Escaping Nash Inflation

An ordinary differential equation (ODE) gives the mean dynamics that govern the convergence to self-confirming equilibria of self-referential systems under discounted least squares learning. Another ODE governs escape dynamics that recurrently propel away from a self-confirming equilibrium. In a model with a unique self-confirming equilibrium, the escape dynamics make the government discover too strong a version of the natural rate hypothesis. The escape route dynamics cause recurrent outcomes close to the Ramsey (commitment) inflation rate in a model with an adaptive government.
"If an unlikely event occurs, it is very likely to occur in the most likely way."
Michael Harrison     

Leadership and group size: An experiment

Our experimental results suggest that the effectiveness of leading by example decreases with group size. The discrepancy between the leaders' and followers' incentives increases with group size. Thus, as group size increases, followers more often refuse to follow their leaders.     

The gains from specialization and population size

This note combines three ideas: the association of more people with new goods, the comparative advantages of individuals, and economic happiness. People may not be happier in a larger knowledge economy, but the gains from specialization are necessarily larger.     

Like father, like son? A note on the intergenerational transmission of IQ scores

Using a large population-based dataset, we estimate a substantial intergenerational transmission of IQ scores; a 10% increase in father's score at age 18 is associated with a 3.2% increase in son's score. This relationship also holds true for various subpopulations.     

How firm capabilities affect who benefits from foreign technology

We explore how firm capabilities affect the diffusion of technology brought with foreign direct investment (FDI). Using a panel dataset on Indonesian manufacturers from 1988 to 1996, we measure how the productivity of differing domestic firms responds to the entry of multinational competitors. We find that firms with investments in research and development and firms with highly educated employees adopt more technology from foreign entrants than others. In contrast, firms that have a small “technology gap,” meaning that they are close to the international best-practice frontier, benefit less than firms with weak prior technical competency. This finding suggests that the marginal return to new knowledge is greater for firms that have more room to “catch up” than it is for already competitive firms.     

A comparison of citizen and “expert” preferences using an attribute-based approach to choice

This paper explores whether expert judgements can be taken as a proxy for citizen preferences for determining investment strategies for public goods. As an illustration, we focus on the provision of Public Rights Of Way (PROW) by Local Government Authorities in England. These provide rights of passage over property to those other than the owners, and little information is available on the welfare effects of changes in the provision and use of PROW. Given limited funds, reliance on expert judgement could be a cost effective alternative for decision-making compared with stated preference surveys of citizens. Two methods are compared. The Analytic Hierarchy Process (AHP) is used to elicit expert judgement to proxy citizen preferences for different attributes of PROW. The Choice Experiment (CE) technique is then used to derive preferences directly through personal interviews with citizens. Overall it was found that judicious use of AHP by experts can, in this instance, be used to represent citizen views. However, this result may not be easily generalisable to other settings.     

Dynamics of the UK natural gas industry: System dynamics modelling and long-term energy policy analysis

We present a dynamic model of the indigenous natural gas industry in the UK. The model has been built using a system dynamics approach. Using the model several scenarios have been analyzed. We found that management of the supply-side policy alone cannot substantially postpone the discovery, production and consumption peak. We also found that the dynamics of the main variables, namely, exploration, production and consumption, are sensitive to initial demand conditions. Postponing the onset of gas price increases can therefore be achieved more effectively through efforts to reduce demand growth. One might expect that a low taxation policy would encourage more exploration and production of gas and thereby stimulate higher consumption rates. Instead, there was no overall net effect on production and consumption in the long term. The depletion effect on cost of exploration acts as counterbalance to low taxation policy. Depletion effect causes cost and thus price to rise further which depress consumption rate. The advances in exploration and production technology can delay the peak of exploration, production and consumption. Technological improvements mean lower cost of exploration and production which pressure down the long-term pattern of price dynamics.     

Agricultural impacts on water quality and implications for virtual water trading decisions

Research on the flow of virtual water associated with agricultural crop production and trade has focussed almost entirely on water quantity. It is pertinent to consider and quantify the opportunity costs in terms of reduced water quality associated with crop production. This paper investigates the impacts of water quality on virtual water trading by creating a proxy for water quality impacts by calculating the amount of water required to dilute nonpoint-source agrochemical inputs to relevant water quality guideline values. The quantity of water required for dilution of five agrochemicals (two nutrients; nitrogen and phosphorus and three insecticides; azinphos-methyl, chlorpyrifos and endosulfan) was estimated for five crops in South Africa (maize, wheat, sugar cane, citrus and cotton) and compared to consumption of irrigation water (blue water) and rainfall (green water) for the same crops. Results indicate that the volume of water required for dilution is similar to the total sum of green and blue water required for crop production, but significantly greater than blue water use (irrigation use). For all crops phosphorus losses require greater amounts of water for dilution than for nitrogen, while pesticides result in the greatest water quality use. Estimates of water quality use are based on assumptions for a number of input variables (i.e. fertilizer application rates, percentage loss of agrochemicals from cropped areas). A Monte Carlo analysis (5000 iterations) was run to randomly select input variables from within defined ranges. Water quality use was calculated and expressed as a factor of blue water use. For all crops the average factor indicated that the volume of water required for dilution of all agrochemicals was greater than that required for irrigation. The results of this study clearly indicate that the impacts of agriculture on water quality need to be considered in virtual water trading scenarios. The incorporation of a method to predict impacts on water quality provides a comparative tool which generates a more holistic frame of reference for decision making with regard to impacts on the water resource and virtual water trading.     

Experimental investigation of stationary concepts in cyclic duopoly games

We experimentally test the predictive success of three stationary concepts in two cyclic duopoly games. The concepts are Nash equilibrium, impulse-balance equilibrium and payoff-sampling equilibrium. In the experiment 11 independent subject groups, consisting out of six participants interacting over 200 rounds, were gathered for each game. The comparison of the three concepts with mixed strategies shows that the order of performance from best to worst is as follows: payoff-sampling equilibrium, impulse-balance equilibrium, and Nash equilibrium. In addition the data exhibit a weak but significant tendency over time in the direction of coordination at a pure strategy equilibrium.     

Applied R in the Classroom

R, with support from a number of add-on packages, is an excellent teaching tool that can greatly enhance learning of exploratory data analysis (EDA) and linear regression. This article illustrates using R along with the packages tidyverse , GGally , esquisse and lindia to walk through an example of basic EDA and linear regression that might be used in an introductory class along with code examples for every step. Teaching with R can give learners control of their analysis, lower the intimidating coding barrier, and provide a platform on which to learn modeling and analysis.