Good luck or good policy? An expectational theory of macro volatility switches

In an otherwise unique-equilibrium model, agents are segmented into a few informational islands according to the signal they receive about others' expectations. Even if agents perfectly observe fundamentals, rational-exuberance equilibria (REX) can arise as they put weight on expectational signals to refine their forecasts. Constant-gain adaptive learning can trigger jumps between the equilibrium where only fundamentals are weighted and a REX. This determines regime switching in macro volatility despite unchanged monetary policy and time-invariant distribution of exogenous shocks. In this context, a tight inflation-targeting policy can lower expectational complementarity preventing rational exuberance, although its effect is non-monotone.     

Computerization and immigration: Theory and evidence from the United States

Recent technological changes have been characterized as “routine-substituting” because they reduce demand for routine tasks and increase demand for analytical and service tasks. Little is known about how these changes have impacted immigration, or task specialization between immigrants and native-born individuals. In this paper, we show that such technological progress has attracted immigrants who increasingly specialize in manual-service occupations. We also suggest that openness to immigration attenuated the job and wage polarization faced by native-born from technological changes. We explain these facts with a model of technological progress and endogenous immigration. Simulations show that unskilled immigration attenuates the drop in routine employment proceeding from technological change, enhances skill upgrading for native-born and raises economy-wide productivity and welfare.     

Path-dependent scenario trees for multistage stochastic programmes in finance

The formulation of dynamic stochastic programmes for financial applications generally requires the definition of a risk–reward objective function and a financial stochastic model to represent the uncertainty underlying the decision problem. The solution of the optimization problem and the quality of the resulting strategy will depend critically on the adopted financial model and its consistency with observed market dynamics. We present a recursive scenario approximation approach suitable for financial management problems, leading to a minimal yet sufficient representation of the randomness underlying the decision problem. The method relies on the definition of a benchmark probability space generated through Monte Carlo simulation and the implementation of a scenario reduction scheme. The procedure is tested on an interest rate vector process capturing market and credit risk dynamics in the fixed income market. The collected results show that a limited number of scenarios is sufficient to capture the exposure of the decision maker to interest rate and default risk.     

Fragility of competitive equilibrium with risk of default

We study competitive equilibrium in sequential economies under limited commitment. Default induces permanent exclusion from financial markets and endogenously determined solvency constraints prevent debt repudiation. Our analysis shows that such an enforcement mechanism is essentially fragile, leading to equilibrium multiplicity. We accomplish this by establishing Welfare Theorems under a weaker notion of constrained efficiency, inspired by Malinvaud, corresponding to the absence of welfare improving feasible redistributions over finite (though indefinite) horizons. A Negishi?s Method permits to show that, for any arbitrary value of social welfare in between autarchy and constrained optimality, there exists an equilibrium attaining that value. Thus, competitive equilibria might differ dramatically in terms of volumes of trade, asset price volatility, individuals? ability to insure against idiosyncratic risk and consumption inequality.     

Monetary policy and dynamic efficiency in economies of overlapping generations

In an economy of overlapping generations, money, distinct from debt, provides liquidity and is dominated as a store of value. Nominal rates of interest that are low, but do not vanish, eliminate equilibrium allocations far from Pareto optimal allocations.     

Agriculture as a major evolutionary transition to human ultrasociality

The adoption of agriculture was one of the most momentous transformations in human history. It set into motion forces that changed our species from living in small numbers within the confines of local ecosystems into one that is now changing the biophysical characteristics of the entire planet. We argue that this transformation can be understood as a leap to ultrasociality—a type of social organization rare in nature but wildly successful when it occurs. Several species of ants and termites made a similar leap in social organization and the broad characteristics of their societies are remarkably similar to post hunter-gatherer human societies. Ultrasocial species dominate the ecosystems they occupy in terms of sheer numbers and the scale of ecosystem exploitation. We argue that the drivers for the ultrasocial transition to agriculture are economic. These societies operate as superorganisms exhibiting an unparalleled degree of division of labor and an economic organization centered around surplus production. We suggest that the origin of human and insect agriculture is an example of parallel evolution driven by similar forces of multi-level selection. Only with the evolution of expansionist agriculturalist societies did humans join ants and termites in the social domination of Earth. Viewing agriculture as an ultrasocial transition offers insights not only about the origins of agriculture and its consequences, but also about the forces shaping the current demographic transition and the modern global socio-economic system.     

What is the Value of Luxury? A Cross‐Cultural Consumer Perspective

International luxury businesses are challenged by the identification and satisfaction of the common needs and desires of global market segments. Although luxury goods have become available to a wider range of consumers, the traditional conspicuous consumption model has been transformed into a new experiential luxury sensibility that is marked by a change in the way that consumers define luxury. Based on an empirical study in collaboration with American, European, and Asian researchers, the results provide evidence that consumers in various parts of the world purchase or wish to purchase luxury products for varied reasons but that such consumers generally possess similar values. Regardless of their countries of origin, the basic motivational drivers of luxury consumers are similar among the financial, functional, personal, and social dimensions of luxury value perceptions, although the relative importance of these dimensions varies.     

Skills and labour incomes: how unequal is Italy as part of the Southern European countries?

This paper performs a comparative investigation of the effects of the Great Recession on the labour market structure and wage inequality in certain countries in Southern Europe (Greece, Italy, Portugal, and Spain). By exploring the intensity of the decline of middle-skill jobs during the years 2005–2013, which makes it possible to sketch what the labour market structure has set for itself (i.e., job polarisation, upgrading or neither), the objective is to relate these changes to wage inequality and its leading determinants. Through the Recentered Influence Function regression of the Gini index on EU-SILC data, Italy is compared to each selected country in order to evaluate how much of the spatial inequality gap is accounted for by the endowment in employee characteristics (composition effect) rather than the capability of each country’s labour market to reward these characteristics (wage structure) and, second, to identify those factors that are quantitatively more significant in making differentials. In brief, Italy is less unequal than the other Southern European countries. A larger amount of its “inequality advantage” depends on the wage structure. That is, the capacity of the country’s labour market in rewarding individual endowments is more important than the ways in which they are distributed across space.     

On relative performance,remuneration and risk taking of asset managers

We analyze the asset management problem when the manager is remunerated through a scheme based on the performance of the fund with respect to a benchmark and his/her choices are driven by a power utility function. We show that it is not the asymmetric-fulcrum type feature of the scheme that makes the difference in preventing excessive risk taking in case of a poor performance. To prevent gambling when the performance deteriorates, it is important not to provide a fixed fee to the asset manager, and that remuneration is sensitive to a very poor relative performance as in the case of a capital stake or of a management fee with flow funds. We provide empirical evidence on the mutual fund industry showing excessive risk taking in case of a very poor performance and limited risk taking in case of overperformance with respect to the benchmark. These results agree with a remuneration scheme including a fixed fee and a cap.