The Intergenerational State Education and Pensions

When credit markets to finance investment in human capital are missing, the competitive equilibrium allocation is inefficient. When generations overlap, this failure can be mitigated by properly designed social arrangements. We show that public financing of education and public pensions can be designed to implement an intergenerational transfer scheme supporting the complete market allocation. Neither the public financing of education nor the pension scheme we consider resemble standard ones. In our mechanism, via the public education system, the young borrow from the middle aged to invest in human capital. They pay back the debt via a social security tax, the proceedings of which finance pension payments. When the complete market allocation is achieved, the rate of return implicit in this borrowing–lending scheme should equal the market rate of return.     

Minimum wage impacts on youth employment transitions, 1993–1999

Abstract.  The longitudinal nature of the Master File of the Survey of Labour and Income Dynamics (SLID) for the period 1993–9, enables comparing transitions from employment to non‐employment for individuals affected by minimum wage changes with appropriate comparison groups not affected by minimum wages. This is based on the large number (24) of minimum wage changes that have occurred across the different provincial jurisdictions in Canada over the 1990s. The results indicate that the minimum wage increases have increased the transition from employment to non‐employment of employed low‐wage youths, who are at‐risk of being affected by a minimum wage increase, by around 6 percentage points (ranging from 4 to 8 percentage points). These disemployment effects in turn imply 'minimum wage' elasticities of about −0.4 (ranging from −0.3 to −0.5).     

Consumers' Food Choices with Voluntary Access to Genetic Modification Information

The effects on product choices of voluntarily accessed information are examined in the context of an experimental survey relating to genetically modified food. The data and analysis in this study avoid the assumption that information made available or given to consumers is equivalent to information processed by consumers. Instead we focus on information access behavior. Three different approaches to model this behavior are applied in a Bayesian estimation framework, including conditional logit (CL) models based on the full sample, ex post analysis of individual parameters from mixed logit models, and CL models within the different information scenarios. All three approaches give consistent results. However, the assumption of voluntary information access generates different results than assuming that all information is processed. The results of the analysis show that different types of information do have impacts on consumers' product choices. The nature of these effects appears to be influenced by voluntary access to information. Les répercussions de l'accès volontaire à l'information sur les choix de produits ont été examinées dans le cadre d'un sondage expérimental sur les aliments génétiquement modifiés. Dans la présente étude, l'hypothèse voulant que l'information offerte ou transmise aux consommateurs soit équivalente à l'information que les consommateurs trouvent d'eux‐mêmes a étéécartée. Nous avons plutôt mis l'accent sur le comportement face à l'accès à l'information. Pour modéliser ce comportement, trois méthodes différentes ont été appliquées dans une structure d'estimation bayésienne, à savoir des modèles logit conditionnels fondés sur l'échantillon complet, une analyse ex post des paramètres individuels tirés de modèles logit mixtes et des modèles logit conditionnels parmi les divers scénarios d'information. Les trois méthodes ont donné des résultats concordants. Toutefois, l'hypothèse de l'accès volontaire à l'information a généré des résultats qui différaient de ceux de l'hypothèse voulant que toute l'information soit traitée. Les résultats de l'analyse ont montré que différents types d'information ont des répercussions sur les choix de produits des consommateurs. La nature de ces répercussions semble être influencée par l'accès volontaire à l'information.     

Relation between bid–ask spread,impact and volatility in order-driven markets

We show that the cost of market orders and the profit of infinitesimal market-making or -taking strategies can be expressed in terms of directly observable quantities, namely the spread and the lag-dependent impact function. Imposing that any market taking or liquidity providing strategies is at best marginally profitable, we obtain a linear relation between the bid–ask spread and the instantaneous impact of market orders, in good agreement with our empirical observations on electronic markets. We then use this relation to justify a strong, and hitherto unnoticed, empirical correlation between the spread and the volatility per trade, with R ²s exceeding 0.9. This correlation suggests both that the main determinant of the bid–ask spread is adverse selection, and that most of the volatility comes from trade impact. We argue that the role of the time-horizon appearing in the definition of costs is crucial and that long-range correlations in the order flow, overlooked in previous studies, must be carefully factored in. We find that the spread is significantly larger on the NYSE, a liquid market with specialists, where monopoly rents appear to be present.     

Labelling Genetically Modified Food: Heterogeneous Consumer Preferences and the Value of Information

One facet of public debate associated with genetically modified (GM) food focuses on labelling policy for products derived from GM processes. This paper reports on the analysis of effects on consumers' choices of pre-packaged sliced bread under different GM food labelling policies. Substantial heterogeneity is found to exist among consumers' tastes for various bread attributes, including the presence/absence of GM ingredients in bread products. A simulation-based bias-adjusted measure is applied to estimate the value of information, as opposed to the value of the presence or absence of GM ingredients, revealed to consumers by different labelling procedures for the GM attribute. The information that is provided in a mandatory labelling context is considerably more valued by consumers than the information provided in a voluntary labelling context. In a final section, estimated consumer benefits from labelling policies are expressed in terms of average market prices for bread products, providing a measure of benefits against which potential cost increases that may be associated with labelling policies may be compared in the context of any future benefit–cost analysis of GM labelling.     

Testing for Processor Market Power in the Markets for Cattle and Hogs in Canada

Deviations of livestock input prices from processor marginal value product are usually interpreted as an indication of the application of market power by the meat packing industry. However, market power depends on economic conditions that can influence the behavior of meat packers in the market for cattle and hogs. An industry-level translog profit function is applied to data on the Canadian finished cattle and hog markets and industry-wide oligopsony market power functions are estimated. The estimates suggest beef packers exercised a small but sustained amount of market power in the Canadian finished cattle market from 1978 to 1997. This is not the case in the market for hogs, which was competitive from 1960 to 1997. Application of market power in packers'purchases of farm animals decreased with increases in the utilization of domestic supply of slaughter animals and with increased levels of livestock exports. Livestock productivity increases appear to have significantly enhanced oligopsony power in packers'purchases of farm animals. The analysis suggests that beef processors may exert market power when cattle prices are relatively higher.     

Tariff liberalization and trade specialization: Lessons from India

This paper analyzes the effects of policy reform on the structure of India’s trade in manufactures, from 1990 to 2006. It computes comparative advantage indicators on the basis of disaggregated trade flow data and assesses the effects of trade liberalization on the evolution of India’s pattern of trade specialization. Industries where import tariffs have been reduced the most have experienced the highest increase in specialization. Moreover, trade liberalization has helped India improve its comparative advantage in industries with medium- to high-technology content, as well as in some of the industries enjoying the most robust growth in global demand. Liberalization policies have been instrumental in enhancing the international competitiveness of industries.     

Firm value,illiquidity risk and liquidity insurance

Our interest here concerns liquidity supply to firms. We first examine the relation between firm value and access to liquidity supply, and then we investigate the existence conditions and efficiency properties of financial contracts with a liquidity covenant in a continuous-time, infinite-horizon stochastic model of a repeated firm-investors relationship where the key problem is the mutual commitment between the two parties. To model this problem we consider liquidity supply as a stochastic “regulator mechanism” that prevents the firm’s ability to pay from falling below a predefined threshold (here the market fixed coupon), and we then apply recent developments in dynamic programming techniques for “regulated processes” to obtain a close form solution for the firm’s value. Our main finding is that efficient, i.e. actuarially fair and renegotiation-proof contracts emerge in the absence of perfect commitment as the firm and the investor can exert mutual threat of termination.