The monopolist's optimal R&D portfolio

The monopolist's incentives towards product and process innovationsare evaluated against the social optimum. The main findingsare that (i) the incentive to invest in cost-reducing R&Dis inversely related to the number of varieties being suppliedat equilibrium, under both regimes; (ii) distortions obtainunder monopoly, w.r.t. both the number of varieties and thetechnology. With substitutes, the monopolist's product rangeis smaller than under social planning, while with complementsthe product range is the same under both regimes. For any givennumber of goods, the monopolist operates at a higher marginalcost than the planner does.     

Growth and social capital: an evolutionary model

In this paper, we analyze the role of cooperation between firms through a model of growth and social capital. In a growth model à la Solow we incorporate the set of resources that a relational network has at its disposals, as a distinct production factor, and thus examine its dissemination through evolutionary type processes in firm interactions. Dynamic analysis of the model demonstrates that cooperation is able to increase the productivity of factors, fostering a higher rate of growth in the long term. The most significant result is that scarcity of social capital can produce a general collapse of the economic system in areas in which long term growth is usually sustained by the learning by doing and spillover of knowledge phenomena. This conclusion leads to reconsider the role of local development economic policies that should concentrate on activities that promote repeated interaction between firms proven to be cooperative or that encourage the formation of technological consortia.     

On a variational formulation used in credit risk modeling

We consider the credit risk model of Collin-Dufresne and Goldstein (2001). According to this model, the price of a defaultable bond can be efficiently computed using a variational formulation that consists of an integral relation and a Volterra integral equation. In Collin-Dufresne and Goldstein (2001) this integral equation is justified by a probabilistic intuition, but is not proven formally. In this paper we analytically derive the variational formulation used in Collin-Dufresne and Goldstein (2001). This analysis allows to give a correct characterization of the solution of the integral equation. Furthermore the approach proposed in this paper could also be employed for other models of credit risk.     

A note on direct term structure estimation using monotonic splines

A monotonic spline parametrization is proposed as a reliable alternative to the traditional Bernstein-based approach for Direct Term Structure Estimation. Numerical experiments with Italian bond data demonstrate the effectiveness of the proposed method.     

Discrimination,technology and unemployment

I study the interaction between discrimination and investment using a directed search model where firms decide the capital intensity of their production technologies before being matched. Discrimination makes some workers cheap to hire. As a consequence, some firms might save on capital costs adopting labour intensive technologies. This framework allows one to reconcile search models with three well-known facts regarding the labour market outcomes of minority workers: low wages, high unemployment and occupational segregation. Furthermore, the model questions the role of equal pay legislation in reducing inequality since removing this restriction, i.e., allowing firms to post type-contingent wages, eliminates the negative effects of discrimination on investment and wages.     

Habits,Complementarities and Heterogeneity in Alcohol and Tobacco Demand: A Multivariate Dynamic Model*

In this paper we test the existence of forward‐looking behaviour in a multivariate model for alcohol and tobacco consumption. The theoretical framework, based on a dynamic adjustment cost model with forward‐looking behaviour, is enhanced to include the intertemporal interactions between the two goods. The analysis of the within‐period preferences completes the intertemporal model, allowing to evaluate the static substitutability/complementarity relationships. The empirical strategy consists in a two‐step estimation procedure. In a first stage, we obtain the parameters of the demand system, while in a second stage Euler equations are estimated. Results, based on a cohort data set constructed from a series of cross‐sections of the Italian Household Budget Survey, reveal a significant complementarity relationship between alcohol and tobacco. Estimation of the Euler equations does not lead to rejection of the hypothesis of intertemporal dependence, providing evidence for a forward‐looking behaviour in alcohol and tobacco consumption. Moreover, we find significant intertemporal interactions that support the adjustment cost setting in a multivariate model with rational expectations.     

US stock returns: are there seasons of excesses?

This article explores the existence of seasonality in the tails of stock returns. We use a parametric model to describe the returns, and obtain a proxy of the innovation distribution via a pre-processing model. Then, we develop a change-point algorithm capturing changes in the tails of the innovations. We confirm the good performance of the procedure through extensive Monte Carlo experiments. An empirical investigation using US stocks data shows that while the lower tail of the innovations is approximately constant over the year, the upper tail is larger in Winter than in Summer, in 9 out of 12 industries.     

Simulation‐based tests of forward‐looking models under VAR learning dynamics

In this paper we propose a simulation‐based technique to investigate the finite sample performance of likelihood ratio (LR) tests for the nonlinear restrictions that arise when a class of forward‐looking (FL) models typically used in monetary policy analysis is evaluated with vector autoregressive (VAR) models. We consider ‘one‐shot’ tests to evaluate the FL model under the rational expectations hypothesis and sequences of tests obtained under the adaptive learning hypothesis. The analysis is based on a comparison between the unrestricted and restricted VAR likelihoods, and the p‐values associated with the LR test statistics are computed by Monte Carlo simulation. We also address the case where the variables of the FL model can be approximated as non‐stationary cointegrated processes. Application to the ‘hybrid’ New Keynesian Phillips Curve (NKPC) in the euro area shows that (i) the forward‐looking component of inflation dynamics is much larger than the backward‐looking component and (ii) the sequence of restrictions implied by the cointegrated NKPC under learning dynamics is not rejected over the monitoring period 1984–2005. Copyright © 2010 John Wiley & Sons, Ltd.