Contest architecture

A contest architecture specifies how the contestants are split among several sub-contests whose winners compete against each other (while other players are eliminated). We compare the performance of such dynamic schemes to that of static winner-take-all contests from the point of view of a designer who maximizes either the expected total effort or the expected highest effort. For the case of a linear cost of effort, our main results are: (1) If the designer maximizes expected total effort, the optimal architecture is a single grand static contest. (2) If the designer maximizes the expected highest effort, and if there are sufficiently many competitors, it is optimal to split the competitors in two divisions, and to have a final among the two divisional winners. Finally, if the effort cost functions are convex, the designer may benefit by splitting the contestants into several sub-contests, or by awarding prizes to all finalists.     

The effects of employment protection: Learning from variable enforcement

Employment protection legislation (EPL) is not enforced uniformly across the board. There are a number of exemptions to the coverage of these provisions: firms below a given threshold scale and workers with temporary contracts are not subject to the most restrictive provisions. This within-country variation in enforcement allows us to make inferences on the impact of EPL which go beyond the usual cross-country approach. In this paper we develop a simple model which explains why these exemptions are in place to start with. Then we empirically assess the effects of EPL on dismissal probabilities and on the equilibrium size distribution of firms. Our results are in line with the predictions of the theoretical model. Workers under permanent contracts in firms with less restrictive EPL are more likely to be dismissed. However, there is no effect of the exemption threshold on the growth of firms.     

Trade unions vs. statistical discrimination: Theory and application to post-apartheid South Africa

A simple model of statistical discrimination is analyzed, which captures some stylized facts of the South African labor market. It shows that this type of discrimination disappears when the wage rates are determined by efficient bargaining between a representative firm and a union, with endogenous membership. This may explain why the wage gap between Black and White workers in post-apartheid South Africa is smaller among unionized workers than among non-unionized ones.     

Financial liberalization,financial sector development and growth: Evidence from Malaysia

The objective of this paper is to examine whether financial development leads to economic growth or vice versa in the small open economy of Malaysia. Using time series data from 1960 to 2001, we conduct cointegration and causality tests to assess the finance-growth link by taking the real interest rate and financial repression into account. The empirical evidence suggests that financial liberalization, through removing the repressionist policies, has a favorable effect in stimulating financial sector development. Financial depth and economic development are positively related; but contrary to the conventional findings, our results support Robinson's view that output growth leads to higher financial depth in the long-run.     

What a Difference Immigration Policy Makes: A Comparison of PISA Scores in Europe and Traditional Countries of Immigration

Abstract. The purpose of this article is to evaluate the importance of different immigration policies associated with corresponding migration backgrounds, command of national languages and intergenerational mobility, for the PISA school performance of teenagers living in European countries (France, Finland, Germany, United Kingdom and Sweden) and traditional countries of immigration (Australia, Canada, New Zealand and the US). Econometric results show that the influence of the socioeconomic background of parents differs strongly across nations, with the highest impact found for Germany, the UK and US, whereas intergenerational transmission of educational attainment is less likely in Scandinavian countries and in Canada. Moreover, for all countries our estimations imply that for students with a migration background a key for catching up is the language spoken at home. We conclude that educational policy should focus on integration of immigrant children in schools and preschools, with particular emphasis on language skills at the early stage of childhood.     

Self-control in peer groups

Social influences on self-control underlie both self-help groups and many peer interactions among youths. To understand these phenomena, we analyze how observing each other's behavior affects individuals’ ability to deal with their own impulses. These endogenous informational spillovers lead to either a unique “good news” equilibrium that ameliorates behavior, a unique “bad news equilibrium” that worsens it, or to the coexistence of both. A welfare analysis shows that people will find social interactions valuable only when they have enough confidence in their own and others’ ability to resist temptation. The ideal partner, however, is someone with a slightly worse self-control problem than one's own: this makes his successes more encouraging, and his failures less discouraging.     

Quality-enhancing trade liberalization

This paper examines the effect of trade liberalization on the quality of industrial goods produced by a developing country. The intermediate goods used as inputs to industrial production are assumed to be non-traded and produced by firms with market power. It is shown here that for a certain range of human capital levels, exposure to free trade, instead of resulting in de-industrialization, can raise welfare through an improvement in the quality of domestically produced industrial goods.     

Pension Reform, Capital Markets and the Rate of Return

Abstract. This paper discusses the consequences of population aging and a fundamental pension reform – that is, a shift towards more pre‐funding – for capital markets in Germany. We use a stylized closed‐economy, overlapping‐generations model to compare the effects of the recent German pension reform with those of a more decisive reform that would freeze the current pay‐as‐you‐go contribution rate and thus result in a larger funded component of the pension system. We predict rates of return to capital under both reform scenarios over a long horizon, taking demographic projections as given. Our main finding is that the future decrease in the rate of return is much smaller than often claimed in the public debate. Our simulations show that the capital stock will decrease once the baby‐boom generations enter retirement, even if there were no fundamental pension reform. The corresponding decrease in the rate of return, the direct effect of population aging, is around 0.7 percentage points. While the capital market effects of the recent German pension reform are marginal, the rate of return to capital would decrease by an additional 0.5 percentage points under the more decisive reform proposal.     

Estimating spatial differences in the Brazilian cost of living with household location choices

This paper uses a model of optimal household residential decisions to construct a comprehensive “true” spatial cost of living index with readily available Brazilian census data. We find evidence of a decreasing or U-shaped relationship (differing with education level and region) between the cost of living and urbanization, suggesting that both market disintegration and congestion play roles in raising costs. Controlling for spatial differences in the cost of living is shown to have important consequences for the determinants of poverty and (contrary to many previous results) to increase income inequality.     

Productivity,earnings, and profit sharing — An econometric analysis of alternative models

The theoretical status of the relationship between productivity, wages, and profit sharing (PS) is poor. Only some alternative hypotheses can be formulated. From these explanations six different econometric models are derived. Using data of the German Socio-Economic Panel the models are estimated and tests and indicators are employed to choose the best model. Our investigation speaks in favour of hybrid simultaneous Tobit models where the level of profit sharing is positively correlated with productivity which induces positive wage effects on the one hand. But on the other hand the level of wages is also relevant to the question whether a firm introduces or decides to continuePS and which amount ofPS should be paid.What is obvious is not always true and introspection is a notoriously unreliable guide to empirical magnitudes. Blinder (1990, p.2)