Cost of doing business index in Latin America

Quality & Quantity - The World Bank's Ease of Doing Business Index (EDBI) has been widely used in analyzes of attracting investments and formulating public policies. Despite its importance...     

Macroeconomic performance and convergence in OECD countries

This paper investigates the robustness of the correlation between growth and a set of variables which comprises accumulation rates in human and physical capital and medium term macroeconomic indicators in OECD countries. We include these variables as additional regressors in the standard growth equation that comes from the human capital-augmented Solow model. Our results show that variables related to medium term macroeconomic performance affect both growth and convergence. In some periods these variables even outperform the explanatory power of the conventional growth variables such as the accumulation rates. Our results also suggest that it is difficult to analyse the contribution to growth of any particular macroeconomic indicator in an isolated way. Rather, these effects should be studied in a framework that accounts for the macroeconomic performance of a country.     

Information or Opinion? Media Bias as Product Differentiation

Two aspects of media bias are important empirically. First, bias is persistent: it does not seem to disappear even when the media is under scrutiny. Second, bias is conflicting: different people often perceive bias in the same media outlet to be of opposite signs. We build a model in which both empirical characteristics of bias are observed in equilibrium. The key assumptions are that the information contained in the facts about a news event may not always be fully verifiable, and consumers have heterogeneous prior views ("ideologies") about the news event. Based on these ingredients of the model, we build a location model with entry to characterize firms' reports in equilibrium, and the nature of bias. When a news item comprises only fully verifiable facts, firms report these as such, so that there is no bias and the market looks like any market for information . When a news item comprises information that is mostly nonverifiable, however, then consumers may care both about opinion and editorials, and a firm's report will contain both these aspects—in which case the market resembles any differentiated product market . Thus, the appearance of bias is a result of equilibrium product differentiation when some facts are nonverifiable. We use the model to address several questions, including the impact of competition on bias, the incentives to report unpopular news, and the impact of owner ideology on bias. In general, competition does not lead to a reduction in bias unless this is accompanied by an increase in verifiability or a smaller dispersion of prior beliefs.     

Reputation When Threats and Transfers Are Available

We present a model where a long run player is allowed to use both money transfers and threats to influence the decisions of a sequence of short run players. We show that threats might be used credibly (even in arbitrarily short repeated games) by a long-lived player who gains by developing a reputation of carrying out punishments. Particular cases of the model are a long-lived pressure group offering rewards and punishments to a series of targets (public or corporate officials) in exchange for policy favors, or that of a long-lived extorter who demands money in order not to punish. We use the model to analyze the "convicted nonpayor" debate around judicial corruption. The model highlights formal similarities between lobbying and extortion.     

Negotiation Based on Fuzzy Logic and Knowledge Engineering: Some Case Studies

One of the most recent mathematical models for negotiation is the Compensatory Negotiation Solution by Knowledge Engineering (CNSKE). In this model a logic system called Compensatory Fuzzy Logic was used, which is more adequate to solve problems of decision making than the classical one probabilistic fuzzy logic system. The idempotency axiom of this system and the continuity of the operators allow the truth-values of the membership function to have a cardinal and not exclusively ordinal semantic meaning. On the other hand, continuity also makes ‘sensible’ the truth-values of the predicates. The aim of this paper is to illustrate the advantages of the CNSKE over other approaches in Game Theory. To show these advantages, some case studies are analyzed, consisting on the solution of three problems in which CNSKE is applied in economic and politic cases of negotiation, and compared with other alternative approaches.     

Brand price differentials in retail distribution: product quality and service quality

A theoretical model is proposed to disentangle the contribution of brand quality and retailer service quality in explaining brand price differentials across retailers. Two testable hypotheses emerge: (i) for each brand type, price differences across retailers are independent of brand quality differentials and (ii) at a given retailer, price differences between different brand qualities are independent of service quality differentials. Our empirical analysis, for a sample of the U.K. grocery retailer prices, discloses that retailers that offer higher service quality sell same quality brands at higher prices. In particular, service quality premia amount to 6% for national brands and are in the range of 9–15% for low-quality store brands. Besides, at a given retailer, the price premia paid for the national brand are very large: around 150% between national brands and low-quality store brands, and around 40% between national brands and high-quality store brands. Also, the price differential between the national brand and the low-quality store brand does not increase with service quality.     

Assessing the Enlargement and Deepening of the European Union

This paper estimates a theoretically‐motivated gravity model to examine the effect of the European Union (EU) on trade and whether the order of entry has affected the trade performance of member countries. Additionally, we analyse the impact of the different phases of EU integration on trade. The results show that both original countries and successive enlargements boost intra‐bloc trade. Moreover, the results suggest that the deepening in the integration process has led to more trade creation among members. Finally, only the latter phase of the European integration process (the single currency) has increased trade with non‐members.     

Loan pricing under Basel capital requirements

We analyze the loan pricing implications of the reform of bank capital regulation known as Basel II. We consider a perfectly competitive market for business loans where, as in the model underlying the internal ratings based (IRB) approach of Basel II, a single risk factor explains the correlation in defaults across firms. Our loan pricing equation implies that low risk firms will achieve reductions in their loan rates by borrowing from banks adopting the IRB approach, while high risk firms will avoid increases in their loan rates by borrowing from banks that adopt the less risk-sensitive standardized approach of Basel II. We also show that only a very high social cost of bank failure might justify the proposed IRB capital charges, partly because the net interest income from performing loans is not counted as a buffer against credit losses. A net interest income correction for IRB capital requirements is proposed.     

Government Ownership of Banks

We assemble data on government ownership of banks around the world. The data show that such ownership is large and pervasive, and higher in countries with low levels of per capita income, backward financial systems, interventionist and inefficient governments, and poor protection of property rights. Higher government ownership of banks in 1970 is associated with slower subsequent financial development and lower growth of per capita income and productivity. This evidence supports "political" theories of the effects of government ownership of firms.     

Europe vs America: Institutional hysteresis in a simple normative model

We show how the differences in US and European institutions can arise in a normative model. The paper focuses on the labor market and the government's decision to set unemployment benefits in response to an unemployment shock. The government balances insurance considerations with the tax burden of benefits and the possibility that they introduce adverse “incentive effects” whereby benefits increase unemployment. It is found that when an adverse shock occurs, benefits should be increased most when the adverse incentive effects of benefits are largest. Adjustment costs of changing benefits introduce hysteresis and can help explain why post-oil shock benefits remained high in Europe but not in the US. Desirable features of the model are that we obtain an asymmetry out of a symmetric environment and that the mechanism yielding hysteresis is both simple (requires the third derivative of the utility function to be non-negative) and self-correcting. Empirical evidence concerning the role of corporatism is discussed.