Financial Crises as a Phenomenon of Multiple Equilibria and How to Select among Them

When equilibrium is indeterminate (i.e., not unique), applied theory often obtains uniqueness either via ad hoc sunspots or via global games. This paper highlights the relative merits of a third selection mechanism—best-response dynamics (BRD)—in the context of various financial crisis frameworks. For example, in the context of a bank run, selection via BRD is preferred (to ad hoc sunspots) because it provides an explicit coordination narrative and (to global games) because it accounts for the fact that depositors realistically may decide to join or leave a bank's queue upon observing its length.     

Status‐Seeking in Criminal Subcultures and the Double Dividend of Zero‐Tolerance

This paper offers a new argument for why a more aggressive enforcement of minor offenses (zero‐tolerance) may yield a double dividend in that it reduces both minor offenses and more severe crime. We develop a model of criminal subcultures in which people gain social status among their peers for being “tough” by committing criminal acts. As zero‐tolerance keeps relatively “gutless” people from committing a minor offense, the signaling value of that action increases, which makes it attractive for some people who would otherwise commit more severe crime. If social status is sufficiently important in criminal subcultures, zero‐tolerance reduces crime across the board.     

Sequencing,timing and filling rates of recruitment channels

This paper analyses the recruitment process by which employers adjust their search strategies. The focus is, in particular, on the sequence and timing of recruitment channels. Two search strategies are identified. One strategy is to advertise a vacancy, and to form a pool of candidates by activating subsequent recruitment channels such that candidates are added to the pool. An alternative strategy used by employers is to start searching via informal channels, consider applicants at arrival and continue their search along a new recruitment channel if no suitable candidates show up. Results suggest that when informal personal contacts are available to the employer, this ‘switching of channel’ strategy is preferred. Moreover, the results of this paper are consistent with the view that informal search methods are potentially more efficient than using an advertisement and forming a pool of applicants, in particular when vital positions in firms have to be filled.     

Identification in statistical inference

The paper deals with the concept of identification in inferential statistics. At first a general concept of identification is defined and developed. Thereafter, the general theory is applied to univariate linear regression and simultaneous equation systems. Finally, attention is paid to models with lagged variables and some new related problems are suggested.     

ROBUSTNESS OF PRODUCTIVITY ESTIMATES*

Researchers interested in estimating productivity can choose from an array of methodologies, each with its strengths and weaknesses. We compare the robustness of five widely used techniques, two non‐parametric and three parametric: in order, (a) index numbers, (b) data envelopment analysis (DEA), (c) stochastic frontiers, (d) instrumental variables (GMM) and (e) semiparametric estimation. Using simulated samples of firms, we analyze the sensitivity of alternative methods to the way randomness is introduced in the data generating process. Three experiments are considered, introducing randomness via factor price heterogeneity, measurement error and differences in production technology respectively. When measurement error is small, index numbers are excellent for estimating productivity growth and are among the best for estimating productivity levels. DEA excels when technology is heterogeneous and returns to scale are not constant. When measurement or optimization errors are nonnegligible, parametric approaches are preferred. Ranked by the persistence of the productivity differentials between firms (in decreasing order), one should prefer the stochastic frontiers, GMM, or semiparametric estimation methods. The practical relevance of each experiment for applied researchers is discussed explicitly.