Is Declining Productivity Inevitable?

Fertility has been declining on all continents for the last couple of decades and this development is expected to continue in the future. Prevailing innovation-based growth theories imply, as a consequence of scale effects from the size of population, that such demographic changes will lead to a major slowdown in productivity growth. In this paper we challenge this pessimistic view of the future. By allowing for endogenous human capital in a basic R&D driven growth model we develop a theory of scale-invariant endogenous growth according to which population growth is neither necessary nor conductive for economic growth.     

Wie lässt sich Wohlstand messen?

Die Stiglitz-Kommission hat Empfehlungen zur Weiterentwicklung der statistischen Berichterstattung vorgelegt und das Bruttoinlandsprodukt als nicht ausreichend für die Messung der Wirtschaftsleistung, der Lebensqualit?t und der Nachhaltigkeit bewertet. Tats?chlich gibt es auch in der Bev?lkerung ein Unbehagen in Hinblick auf die amtliche Statistik. Allerdings sind Zufriedenheitsindikatoren als alternative Zielwerte für die Politik kritisch zu beurteilen.     

Optimal incentives to reduce transboundary emissions: Theory and empirical illustration to sulphur emissions in Austria and (former) Czechoslovakia

The observation that only one out of 14 tons of sulphur compounds immissions in Austria originates from Austrian sources highlights the contribution of transboundary pollution (predominantly from Eastern Europe). Therefore, further abatement in Austria has only a marginal impact but is very costly given the already high Austrian abatement standards. Thus, scientists and politicians conclude that it is in the rich countries' (e.g., Austria, Germany and the Scandinavian countries) own interest to support environmental protection in the former centrally planned economies that are apparently less concerned about environmental harms and risks. However, the proposed policies lead to a crowding out of the recipient country's own abatement investments. In order to mitigate such strategic behaviour, which is possible due to asymmetric information, we apply the principal-agent theory to derive optimal incentives. These incentives are in stark contrast to actual policy proposals, in particular, no subsidy should be paid if the neighbouring and polluting country does not care sufficiently about environment. Indeed, the empirical application shows that only sufficient environmental concern in Czechoslovakia warrants subsidies from Austria.We acknowledge discussions with Markus Amann and Gary Brennand and in particular, the very constructive comments from three anonymous referees.     

Child Health and Mortality: Does Health Knowledge Matter?

This paper studies factors that influence child health in Bissau,the capital of Guinea-Bissau. This environment is characterisedby high infant mortality, but not by malnutrition. We show thatalthough maternal education is important in determining childhealth and mortality this effect diminishes or disappears whenhealth knowledge is introduced as an explanatory variable. Itemerges that health knowledge has large and positive effectson both child mortality and health when instrumented for tocapture endogeneity.     

Endogenous Growth: A Knife Edge or the Razor's Edge?*

According to much of the recent growth literature, the dramatic worldwide decline in fertility currently taking place should ultimately lead to global economic stagnation. This pessimistic prediction is not shared by the original innovation‐based growth literature. In recent years, however, this strand of the literature has been criticized for resting on implausible knife‐edge assumptions and for its inconsistency with available evidence. In this paper, we argue that this conclusion is unwarranted.     

Robust portfolio choice with ambiguity and learning about return predictability

We analyze the optimal stock-bond portfolio under both learning and ambiguity aversion. Stock returns are predictable by an observable and an unobservable predictor, and the investor has to learn about the latter. Furthermore, the investor is ambiguity-averse and has a preference for investment strategies that are robust to model misspecifications. We derive a closed-form solution for the optimal robust investment strategy. We find that both learning and ambiguity aversion impact the level and structure of the optimal stock investment. Suboptimal strategies resulting either from not learning or from not considering ambiguity can lead to economically significant losses.     

Long-run impact of increased wage pressure

An unanticipated permanent increase in wage pressure is analyzed in a dynamic general-equilibrium model combining standard theory of capital accumulation and monopolistic wage setting. The long-run (steady-state) implications are identical percentage reduction in employment, consumption, and capital stock whereas wages and the real interest rate are unchanged. The reduction in employment on impact is larger than the steady-state reduction whereas wages rise and the real interest rate declines on impact.