Discounting long run average growth in stochastic dynamic programs

Summary. Finding solutions to the Bellman equation often relies on restrictive boundedness assumptions. In this paper we develop a method of proof that allows to dispense with the assumption that returns are bounded from above. In applications our assumptions only imply that long run average (expected) growth is sufficiently discounted, in sharp contrast with classical assumptions either absolutely bounding growth or bounding each period (instead of long run) maximum (instead of average) growth. We discuss our work in relation to the literature and provide several examples. Received: July 26, 2000; revised version: July 10, 2002 RID="*" ID="*" I am specially grateful to Cuong Le Van and to anonymous referee for detecting an error in a previous version of this paper and for suggestions that sensibly improved the paper. Comments and suggestions are also acknowledged to Michele Boldrin, Raouf Boucekkine, Fabrice Collard, Tim Kehoe, Omar Licandro, and Luis Puch. I am also indebted to participants to the III Summer School on Economic Theory held at the Universidade de Vigo, the Macroeconomics Workshop at the Universitat Autò}noma de Barcelona, and the Econometrics Seminar at Tilburg University. Financial support from the Belgian government, under project PAI P4/01, at the IRES-UCL, from a European Marie Curie fellowship, Grant HPMF-CT-1999-00410, at the CEPREMAP, and from IVIE and Spanish Ministerio de Ciencia y Tecnología and FEDER, under project BEC2001-0535, at the Universidad de Alicante, is gratefully acknowledged.     

Comparing alternative methods to estimate gravity models of bilateral trade

The gravity equation has been traditionally used to predict trade flows across countries. However, several problems related with its empirical application still remain unsolved. The unobserved heterogeneity, the presence of heteroskedasticity in trade data or the existence of zero flows, which make the estimation of the logarithm unfeasible, are some of them. This paper provides a survey of the most recent literature concerning the specification and estimation methods of this equation. For a dataset covering 80% of world trade, the most widely extended estimators are compared, showing that the Heckman sample selection model performs better overall for the specification of gravity equation selected.     

Politicians’ motivation,political culture,and electoral competition

We study electoral competition among politicians who are heterogeneous both in competence and in how much they care about (what they perceive as) the public interest relative to the private rents from being in office. We show that politicians may have stronger incentives to behave opportunistically if other politicians are more likely to behave opportunistically. A political culture may therefore be self-reinforcing and multiple equilibria may arise. We also show that politicians’ incentives to behave opportunistically increase with politicians’ pay and with polarization of policy preferences. JEL Code D72 · D78     

Strategy-proof size improvement: is it possible?*

The number of assigned agents (i.e., size) is an important parameter in object allocations. While size maximality clashes with individual rationality and strategy-proofness, it can still be possible to increase the size over a mechanism while keeping these properties. To pursue this research, we devise a size comparison criterion to investigate the possibility of size increase. A mechanism size-wise dominates another mechanism if the latter never assigns more agents than the former, and at some problem, assigns more agents than . We obtain arguably mild conditions for a mechanism to not be dominated size-wise by an individually rational and strategy-proof mechanism. Moreover, whenever there are at least as many objects as the total number of agents, we find conditions, different from those previously mentioned, for a mechanism to not be dominated size-wise by an individually rational and group strategy-proof mechanism. These results have implications for deferred-acceptance, top trading cycles, efficiency-adjusted deferred-acceptance, serial dictatorship, and Boston mechanisms.