Demographic links to savings in life cycle models: identification of issues for LDCs

The author considers the potential for a link between the recent pattern of demographic transition and intertemporal and inter-country variations in savings rates. Fertility, infant mortality, life expectancy, and levels of female and child labor force participation are among the various demographic factors which affect national savings rates through their effects upon age structure, age-specific individual savings behavior, and their general equilibrium effects upon interest rates, wage rates, and income distribution. The author establishes a simple discrete time life cycle model of savings, explains the issues related to age structure, and discusses the effect of age-specific savings functions, the general equilibrium effects of demographic factors, the effects of life expectancies and child mortalities, and the nature of social security coverages in less developed countries, as well as issues which are especially important for less developed countries. A new strategy for empirically evaluating demographic policies is proposed. That is, one can estimate the age profile of earnings, saving and fertility rates from household survey data. The life tables can then be used to compute the aggregate savings rate and population size. Any demographic policy which affects the fertility rate, life expectancy, and investment in the quality of children will change the aggregate saving and population growth rates. These two aggregate effects could be compared to evaluate demographic policies. The author stresses, however, that changes in different demographic factors will have different short-run and long-run effects upon the savings rate which will also depend upon whether such changes are transitory or permanent.     

R&D Strategy in International Mixed Duopoly with Research Spillovers

This paper examines the international mixed duopoly behaviour with research spillovers. Using a two‐stage game with Research and Development (R&D) and output, we investigate the effects of imperfectly appropriable R&D on optimal R&D strategies of a domestic public firm and a foreign private firm across different market interactions: (i) international R&D competition, (ii) only the foreign firm conducts R&D, (iii) only the domestic public firm conducts R&D, (iv) no firm conducts R&D, and (v) research joint venture. The results show that firms' research performances are determined by the degree of spillovers and the optimal R&D strategies involve R&D competition. Spillovers are shown to be socially beneficial and their absence can prove to be a strategic deterrent, with the public firm monopolising the market. Some of these findings contrast with the traditional models of oligopoly (with or without R&D) and mixed oligopoly (without R&D).     

Valuing ecosystem services: A shadow price for net primary production

We analyze the contribution of ecosystem services to GDP and use this contribution to calculate an empirical price for ecosystem services. Net primary production is used as a proxy for ecosystem services and, along with capital and labor, is used to estimate a Cobb Douglas production function from an international panel. A positive output elasticity for net primary production probably measures both marketed and nonmarketed contributions of ecosystems services. The production function is used to calculate the marginal product of net primary production, which is the shadow price for ecosystem services. The shadow price generally is greatest for developed nations, which have larger technical scalars and use less net primary production per unit output. The rate of technical substitution indicates that the quantity of capital needed to replace a unit of net primary production tends to increase with economic development, and this rate of replacement may ultimately constrain economic growth.     

The fundamental difficulty in basing macroeconomic policy on microeconomic theory

Microeconomic theory is the theory of individual choice. For macroeconomic problems to be analyzed and solutions proposed with microeconomic theory, such problems must be capable of being defined in individualistic terms. It is argued that individuals can never perceive truly social problems requiring collective action in a manner consistent with the requirements of microeconomic theory. Even reformulating microeconomic theory to allow for interpersonal comparisons of utility, individuals may not be able to perceive the nature of social concerns in a manner necessary to support individually motivated actions bringing forth a solution.     

Macroeconomic transitions and the transmission mechanism: Evidence from Turkey

This paper investigates changes to the macroeconomic transmission mechanism in Turkey following a major reform of monetary policy in the early 2000s. We use a Threshold VAR (TVAR) framework to test for and then estimate a model with endogenous transitions between regimes. We detect two regimes, with a clear transition between them in 2003–4. The pre-reform regime is characterized by high inflation, passive monetary policy and persistent responses to shocks. The post-reform regime is characterized by low inflation, active and credible monetary policy and markedly less persistent responses to shocks. Using a model that contains sufficient variables to capture diverse transmission mechanisms, working through the real exchange rate, domestic credit and monetary policy, we find evidence of sharp changes in transmission mechanisms. Post-reform, the response of Turkey to macroeconomic shocks has changed to be similar to those in other modern, market-orientated economies.     

Risk attitudes and the stag-hunt game

A stag-hunt game (with the risky and safe actions) has two pure Nash equilibria that are Pareto-rankable. The risky action leads either to the Pareto-superior equilibrium (high payoff) or to out of equilibrium (low payoff) depending on the opponent’s action. Both players may want to obtain high payoff but uncertainty about the opponent’s action may prevent them to take such strategic risk. This paper investigates how information about the risk attitude of an opponent affects a player’s action choice in the stag-hunt game. I find that although a subject’s propensity to choose the risky action depends on her opponent’s risk attitude, it does not depend on her own risk attitude.     

‘Regular’ choice and the weak axiom of stochastic revealed preference

We explore the relation between two ‘rationality conditions’ for stochastic choice behavior: regularity and the weak axiom of stochastic revealed preference (WASRP). We show that WASRP implies regularity, but the converse is not true. We identify a restriction on the domain of the stochastic choice function, which suffices for regularity to imply WASRP. When the universal set of alternatives is finite, this restriction is also necessary for regularity to imply WASRP. Furthermore, we identify necessary and sufficient domain restrictions for regularity to imply WASRP, when the universal set of alternatives is finite and stochastic choice functions are all degenerate. Results in the traditional, deterministic, framework regarding the relation between Chernoff’s condition and the weak axiom of revealed preference follow as special cases. Thus, general conditions are established, under which regularity can substitute for WASRP as the axiomatic foundation for a theory of choice behavior.     

On a family of data-based transformed models useful in forecasting technological substitutions

This paper examines, via real data, some well known models for technology substitution analysis. We propose a family of data-based transformed models that will include the models under examination as special cases. The basic thrust of the paper is the recognition that for technology substitution analysis, the observations are time series data and hence are not independent. Also, the functional form of the model should be determined by both theoretical considerations as well as the data on hand. This suggests that the traditional ordinary least squares procedure used in estimating the parameters and the resulting forecasting procedures are not adequate. The existing models examined here are Fisher–Pry, Gompertz, Weibull, and Normal. We stress the statistical aspects of the models and their relative merits in terms of predictive power. The criteria used for the purpose of comparison are the mean squared deviation and the mean absolute deviation of the predicted values compared with the actual observations.     

Developing and applying a framework to evaluate participatory research for sustainability

The normative implications of participatory research imply ongoing social learning that ought to lead to personal and institutional transformation. Sustainability science also requires reflexive scientific practice in order to enable the co-generation of solutions that take account of uncertainty and multiple forms of knowledge. However, there is little published peer-reviewed material on how to assess to what degree the rhetoric regarding the benefits of participatory research are achieved in practice, particularly with regard to participatory research for sustainability. This paper outlines how linking the rationales for participatory research and for sustainability science to the principles of evaluation can deliver a conceptually coherent evaluation framework for assessment. The approach for evaluating participatory research in this context consists of framing the evaluation, i.e., setting boundaries on the subject within its social, political, environmental and institutional context and selecting appropriate criteria, methods and data sources. The application of the framework, using a summative evaluation of participatory research for sustainability in north-east Australia, illustrates its strengths and weaknesses, concluding with a consideration of its applicability to further participatory sustainability science.     

Financial Market Design and the Equity Premium: Electronic versus Floor Trading

We assemble the announcement and actual introduction dates of electronic trading by the leading exchanges of 120 countries to examine the impact of automation, controlling for risk factors and economic conditions. Dividend growth models and international CAPM suggest a significant decline in the equity premium, especially in emerging markets. Consistent with this reduction in the equity premium in the long run, there is a positive short‐term price reaction to the switch. Further analysis of trading turnover supports the notion that electronic trading enhances the liquidity and informativeness of stock markets, leading to a reduction in the cost of capital.