SHORT‐RUN POLICY COMMITMENT WHEN INVESTMENT TIMING IS ENDOGENOUS: ‘MORE HARM THAN GOOD?’

In our model, firms choose when to set cost‐reducing investment and the government, which only has short‐run commitment power, sets an output subsidy. We show that firms that delay investment without government intervention have an incentive to invest early under policy activism, strategically underinvesting or overinvesting to obtain larger subsidies. The policy scheme thus creates a new, potentially more harmful, distortion. Under oligopoly, a firm has a weaker incentive to manipulate policy than under monopoly, which makes policy intervention less harmful. We investigate when the government may do better by adhering to laissez‐faire than by engaging in active policy intervention.     

Coordination and learning in games with strategic substitutes and complements

This paper experimentally compares the impact of the presence of strategic substitutes (GSS) and complements (GSC) on players’ ability to successfully play equilibrium strategies. By exploiting a simple property of the ordering on strategy spaces, our design allows us to isolate these effects by avoiding other confounding factors that are present in more complex settings, such as market games. We find that the presence of strategic complementarities significantly improves the rate of Nash play, but that this effect is driven mainly by early rounds of play. This suggests that GSS may be more difficult to learn initially, but that given sufficient time, the theoretically supported globally stable equilibrium offers a good prediction in both settings. We also show that increasing the degree of substitutability or complementarity does not significantly improve the rate of Nash play in either setting, which builds on the findings of previous studies.     

Adverse selection problems without the Spence-Mirrlees condition

This paper studies a class of one-dimensional screening problems where the agent's utility function does not satisfy the Spence-Mirrlees condition (SMC). The strength of the SMC for hidden information problems is to provide a full characterization of implementable contracts using only the local incentive compatibility (IC) constraints. These constraints are equivalent to the monotonicity of the decision variable with respect to the agent's unobservable one-dimensional parameter. When the SMC is violated the local IC constraints are no longer sufficient for implementability and additional (global) IC constraints have to be taken into account. In particular, implementable decisions may not be monotonic and discretely pooled types must have the same marginal utility of the decision (or equivalently, get the same marginal tariff). Moreover, at the optimal decision, the principal must preserve the same trade-off between rent extraction and allocative distortion measured in the agent's marginal rent unit. In a specific setting where non-monotone contracts may be optimal we fully characterize the solution.     

IMF concern for reputation and conditional lending failure: Theory and empirics

In this paper we suggest that the dual role played by the IMF, as a creditor and as a monitor of economic reforms, might explain the lack of credibility of the Fund threat of sanctioning non-compliance with conditionality. Specifically, we show that the IMF's desire to preserve its reputation as a good monitor may distort its lending decisions towards some laxity. Moreover, such distortionary incentives may be exacerbated by the length of the relationship between a country and the Fund. Estimating a dynamic panel of 53 middle-income countries, for the period 1982–2001, we find that a longer relationship does increase IMF disbursements.     

Altruism in individual and joint-giving decisions: What's gender got to do with it?

Abstract

This paper uses dictator experiments to examine gender differences in altruistic behavior in the United States when decisions are made individually and jointly. In anonymous individual giving to charity, women give substantially more than men, and in paired settings, mixed-sex groups give the most while all male pairs give the least. Evidence supports social information and negotiation effects as participants change giving toward that of their partners. Social image effects are found only in mixed-sex groups, indicating a gender-based component to the value of the social signal sent. Although men and women appear to have similar influence, the positive social image effect pushes giving in mixed-sex pairs above the sum of the members' individual gifts because the less altruistic partners (usually men) adjust their giving upward more than the more altruistic partners (usually women) reduce giving. Therefore, increasing women's participation in traditionally male spheres of decision making may result in more altruistic economic behavior.     

What drives the choice of the type of partner in R&D cooperation? Evidence for Spanish manufactures and services

We analyse the heterogeneity in firms’ decisions to engage in R&D cooperation, taking into account the type of partner (competitors, suppliers or customers, and research institutions) and the sector to which the firm belongs (manufactures or services). We use information from the Technological Innovation Panel (PITEC) for Spanish firms and estimate multivariate probit models corrected for endogeneity which explicitly consider the interrelations between the different R&D cooperation strategies. We find that placing a higher importance to publicly available information (incoming spillovers), receiving public funding and firm size increase the probability of cooperation with all kind of partners but the role is much stronger in the case of cooperative agreements with research institutions and universities. Our results also suggest that R&D intensity and the importance attributed to the lack of qualified personnel as a factor hampering innovation are key factors influencing positively R&D cooperation activities in the service sector but not in manufactures.     

POLITICAL ECONOMY OF GOVERNMENT SPENDING FOR TRADE LIBERALIZATION: POLITICS OF AGRICULTURE RELATED GOVERNMENT SPENDING FOR THE URUGUAY ROUND IN JAPAN

This paper investigates the effect of political factors on the interregional allocation of the budget to assist farmers in coping with agricultural trade liberalization in Japan. We present a simple model to show the relationship between political factors and interregional budget allocation and empirically examine whether political factors played a key role in the interregional allocation of Japanese government spending for the Uruguay Round agricultural trade liberalization. Our findings show that this allocation was distorted due to political reasons, which was problematic from the standpoints of fairness and social efficiency.     

Foreign aid preferences and perceptions in donor countries

We present original survey data on preferences for foreign aid in 24 donor countries from 2005 to 2008. On publicly-funded foreign aid (Official Development Assistance, or ODA), we find patterns that are consistent with a standard model of democratic policy formation, in which donations are treated as a pure public good. Controlling for perceptions of current ODA, we show that individual preferences for ODA are (i) negatively correlated with relative income within a country-year; and (ii) positively correlated with inequality at the country level. We extend the analysis to explain variation in the gap between desired aid and actual ODA, arguing that lobbying by high-income special interest groups can divert resources away from the median voter’s preferred level of aid. Consistent with this, we observe that ODA is significantly lower where policymakers are more susceptible to lobbying. Finally, we present a novel test of competing “crowding out” hypotheses. Self-reported private aid donations are negatively correlated with actual ODA, and positively correlated with perceived ODA. This finding is consistent with an emerging argument in the literature, whereby ODA crowds out private aid by enabling charities to forego fundraising activities and crowds in private aid through a signaling channel.     

Permit markets,carbon prices and the creation of innovation clusters

Innovation clusters combining public and private effort to develop breakthrough technologies promise greater technological advances to slow down climate change. We use a multi-country model with an emission trading system to examine whether and how international climate policy can incentivize countries to create such innovation clusters. We find that a minimal carbon price is needed to attract applied research firms, but countries may nevertheless fail to invest in complementary research infrastructure. We construct a mechanism that leads to innovation clusters when emissions targets are set before uncertainty surrounding technological developments is resolved. It is a combination of low permit endowments for the country with the lowest costs to build the needed infrastructure, compensation for this country by profits from permit trade, and maximal possible permit endowments for the remaining countries. We outline how the EU-ETS can be further refined according to this mechanism.