On the growth and welfare maximizing allocation of public investment

In this paper we present an endogenous growth model to analyze the growth maximizing allocation of public investment among N different types of public capital. Using this general model of public capital formation, we analyze the stability of the long-run equilibrium and we derive the growth-maximizing values of the shares of public investment allocated to the different types of public capital, as well as the growth-maximizing tax rate (amount of total public investment as a share of GDP). The empirical implication of the model is that both the effects of the shares of public investment and the tax rate on the long-run growth rate are non-linear, following an inverse U-shaped pattern. Our analysis is completed by showing that the growth-maximizing shares of public investment and the growth-maximizing tax rate also maximize welfare in the decentralized economy.     

Compensating for unforeseeable damages in torts

The doctrine regarding unforeseeable damages in a contract was established in the well known case of Hadley vs. Baxendale. According to the judgement, a plaintiff cannot be compensated for unforeseeable damages in an incomplete contract unless he informs the defendant of the possible unforeseen contingency beforehand. In this paper, I extend the argument to the tort case in which it is hardly possible to communicate between a plaintiff and a defendant before an accident occurs. In the case of the sequential bilateral accident in which the victim’s care level is observable to the injurer, the victim’s care level can be a signal of the unforeseen contingency. I mainly discuss the implementability of the social optimum by the contributory negligence with dual standard of care enabling the communication between the parties.     

Private saving in India and Malaysia compared: the roles of financial liberalization and expected pension benefits

In this article, we provide a comparative account of the evolution of private saving in India and Malaysia, and analyze how policy changes in the financial sector and pension system help explain differences in their saving performance. Using the Autoregressive Distributed Lag (ARDL) bounds estimation procedure, we find a fairly robust long-run relationship between private saving and its determinants in both countries. Consistent with the predictions made in the life cycle model, our results indicate that higher income growth stimulates private saving and an increase in age dependency retards private saving. The results provide some support for the hypothesis that financial liberalization results in lower private saving in both countries. The evidence also indicates that expected pension benefits tend to stimulate private saving in India, but that the reverse is found in Malaysia.     

Wage inequality in developing countries: South–South trade matters

The relationship between trade liberalization and inequality has received considerable attention in recent years. The major purpose of this study is to present new results on the sources of wage inequalities in manufacturing taking into account South–South (S–S) trade. Globalization has not only lead to increasing North–South (N–S) trade, but it has also changed the direction and composition of trade as more trade is carried out among developing countries. In this study, we find that increasing wage inequality is associated more with the South–South trade liberalization than with the classical trade liberalization with northern countries. A part of this increasing wage inequality due to S–S trade comes from the development of N–S trade relationship in S–S trade that increases wage inequality in middle-income developing countries. This study also seeks to shed some light on the link between the direction of trade and technological change. We explore the fact that S–S trade leads to a technological change biased toward skill-intensive sectors more than N–S trade. This indirect effect increases wage inequality for all developing countries, but it is more important in low-income countries.     

The role of role uncertainty in modified dictator games

We compare behavior in modified dictator games with and without role uncertainty. Subjects choose between a selfish action, a costly surplus creating action (altruistic behavior) and a costly surplus destroying action (spiteful behavior). While costly surplus creating actions are the most frequent under role uncertainty (64%), selfish actions become the most frequent without role uncertainty (69%). Also, the frequency of surplus destroying choices is negligible with role uncertainty (1%) but not so without it (11%). A classification of subjects into four different types of interdependent preferences (Selfish, Social Welfare maximizing, Inequity Averse and Competitive) shows that the use of role uncertainty overestimates the prevalence of Social Welfare maximizing preferences in the subject population (from 74% with role uncertainty to 21% without it) and underestimates Selfish and Inequity Averse preferences. An additional treatment, in which subjects undertake an understanding test before participating in the experiment with role uncertainty, shows that the vast majority of subjects (93%) correctly understand the payoff mechanism with role uncertainty, but yet surplus creating actions were most frequent. Our results warn against the use of role uncertainty in experiments that aim to measure the prevalence of interdependent preferences.     

The political determinants of liberalization: do ideological cleavages still matter?

We investigate the political determinants of liberalization in OECD network industries, performing a panel estimation over 30 years, through the largest and most updated sample available. Our results contrast with the traditional wisdom according to which right-wing governments do promote market-oriented policies more intensively than left-wing ones. Our findings reveal a neglected role of the so-called neoliberalism in promoting left-wing market-oriented policy. As a result, we claim that ideological cleavages ceased to act as determinants of the liberalization wave observed in network industries. This result is confirmed when controlling for the existing regulatory conditions that executives find when elected. Furthermore, we find that the country’s exposure to other countries’ policy initiatives acts as a positive stimulus for liberalization policies.     

Strategic environmental policy and the accumulation of knowledge

In dealing with a transnational pollutant-emitting duopoly welfare-maximising policy makers face two negative externalities: imperfect competition and unpriced emissions. Strategic environmental policy models show that these externalities involve a trade-off between reducing pollution and allowing for rent-seeking of the respective firm. This dilemma usually results in a suboptimal internalisation of the negative externality emerging from emissions. Indeed, the conventional model setup includes an R&D stage that enables the firms to mitigate regulation costs. But the typical one period configuration ignores that R&D expenditures create knowledge capital which is, due to its inherent cumulativeness, also effective in following periods. Our model analyses the established trade-off in a two period setting and therefore allows for an investigation of intertemporal knowledge accumulation. We find that the intertemporal effects provide an incentive for a policy maker to set a higher tax rate compared to a one-period setup which lessens the magnitude of the suboptimal internalisation of emissions. Under certain conditions even a tax rate above the Pigouvian level is possible in period 1.     

Secure implementation in Shapley–Scarf housing markets

This paper considers the object allocation problem introduced by Shapley and Scarf (J Math Econ 1:23–37, 1974). We study secure implementation (Saijo et al. in Theor Econ 2:203–229, 2007), that is, double implementation in dominant strategy and Nash equilibria. We prove that (1) an individually rational solution is securely implementable if and only if it is the no-trade solution, (2) a neutral solution is securely implementable if and only if it is a serial dictatorship, and (3) an efficient solution is securely implementable if and only if it is a sequential dictatorship. Furthermore, we provide a complete characterization of securely implementable solutions in the two-agent case: a solution is securely implementable if and only if it is either a constant solution or a serial dictatorship.