MARKET POWER AND EFFICIENCY IN A SEARCH MODEL*

We build a theoretical model to study the welfare effects and policy implications of firms’ market power in a frictional labor market. The main characteristics of our environment are that wages play a role in allocating labor across firms and the number of agents is finite. The decentralized equilibrium is inefficient and the firms’ market power results in the misallocation of workers from the high to the low productivity firms. A minimum wage exacerbates the inefficiencies by forcing the low‐productivity firms to increase their wage. Moderate unemployment benefits can increase welfare by improving the workers’ outside option.     

Austrian Demography and Housing Demand: Is There a Connection

This paper analyses the role of demographic factors in the Austrian housing market. Linking demographic issues, in conjunction with the Austrian private housing finance, to the housing demand is the focus of the empirical model developed in this paper. We find statistical support that the demographic factors help to explain for housing demand. However, we emphasize that demographic factor such as the adult population with net migration effect is only one of the key variables which contributes in understanding the Austrian housing demand. Some of our other empirical findings indicate that the Austrian housing demand is inelastic to various economic factors is a concern for some housing policies.     

Matching markets with price bargaining

The extant microeconomic literature on matching markets assumes ordinal preferences for matches, while bargaining within matches is mostly excluded. Central for this paper, however, is bargaining over joint profits from potential matches. We investigate, both theoretically and experimentally, a seemingly simple allocation task in a 2×2 market with repeated negotiations. When inefficiency is possible, about 1/3 of the complete matches are inefficient and, overall, more than 3/4 of the experimental allocations are unstable. These results strongly contradict existing bargaining theories requiring efficient matches. Even with regard to efficient matches, the tested theories perform poorly. Standard bargaining and behavioral concepts, such as Selten’s (1972) Equal Division Core, are outperformed by the simplistic ε-Equal Split, i.e., an equal split of the joint profit plus/minus ε.     

Democracies cooperate more: even where it threatens to bite?

Estimating two-step selection models, we find that more democratic governments are more likely to conclude preferential trade agreements (PTAs) and to agree to stricter investment provisions related to pre-establishment national treatment and investor–state dispute settlement in PTAs. This is surprising when considering the potentially high costs of litigation.     

The regional distribution of foreign investment in Russia

This article conducts a plant‐level study of the factors affecting foreign direct investment (FDI) inflow to a large opening economy endowed with specific factor advantages. We conclude that the distribution of FDI in Russian regions depends on market access and can be most notably described by the knowledge‐capital framework. Factor endowments built by natural resources are more successful in explaining the location decisions of export–platform affiliates. The impact of natural resources depends on how the availability of these resources is measured. The results reject the crowding out effects of resource FDI and prove co‐location mode, when service investments are attracted to resource‐rich regions. Labour cost advantages better explain the preferences of non‐trading service affiliates.     

The role of the exchange rate in Canadian monetary policy: evidence from a TVP-BVAR model

A time-varying parameters Bayesian structural vector autoregression (TVP-BVAR) model with stochastic volatility is employed to characterize the monetary policy stance of the Bank of Canada (BoC) in terms of an interest rate rule linking the policy rate to the output gap, inflation and the exchange rate. Using quarterly bilateral Canadian–US data, we find such an interest rate rule to have little explanatory power for the early part of our sample starting in the mid-1980s, but to become more suitable to explain interest rate dynamics from the mid-1990s onwards. Whereas the exchange rate turns out to be the major determinant of the policy rate in the 1980s, its importance declines throughout the 1990s and 2000s, although it continues to be influential even towards the end of the sample period ending in 2015Q2. We also find interest rate shocks to have become more effective in influencing the macroeconomy over time, indicating that the BoC has continually gained monetary policy credibility. We associate this development with the BoC successively de-emphasizing the role of the exchange rate in informing interest rate decisions, thereby alleviating the potential monetary policy conflict between targeting the exchange rate and maintaining the price stability goal.     

Existence of Nash equilibria in finite extensive form games with imperfect recall: A counterexample

This paper provides an example showing that for finite extensive form games without perfect recall existence of Nash equilibria in behaviour strategies is not guaranteed in general.