Asymptotic consequences of neglected dynamics in individual effects models*

We assess the asymptotic consequences of estimating static models based on cross-section or panel data, when in reality the data are generated by a dynamic relationship, involving lagged dependent and current and lagged exogenous variables as well as individual effects. If the exogenous variable follows a stationary process, then the static estimators usually underestimate its long-run effect. This inconsistency is less severe, the higher the autocorrelation of the exogenous variable. If the exogenous variable follows a random walk with or without individual-specific drift, then the estimators are found to be consistent for the long-run effect.     

Strongly stable networks

We analyze the formation of networks among individuals. In particular, we examine the existence of networks that are stable against changes in links by any coalition of individuals. We show that to investigate the existence of such strongly stable networks one can restrict focus on a component-wise egalitarian allocation of value. We show that when such strongly stable networks exist they coincide with the set of efficient networks (those maximizing the total productive value). We show that the existence of strongly stable networks is equivalent to core existence in a derived cooperative game and use that result to characterize the class of value functions for which there exist strongly stable networks via a “top convexity” condition on the value function on networks. We also consider a variation on strong stability where players can make side payments, and examine situations where value functions may be non-anonymous—depending on player labels.     

Saving Accounts versus Stocks and Bonds in Household Portfolio Allocation

We study the structure of household portfolios of financial wealth by analyzing both the determinants of total financial wealth and the choice between risky (stocks and bonds) and riskfree assets (saving accounts). The econometric specification is a generalized trivariate Tobit model, estimated on a cross section of 3,077 households in the Netherlands in 1988. We account for endogeneity of financial wealth and for selectivity due to nonreporting. Results show that the level of financial wealth and the marginal tax rate are major determinants of the allocation between riskfree and risky assets.     

Connecting strategic orientation,innovation strategy,and corporate sustainability: A model for sustainable development through stakeholder engagement

This paper aims to enhance our understanding of the relationship between organizations' strategic orientation (i.e., instrumental, equidistant, and stewardship) and their innovational strategy (i.e., organizational ambidexterity and open innovation), and this relationship's influence on their sustainability performance. We expected organizations' strategic orientation to influence their innovational strategy and exhibit better corporate sustainability. We focused on 12 different multinational organizations in the Eurozone and found that inbound open innovation acts as a driver for corporate sustainability while simultaneously positively enabling organizations to pursue both financial and social initiatives. After suggesting open innovation as a new corporate sustainability antecedent, we only found empirical evidence of inbound open innovation. However, we would suggest that if organizations incorporated outbound open innovation in their strategy, they could likely improve their corporate sustainability. Also, we found that achieving an equidistant or stewardship orientation paves the way for sustainability to become an integral part of an organization's innovational culture and actualizes the organization's strategic behavior. Our findings further contribute to a deeper understanding of organizations' characteristics as their sustainability commitment grows and as they move from an instrumental to a stewardship orientation and implement an open innovational strategy.     

Strictness of leniency programs and asymmetric punishment effect

We analyze the impact of leniency programs on the behavior of firms participating in illegal cartel agreements in a two-stage repeated game model. Our approach takes into account asymmetric punishment effect and allows to discuss the design of leniency programs in the setting with asymmetries. The main contribution of the paper is that we consider heterogeneous firms. This heterogeneity results in additional costs in case of disclosure of the cartel, which are caused by asymmetric punishments. Next, following current antitrust rules, we analyze effects of the strictness of leniency programs, which reflects the likelihood of getting a complete exemption from fine even in case many firms self-report simultaneously. Our main conclusion is that leniency programs work better for small companies, since a lower rate of law enforcement is needed in order to induce self-reporting by smaller firms, while big firms are less likely to start a cartel in the first place given the possibility of self-reporting in future. Finally, we analyze optimal enforcement strategies of the antitrust authority and conclude that the authority with limited resources should implement more generous leniency rules the more cartelized the economy is.     

Structural Decomposition Analysis of Physical Flows in the Economy

Many environmental problems can be attributedto the extraction and emissions of physicalsubstances. Increasing our understanding of theeconomic and technological driving forcesbehind these physical flows can contribute tosolving the environmental problems related tothem. The input-output framework is a usefulsetting in which to integrate detailedinformation about economic structure andphysical flows. In this article a specificmethod in input-output analysis is reviewed,namely Structural Decomposition Analysis (SDA).It is based on comparative static analysis,which decomposes historical changes of a policyvariable into determinant effects. SDA has beenapplied, for example, to analyze the demand andtechnological driving forces of energy use,CO₂-emissions and various other pollutantsand resources. This article examines thetheoretical aspects of structuraldecomposition, in particular those concerningphysical flows and environmental issues.Furthermore, the article includes an extensivesurvey of empirical studies.     

Monetary and Fiscal Policy Rules in the EMU

Abstract. This paper studies the design and effects of monetary and fiscal policy in the euro area. To do so, a stylized two‐region model of monetary and fiscal policy rules in the EMU is built. We analyse how monetary and fiscal rules affect the adjustment dynamics in the model. Both the effects on the individual countries and on the EMU aggregate economy are studied. Three aspects play an important role in the analysis: (i) the consequences of alternative monetary and fiscal policy rules, (ii) the consequences of asymmetries between EMU countries (asymmetries in macroeconomic shocks and macroeconomic structures), and (iii) the role of alternative degrees of backward‐ and forward‐looking behaviour in consumer decisions and inflation expectations.