A Simultaneous-Equations Model of Trade, Conflict, and Cooperation

A simultaneous-equations model is developed for the reciprocal relationship among bilateral trade value, conflict, and cooperation by modeling the actions of exporters, importers, and governments. The model is estimated separately for each of the dyads among the US, the USSR, China, Japan, and (West) Germany for the yearly data from 1948 to 1992. The direction of the effects of conflict or cooperation on trade and that of trade on conflict or cooperation are generally mixed, as expected. Certain reciprocal relationship patterns emerge depending on whether countries belong to the East or West block.     

Europe vs America: Institutional hysteresis in a simple normative model

We show how the differences in US and European institutions can arise in a normative model. The paper focuses on the labor market and the government's decision to set unemployment benefits in response to an unemployment shock. The government balances insurance considerations with the tax burden of benefits and the possibility that they introduce adverse “incentive effects” whereby benefits increase unemployment. It is found that when an adverse shock occurs, benefits should be increased most when the adverse incentive effects of benefits are largest. Adjustment costs of changing benefits introduce hysteresis and can help explain why post-oil shock benefits remained high in Europe but not in the US. Desirable features of the model are that we obtain an asymmetry out of a symmetric environment and that the mechanism yielding hysteresis is both simple (requires the third derivative of the utility function to be non-negative) and self-correcting. Empirical evidence concerning the role of corporatism is discussed.     

Macroeconomic performance and convergence in OECD countries

This paper investigates the robustness of the correlation between growth and a set of variables which comprises accumulation rates in human and physical capital and medium term macroeconomic indicators in OECD countries. We include these variables as additional regressors in the standard growth equation that comes from the human capital-augmented Solow model. Our results show that variables related to medium term macroeconomic performance affect both growth and convergence. In some periods these variables even outperform the explanatory power of the conventional growth variables such as the accumulation rates. Our results also suggest that it is difficult to analyse the contribution to growth of any particular macroeconomic indicator in an isolated way. Rather, these effects should be studied in a framework that accounts for the macroeconomic performance of a country.     

The impact of population on CO<Subscript>2</Subscript> emissions: evidence from European countries

This paper analyses the impact of population growth on CO₂ emissions in European Union countries. Traditionally, researchers have assumed a unitary elasticity of emissions with respect to population growth. In this study population is treated as a predictor in the model, instead of being included as part of the dependent variable (per capita emissions), thus relaxing the above-mentioned assumption of unitary elasticity. We also contribute to the existing literature by taking into account the presence of heterogeneity in the sample and considering a dynamic specification. The sample covers the period 1975–1999 for the current European Union members. Our results show that the impact of population growth on emissions is more than proportional for recent accession countries whereas for old EU members, the elasticity is lower than unity and non significant when the properties of the time series and the dynamics are correctly specified. The different impact of population change on CO₂ emissions for the current EU members should therefore be taken into account in future discussions of climate change policies within the EU.      

Smoothing sudden stops

Emerging economies are often exposed to sudden shortages of international financial resources. Yet domestic agents do not seem to take preventive measures against these sudden stops. We highlight the central role played by the limited development of ex ante (insurance) and ex post (spot) domestic financial markets in generating this collective undervaluation of international resources. We study several policies to counteract the external underinsurance. We do this by solving for the optimal mechanism given the constraints imposed by limited financial development, and then considering the main financial policies—in terms of the model and practical relevance—that implement this solution.     

Information or Opinion? Media Bias as Product Differentiation

Two aspects of media bias are important empirically. First, bias is persistent: it does not seem to disappear even when the media is under scrutiny. Second, bias is conflicting: different people often perceive bias in the same media outlet to be of opposite signs. We build a model in which both empirical characteristics of bias are observed in equilibrium. The key assumptions are that the information contained in the facts about a news event may not always be fully verifiable, and consumers have heterogeneous prior views ("ideologies") about the news event. Based on these ingredients of the model, we build a location model with entry to characterize firms' reports in equilibrium, and the nature of bias. When a news item comprises only fully verifiable facts, firms report these as such, so that there is no bias and the market looks like any market for information . When a news item comprises information that is mostly nonverifiable, however, then consumers may care both about opinion and editorials, and a firm's report will contain both these aspects—in which case the market resembles any differentiated product market . Thus, the appearance of bias is a result of equilibrium product differentiation when some facts are nonverifiable. We use the model to address several questions, including the impact of competition on bias, the incentives to report unpopular news, and the impact of owner ideology on bias. In general, competition does not lead to a reduction in bias unless this is accompanied by an increase in verifiability or a smaller dispersion of prior beliefs.     

Reputation When Threats and Transfers Are Available

We present a model where a long run player is allowed to use both money transfers and threats to influence the decisions of a sequence of short run players. We show that threats might be used credibly (even in arbitrarily short repeated games) by a long-lived player who gains by developing a reputation of carrying out punishments. Particular cases of the model are a long-lived pressure group offering rewards and punishments to a series of targets (public or corporate officials) in exchange for policy favors, or that of a long-lived extorter who demands money in order not to punish. We use the model to analyze the "convicted nonpayor" debate around judicial corruption. The model highlights formal similarities between lobbying and extortion.     

Negotiation Based on Fuzzy Logic and Knowledge Engineering: Some Case Studies

One of the most recent mathematical models for negotiation is the Compensatory Negotiation Solution by Knowledge Engineering (CNSKE). In this model a logic system called Compensatory Fuzzy Logic was used, which is more adequate to solve problems of decision making than the classical one probabilistic fuzzy logic system. The idempotency axiom of this system and the continuity of the operators allow the truth-values of the membership function to have a cardinal and not exclusively ordinal semantic meaning. On the other hand, continuity also makes ‘sensible’ the truth-values of the predicates. The aim of this paper is to illustrate the advantages of the CNSKE over other approaches in Game Theory. To show these advantages, some case studies are analyzed, consisting on the solution of three problems in which CNSKE is applied in economic and politic cases of negotiation, and compared with other alternative approaches.     

Brand price differentials in retail distribution: product quality and service quality

A theoretical model is proposed to disentangle the contribution of brand quality and retailer service quality in explaining brand price differentials across retailers. Two testable hypotheses emerge: (i) for each brand type, price differences across retailers are independent of brand quality differentials and (ii) at a given retailer, price differences between different brand qualities are independent of service quality differentials. Our empirical analysis, for a sample of the U.K. grocery retailer prices, discloses that retailers that offer higher service quality sell same quality brands at higher prices. In particular, service quality premia amount to 6% for national brands and are in the range of 9–15% for low-quality store brands. Besides, at a given retailer, the price premia paid for the national brand are very large: around 150% between national brands and low-quality store brands, and around 40% between national brands and high-quality store brands. Also, the price differential between the national brand and the low-quality store brand does not increase with service quality.