Exchange rate fluctuations and quality composition of exports: Evidence from Swiss product-level data

This paper studies the relationship between exchange rate movements and the average export quality using disaggregated Swiss product-level data between 1996 and 2015. We find evidence at different levels of aggregation that the average export quality increases in response to a currency appreciation through compositional effects: currency appreciations shift market shares towards goods that are more expensive and of higher quality. This exchange rate effect on quality is more pronounced for differentiated goods and in sectors with a greater scope for quality differentiation. From a policy perspective, this reallocation effect points to the importance of facilitating structural changes in the export composition to increase the resilience of the export sector to exchange rate shocks. Our results also suggest a positive relationship between the average export quality and aggregate export sales. From a methodological point of view, the findings imply that exchange rate pass-through estimations without quality controls tend to be biased regardless of aggregation level or type of data.     

Pyramids of Trust: Social Embeddedness and Political Culture in Two Italian Gold Jewelry Districts

This article demonstrates the usefulness of the notion of embeddednessto the historical study of Italian industrial districts of smallfirms and of local economic change more generally. The developmentof gold jewelry production in two Italian towns, Valenza Poand Arezzo, shows that vertical disintegration was enabled bythe creation of networks of heterogeneous social relations.In both towns, social and political ties led to the creationof institutions of collective governance, which in turn produceda workable level of trust between economic actors. The productionof trust, however, never ceased to be a contentious process,endowed with multiple and often contradictory meanings embeddedin specific networks and contexts, ranging from collective projectsof modernization in Valenza Po to the cementing of a secretiveinformal economy in Arezzo. The embeddedness approach to economicaction is superior both to the communitarian arguments of muchof the literature on the Italian industrial districts and totransaction-cost theories, which tend to view institutions ininstrumental and functionalist ways.     

Forced Saving,Redistribution, and Nonlinear Social Security Schemes

This paper studies the design of nonlinear social security schemes when individuals differ in productivity and in their degree of myopia. Myopic individuals may not save “enough” for their retirement. The welfare function is paternalistic: The rate of time preference of the farsighted is used for both types. We show that the solution does not necessarily imply forced savings for the myopics: Paternalistic considerations are mitigated by incentive effects. Numerical results suggest that as the proportion of myopic individuals increases, there is less redistribution and more forced saving, and the desirability of social security increases.     

A realized volatility approach to option pricing with continuous and jump variance components

Decisions in Economics and Finance - Stochastic and time-varying volatility models typically fail to correctly price out-of-the-money put options at short maturity. We extend realized volatility...     

The role of institutions and immigrant networks in firms’ offshoring decisions

The offshoring of production by firms has expanded dramatically in recent decades, increasing their potential for economic growth. What determines the location of offshore production? How do countries’ policies and characteristics affect a firm's decision about where to offshore? Do firms choose specific countries because of the countries’ policies or because they know them better? In this paper, we use a rich dataset on Danish firms to analyze how decisions to offshore production depend on the institutional characteristics of the country and firm-specific bilateral networks. We find that institutions that reduce credit risk and corruption increase the probability that firms will offshore there, while those that increase regulation in the labour market decrease this probability. We also show that a firm's probability of offshoring increases with the share of its employees who are immigrants from that country of origin. Finally, our analysis reveals that the negative impact of institutions that hinder offshoring is attenuated by a strong bilateral network of foreign workers.     

Financial development and the share of imported capital goods in developing countries: firm-level evidence

Firm-level estimations across a sample of seven developing countries suggest that a higher firm’s leverage – a proxy for credit constraints – reduces the share of imported capital goods in total capital expenditures. This result holds across different models such as a two-limit tobit and a fractional logit model. It is also confirmed after controlling for unobserved firm heterogeneity, state dependence or when using the share of property in total assets as an alternative credit constraint indicator. The results also indicate that the importance of credit constraints is significantly reduced in financially more developed countries.     

Optimal mobile termination rate: The Brazilian mobile market case

This paper presents a study of the impacts of changes in the mobile termination rate in Brazil using 2008 as the base year. For this we use an extension of the monopolistic competition model used by Wright, Thompson, and Renard (2007) allowing for the charge of interconnection fee also from calls originating on mobile networks and differentiated prices for on-net and off-net calls. After calibration of the model parameters and estimation of the price elasticity of demand for mobile services, we conduct a comparative static analysis varying the mobile termination rate in order to find the optimal value for that parameter. Finally, we provide some discussions on policy regulation in that sector depending on the objective of the regulator agency.     

The Financial and Economic Lessons of Italy's Privatization Program

Since 1994 the Italian government has sold equity stakes in some 75 large state enterprises, in the process raising over $125 billion‐more than any other country during the same period. In this article, a U.S. academic collaborates with the Italian government's Director of Privatization in summarizing the accomplishments and disappointments of Italy's privatization program, assessing its impact on Italian capital markets, and offering lessons for other countries embarking on new privatization programs. The article also describes the share issuance methods used by the government to execute several massive offerings, including the largest IPO in history. The principal benefits of Italian privatization have been dramatic increases in the size and efficiency of Italy's stock markets and in the safety and stability of its banking system. Despite such improvements, however, privatization has failed to bring about the increased competition in key industries and lower prices for consumers its planners originally envisioned. And based on this experience, the authors offer a number of lessons for government planners. Perhaps most important, privatization is likely to yield decisive benefits only if the divestment program is properly designed and sequenced. Governments should begin by privatizing state‐owned banks and other financial institutions, and as quickly as economically and politically feasible. Especially in less developed economies, commercial banks are for many companies both the only suppliers of credit and the only effective source of market discipline‐which explains why results have often been disastrous when governments have retained control of banks while privatizing other industries. Privatizing governments should also emphasize privatizations accomplished through share issuances rather than asset sales, with the aim of developing liquid and efficient stock markets and promoting effective corporate governance.     

Testing the Political Replacement Effect: A Panel Data Analysis*

This article tests for the existence of the political replacement effect, as suggested by Acemoglu and Robinson: [American Political Science Review, Vol. 100, pp. 115–131]. They argue that the implementation of market‐oriented reform is crucially driven by the political calculus of incumbent governments: they implement economic policy change if such a choice is not expected to reduce their chances to retain power. This implies a non‐monotonic relationship between the level of political competition and the extent of economic reform. We test this hypothesis using data for 102 countries over the period 1980 to 2005. Our results strongly support the theory.     

Applying RFID in warehouse operations of an Italian courier express company

This paper deals with the re-engineering and design optimization of a warehouse for package storage operations occurring daily at a leading courier express company in Italy. The objective of our study is to quantify the return on investment and error reduction that can be achieved by the application of advanced tracking technologies in the package management process. This study considers the use of RFID tags to facilitate identifying items in a package delivery service facility. In a first phase, we analyze the current process and show the speed-up of the operators with barcode readers compared to the operations handbook. In a second phase, we introduce radio frequency identification (RFID) technologies in the warehouse and perform practical experiments in order to detect configurations with error-free item scanning. An optimal configuration of the warehouse and of the RFID-based package management process is obtained by a non-linear optimization model that minimizes the overall technology and management costs. The probability of item errors is modeled by a maximum likelihood estimation procedure that determines the scanning area of each antenna with minimal scanning error. The new process with RFID technology reduces the costs of daily operations in the studied warehouse up to 25% and the workload of the operators up to 4 h.