The effects of ambiguity on entrepreneurship

We incorporate ambiguity (Knightian uncertainty) into a classic model of entrepreneurship to analyze, among other things, its effects on the optimal level of business startups, the relation between total assets and the size of the entrepreneurial investment, the effects of increasing ambiguity on developing new ventures, and the decision to self‐select into entrepreneurship for an indifferent decision maker. We first show that, under the monotone‐likelihood ratio property, the introduction of ambiguity negatively affects the optimal entrepreneurial investment, something that is consistent with most experimental evidence about entrepreneurial choice under ambiguity. Then, we show that the classical explanations for the positive correlation between total assets and business startups based on decreasing absolute risk aversion preferences and prudent behavior can be challenged when ambiguity is incorporated into the analysis, and we provide the conditions that guarantee that the traditional comparative static result under risk is replicated under ambiguity. We also show that increases in ambiguity aversion reduce entrepreneurial activities. Finally, we discuss our results under alternative ways of modeling ambiguity.     

¿Hay evidencia de ciclo político-económico en el empleo sectorial de México, 1998-2013?

This paper looks for evidence of political-business cycles associated to the presidential elections in the Mexican sectorial employment over the period 1998-2013. By estimating panel data models, and controlling for the effects of the major determinants of employment, no evidence consistent with the predictions of the theoretical opportunistic model is found, i.e. whereas employment shows an expansion before and during the elections periods, the estimates are neither statistically significant nor robust. Furthermore, employment does not experience contractions after the elections or the office taking periods. Notwithstanding, the evidence suggests that employment is positively and negatively affected by output and real wages, respectively.     

Inflation Stabilisation and the Consumption of Durable Goods

Exchange rate-based stabilisations in chronic-inflation countries have often been characterised by an initial consumption boom (which is most evident in the behaviour of durable goods) followed by a later contraction. This paper provides an explanation for such a boom-recession cycle based on the timing of purchases of durable goods. The initial fall in inflation results in a wealth effect which induces many consumers to bring forward their purchases of durable goods, thus generating an aggregate consumption boom. Since most consumers replenish their stock of durable goods at the beginning of the programme, a later slowdown follows.     

Politico-economic consequences of rising wage inequality

This paper uses a dynamic political economy model to evaluate whether the observed rise in wage inequality and decrease in median to mean wages can explain some portion of the relative increase in transfers to low earnings quintiles and relative increase in effective tax rates for high earnings quintiles in the U.S. over the past several decades. Specifically, we assume that households have uninsurable idiosyncratic labor efficiency shocks and consider policy choices by a median voter which are required to be consistent with a sequential equilibrium. We choose the transition matrix to match observed mobility in wages between 1978 and 1979 in the panel study of income dynamics (PSID) data set and then evaluate the response of social insurance policies to a new transition matrix that matches the observed mobility in wages between 1995 and 1996 and is consistent with the rise in wage inequality and the decrease in median to mean wages between 1979 and 1996. We deal with the problem that policy outcomes affect the evolution of the wealth distribution (and hence prices) by approximating the distribution by a small set of moments. We contrast these numbers with those from a sequential utilitarian mechanism, as well as mechanisms with commitment.     

EXPERIMENTAL AND SELF‐REPORTED MEASURES OF RISK TAKING AND DIGIT RATIO (2D:4D): EVIDENCE FROM A LARGE,SYSTEMATIC STUDY

We systematically investigate the links between the digit ratio (2D:4D)—a biomarker for prenatal testosterone exposure—and two measures of individual risk taking: (i) risk preferences (RP) over lotteries with real monetary incentives and (ii) self‐reported risk attitude (RA). We find that both the right‐hand and the left‐hand digit ratio are significantly associated with RP: Subjects with lower digit ratios tend to choose riskier lotteries. Neither digit ratio, however, is associated with self‐reported RA.     

A methodology for the construction of dynamic capabilities in industrial networks: The role of border agents

The article presents a methodology for the formation and functioning of industrial networks that favors the development of dynamic capabilities with regard to the creation, integration, transfer and absorption of knowledge. This methodology has been put into practice in a case study: Lignum Facile. The presence of some misalignments between our initial proposal and its implementation helped us reshape and emphasize particular processes and flows associated to the methodology. Beyond the typical localization and agglomeration advantages, the analysis suggests that the success in the formation and functioning of industrial networks is mainly related to their potential to formulate immaterial relationships capable of stimulating learning processes, the dissemination of technological knowledge and innovative activities. Particularly, we found that the inclusion of border agents – intermediaries between the market and industry such as architects, engineers or designers – is fundamental to develop innovations at the intersection of different scientific and technological disciplines.     

DOES POPULATION AGEING PROMOTE FASTER ECONOMIC GROWTH?

Can divergent demographic trends account for differences in per capita output across countries? We address this question by offering evidence that the process of population ageing is positively and significantly related to cross‐country economic performance. We define and estimate the effect of demographic change in two ways. First, a growing cohort of working age persons (15–64) as a share of the total population is found to have a large positive effect on GDP per capita. Second, an increase in the number of prime age persons (35–54) relative to the younger working age population (15–34) is found to have a positive but curvilinear effect with respect to per capita GDP. We find that changes in per capita GDP peak when the ratio of the prime‐to‐younger age population reaches an optimum of prime age workers for every younger aged worker. Beyond or below this optimal ratio, per capita output is lowered.     

THE (IR)RELEVANCE OF THE NRU FOR POLICY MAKING: THE CASE OF DENMARK

We reconsider the central role of the natural rate of unemployment (NRU) in forming policy decisions. We show that the unemployment rate does not gravitate towards the NRU due to frictional growth, a phenomenon that encapsulates the interplay between lagged adjustment processes and growth in dynamic labour market systems. We choose Denmark as the focal point of our empirical analysis and find that the NRU explains only 33% of the unemployment variation, while frictional growth accounts for the remaining 67%. Therefore, our theoretical and empirical findings raise doubts as to whether the NRU should play such a key instrumental role in policy making.