An Incomplete Contract Perspective on Public Good Provision

Abstract.  This paper surveys what can be learned from recent advances in the incomplete contract literature to understand how public goods are or should be provided. The paper starts with a section on the full information case that presents and discusses the classical Samuelson condition on the optimal provision of public goods. The rest of the paper presents results under asymmetric information. It is constituted of two main parts. In the first one, the social planner has complete contracting ability. We discuss the basic setting and assumptions of this comprehensive contracting approach and study the trade-offs it generates. The second part of the paper is devoted to the study of contracting incompleteness. Such incompleteness can emerge from various sources, which we present and discuss. We then study the case of a politically chosen decision-maker and the consequences of its inability to commit for more than one period and of the ability for individuals to form groups. Finally, we address the problem of the choice between public and private forms of public good provision. The concluding section summarizes the main policy lessons.     

Commodity price bubbles and macroeconomics: evidence from the Chinese agricultural markets

This article investigates the links between commodity price bubbles and macroeconomic factors, with an application to the agricultural commodity markets in China from 2006 to 2014. Price bubbles are identified using a newly developed, recursive right‐tailed unit root test. A Zero‐inflated Poisson model is used to analyze the factors contributing to bubbles. Results show that (a) there were speculative bubbles in most Chinese agricultural commodity futures markets during the sample period, though their presence was infrequent; (b) economic growth, money supply, and inflation have positive effects on bubble occurrences, while interest rates have a negative effect; and (c) among all macroeconomic factors considered, economic growth and money supply have the greatest impact in triggering bubbles. Our findings shed new light on the nature and formation of bubbles in the Chinese agricultural commodity markets.     

Rural development in Hertzog,Eastern Cape: Successful local economic development?

The government's recently released rural development strategy identifies the important role which local economic development can play in the rural areas of South Africa. This article examines the key features of local economic development and the degree to which recent initiatives in the rural village of Hertzog conform with the basic principles of local economic development. The recent establishment of an agriculture cooperative and smallholder farming on irrigated one‐hectare plots forms the basis of the initiative. Community structures, strategies and achievements are outlined and assessed.     

Supporting Local Economic Development in Post-Apartheid South Africa

South Africa's apartheid era has left a bitter legacy of retarded economic development. Local Economic Development has been identified by the South African government as a key strategy through which issues of development and, more importantly, poverty alleviation can be addressed by local governments. This paper reviews current Local Economic Development policy in South Africa, before proceeding to an examination and analysis of the impact of the primary government support mechanism designed to promote such development initiatives, namely the Local Economic Development Fund. Whilst such support is of vital importance, far greater levels of intervention will be needed to fully address the massive scale of current local development needs.     

Towards unveiling individual differences in different stages of information processing: a clustering-based approach

Information Integration Theory (IIT) is a theory of judgment in daily life. Its principal aim is to study the cognitive rules that people use to integrate information when they make a judgment. Traditionally, the identification of individual differences in these qualitatively different integration rules requires individual designs. It also requires the grouping of individuals according to their integration rule, which can be a challenging task, particularly when the data are noisy or when the pattern involves many factors. This paper builds on the cluster analysis tradition for developing a series of clustering procedures that can be implemented for studying, not only individual differences in integration rules, but also individual differences in other stages of information processing. These procedures are intended to simplify the identification of differences in (a) the subjective valuation of information, (b) the integration of the subjective values, and (c) general attitudes before judging.     

Housing and the labor market: Time to move and aggregate unemployment

Conventional macro-search models (Mortensen and Pissarides) with unemployment benefits and taxes have been able to account for the variation in unemployment rates across countries but do not account for the role geographic mobility or commuting time might play. We build a model in which both unemployment and mobility rates are endogenous. Our findings indicate that an increase in unemployment benefits and in taxes does not generate a strong decline in mobility but does increase unemployment as in the standard model. We find that with higher commuting costs the effect of housing frictions plays a large role and can generate a substantial decline in mobility.     

A Search Model of Unemployment and Inflation*

This paper introduces money into the standard labor‐matching model. A double‐coincidence problem makes money necessary as a medium of exchange. In the long run, a rise in the growth rate of money leads to higher inflation and higher unemployment, such that the long‐run Phillips curve is not vertical. The optimal monetary growth rate decreases with greater worker bargaining power, the level of unemployment benefits, and the payroll tax rate.     

A Comparison of Group Model Building and Strategic Options Development and Analysis

A distinctive tradition within group decision support uses models to structure managerial problems. In this tradition, stakeholders jointly construct a model on their issue of concern in facilitated workshops. In the past decades a wide variety of theoretical insights into and techniques for model-based decision support have been proposed and tested in practical applications. Methods are designed and used by experts; guidelines on their use are not completely spelled out in the literature. This lack of transparency may lead to difficulties in showing the value of methods to researchers in other fields, limit transferability of methods and complicate recombining elements of methods into a multimethodology. In this paper we aim to contribute to transparency by contrasting two model-driven methods: group model building (GMB) and Strategic Options Development and Analysis (SODA). We first develop a framework for comparing methods on a theoretical and practical level. Second, we describe the separate use of each approach, on one and the same issue, with a similar group of participants. By contrasting the choices made in a practical application we clarify process and results in different phases of problem analysis. Our conclusion is that theoretical assumptions of both approaches are more similar than expected. Each method captures different aspects of the problem and in this sense methods may supplement one another: where SODA focuses on the future and identification of actions, GMB aims to create insight into the relation between (past) behavior and structure of the problem. In choosing which element of the methods to use, it is important to realize that each element strikes a particular balance between costs (e.g. time taken from participants or modelers) and benefits (e.g. level of involvement or model verification). For instance, some elements speed up the process but do so at the cost of lowering participants’ involvement. A practical combination of elements of GMB and SODA thus requires the user to assess the relative importance of insight and action as project deliverables, weigh costs and benefits of elements of either method and string these together in a logical sequence that creates the outcomes required.     

Beyond the labour income tax wedge: the unemployment-reducing effect of tax progressivity

In this paper, we argue that, for a given overall level of labour income taxation, a more progressive tax schedule increases employment. From a theoretical point of view, higher progressivity increases overall employment through a wage moderating effect and also because employment of low-paid workers is more elastic to wages. We test these theoretical predictions on a panel of 21 OECD countries over 1998–2008. Controlling for the burden of taxation at the average wage, our estimates suggest that a more progressive tax schedule reduces the unemployment rate and increases the employment rate. These findings are confirmed when we account for the potential endogeneity of both average taxation and progressivity. Overall, our results suggest that policy-makers should not only focus on the detrimental effects of tax progressivity on in-work effort, but also consider the employment-enhancing effects.