond markets

The main purpose of the paper is to provide a mathematical background for the theory of bond markets similar to that available for stock markets. We suggest two constructions of stochastic integrals with respect to processes taking values in a space of continuous functions. Such integrals are used to define the evolution of the value of a portfolio of bonds corresponding to a trading strategy which is a measure-valued predictable process. The existence of an equivalent martingale measure is discussed and HJM-type conditions are derived for a jump-diffusion model. The question of market completeness is considered as a problem of the range of a certain integral operator. We introduce a concept of approximate market completeness and show that a market is approximately complete iff an equivalent martingale measure is unique.     

Towards a General Theory of Good-Deal Bounds*

We consider an incomplete market in the form of a multidimensional Markovian factor model, driven by a general marked point process (representing discrete jump events), as well as by a standard multidimensional Wiener process. Within this framework, we study arbitrage-free good-deal pricing bounds for derivative assets, thereby extending the results by Cochrane and Saá Requejo (2000) to the point process case, while, at the same time, obtaining a radical simplification of the theory. To illustrate, we present numerical results for the classic Merton jump-diffusion model. As a by-product of the general theory, we derive extended Hansen-Jagannathan bounds for the Sharpe Ratio process in the point process setting. *We gratefully acknowledge financial support from the Jan Wallander and Tom Hedelius foundation. We thank Anders Forsgren, Krister Svanberg, and Jan Kallsen for a number of very helpful comments. We are very grateful to Mathias Stolpe for providing us with the optimization code used in our numerical example. A number of very helpful comments from the editor and an anonymous referee has greatly improved the paper.     

Horizontal integration in the Dutch financial sector

In this paper, the consequences of cross-shareholding in an n-firm industry are analyzed. Our attention focuses on the case where firms have silent interests in each other. These interests can be direct or indirect. We analyze the effects of cross-shareholding on the price–cost margins in a Cournot and a Bertrand setting. In all cases, competition is reduced due to shareholding interlocks. As an empirical example the Dutch financial sector is used. Comparing the case of shareholding with the case of no-shareholding, the price–cost margins are found to be up to 2% higher in a Bertrand market, and at least 8% higher in a Cournot market.     

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