Simultaneous inter- and intra-group conflicts

This paper models the trade-off between production and appropriation in the presence of simultaneous inter- and intra-group conflicts. The model exhibits a ‘group cohesion effect’: if the contest between the groups becomes more decisive, the players devote fewer resources to the intra-group conflict. Moreover, there is also a ‘reversed group cohesion effect’: if the intra-group contests become less decisive, the players devote more resources to the inter-group contest. The model also sheds new light on normative questions. I derive exact conditions for when dividing individuals into more groups leads to more productive and less appropriative activities. Moreover, I show that there is an optimal size of the organization which is determined by a trade-off between increasing returns to scale in production and increasing costs of appropriative activities. I want to thank Paul Heidhues, Kai Konrad, Thomas Kittsteiner, Klaas Staal, an anonymous referee, and in particular Dan Kovenock for very helpful comments and suggestions. Any remaining errors are mine. Financial support from the Deutsche Forschungsgemeinschaft through SFB/TR 15 is gratefully acknowledged.     

Productivity Dynamics with Technology Choice: An Application to Automobile Assembly

During the 1980's, all Japanese automobile producers opened assembly plants in North America. Industry analysts and previous research claim that these transplants are more productive than incumbent plants and that they produce with a substantially different production process. I compare the production processes by estimating a model that allows for heterogeneity in technology and productivity, both of which are intrinsically unobservable. The model is estimated on a panel of assembly plants, controlling for capacity utilization and price effects.
The results indicate that the more recent technology uses capital more intensively and it has a higher elasticity of substitution between labour and capital. Hicks-neutral productivity growth is estimated to be lower, while capital-biased (labour-saving) productivity growth is higher for the new technology. Using the estimation results, I decompose industry-wide productivity growth and find plant-level changes in lean plants to be the most important contributor. Plant-level productivity growth is further decomposed to reveal the importance of capital-biased productivity growth, increases in the capital–labour ratio, and returns to scale.     

Innovation and performance – evidence at micro level

This empirical study aims to shed light on the link between innovation and economic performance at micro level. Based on a comprehensive survey among dairy and crop farms in the Netherlands we estimate a structural multi-stage model to deliver evidence on the effect of engagement and investment in innovation on the production of product, process and organizational or marketing innovations as well as on the effect of such innovations on farm level productivity. The results suggest various market and farm behaviour related factors to stimulate an increase in innovation engagement and production. Furthermore, the study reveals that indeed a greater innovation investment per unit (innovation input) leads to a higher probability of producing at least one successful product, process and/or organizational or marketing innovation (innovation output). The production of process and organizational or marketing related innovation leads to significant productivity gains. Various recommendations towards a more effective and efficient innovation policy are finally given.     

TAXING FOREIGN PROFITS WITH INTERNATIONAL MERGERS AND ACQUISITIONS*

A large part of border crossing investment takes the form of international mergers and acquisitions. In this article, we ask how optimal repatriation tax systems look like in a world where investment involves a change of ownership, instead of a reallocation of real capital. We find that the standard results of international taxation do not carry over to the case of international mergers and acquisitions. The deduction system is no longer optimal from a national perspective and the foreign tax credit system fails to ensure global optimality. The tax exemption system is optimal if ownership advantage is a public good within the multinational firm. However, the cross‐border cash‐flow tax system dominates the exemption system in terms of optimality properties.     

From the ERM with Love: Monetary Spillover Effects to Austria

In this article, I examine the impact of domestic and European-wide monetary factors on Austrian inflation within the context of an extended version of the traditional P*-framework over the period 1973.I–1997.IV. The estimations suggest that the relative importance of national and European monetary conditions for detecting future price trends in Austria has shifted in favour of the latter variable in the course of time. Hence, long before Austria decided to join the ERM, its rate of inflation appears to be mainly driven by monetary factors abroad. The credible hard currency concept of the Austrian monetary authorities together with the strong European orientation of Austria is presumably largely responsible for this. From Austria's point of view, the results also seem to provide preliminary support for the use of European monetary aggregates in the formulation of monetary policy in Stage Three of EMU.     

Local air pollution and global climate change: A combined cost-benefit analysis

This article presents the findings of a combined cost-benefit analysis of local air pollution and global climate change, two subjects that are usually studied separately. Yet these distinct environmental problems are closely related, since they are both driven by the nature of present energy production and consumption patterns. Our study demonstrates the mutual relevance of, and interaction between, policies designed to address these two environmental challenges individually. Given the many dimensions air pollution control and climate change management have in common, it is surprising that they have only little been analyzed in combination so far. We attempt to cover at least part of the existing gap in the literature by assessing how costs and benefits of technologies and strategies that jointly tackle these two environmental problems can best be balanced. By using specific technological options that cut down local air pollution, e.g. related to particulate emissions, one may concurrently reduce CO₂ emissions and thus contribute to diminishing global climate change. Inversely, some of the long-term climate change strategies simultaneously improve the quality of air in the short run. We have extended the well-established MERGE model by including emissions of particulate matter, and show that integrated environmental policies generate net global welfare benefits. We also demonstrate that the discounted benefits of local air pollution reduction significantly outweigh those of global climate change mitigation, at least by a factor of 2, but in most cases of our sensitivity analysis much more. Still, we do not argue to only restrict energy policy today to what should be our first priority, local air pollution control, and wait with the reduction of greenhouse gas emissions. Instead, we propose to design policies that simultaneously address these issues, as their combination creates an additional climate change bonus. As such, climate change mitigation proves an ancillary benefit of air pollution reduction, rather than the other way around.     

Labor Market Effects of Economic Integration: The Impact of Re-Unification in German Border Regions

Abstract. This paper exploits the significant reduction in impediments to labor mobility in the process of German re-unification in order to identify labor supply shocks in the West German labor market. The focus is on the quasi-experiment of the border removal in the regions situated at the German–German border that faced a massive increase of cross-border labor supply. The results indicate that despite a gain in employment, the border removal was accompanied by a decline in wages and an increase in unemployment relative to other West German regions.     

Taxation of firms with unknown mobility

We analyze optimal business tax policy when some firms are able to escape taxation by moving abroad. In contrast to the existing literature, we assume that the true number of mobile firms is ex ante unknown. While the government may learn from the firms' location responses to past tax rate changes, firms may anticipate this and adjust their choices accordingly. We find that incomplete information on mobility substantially affects the properties and the implications of equilibrium policy choices. First, the government may find it optimal to set a tax rate that triggers partial firm migration but full revelation of the true number of mobile firms. Second, we show that, if the firms' outside option is attractive (i.e., relocation cost and foreign tax rates are low), expected tax rates and expected firm migration are higher if the degree of mobility is unknown. Third, there is a positive value of learning, i.e., commitment on future tax rates cannot increase the government's expected revenue. However, if the government can commit to a rule‐based learning mechanism, i.e., credibly tie its future tax policy to present policy outcomes, it may obtain a Pareto improvement.     

Homo oeconomicus and homo politicus in Ecological Economics

The model of homo oeconomicus has been criticised in Ecological Economics. We discuss this critique and alternative approaches that have been developed in the literature. In contrast to these approaches, which are based on Arrow's concept of the Social Welfare Function, psychology, biology, and general considerations, we propose a concept of homo politicus that is founded in political philosophy. We show that this concept is suitable for normative purposes of Ecological Economics. At the same time, we demonstrate in a case study that the concept has empirical relevance in explaining real political processes.     

Main effects as a by-product in a fixed effect 2 × 2 design,analyzed with ANOVA

To study interaction effects, two sets of data are created for fixed effect ANOVA, both with combinatory effects of the two factors. In the first, both factors and their interaction contribute independently and directly to the dependent variable. In the second, each factor contributes indirectly to the dependent score. Data created with the first model can be analyzed flawlessly. The second often show relatively large main effects and relatively small interaction effects, and as a consequence the interaction effect may be rejected. Even when the dependent variable results solely from the multiplication of both factor scores, highly significant main effects can be obtained, while the interaction effect remains insignificant. Although mathematically correct, the relative contributions of the main effects are in that case difficult to interpret.