Preference Erosion and Multilateral Trade Liberalization

Because of concern that tariff reductions in Organisation forEconomic Co-operation and Development (OECD) countries willtranslate into worsening export performance for the least developedcountries, the erosion of trade preferences may become a stumblingblock for multilateral trade liberalization. An econometricanalysis of actual preference use shows that preferences areunderused because of administrative burdens—estimatedto be equivalent to an average of 4 percent of the value ofgoods traded. To quantify the maximum scope for preference erosion,the compliance cost estimates are used in a model-based assessmentof the impact of full elimination of OECD tariffs. Taking intoaccount administrative costs eliminates erosion costs in theaggregate and greatly reduces the losses for countries mostaffected by preference erosion.     

A Historian’s Perspective on the PATCO Strike, Its Legacy, and Lessons

This article argues that the unsuccessful 1981 strike of federal air traffic controllers was the most significant single event in accelerating the decline of organized labor in the United States in the late 20th century. Like the failed Homestead steel strike of 1892, the PATCO strike cast a long shadow over US labor relations for many years after the event itself. Among the effects of the strike was the role it played in legitimizing the use of permanent replacement workers during strikes. This article draws lessons from the PATCO debacle that are worth considering 25 years later.

Credit crises, money and contractions: An historical view

The relatively infrequent nature of major credit distress events makes an historical approach particularly useful. Using a combination of historical narrative and econometric techniques, we identify major periods of credit distress from 1875 to 2007, examine the extent to which credit distress arises as part of the transmission of monetary policy, and document the subsequent effect on output. Using turning points defined by the Harding-Pagan algorithm, we identify and compare the timing, duration, amplitude and co-movement of cycles in money, credit and output. Regressions show that financial distress events exacerbate business cycle downturns both in the 19th and 20th centuries and that a confluence of such events makes recessions even worse.     

Valuation of complex financial instruments via basic components

This article presents a graphical approach to measuring financial instruments. It observes that the payoff contingencies of a large number of single-payoff financial instruments can be reduced to a piecewise-linear cash flow, which can be replicated with a handful of basic building blocks. Four such building blocks are identified, and they all relate to the concept of options. To demonstrate, this method is used to value several financial instruments: truncated standard call options, truncated standard put options, truncated binary call options, and hybrid foreign-currency put options.     

Import prices,income, and inequality

We compare three theoretical explanations for the positive empirical relationship between importer income per capita and traded goods prices. A first explanation is that consumers with higher incomes demand higher quality goods with higher prices. A second explanation is that wealthier people exhibit an increased willingness to pay for necessary goods as more goods enter the consumption set in a hierarchic demand system, and can thus be charged higher markups. A third explanation is that consumers with higher incomes are more finicky regarding their preferred variety in an ideal variety framework and can thus be charged higher markups. We discriminate between these three theories by focusing on the effect of income inequality on trade prices. Based on a large dataset with bilateral HS6 level data on 1260 final goods categories from more than 100 countries between 2000 and 2004, we find a highly significant negative effect of income inequality on unit values. This contradicts both the demand for quality and finickyness theories, while providing support for the increased willingness to pay theory linked to hierarchic demand. These findings on income inequality do not falsify the quality expansion model and the ideal variety model per se. However, the results do argue for place of importance of hierarchic demand.     

Ascending price Vickrey auctions

We show that an ascending price auction for multiple units of a homogeneous object proposed by Ausubel (i) raises prices for packages until they reach those nonlinear and non-anonymous market clearing prices at which bidders get their marginal products and (ii) the auction is a primal–dual algorithm applied to an appropriate linear programming formulation in which the dual solution yields those same market clearing prices. We emphasize the similarities with efficient incentive compatible ascending price auctions to implement Vickrey payments when there is a single object or when objects are heterogeneous but each buyer does not desire more than one unit. A potential benefit of these common threads is that it helps to establish the principles upon which Vickrey payments may be implemented through decentralized, incentive compatible procedures.     

Education,sectoral composition,and growth

Growth accounting exercises using standard human capital measures are limited in their ability to attribute causal effects and to explain growth. This paper develops a model of growth and schooling consistent with these decompositions but with less unexplained growth. The theory distinguishes between three different sources of education gains: (1) supply shifts, (2) skill-biased technical change increasing demand within industries/occupations, and (3) skill-biased technical change caused by the introduction of new skill-intensive industries/occupations. The third source leads to the large sectoral shifts and the largest growth effects. Quantitatively, schooling contributions account for 24 percent of wage growth, with both the direct (i.e., supply driven) causal contribution of schooling and the indirect causal (i.e., technology induced) contribution playing substantial roles.     

The measurement of sustainability disclosure: Abundance versus occurrence

Content analysis (disclosure abundance) and disclosure indices (disclosure occurrence) are popular methods for measuring the extent of disclosure. Few studies however compare the two approaches empirically or use empirical evidence to justify the use of one approach over the other. A study of sustainability reporting on Malaysian local government websites is used to illustrate how these two measurement approaches lead to different concepts of the extent of disclosure. Furthermore, hypothesised relationships between disclosure and independent variables based on theory differ substantially depending on the measurement approach for disclosure. Recommendations for the measurement of disclosure are suggested.     

RETIREMENT INCOME RIGHTS AS A COMPONENT OF WEALTH IN THE UNITED STATES*

Americans have accumulated a considerable amount of future purchasing power in the form of Social Security and employer pension rights. These rights are a form of wealth. In this paper, we ask how their inclusion alters the wealth portfolios of a sample of Americans at or nearing normal retirement age. Data from the 1973 wave of the longitudinal Retirement History Study suggest that, for many Americans, retirement income rights are the dominant component of wealth, and are often more important than all other entries combined, including home equity. We also find that this wealth can be seriously eroded during times of high inflation. Because of differences in marketability, pension and Social Security rights are not perfect substitutes for more liquid assets. Nonetheless, since they are so large in magnitude, and have been shown to be key determinants of the behavior of older workers, they should not be ignored.