GEL statistics under weak identification

The central concern of this paper is the provision in a time series moment condition framework of practical recommendations of confidence regions for parameters whose coverage probabilities are robust to the strength or weakness of identification. To this end we develop Pearson-type test statistics based on GEL implied probabilities formed from general kernel smoothed versions of the moment indicators. We also modify the statistics suggested in Guggenberger and Smith (2008) for a general kernel smoothing function. Importantly for our conclusions, we provide GEL time series counterparts to GMM and GEL conditional likelihood ratio statistics given in Kleibergen (2005) and Smith (2007). Our analysis not only demonstrates that these statistics are asymptotically (conditionally) pivotal under both classical asymptotic theory and weak instrument asymptotics of Stock and Wright (2000) but also provides asymptotic power results in the weakly identified time series context. Consequently, the empirical null rejection probabilities of the associated tests and, thereby, the coverage probabilities of the corresponding confidence regions, should not be affected greatly by the strength or otherwise of identification. A comprehensive Monte Carlo study indicates that a number of the tests proposed here represent very competitive choices in comparison with those suggested elsewhere in the literature.     

Multinationals,cross‐border acquisitions and wage dispersion

Abstract We examine the impact of cross‐border acquisitions on intra‐firm wage dispersion using a detailed Swedish linked employer‐employee data set including data on all firms and about 50% of the Swedish labour force with information on job‐tasks and education. Foreign acquisitions of domestic multinationals and local firms increase wage dispersion but so do also other types of cross‐border acquisitions. Hence, it is the acquisition itself rather than foreign ownership that increases wage dispersion. The positive wage effect is concentrated to CEOs and other managers, whereas other groups are either negatively affected or not affected at all.     

Governing the transition to low-carbon futures: A critical survey of energy scenarios for 2050

There is a growing scientific consensus that limiting the increase in global average temperature to around 2 °C above pre-industrial levels is necessary to avoid unacceptable impact on the climate system. This requires that the developed countries’ emissions are radically reduced during the next 40 years. Energy scenario studies provide insights on the societal transitions that might be implied by such low-carbon futures, and in this paper we discuss how a greater attention to different governance and institutional issues can complement future scenario exercises. The analysis is based on a critical review of 20 quantitative and qualitative scenario studies, all of relevance for meeting long-term climate policy objectives. The paper: (a) analyzes some key differences in energy technology mixes and primary energy use patterns across these studies; (b) briefly explores the extent and the nature of the societal challenges and policy responses implied; and (c) discusses a number of important implications for the design and scope of future scenario studies. Our review shows that in previous scenario studies the main attention is typically paid to analyzing the impact of well-defined and uniform policy instruments, while fewer studies factor in the role of institutional change in achieving different energy futures. We therefore point towards a number of strategies of integrating issues of transition governance into future scenario analyses, and argue for a closer synthesis of qualitative and quantitative scenario building.     

Competition among Financial Intermediaries When Diversification Matters

Many models predict that the diversification and efficiency of financial intermediaries (“banks”) increases with their size, so that a relatively unrestricted banking sector will settle into an equilibrium with several large, well-diversified, and competitive banks. However, this prediction is at odds with the actual pattern of unrestricted banking sector evolution in many countries. I develop a model that motivates this actual pattern and examine the model's implications for regulatory policy. I show that an investor's return from a bank depends on the number of investors using that bank; this adoption externality makes investor beliefs about other investors' actions critical for bank competition. In a young banking system with free entry, coordination problems lead to excessive fragmentation, and debt overhang makes it difficult for small banks to capture additional market share. As the system matures, many banks fail, and the survivors become the focus of investor beliefs; these incumbents gain a strong advantage over entrants, facilitating collusion. Entry restrictions reduce fragmentation but aid collusion, while government insurance for investors reduces incumbency advantage and collusion but may cause excessive fragmentation. Thus, regulators may wish to impose temporary entry restrictions, along with partial insurance. These results are consistent with historical evidence from several countries.Journal of Economic LiteratureClassification Numbers: G21, G22, L13.     

The Economic Sociology of Alfred Marshall:An Overview

A bstract The aim of the paper is to present the economic sociology of Alfred Marshall (1842-1924). Three topics are discussed in the paper: Marshall's ideas of how preferences are generated, the theory of action, and finally the introduction of a fourth factor of production, organization. Throughout the paper Marshall's broad perspective is demonstrated. It is argued that Marshall's approach encourages a closer connection between sociologists interested in economic phenomena and economists. This conclusion is strengthened because of the resemblance of Marshall's analysis to those offered by Max Weber and Thorstein Veblen.     

Theory, Reality, and Performativity in Markets

A bstract .   The purpose of this article is to analyze the relation between scientific knowledge in the form of theories and the world that such theories are about. The focus is on market theories. I argue that everyday knowledge, conceptualized using the notion of "lifeworld," is the bedrock of scientific knowledge. I also make two distinctions, one between types of markets and one between principles of order in markets. There are two different types of markets, fixed-role markets and switch-role markets, and no existing theory can be used to explain both of them. In fixed-role markets, such as a producer market of garments, actors are identified as either sellers or buyers. In switch-role markets, such as the stock exchange market or currency market, actors are not identified with one role. The other distinction is between standard and status markets. In a status market, order is maintained because the identities of actors on both sides of the market are ranked according to status, which is a more entrenched social construction than the commodity traded in the market. In a market characterized by standards, the situation is reversed: the commodity is a more entrenched social construction than the social status of actors in the market. These distinctions are the backdrop of my analysis of the idea that markets are performed. It is concluded that the performativity approach is useful today for analyzing switch-role markets. A further conclusion is that neoclassical economic theory can be used in understanding switch-role markets, but not fixed-role markets.     

Empirical Analysis of Limit Order Markets

We provide empirical restrictions of a model of optimal order submissions in a limit order market. A trader's optimal order submission depends on the trader's valuation for the asset and the trade-offs between order prices, execution probabilities and picking off risks. The optimal order submission strategy is a monotone function of a trader's valuation for the asset. We test the monotonicity restriction in a sample of order submissions and their realized outcomes from the Stockholm Stock Exchange. We do not reject the monotonicity restriction for buy orders or sell orders considered separately, but reject the monotonicity restriction for buy and sell orders considered jointly.     

Can Technology-Specific Deployment Policies Be Cost-Effective? The Case of Renewable Energy Support Schemes

While there is relatively limited disagreement on the general need for supporting the deployment of renewable energy sources for electricity generation (RES-E), there are diverging views on whether the granted support levels should be technology-neutral or technology-specific. In this review paper we question the frequently stressed argument that technology-neutral schemes will promote RES-E deployment cost-effectively. We use a simple partial equilibrium model of the electricity sector with one representative investor as a vehicle to synthesize the existing literature, and review potential rationales for technology-specific RES-E support. The analysis addresses market failures associated with technological development, long-term risk taking, path dependencies as well as various external costs, all of which drive a wedge between the private and the social costs of RES-E deployment. Based on analytical insight and a review of empirical literature, we conclude that the relevance of these market failures is typically heterogeneous across different RES-E technologies. The paper also discusses a number of possible caveats to implementing cost-effective technology-specific support schemes in practice, including the role of various informational and politico-economic constraints. While these considerations involve important challenges, neither of them suggests an unambiguous plea for technology-neutral RES-E support policies either. We close by highlighting principles for careful RES-E policy design, and by outlining four important avenues for future research.     

Costly state verification and multiple investors: the role of seniority

Many financial claims specify fixed maximum payments, varyingseniority, and absolute priority for more senior investors.These features are motivated in a model where a firm's managercontracts with several investors and firm output can only beverified privately at a cost. Debt-like contracts of varyingseniority generally dominate symmetric contracts, and, wheninvestors are risk neutral, it is optimal to use debt-like contractswhere more senior claims have absolute priority over more juniorclaims. In addition to motivating several features of debt andpreferred stock, the model offers an explanation for structuresused in leveraged buyouts, asset-backed securitizations, andreinsurance contracts.