Fiscal decentralization in Indonesia: A comment on smoke and lewis

In World Development Smoke and Lewis (1996) describe a local government capability rating effort in Indonesia, and conclude that this approach to decentralization has great potential. Their analysis is bound to a limited set of central level actors, and thus reflects only part of the decentralization debate in Indonesia. Consequently the authors miss the roots of this purportedly “new” approach and overestimate its actual or possible effects. Smoke and Lewis have also not taken into account the importance of a vastly different approach to decentralization, the regional autonomy pilot program, which was inaugurated by the Indonesian Government in April 1995. Providing the broader context to the rating effort, we try to reveal its conceptual and practical limitations and point on the ambiguous role of the rating effort in the decentralization arena in Indonesia.     

MATCHING MODELS UNDER SCRUTINY: AN APPRAISAL OF THE SHIMER PUZZLE

Abstract Two papers have recently questioned the quantitative consistency of the search and matching model. Shimer has argued that a textbook matching model is unable to explain the cyclical variation of unemployment and vacancies in the US economy. Costain and Reiter have found the existence of a trade‐off in the model's performance: any attempt to change the calibrated values to improve the model's ability to predict the business cycle jeopardizes its predictions of the impact of unemployment benefits on unemployment. In surveying the literature originating in these findings, I distinguish three different avenues that have been followed to correct the model: change in wage formation, change in the calibration and changes in the model specification. The last approach seems to achieve the best results both from a business cycle and from a microeconomic viewpoint.     

Redistribution and Government Tactical Behaviour: An Analysis of Local Public Expenditure in China after the 1994 Tax Reform

During the last few decades significant changes have affected Chinese public finance. In 1994, a major tax reform was undertaken and central–local sharing arrangements were deeply modified; the evolutions of regional public expenditure in the years following the reform deserve to be analysed. The issue is relevant for two additional reasons. First, income inequality is becoming a relevant issue and it is therefore important to understand whether the Chinese government is pursuing some kind of redistribution policy. Second, an analysis of the local expenditure dynamics might provide some important information concerning the objectives and the behaviour of the Chinese government. The article considers a set of structural, political and socio‐economic variables to analyse the determinants of local public expenditure in 30 Chinese regions over the period 1995–2007. The results reveal that redistribution seems not to be a priority for the Chinese government: expenditure is higher in richer and more internationally open regions, and the only redistribution evidence that emerges is related to urban–rural disparities.     

A framework for analysing strategies of Internet Service Providers

The fast proliferation of services over the Internet and the development of new Internet standards and technologies are affecting the existing business models of the traditional telecommunications market. This holds, in particular, for the ISP market. This paper assesses the impacts of basic elements of business strategies on the relative competitive position of selected types of ISPs. One result is that the incumbent telcos have a relatively strong starting point in the ISP market, while small regional ISPs have a weak starting point.     

Financial market equilibria with cumulative prospect theory

The paper first shows that financial market equilibria need not to exist if agents possess cumulative prospect theory preferences with piecewise-power value functions. This is due to the boundary behavior of the cumulative prospect theory value function, which might cause an infinite short-selling problem. But even when a non-negativity constraint on final wealth is added, non-existence can occur due to the non-convexity of CPT preferences, which might cause discontinuities in the agents’ demand functions. This latter observation also implies that concavification arguments which has been used in portfolio allocation problems with CPT preferences do not apply to our general equilibrium setting with finite many agents. Existence of equilibria is established when non-negativity constraints on final wealth are imposed and there is a continuum of agents in the market. However, if the original prospect theory is used instead of cumulative prospect theory, then other discontinuity problems can cause non-existence of market equilibria even in this case.     

Indirect estimation of large conditionally heteroskedastic factor models,with an application to the Dow 30 stocks

We derive indirect estimators of conditionally heteroskedastic factor models in which the volatilities of common and idiosyncratic factors depend on their past unobserved values by calibrating the score of a Kalman-filter approximation with inequality constraints on the auxiliary model parameters. We also propose alternative indirect estimators for large-scale models, and explain how to apply our procedures to many other dynamic latent variable models. We analyse the small sample behaviour of our indirect estimators and several likelihood-based procedures through an extensive Monte Carlo experiment with empirically realistic designs. Finally, we apply our procedures to weekly returns on the Dow 30 stocks.     

Dini derivatives in optimization — Part II

This paper, published in two parts, is mainly concerned with general properties of Dini derivatives of functions of one and several variables and with some applications of this topic to the study of generalized convexity and generalized optimality conditions for mathematical programming problems.In part I the basic definitions and properties are given, with reference both to functions of one real variable and to functions of several real variables. In this part special attention is given to the restatement of the basic theorems of the classical analysis to nondifferentiable functions, in terms of Dini derivatives.In part II we use these derivatives in order to define some classes of nondifferentiable generalized convex functions and the class of generalized upper quasidifferentiable functions. This part concludes with the development of optimality conditions for a nonsmooth programming problem, expressed in terms of the tools prevously introduced.

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Riassunto presente lavoro, pubblicato in due parti, riguarda le principali proprietà dei numeri derivati di Dini (o derivate direzioni di Dini), sia di funzioni di una variabile che di più variabili, nonché alcune loro applicazioni allo studio della convessità generalizzata ed a problemi di ottimizzazione vincolata.Nella prima parte del lavoro si formiscono le definizioni e le proprietà fondamentali dei numeri derivati di Dini e vengono riformulati alcuni classici teoremi dell'analisi, con riferimento a funzioni non differenziabili.Nella seconda parte tali derivate direzionali vengono applicate nello studio di alcune classi di funzioni convesse generalizzate non differenziabili e nell'ottenimento di condizioni di ottimalità per problemi (non differenziabili) di programmazione matematica.

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This research was supported by the Italian Ministry of University and Scientific Research and by the National Science Foundation of the Hungarian Academy of Sciences and Arts (grant OTKA 354/86). The authors have shared their work as follows: Chapters 1 and 3 are attributed to the first author, whereas Chapters 2 and 4 are attributed to the second author. The Introduction and Chapter 5 is common.