Equilibrium in securities markets with heterogeneous investors and unspanned income risk

In a finite time horizon, incomplete market, continuous-time setting with dividends and investor incomes governed by arithmetic Brownian motions, we derive closed-form solutions for the equilibrium risk-free rate and stock price for an economy with finitely many heterogeneous CARA investors and unspanned income risk. In equilibrium, the Sharpe ratio is the same as in an otherwise identical complete market economy, whereas the risk-free rate is lower and, consequently, the stock price is higher. The reduction in the risk-free rate is highest when the more risk-averse investors face the largest unspanned income risk.     

Merger,Partial Collusion and Relocation

We set up a three-firm model of spatial competition to analyse how a merger affects the incentives for relocation, and conversely, how the possibility of relocation affects the profitability of the merger, particularly for the non-participating firm. We also consider the cases of partial collusion in either prices or locations. Under the assumption of mill pricing, we find that a merger will generally induce the merger participants to relocate, but the direction of relocation is ambiguous, and dependent on the degree of convexity in the consumers transportation cost function. Furthermore, we identify a set of parameter values for which the free-rider effect of a merger vanishes, implying that the possibility of relocation could solve the merger paradox.Acknowledgement We thank Jonathan Cave, Frode Meland, participants at the Royal Economic Society Conference 2003 and an anonymous referee for valuable comments.     

Meaning Shift of Items in Different Language Versions. A Cross-National Validation Study of the Illegal Aliens Scale

The 20-item Illegal Aliens Scale, which was developed and validated by Ommundsenand Larsen at Oregon State University (1999), has been translated into Norwegian andDutch. Cross-national comparisons of attitudes require equivalence of measurementinstruments (Rogler, 1999). The results of a translation – back translation procedure anda split sample study by (Ommundsen et al., in print) suggest that linguistic equivalencemay not be sufficient to detect other non-equivalence of meaning in cross-national research.This paper discusses a follow-up methodological study of the Dutch and Norwegianversions of this scale. This study consisted of two parts: (a) A `cognitive' test by meansof the three-step test-interviews (Hak et al., 2001) with Dutch and Norwegiansubjects. (b) A comparative study of differences in political salience of the itemsof the scale between Norway and the Netherlands. Results show that differences inhistorical, political and cultural context result in different interpretations of seeminglystraightforward concepts and that this affects how responses to attitude items are constructed.     

Is the Engel curve approach viable in the estimation of alternative PPPs?

Conventional estimates of purchasing power parities (PPP) rely on cross-country price data. Using Engel curves, Almås (Am Econ Rev 102:1093–1117, 2012) was, however, able to show that PPPs contain substantial bias. Since constructing conventional estimates is expensive and time consuming, Almås’ idea of employing Engel curves is welcome. This article examines the viability of the Engel curve approach to PPP and its sensitivity to differences in relative prices and preferences by estimating Engel curves not only between countries but also for regions within a given country. My empirical evidence from the United States and Norway suggests that the differences can be problematic, but not sufficiently to discredit the new methodology. A pragmatic approach to PPP estimation between countries that are different is to compute a PPP band, rather than a point estimate. I present a practical example of this using expenditure data from 2001, which yields a band for NOK and US dollar.     

Employment Protection Versus Flexicurity: On Technology Adoption in Unionised Firms*

We analyse how different labour‐market institutions – employment protection versus ‘flexicurity’– affect technology adoption in unionised firms. We consider trade unions’ incentives to oppose or endorse labour‐saving technology and firms’ incentives to invest in such technology. Increased flexicurity – interpreted as less employment protection and a higher reservation wage for workers – unambiguously increases firms’ incentives for technology adoption. If unions have some direct influence on technology, a higher reservation wage also makes unions more willing to accept technological change. Less employment protection has the opposite effect, as this increases the downside (job losses) of labour‐saving technology.     

Flexible and Committed Profit Sharing with Wage Bargaining: Implications for Equilibrium Unemployment

We analyze the relationship between profit sharing, employee effort, wage formation and unemployment under different relative timings of the wage and profit sharing decisions. The optimal profit share under commitment exceeds that under flexibility, because through a profit share commitment the firm can induce wage moderation. The negotiated profit sharing depends positively on the bargaining power of trade union and it has both effort-enhancing and wage-moderating effects. Higher profit sharing is shown to reduce equilibrium unemployment under ``sufficiently rigid' labor market institutions, but it can harm employment when labor market ``rigidities' are ``small enough'.     

Segregation and gender wage gaps in the private and the public sectors: an analysis of Danish linked employer–employee data, 2002–2012

This paper examines the relation between segregation and the gender wage gap in the public and the private sectors in Denmark from 2002 to 2012. The analysis shows that male–female differences in the share of females in occupations, industries, establishments and job cells (occupations within establishments) constitute 46 % of the raw gender wage gap in the private sector, while segregation in the public sector accounts for as much as 63 %. Segregation thus plays a substantially more important role in accounting for the gender wage gap in the public sector than in the private sector. While the importance of segregation for wage formation decreased substantially in the public sector over time, it only decreased slightly in the private sector. Although the remaining gender wage gap, after controlling for segregation, is close to zero in the public sector, a substantial within-job cell differential remains after controlling for segregation in the private sector.     

Economic Liberalism and the State: Dismantling the Myth of Naïve Laissez-Faire

The article offers a critique of the prevailing understanding of the relationship between neoliberalism and classic nineteenth-century liberalism in contemporary international political economy (IPE) and offers a redefinition inspired by Polanyi and Gramsci. Within critical IPE studies, a consensus has emerged that neoliberalism cannot be reduced to a simple attempt to roll back the economy and let loose free-market forces. However, this insight relies on contrasting neoliberalism with a classic liberalism, that is, a simple attempt to implement just this naïve laissez-faire ideology. In contrast, this article argues that nineteenth-century liberalism is also characterised by an active use of state and legislative power. Through a historical study of two cases from nineteenth-century Britain, Poor Law reform and the Gold Standard, the paper will argue that state action played a central role even during the heyday of laissez-faire liberalism. With a starting point in Polanyi’s dictum that ‘laissez-faire was planned’, this reinvestigation will point towards a need to develop a more nuanced understanding of the distinctions between economic theory, ideology, and practical policy, as well as pointing towards a general reinterpretation of the role of the state in liberal economic ideology.     

Is There a Win–Win Situation in Household Energy Policy?

To achieve environmental goals, most governments aim to reduce consumption of the most polluting energy goods by taxation. Often, the authorities not only aim to change the consumption of the regulated good by the taxation, but also to change the consumption of close substitutes (hereafter referred to as win–win effects). The size of the win–win effects depend not only on how close substitutes the goods are, but also on the price sensitivity of the taxed good and on the budget effects of the regulation. We use a conditional demand model to decompose the cross-price effect to discuss which criteria that must be fulfilled in order for substantial win–win effects to occur, using Norwegian stationary energy consumption as an empirical example.     

Horizontal mergers and product quality

We study the effects of a horizontal merger when firms compete on price and quality. In a Salop framework with three symmetric firms, several striking results appear. First, the merging firms reduce quality but possibly also price, whereas the outside firm increases both price and quality. As a result, the average price in the market increases, but also the average quality. Second, the outside firm benefits more than the merging firms from the merger, and the merger can be unprofitable for the merger partners, i.e., the “merger paradox” may appear. Third, the merger always reduces total consumer utility (though some consumers may benefit), but total welfare can increase due to endogenous quality cost savings. In a generalized framework with n firms, we identify two key factors for the merger effects: (i) the magnitude of marginal variable quality costs, which determines the nature of strategic interaction and (ii) the cross‐quality and cross‐price demand effects, which determines the intensity of price relative to quality competition. These findings have implications for antitrust policy in industries where quality is a key strategic variable for the firms.