Overconfidence and Market Efficiency with Heterogeneous Agents

We study financial markets in which both rational and overconfident agents coexist and make endogenous information acquisition decisions. We demonstrate the following irrelevance result when a positive fraction of rational agents (endogenously) decides to become informed in equilibrium, prices are set as if all investors were rational, and as a consequence the overconfidence bias does not affect informational efficiency, price volatility, rational traders’ expected profits or their welfare. Intuitively, as overconfidence goes up, so does price informativeness, which makes rational agents cut their information acquisition activities, effectively undoing the standard effect of more aggressive trading by the overconfident. The main intuition of the paper, if not the irrelevance result, is shown to be robust to different model specifications.We would like to thank Alberto Bisin, Xavier Freixas, Ken French, Moshe Kim, Jose Marín, and Terrance Odean for comments on an early draft, as well as an anonymous referee and seminar participants at HEC Geneva, the 2004 EFA meetings, the 2004 European Econometric Society meetings and the 2005 SAET conference. Diego García and Branko Urošević gratefully acknowledge financial support by SECCF (Belgrade).     

A critical re-examination of the Carlson–Parkin method

The euro area has been experiencing a long period of inflation well below the targeted 2%. This has once again brought the problem of quantifying inflation expectations into the scientific focus. Within the framework of the Carlson–Parkin (CP) method, previous research has mostly focused on altering the probability distributions. Analysing as much as 2688 versions of the CP method, we prove that the distribution choice provides only minor improvements in the forecasting accuracy. On the other hand, the method assumptions (unbiased expectations and the number of survey response categories) play the pivotal role. We make an attempt to provide an assumptions-free quantification method by recognizing the fact that agents perceive ‘moderate’ inflation through the inflation targeting policy.     

Is small really beautiful? A review of the concept of niches in innovation

This article reviews the concept of innovation niches through three categories: strategic niche management (SNM), specialised markets and niches formed as a technology declines. In the literature, innovation niches generate interest from both innovation and marketing perspectives. This review focuses predominately on the former from which the niche types have been adopted and analysed. Mostly, contributions since 1980 have been included, representing the period of academic interest in innovative small firms, while both temporal and locational filters were applied to the study. It is noted that SNM has been proposed as a means to protect potentially useful innovations from full market competition, while specialist niches supply technologies to few customers in more stable environments. Incumbent technologies at the stage of decline may also retreat to niches where they can still remain competitive. Finally, it is suggested that further research on innovation niches would extend our understanding of technology dynamics.     

Improving the financial sustainability of nonprofit organizations through tourism-related activities

One of the greatest problems facing nonprofit organizations (NPOs) is the lack of funding, which directly jeopardises their work. NPOs working in tourist destinations have the opportunity of satisfying this need through tourism, by linking the objectives of their own activities to the objectives of tourist destinations. This article aims to establish whether NPOs working in tourism have capitalised on tourism as a means for increasing their own income. In other words, do NPOs that more frequently conduct tourism-related activities have a higher level of financial sustainability, reflected in a higher share of income from self-funding activities than from donations and grants? To this end, primary research was conducted using a questionnaire on a sample of 205 NPOs whose activities impact tourism and which operate in one of the four most developed tourist destinations in Croatia with regard to tourist traffic in the past 10 years (Poreč, Rovinj, Dubrovnik and Medulin). Research results indicate that an increase in the frequency of conducting activities directly impacting tourism is paralleled by an increase in the share of income generated by active self-funding (income from selling products and providing services) and other types of self-funding (income from memberships fees and assets), with a decrease in the share of income from donations and grants. This study contributes to the existing knowledge by connecting NPOs with the tourism system and by identifying and defining opportunities for NPO self-funding through tourism as a means of improving NPO financial sustainability.     

On the formal definition of the systems’ interoperability capability: an anthropomorphic approach

The extended view of enterprise information systems in the Internet of Things (IoT) introduces additional complexity to the interoperability problems. In response to this, the problem of systems’ interoperability is revisited by taking into the account the different aspects of philosophy, psychology, linguistics and artificial intelligence, namely by analysing the potential analogies between the processes of human and system communication. Then, the capability to interoperate as a property of the system, is defined as a complex ability to seamlessly sense and perceive a stimulus from its environment (assumingly, a message from any other system), make an informed decision about this perception and consequently, articulate a meaningful and useful action or response, based on this decision. Although this capability is defined on the basis of the existing interoperability theories, the proposed approach to its definition excludes the assumption on the awareness of co-existence of two interoperating systems. Thus, it establishes the links between the research of interoperability of systems and intelligent software agents, as one of the systems’ digital identities.     

Estimation of the most influential science and technology factors for economic growth forecasting by soft computing technique

Economic growth may be developed on the basis on combination of different factors. In this investigation was analyzed the economic growth forecasting based on the different factors. The main goal was to analyze the influence of science and technology factors on the economic growth. Gross domestic product (GDP) was used as economic growth indicator. The method of adaptive neuro fuzzy inference system (ANFIS) was applied to the data in order to select the most influential factors for the GDP growth rate forecasting. Ten inputs are considered: research and development (R&D) expenditure in GDP, scientific and technical journal articles, patent applications for nonresidents, patent applications for residents, trademark applications for nonresidents, trademark applications for residents, total trademark applications, researchers in R&D, technicians in R&D and high-technology exports. The ANFIS process for variable selection was also implemented in order to detect the predominant factors affecting the forecasting of GDP growth rate.     

Pre-crisis reforms,austerity measures and the public-private wage gap in two emerging economies

This paper analyzes crisis adjustments of the public and private sectors in two emerging market economies, Croatia and Serbia, during the 2008–2011 period. It focuses on public-private wage gaps at the onset of and during the crisis, decomposed into structural and composition effects using an extension to the Oaxaca-Blinder method based on Recentered Influence Function (RIF) regressions and reweighting. The main results indicate that at the beginning of the crisis public sector workers in both countries enjoyed a significant wage premium, with the premium in Serbia being about three times higher than in Croatia. During the crisis, both countries experienced a similar increase of the premium, with Croatia reaching the size of gap usually estimated for EU countries, while Serbia stayed largely ahead. The results also show that the wage distribution in the public sector is more compressed than in the private sector in both countries, which is further exacerbated by the crisis. Despite the introduced austerity measures, public sector workers continue to enjoy well-protected and privileged jobs in terms of wages relative to their private sector counterparts. Structural reforms undertaken prior to the crisis played a decisive role in determining the countries’ responses to the crisis.     

Technology,employment and the business cycle in post-transition countries of the EU

This article analyses the importance of technology and non-technology shocks in the business cycles of European Union post-transition countries. Different assumptions of New Keynesian and Real Business Cycle theory are tested. The results demonstrate that a non-technology shock is more important in explaining business cycles in post-transition countries, although a technology shock is not trivial. The technology shock cannot replicate basic business cycle facts observed in the data: it produces a low or negative correlation between employment and GDP, and a strong negative correlation between labour productivity and employment. Technology and non-technology GDP components are analysed in the transition and post-transition period. The results show a non-technology shock was the dominant source of business cycles both during and after the transition period.     

Some remarks on lower hemicontinuity of convex multivalued mappings

Summary. For a multifunction a condition sufficient for lower hemicontinuity is presented. It is shown that under convexity of graph it is possible for a multifunction to be not continuous only when a special representation of points of its domain is not feasible.Received: 4 September 2004, Revised: 10 January 2005, JEL Classification Numbers: C61.     

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