Union games: technological unemployment

Summary. Given a production economy, we define union games by considering strategic behavior of the suppliers of factors. We refer to the Nash equilibria of this game as union equilibria. We analyze situations where the unemployment of factors is supported as a union equilibrium. The degree of unemployment depends on technological conditions. This allows us to model a source of unemployment which differs from the usual sources provided in the literature. We state a limit result that demonstrates that, as the market power of unions decreases, the corresponding sequence of union equilibria converges to the Walrasian equilibrium, that is, to full employment of factors. We also provide some examples that illustrate the main results.Received: 21 October 2004, Revised: 14 December 2004, JEL Classification Numbers: D51, C72. Correspondence to: Emma Moreno-GarcíaE. Moreno acknowledges financial support from the Research Grant BEC2000-1388-C04-01 (Ministerio de Ciencia y Tecnología and FEDER). G. Fernández de Córdoba and E. Moreno acknowledge financial support from the Research Grant SA091/02 from Junta de Castilla y León. We are indebted to C. Alós-Ferrer, C. Pita, D. Anisi, J. A. Ortega, F. Jimeno, J. P. Torres-Martínez, M. Steinert and C. Hervés for helpful comments and insights. We are particularly grateful to T. Kehoe and an anonymous referee for suggestions that improved this paper.     

On the impact of leverage constraints on asset prices and trading volume

Abstract. Researchers have used stylized facts on asset prices and trading volume in stock markets (in particular, the mean reversion of asset returns and the correlations between trading volume, price changes and price levels) to support theories where agents are not rational expected utility maximizers. This paper shows that this empirical evidence is in fact consistent with a standard infinite horizon – perfect information – expected utility economy where some agents face leverage constraints similar to those found in todays financial markets. In addition, and in sharp contrast to the theories above, we explain some qualitative differences that are observed in the price-volume relation on stock and on futures markets. We consider a continuous-time economy where agents maximize the integral of their discounted utility from consumption under both budget and leverage constraints. Building on the work by Vila and Zariphopoulou (1997), we find a closed form solution, up to a negative constant, for the equilibrium prices and demands in the region of the state space where the constraint is non-binding. We show that, at the equilibrium, stock holdings volatility as well as its ratio to stock price volatility are increasing functions of the stock price and interpret this finding in terms of the price-volume relation. We would like to thank the editor and two anonimous referees for valuable substantive comments. Our gratitude also to Franklin Allen, Kerry Back, Domenico Cuoco, Xavier Freixas, Sanford Grossman, Michel Habib, Lutz Hendricks, Richard Kihlstrom, Fernando Restoy, Mary Thomson, Jean-Luc Vila, participants to seminars at Birkbeck College, Carnegie-Mellon, Columbia, ESSEC, HEC, IAE, INSEAD, London Business School, London School of Economics, McGill, Michigan, National University of Singapore, Pompeu Fabra, North Carolina, Washington-St-Louis, Wharton, the Jornadas de Economía Financiera BBV, and the Meetings of the Society for Economic Dynamics and Control and the American Finance Association. Special thanks are due to Süleyman Basak for his enthusiastic support and many helpful suggestions. The usual disclaimer applies. We gratefully acknowledge the support of the BBV and Caja de Madrid Foundations and CREF (both authors) and of the Spanish Ministry of Education under DGICYT grant no. PB93-0388 (first author).     

Learning by doing,spillovers and shakeouts

This paper studies industry evolution driven by non strategic learning by doing and spillovers. We characterize a dynamic process of cost and output changes and its effect on welfare and industry profits. The paper gives conditions for shakeouts to occur and analyzes the key factors affecting these conditions. Since shakeouts could lead to a long-run social loss due to higher market concentration, there is a role for a government to play in limiting unnecessary shakeouts. The most effective way to do so is to enhance spillovers.JEL Classification: L11, L13, O31Correspondence to: Michael TroegeWe would like to thank Hans Mewis, Christophe Moussu and an anonymous referee for valuable comments and suggestions. We also benefited from comments of seminar participants at WZB, Humboldt University, Northwestern University and the EEA/ESEM 1999 meetings. Part of the research was carried out while Michael Tröge was visiting Northwestern University. Financial support by the German Research Council (DFG) is gratefully acknowledged.     

Art as an investment: Short and long-term comovements in major painting markets

This paper examines the short and long-term price linkages among major art and equity markets over the period 1976–2001. The art markets examined are Contemporary Masters, French Impressionists, Modern European, 19^th Century European, Old Masters, Surrealists, 20^th Century English and Modern US paintings. A global equity index (with dividends and capitalisation changes) is also included. Multivariate cointegration procedures, Granger non-causality tests, level VAR and generalised variance decomposition analyses based on error-correction and vector autoregressive models are conducted to analyse short and long-run relationships among these markets. The results indicate that there is a stationary long-run relationship and significant short and long run causal linkages between the various painting markets and between the equity market and painting markets. However, in terms of the percentage of variance explained most painting markets are relatively isolated, and other painting markets are generally more important than the equity market in explaining the variance that is not caused by innovations in the market itself. This suggests that opportunities for portfolio diversification in art works alone and in conjunction with equity markets exist, though in common with the literature in this area the study finds that the returns on paintings are much lower and the risks much higher than in conventional financial markets.The authors would like to thank delegates to the 14th Australasian Finance and Banking Conference, University of New South Wales, seminar participants at the Queensland University of Technology and Massey University, Masaki Katsuura, and two anonymous referees for helpful comments on earlier versions of this paper. The financial assistance of a Queensland University of Technology, Faculty of Business Research Initiative Grant is also gratefully acknowledged.     

Modeling Cyclical Asymmetries in European Imports

This paper applies smooth transition models to capture the nonlinear behavior in the imports data of six major European economies and to assess whether such nonlinearities are related to business cycle asymmetries. Two classes of switch between regimes are considered: endogenously determined transition that assumes nonlinearities are generated by idiosyncratic components specific to foreign trade, and exogenous transition based on GDP growth as a more direct indicator of the cyclical state of the economy. The results support the proposition that the dynamics of imports are nonlinear. In Belgium, France, Spain, and the United Kingdom, regimes change over the business cycle, while in Germany and Italy the switch between regimes is endogenous. National characteristics play a role in defining the position of extreme regimes, the smoothness of the transition, and local dynamics within each state.Previous versions of this article have been presented at the 57th International Atlantic Economic Conference (Lisbon, Portugal, March 10–14, 2004) and at the VII Encuentro de Economía Aplicada (Vigo, Spain, June 3–5, 2004). The authors thank the conference participants and an anonymous referee for their comments.     

Why Punish? Social reciprocity and the enforcement of prosocial norms

Recently economists have become interested in why people who face social dilemmas in the experimental lab use the seemingly incredible threat of punishment to deter free riding. Three theories with evolutionary microfoundations have been developed to explain punishment. We survey these theories and use behavioral data from surveys and experiments to show that the theory called social reciprocity in which people punish norm violators indiscriminately explains punishment best.JEL Classification: C91, C92, D64, H41 Correspondence to: Jeffrey P. CarpenterWe thank Carolyn Craven, Corinna Noelke and two referees for comments, and Middlebury College for financial assistance. In addition, Carpenter acknowledges the support of the National Science Foundation (SES-CAREER 0092953).     

Strategic Environmental Standards, Wage Incomes and the Location of Polluting Firms

The purpose of this paper is tostudy how the choice of environmental standardsby governments is affected by the existence ofwage incomes when firms locations areendogenous. In developed countries labor isunionized, which allows positive wage incomesto arise. Thus, each government has incentivesto persuade firms to locate in its countrysince social welfare depends on suchincomes. But, as pollution damages theenvironment, each government will only try toattract polluting firms to thecountry, to obtain the wage incomes, whenthe valuation of environmental damage showsthat it is low.     

Ethical aspects of an urban catastrophe

As a consequence of the collapse of a building in Barcelona, in December 1990, it was discovered that a large number of dwellings, mainly in Barcelona but also in other towns of Catalonia, were affected by a structural defect known as aluminosis, consisting of a deterioration of the reinforced concrete manufactured using aluminous cement, which considerably reduced its strength and that of the steel embedded in the concrete. This brought to light a series of economic, social, political and also moral problems, such as the use of the aluminous cement itself — a quality product but which requires careful handling —, the lack of regulation concerning the product and its use in construction, the poor state of repair of the buildings affected, the careless manner in which they had been built, the lag in technical knowledge, the financial situation of the people affected by the aluminosis, etc.This document provides a full account of the events and their historical, technical, economic and legal background, paying particular attention to the ethical problems created by the situation.Antonio Argandoña is Professor at IESE, the International Graduate School of Management of the University of Navarra in Barcelona (Spain), where he teaches Economics and Business Ethics. He is a member of the Executive Committee of EBEN (European Business Ethics Network), and of the Organizing Committees of the Second (Barcelona, 1989) and Sixth (Oslo, 1993) European Conferences on Business Ethics. He is also co-editor ofPeople in Corporations: Ethical Responsibilities and Corporate Effectiveness (Kluwer, 1990) and author of many articles on business and economics ethics. This article was presented to the Fifth European Conference on Business Ethics (Paris, October 1992).     

Valuing Mortgage Insurance Contracts in Emerging Market Economies

We develop a new option-based method for the valuation of mortgage insurance contracts in closed form in an economy where agents are risk neutral. While the proposed valuation method is general and can be used in any market, it may be particularly useful in emerging market economies where other existing methods may be either inappropriate or are too difficult to implement because of the lack of relevant data. As an application, we price a typical Serbian government-backed mortgage insurance contract.