Knowledge and economic behaviour. A constructivist approach

The knowledge of human knowledge claims a place of its own in economics. Beyond the walls of our discipline, spectacular progress is taking place in the field of empirical research into human knowledge -the so-called “cognitive sciences”. In the light of such advances, the old and new classicals' axiom that nothing scientific can be said beyond the axioms of substantive rationality now looks very much like the protective belt of a degenerating programme. On the other hand, criticisms and alternative programmes will hardly be effective so long as their arguments are purely negative or are drawn from armchair introspection. In the present study I wish to outline a pattern of human knowledge emerging from cognitive research that may be called “constructivist”, and to point out the restrictions it sets on economic analysis. It is also my argument that such a pattern is consistent with the present non- or post-Walrasian trends in economic theory, and that it may provide them with firmer cognitive foundations.     

Mortgage Brokers and the Refinancing Transaction: Evidence from CRA Borrowers

This study adds to an emerging literature on the lending practices of mortgage brokers during the run-up in home prices prior to 2006. Following a sample of low— and moderate-income borrowers through the first years following home purchase, the analysis identifies differences in the refinancing transaction associated with the use of mortgage brokers vs. retail lenders. Specifically, the analysis includes measures of the refinancing process, including whether the lender initiated contact with the borrower, whether the terms of the mortgage changed at closing, and the level of borrower satisfaction in hindsight. Care must be taken in extrapolating from this sample to the broader mortgage market, as all borrowers refinanced out of 30-year fixed-rate purchase mortgages in the Community Advantage Program (CAP). Nevertheless, analysis of this sample offers unique insight into borrowers’ interactions with mortgage brokers during the refinancing transaction. Origination with a mortgage broker, compared with origination through a retail lender, is associated with both a less satisfactory refinancing process and a higher likelihood of refinancing into an adjustable-rate mortgage (ARM).     

World natural gas endowment as a bridge towards zero carbon emissions

We use a global energy market (GEM) model to show that natural gas has the potential to help stabilize global carbon emissions in a span of about 50–100 years and pave the way towards low and zero carbon energy.The GEM provides a close fit of the global energy mix between 1850 and 2005. It also matches historical carbon and CO₂ emissions generated by the combustion of fossil fuels. The model is used then to forecast the future energy mix, as well as the carbon and CO₂ emissions, up to the year 2150.Historical data show relative decarbonization and an increase in the amount of hydrogen burned as a percent of fossil fuel use between 1850 and 1970. The GEM indicates that with a larger contribution of natural gas to the future energy market, the burned hydrogen percentage will increase. This decarbonization will help to advance economic and environmental sustainability.     

Exchange rate, inflation and unemployment in East European economies: the case of Poland and Hungary*

The aim of the paper is to model the impact of exchange rate on both inflation and unemployment variables in economies which are characterized by important structural changes, i.e. a transition phase moving from centralized economies towards market economies. This phenomenon, which is common to the East European countries, stressed different effects both for what concerns the behaviour of economic agents and for what concerns fiscal and monetary measures adopted by governments and aiming to keep under control the inflation–unemployment trade off. Time series relationships between these variables are investigated within an econometric model. Economic theory and the available data on the hypothetically relevant variables, along with the consideration of the main facts occurred in the period under study, characterize our information set. It is found that single equation analysis yields inefficient inference relative to the whole system analysis, and important structural changes are detected which reflect possible breaks in the structure of the economic system along with a change in economic policy.     

The relationship between machistic tendencies and budgeting: A cross-cultural study

Increasing globalization in business heightens the importance of understanding cultural differences and their effects on business practice. In this light, an empirical cross-cultural study comparing U.S. and Latin American respondents was made to determine the relationship between machistic tendencies and budgeting. Though difficulty was experienced in defining the machism variable, three stereotypes, Chauvinist, Classic, and Aggressive, were identified. These stereotypes are associated with one's cultural orientation (Latin American or U.S.) and predicted budgetary behavior in terms of budget procedural attitude, culpability, and risk attitude.     

Modelling technical change in Italian agriculture: a latent variable approach

This paper presents an alternative approach to the measurement of technical change. It is based on the latent variable level of technology that enters explicitly the input demand system and on a hypothesis about the innovation generating process. By adding measurement error equations, the behavioral system can be viewed as a Multiple Indicators/Multiple Causes (MIMIC) model. The parameter estimates are obtained with a maximum likelihood estimator which involves the implicit covariance matrix. The analysis refers to Italian agriculture and the results provide some evidence on the nature and level of technical change during the years 1961–1991.     

A hybrid equilibrium in segmented markets: the three-firm case

In this paper, we characterize two hybrid equilibria for the three-firm case in segmented markets in which consumers not only value the product itself but also the environment within which the consumption takes place. In equilibrium, the firm with the larger population of loyal consumers chooses the monopoly price while the remaining two firms play a mixed strategy. In the duopoly case, the unique equilibrium is in mixed strategies and no firm focuses only on its loyal consumers.     

Specification Analysis of Diffusion Models for the Italian Short Rate

In recent years, diffusion models for interest rates became very popular. In this paper, we perform a selection of a suitable diffusion model for the Italian short rate. Our data set is given by the yields on 3‐month BOT (Buoni Ordinari del Tesoro), from 1981 to 2001, for a total of 470 observations. We investigate among stochastic volatility models, paying more attention to affine models. Estimating diffusion models via maximum likelihood, which would lead to efficiency, is usually unfeasible because the transition density is not available. Recently, Gallant and Tauchen (1996) proposed a method of moments which gains full efficiency, hence its name of Efficient Method of Moments (EMM); it selects the moments as the scores of an auxiliary model, to be computed via simulation; thus, EMM is suitable to diffusions whose transition density is unknown, but which are convenient to simulate. The auxiliary model is selected among a family of densities which spans the density space. As a by‐product, EMM provides diagnostics that are easy to compute and interpret. We find evidence that one‐factor models and multi‐factor affine models are rejected, while a logarithmic specification of the volatility provides the best fit to the data .     

Bank lending and real estate in Asia: market optimism and asset bubbles

This paper investigates the Asian real estate price run-up and collapse in the 1990s. We identify financial intermediaries’ underpricing of the put option imbedded in non-recourse mortgage loans as a potential cause for the observed price behavior. This underpricing is due to behavioral causes (lender optimism and disaster myopia) and/or rational response of lenders to market incentives (agency conflicts, deposit insurance, or limited liability of bank shareholders). The empirical evidence suggests that underpricing occurred in Thailand, Malaysia, and Indonesia. Consequently, these countries experienced a more severe market crash than Hong Kong and Singapore, where underpricing was kept under control by strong government intervention and/or more appropriate incentive mechanisms.     

List pricing and discounting in a Bertrand–Edgeworth duopoly

List, or retail, pricing is a widely used trading institution where firms announce a price that may be discounted at a later stage. Competition authorities view list pricing and discounting as a procompetitive practice. We modify the standard Bertrand–Edgeworth duopoly model to include list pricing and a subsequent discounting stage. Both firms first simultaneously choose a maximum list price and then decide whether to discount, or not, in a subsequent stage. We show that list pricing works as a credible commitment device that induces a pure strategy outcome. This is true for a general class of rationing rules. Further unlike the dominant firm interpretation of a price leader, the low capacity firm may have incentives to commit to a low price and in this sense assume the role of a leader.