Are Unrealistic Assumptions/Simplifications Acceptable? Some Methodological Issues in Economics

Are unrealistic assumptions acceptable? If results are not changed in a misleading way, they are acceptable. The same assumption may be acceptable in one context and not in another. Assuming identical pairs of individuals in the parity and limit theorems in general equilibrium theory is acceptable as results are not changed substantially. The alleged equivalence of the first‐price and second‐price auctions is based on misleading assumptions; Coase's case against taxing pollution is based on a misleading all‐or‐nothing comparison. The contrasting results (neutrality versus non‐neutrality of money) of perfect versus imperfect competition in macroeconomics with important real‐world policy relevance are also used to illustrate the point.     

An Empirical Comparison Between the Synthetic Control Method and HSIAO et al.'s Panel Data Approach to Program Evaluation

We compare two program evaluation methodologies: the synthetic control method and the panel data approach. We apply both methods to estimate the effect of the political and economic integration of Hong Kong. The results obtained differ depending on the methodology used. We then conduct a simulation that shows that the synthetic control method results in a post‐treatment mean squared error, mean absolute percentage error, and mean error with a smaller interquartile range, whenever there is a good enough match. Copyright © 2016 John Wiley & Sons, Ltd.     

Gender,life cycle,and family ‘strategies’ among the poor: the Barcelona workhouse, 1762–1805

Poor relief has received less attention from historians of southern Europe compared with northern Europe. This article seeks to challenge the frequent assumption that the strength of family ties in southern Europe mitigated the need for welfare provision. It provides new data for men and boys entering the Barcelona workhouse in the period 1780–1803, and compares these with data from an earlier study of women and girls who entered the same institution over the period 1762–1805. We establish the characteristics of those who sought relief in terms of age, place of origin, marital status, and occupation. We use the information on reasons for entry and exit to ascertain family circumstances. We show that there were significant differences between males and females in terms of why they entered and left, and length of stay, particularly among the elderly. The bulk of the population of the workhouse, however, was comprised of children and adolescents. For this group, entry into the workhouse represented not just a temporary solution to life cycle poverty and periodic unemployment, but also a longer‐term strategy aimed at smoothing entry into the labour market.     

The Geography of Innovation in China and India

The BRICS countries in general, and China and India in particular, are now widely regarded as the areas of the world likely to challenge the economic leadership of the United States (US) and the European Union (EU). A large part of this challenge will come from rapid technological catch‐up by China and India. Yet, despite a recent rise in interest, there is limited knowledge about how and where innovation takes place in these two leading emerging countries and to what extent the Chinese and Indian territorial systems of innovation differ from those in the EU or the US. In this article we explore the geography of innovation in China and India, concentrating on understanding key territorial‐level innovation trends by country, region and technology field, using the US and the EU as benchmarks. We find significant contrasts between the geography of innovation in China and India and that of the US and the EU. First, the degree of concentration of innovative activities in both countries is extremely high. Levels of agglomeration of innovation in the coastal provinces of China, as well as in Delhi and the South of India, significantly exceed the levels of agglomeration found in the USA and the EU. Secondly, China has witnessed a more rapid increase in the degree of concentration of innovation than India. We posit that the differences in the geography of innovation between, on the one hand, China and India and, on the other hand, between these countries and the developed world are rooted in different institutional settings, different systems of innovation and different national innovation strategies.     

Do analysts who understand accounting conservatism exhibit better forecasting performance?

This study investigates the performance of analysts when they match the asymmetric timeliness of their earnings forecast revisions (i.e., asymmetric forecast timeliness) with the asymmetric timeliness of firms’ reported earnings (i.e., asymmetric earnings timeliness). We find that better timeliness‐matching analysts produce more accurate earnings forecasts and elicit stronger market reactions to their forecast revisions. Further, better timeliness‐matching analysts issue less biased earnings forecasts, more profitable stock recommendations and have more favorable career outcomes. Overall, our results indicate that analysts’ ability to incorporate conditional conservatism into their earnings forecasts is an important reflection of analyst expertise and professional success.     

Corporate Cash Holding in Asia

In this paper, we analyze the determinants of corporate saving in the form of changes in cash holdings for 11 Asian economies using firm‐level data from the Oriana Database for the 2002–2011 period. We find some evidence that cash flow has a positive impact on the change in cash holdings (i.e. that the cash flow sensitivity of cash is positive) and that the positive impact of cash flow on the change in cash holdings is larger and more significant in the case of smaller and presumably more constrained firms than in the case of larger and presumably less constrained firms in both developed and developing economies. Both of these findings corroborate the importance of financial constraints in Asian firms. In addition, we find that the cash flow sensitivity of cash declined after the global financial crisis and that Tobin's q has a positive impact on the change in cash holdings, especially in the case of larger and presumably unconstrained firms.     

Country Differences in Material Deprivation in Europe

This paper assesses to what extent differences in the characteristics of individuals (micro‐level perspective) and country‐specific factors (macro‐level perspective) can explain country differences with respect to material deprivation levels. Thus, our work aims to simultaneously consider the macro dimension and the predominantly individually‐oriented study field of material deprivation using multilevel techniques. We make use of the European Union Statistics on Income and Living Conditions. Our results show that country‐specific factors seem to be much more relevant than individual effects in explaining country differences in material deprivation. We estimate that the introduction of country‐specific factors reduces the proportion of total variance due to between‐country differences in deprivation by 72.7 percent, while individual‐level variables reduce this proportion by only 9.4 percent. We also show, through interaction variables, that the effect of sociodemographic characteristics can be shaped by institutional and structural factors, especially by the level of GDP.