Slack-adjusted efficiency measures and ranking of efficient units

In non-parametric methods many units are calculated as efficient. The article suggests a method for ranking efficient units, not by their efficiency, but by importance as benchmarks for the inefficient units, in contrast to earlier suggestions in the literature which rank units high if they are specialized. However, the total potentials for improvement frequently remain unrevealed by calculating radial efficiency measures of the Farrell type only. The article therefore first develops efficiency measures that explicitly extend the radial measures to include slacks. The new measures are applied to a typical multidimensional small-sample data set for Norwegian employment offices.     

Reputation and Perfection in Repeated Common Interest Games

We consider a wide class of repeated common interest games perturbed with one-sided incomplete information: one player (the informed player) might be a commitment type playing the Pareto dominant action. As discounting, which is assumed to be symmetric, and the prior probability of the commitment type go to zero, it is shown that the informed player can be held close to her minmax payoff even when perfection is imposed on the equilibrium.Journal of Economic LiteratureClassification Numbers: C73, D83.     

Analyzing a panel of seasonal time series: Does seasonality in industrial production converge across Europe?

In this paper we consider deterministic seasonal variation in quarterly industrial production for several European countries, and we address the question whether this variation has become more similar across countries over time. Due to economic and institutional factors, one may expect convergence across business cycles. When these have similar characteristics as seasonal cycles, one may perhaps also find convergence in seasonality. To this aim, we propose a method that is based on treating the set of production series as a panel. By testing for the relevant parameter restrictions for moving window samples, we examine the hypothesis of convergence in deterministic seasonality while allowing for seasonal unit roots. Our main empirical finding is that there is no evidence for convergence in seasonality.     

Nonlinear incentive provision in Walrasian markets: a Cournot convergence approach

The paper studies insurance with moral hazard in a system of contingent-claims markets. Insurance buyers are modelled as Cournot monopolists or oligopolists. The other agents condition their expectations on market prices, as in models of rational-expectations equilibrium with asymmetric information. Thereby they correctly anticipate accident probabilities corresponding to effort incentives induced by insurance buyers’ net trades. When there are many agents to share the insurance buyers’ risks, Cournot equilibrium outcomes are close to being second-best. In contrast, if insurance buyers are price takers, equilibria fail to exist or are bounded away from being second-best.     

External wealth, the trade balance, and the real exchange rate

We examine the link between the net foreign asset position, the trade balance and the real exchange rate. In particular, we decompose the impact of a country's net foreign asset position (‘external wealth’) on its long-run real exchange rate into two mechanisms: the relation between external wealth and the trade balance; and, holding fixed other determinants, a negative relation between the trade balance and the real exchange rate. We also provide additional evidence that the relative price of nontradables is an important channel linking the trade balance and the real exchange rate.     

On the public provision of the performing arts

In this paper, we present a model in which the performing arts are modelled as congestible public goods. In accordance with empirical evidence, the production of seat capacity is assumed to be subject to fixed costs. We estimate the parameters of the model's demand and cost functions using German data. Using these estimates in a subsequent social choice analysis, we show that the current situation in the German performing arts sector is best described by a directorship that under the influence of a selfish theater lobby maximizes only the welfare of the spectators. Such an equilibrium, characterized by too low ticket prices and too large capacity, is most likely to establish if citizens have a very positive ex ante notion of the performing arts.     

How to invest over the life cycle: Insights from theory

We analyse the state of the art in the field of life cycle portfolio choice, a recent strand of the literature on intertemporal portfolio selection. Life cycle models are designed to identify optimal savings and portfolio policies over the lifetime of investors. They can help to improve pension schemes by showing how these could be specifically tailored to the individual employee’s circumstances to overcome the ‘one-size-fits-all’ philosophy still prevailing in parts of the mandatory retirement savings system. To facilitate comparison, we first describe set-up, solution method and characteristic results for a basic model and then derive a general framework to classify existing contributions. We highlight the models’ strengths and weaknesses and assess their ability to resolve existing portfolio puzzles. Lessons from the literature are summarized and promising areas for further research identified. JEL classifications G11, D14, D91, H55