Exchange rate uncertainty and play nonlinearity in aggregate employment

In a microeconomic model, a band of inaction due to hiring and firing costs is widened by option-value effects of exchange rate uncertainty. Applying an adequate aggregation approach, uncertainty leads to intervals of a weak response to exchange rate reversals—the so-called play areas—on the macro level. If changes go beyond the play area, then suddenly strong reactions (spurts) occur. The width of the play is a positive function of the degree of uncertainty. These nonlinear dynamics are captured in a simplified linearized way in a regression framework. As an empirical application, the exchange rate impacts on German employment are analyzed considering play. Since these mechanisms generally apply to investment cases where an aggregation of microeconomic real option effects under uncertainty is relevant, they may be of a general interest.     

AN ECONOMIC APPRAISAL OF THE IMPACT OF TRAFFIC DIVERSION – THE N1 TOLL ROAD AND ITS ALTERNATIVE

This paper investigates two alternative roads running parallel to one another; one being a double‐carriageway national road that was tolled 4 years ago and the other being an inter‐city single‐carriageway road. The purpose of the paper is to test the application of the World Bank‐developed Road Economic Decision (RED) model for assessing the economic impact of traffic diversion between two existing alternative roads. In order to do so, the RED model is first used to conduct a cost–benefit analysis of each road in isolation. Thereafter, the model is used to do a scenario analysis followed by a sensitivity analysis. The results show that the RED model is a useful tool for evaluating the impact on society of diverted traffic between alternative roads elsewhere in South Africa.     

An event of world-wide attraction

This year's Hanover Fair will be held from April 26 to May 5. As a display of technical achievement this fair has attracted world-wide attention and gained general recognition among the growing number of similar events. The number of German and foreign exhibitors, many of them with names known the world over, as well as the still rising flood of visitors are evidence of the Hanover Fair's prominent position, particularly in the sphere of investment goods. In order to learn how this event appears from the point of view of a large-scale enterprise we had a talk with Professor Dr Matthias Schmitt of the Allgemeine Elektricitaetsgesellschaft AEG-TELEFUNKEN about the significance of this year's fair and about some special aspects of fair policy.     

Opportunities and tripwires for foreign investors in Eastern Europe

This article discusses how the local environment influences the strategic decisions of foreign investors entering Central and Eastern Europe. The current economic transition of the region offers unique opportunities arising from virgin markets and low labor costs. Foreign businesses have been eager to exploit the former, often pursuing first-mover advantages. However, the underlying structural problems of the economies in transition inhibit the development of business: in adapting to the new market environment, firms are in a process of fundamental restructuring. Moreover, the privatization process in the region creates both opportunities and obstacles for entry by acquisition. While the institutional framework is developing toward Western models, it remains incomplete. © 1998 John Wiley & Sons, Inc.     

Cooperation under the threat of expulsion in a public goods experiment

In a public goods experiment with the opportunity to vote to expel members of a group, we found that contributions rose to nearly 100% of endowments with significantly higher efficiency compared with a no-expulsion baseline. Our findings support the intuition that the threat of expulsion or ostracism is a device that helps some groups to provide public goods.     

Anonymous Games with Binary Actions

In many economic decision problems the preferences of economic agents depend on the numbers or proportions of individuals choosing the same decision or other decisions. Examples include network or congestion externalities, location choices of firms, the tourist's choice of a vacation destination, the visit of public events like concerts, or the purchase of goods that are subject to fashion. In this article the relating equilibrium characterization and selection questions are formulated and solved in terms of anonymous games with a continuum of players facing a binary decision problem. Journal of Economic Literature Classification Numbers: C72, D62.