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Economica / NEW SERIES

Impact factor: 1.194 5-Year impact factor: 1.526 Print ISSN: 0013-0427 Online ISSN: 1468-0335 Publisher: Wiley Blackwell (Blackwell Publishing)

Subject: Economics

Most recent papers:

  • A Non‐unitary Discount Rate Model.
    Takeo Hori, Koichi Futagami.
    Economica / NEW SERIES. October 03, 2017
    We develop a simple macroeconomic model in which agents discount their utility from consumption and the utility from leisure at different rates. Under this setting, time‐inconsistency emerges for the preferences of agents. Moreover, the time‐inconsistency problem generates two types of inefficiencies: intratemporal and intertemporal. We examine the welfare effects of savings subsidy and consumption tax. The effects of taxation in our model are quite different from those in the standard model. If the discount rate for consumption is higher (lower) than that for leisure, today's self cares less (more) about the consumption of the future selves than the leisure of the future selves. Depressing (stimulating) the consumption of future selves improves the utility of today's self. Hence a positive (negative) consumption tax rate improves the utility level of all selves.
    October 03, 2017   doi: 10.1111/ecca.12250   open full text
  • Export and Innovation in Small and Medium Enterprises: The Role of Concentrated Bank Borrowing.
    Maria Luisa Mancusi, Andrea Vezzulli, Serena Frazzoni, Zeno Rotondi, Maurizio Sobrero.
    Economica / NEW SERIES. September 21, 2017
    This paper assesses the role of concentrated bank borrowing in explaining the extensive and intensive margins of export, while accounting for the simultaneous relationship between exporting and innovation. Concentrated bank borrowing proxies for the intensity of the bank–firm relationship and is a strategy often pursued by small and medium enterprises (SMEs) in order to overcome information asymmetries and improve access to external finance. Our results show that a tight relationship between an SME and its main bank increases both the firm's probability of exporting and its export intensity. This positive effect is only marginally mediated by the SME's increased propensity to introduce product innovation. We further discuss the financial and non‐financial channels through which the intensity of the bank–firm relationship supports SMEs’ international activities.
    September 21, 2017   doi: 10.1111/ecca.12252   open full text
  • The Competitive Effects of Credit Constraints in the Global Economy.
    Peter Egger, Sebastian Kunert, Tobias Seidel.
    Economica / NEW SERIES. August 30, 2017
    As credit constraints exclude some firms from external finance and thus from market entry, they affect prices and markups by altering the degree of competition. Lower credit constraints allow less productive firms to enter with the following consequences. On the one hand, more competition tends to reduce average prices, but on the other hand, less productive firms charge above‐average prices. The overall effect is thus ambiguous. We therefore formulate and structurally estimate a quantitative multi‐country version of the model to gauge the direction and magnitude of the effects of credit constraints in a model with variable firm‐specific markups over marginal costs. In a sample of 11 European countries’ manufacturing sectors between 2000 and 2005, we find that an abolishment of credit constraints reduces markups by about 6.1% on average, while average prices are predicted to increase by 1.6%. The latter indicates that the effect of credit constraints on productivity dominates the one on competition.
    August 30, 2017   doi: 10.1111/ecca.12251   open full text
  • On a World Climate Assembly and the Social Cost of Carbon.
    Martin L. Weitzman.
    Economica / NEW SERIES. July 28, 2017
    This paper argues that a uniform global tax‐like price on carbon emissions, whose revenues each country retains, can provide a focal point for a reciprocal common climate commitment, whereas quantity targets, which do not nearly so readily present such a single focal point, tend to rely ultimately on individual quantity commitments. The paper postulates the conceptually useful allegory of a futuristic ‘World Climate Assembly’ (WCA) that votes for a single worldwide price on carbon emissions via the basic democratic principle of one person, one vote majority rule. A WCA‐like uniform price‐tax counters self‐interest by incentivizing countries or agents to internalize the externality because each WCA agent's higher abatement cost from a higher emissions price is counterbalanced by that agent's extra benefit from inducing all other WCA agents to simultaneously lower their emissions in response to the higher price. The paper derives fresh insights and new simple formulae that relate each emitter's most‐preferred world price of carbon to the world ‘social cost of carbon’ (SCC), and further relates the WCA‐voted world price of carbon to the world SCC. Some implications are discussed. The overall methodology of the paper is a mixture of mostly classical with some behavioural economics.
    July 28, 2017   doi: 10.1111/ecca.12248   open full text
  • Mandated Political Representation and Redistribution.
    Anirban Mitra.
    Economica / NEW SERIES. July 28, 2017
    Mandated political representation for minorities involves earmarking certain electoral districts where only minority‐group candidates are permitted to contest. This paper builds a political‐economy model to analyse the effect of such affirmative action on redistribution in equilibrium. The model predicts that in situations where the minority is economically disadvantaged and where voters exhibit an in‐group bias, such a quota can reduce transfers to poorer groups. This suggests that the gains to the minority group from having such quotas are unevenly distributed. Redistribution in reserved districts leads to a rise in within‐group inequality for the minorities.
    July 28, 2017   doi: 10.1111/ecca.12249   open full text
  • Does Financial Deregulation Boost Top Incomes? Evidence from the Big Bang.
    Julia Tanndal, Daniel Waldenström.
    Economica / NEW SERIES. July 20, 2017
    We estimate the impact of financial market deregulation on top income shares. Using the novel synthetic control method to investigate the two ‘Big Bangs’ of financial deregulation, the UK in 1986 and Japan in 1997–9, we find that pre‐tax top income shares increased after both deregulation episodes. This finding is robust to placebo tests, alternative ways of constructing synthetic controls, and the examination of post‐treatment trends and UK wage microdata trends. Higher earnings among financial sector employees appears to be the key mechanism behind this result.
    July 20, 2017   doi: 10.1111/ecca.12247   open full text
  • Knowledge is Power: A Theory of Information, Income and Welfare Spending.
    Jo Thori Lind, Dominic Rohner.
    Economica / NEW SERIES. June 12, 2017
    No voters cast their votes based on perfect information, but richer voters are on average best informed. We develop a model where the voting mistakes resulting from low political knowledge reduce the weight of poor voters, and cause parties to choose political platforms that are better aligned with the preferences of rich voters. In US election survey data, income is more important in affecting voting behaviour for more informed voters than for less informed voters. Further, when there is a strong correlation between income and political information, Congress representatives vote more conservatively, which is also in line with our theory.
    June 12, 2017   doi: 10.1111/ecca.12246   open full text
  • Job Loss and Immigrant Labour Market Performance.
    Bernt Bratsberg, Oddbjørn Raaum, Knut Røed.
    Economica / NEW SERIES. June 12, 2017
    While integration policies typically focus on labour market entry, we present evidence showing that immigrants from low‐income countries tend to have more precarious jobs, and face more severe consequences of job loss, than natives. For immigrant workers in the Norwegian private sector, the probability of job loss in the near future is more than twice that of native workers. Using corporate bankruptcy filings for identification, we find that the adverse effects of job loss on future employment and earnings are twice as large for immigrant employees from low‐income source countries.
    June 12, 2017   doi: 10.1111/ecca.12244   open full text
  • Coase Lecture—Taxes, Targets and the Social Cost of Carbon.
    Robert S. Pindyck.
    Economica / NEW SERIES. May 30, 2017
    In environmental economics, the marginal external cost of emitting a pollutant determines the optimal abatement policy, which might take the form of an emissions tax. But the marginal external cost is often difficult to estimate. This is especially the case when it comes to climate change; estimates of the social cost of carbon (SCC) range from around $10 per metric ton to well over $200 per metric ton, and there has been little or no movement toward a consensus number. Partly as a result, rather than an SCC‐based carbon tax, climate policy has focused on a set of targets that would put limits on temperature increases or atmospheric CO2 concentrations, which in turn imply targets for emission reductions. Economics, however, can tell us little about whether such targets are socially optimal. I discuss the trade‐off between taxes versus targets as the focus of policy, explain why it has been so difficult to estimate a marginal SCC, and suggest an approach to estimating an average SCC through the use of expert elicitation. I argue that such an approach could serve as the basis for a harmonized carbon tax.
    May 30, 2017   doi: 10.1111/ecca.12243   open full text
  • Migration when Social Preferences are Ordinal: Steady‐state Population Distribution and Social Welfare.
    Oded Stark.
    Economica / NEW SERIES. May 26, 2017
    This paper adds three dimensions to the received literature: it models migration when the individuals’ preferences regarding their relative incomes are ordinal, it works out the resulting spatial steady‐state distribution of the individuals, and it shows that the aggregate of the individuals’ migration choices in the spatial steady‐state distribution sums to the social optimum. This finding does not apply when the individuals’ preferences regarding their relative incomes are cardinal. We highlight the importance of the assumption about the nature of the individuals’ social preferences (whether ordinal or cardinal) to studying and predicting their migration behaviour, and to elucidating the consequences of that behaviour for social welfare.
    May 26, 2017   doi: 10.1111/ecca.12245   open full text
  • General Equilibrium Dynamics with Naïve and Sophisticated Hyperbolic Consumers in an Overlapping Generations Economy.
    Takeshi Ojima.
    Economica / NEW SERIES. May 19, 2017
    Using an overlapping generations model, this paper describes interactions between naïve and sophisticated hyperbolic discounters in general equilibrium. The naïfs, who overestimate their propensity to save and hence overforecast equilibrium asset prices, in the next period are exploited through capital transactions by the sophisticates, who correctly forecast future asset prices by incorporating the naïfs’ misforecasts. Due to the capital losses, the naïfs fall into bankruptcy when they are highly present‐biased, highly patient, and small in proportion. Under permissive conditions, the equilibrium is shown to be globally stable and Pareto‐inefficient in the ex post sense.
    May 19, 2017   doi: 10.1111/ecca.12242   open full text
  • Export Destination Characteristics and Markups: The Role of Country Size.
    Umut Kilinç.
    Economica / NEW SERIES. May 19, 2017
    Besides exhibiting substantial heterogeneity across firms or products of different quality, markups can vary within a firm across products of the same type that are sold to different markets. This implies that part of the observed markup heterogeneity is driven by differences in market characteristics. Openness to international trade plays a crucial role in this heterogeneity by allowing firms to operate in multiple markets simultaneously. This paper aims to assess the variation in markups across export destinations of different characteristics, with a particular focus on country size. The markup variation is estimated through an export demand specification using product–firm–country matched data from Luxembourg, where prices and quantities are observed separately. The results show that markups for products exported to larger destinations are significantly lower. In addition to destination size, markups are found to vary with the export destination's productivity advantage, distance, strictness of tariffs, EU membership status and richness. Exporters’ markups also vary significantly with firm age but not with firm size.
    May 19, 2017   doi: 10.1111/ecca.12239   open full text
  • The Intergenerational Transmission of Education: New Evidence from Adoptions in the USA.
    Mary A. Silles.
    Economica / NEW SERIES. May 17, 2017
    This paper examines the influence of parental education on children's grade‐for‐age using a large sample of adoptees drawn from the American Community Survey between 2008 and 2014. The results show that mother's education is not an important determinant of the education of adopted children, despite statistically significant effects for own‐birth children. The results for fathers are different. Among adopted white children, the effect of father's education is shown to be a statistically significant determinant of grade retention. However, among black children, adoptive father's education does not appear to have any discernible effect on children's education. A range of sensitivity tests are undertaken to check the validity of these results. The differences in these patterns between white and black students suggest the presence of racial differences in the intergenerational transmission of education.
    May 17, 2017   doi: 10.1111/ecca.12240   open full text
  • The Clash of Central Bankers with Labour Market Insiders, and the Persistence of Inflation and Unemployment.
    George Alogoskoufis.
    Economica / NEW SERIES. May 15, 2017
    This paper analyses the implications of monetary policy for the dynamic behaviour of inflation, in a ‘natural’ rate model characterized by endogenous unemployment persistence. We present evidence for the main industrial economies that suggests that inflation displays persistence which is of the same order of magnitude as the persistence of deviations of unemployment from its ‘natural’ rate. We provide a theoretical explanation of this fact based on a model of the dynamic interactions between central bankers and labour market insiders. The clash in the objectives of central bankers and labour market insiders is what causes both inflation and unemployment to display the same persistence in this model. The analysis suggests that inflation persistence could be addressed in a welfare‐improving way, if central banks adopted monetary policy rules that targeted unanticipated changes in unemployment rates instead of deviations of unemployment from its ‘natural’ rate.
    May 15, 2017   doi: 10.1111/ecca.12241   open full text
  • Real Effect of Bank Efficiency: Evidence from Disaggregated Manufacturing Sectors.
    Ali Mirzaei, Tomoe Moore.
    Economica / NEW SERIES. May 11, 2017
    In this paper, we investigate the real effect of bank efficiency for the growth and market structure of 23 manufacturing sectors in a two‐dimensional panel framework. We use the cost and profit efficiency scores that are estimated based on the stochastic frontier model for 5850 banks. The robust finding is that industries that rely heavily on external finance grow faster and are enhanced by the creation of new enterprises in countries with efficient banking systems. Further evidence, however, reveals that the efficiency effect is mainly derived from the cost side during the financial crisis period.
    May 11, 2017   doi: 10.1111/ecca.12238   open full text
  • The Impact of House Prices on Consumption in the UK: a New Perspective.
    Vivien Burrows.
    Economica / NEW SERIES. May 11, 2017
    This paper proposes an alternative approach to the question of how house prices influence household consumption by focusing on their impact on mortgage equity withdrawal and household saving. Household‐level data are used to derive a measure of expected and unexpected changes in house prices; these are then incorporated into a recursive bivariate probit model of the decision to withdraw housing equity and save. The results suggest that households respond to changes in their housing wealth primarily by increasing their mortgage borrowing, rather than by decreasing their savings, although this is mainly for younger households. However, while changes in housing wealth do not have a direct impact on household saving, they do have an important indirect impact, since they increase the likelihood that the household will withdraw equity, which in turn has a negative impact on household saving.
    May 11, 2017   doi: 10.1111/ecca.12237   open full text
  • Destination‐based vs. Origin‐based Commodity Taxation in Large Open Economies with Unemployment.
    Fabio Antoniou, Panos Hatzipanayotou, Nikos Tsakiris.
    Economica / NEW SERIES. April 26, 2017
    We construct a perfectly competitive model of two symmetric countries producing tradable commodities and a public consumption good. Destination‐ or origin‐based taxes are levied on the consumption of the tradable goods. In both countries, a fixed wage leads to involuntary unemployment. We derive the Nash equilibrium consumption taxes under the two taxation principles with endogenous world prices, and compare them to (i) the cooperative rates, and (ii) the rates when world prices are fixed. We demonstrate that with endogenous world prices, the induced terms‐of‐trade effects cancel out under the destination principle, but they prevail under the origin principle of taxation. Nash equilibrium destination‐based taxes are inefficiently low when the exporting sector in each country is non‐labour‐intensive. The Nash equilibrium origin‐based taxes can be either higher or lower than the corresponding cooperative rates.
    April 26, 2017   doi: 10.1111/ecca.12235   open full text
  • Non‐additivity and the Salience of Marginal Productivities: Experimental Evidence on Distributive Fairness.
    Urs Fischbacher, Nadja Kairies‐Schwarz, Ulrike Stefani.
    Economica / NEW SERIES. April 26, 2017
    We investigate the relevance of different distributive fairness norms in a team production process in which the team members’ contributions to the joint output are not necessarily additive. In some of the cases of non‐additivity, the individual marginal contributions to the output are not salient. We vary the salience and investigate how third parties allocate the joint output to the team members. We find that the prevalent norm is to hold others responsible only for their inputs rather than for the incremental increase in the output. The marginal productivities are taken into account only when they are made readily apparent.
    April 26, 2017   doi: 10.1111/ecca.12234   open full text
  • Do the Right Thing: Incentives for Policy Selection in Presidential and Parliamentary Systems.
    Michela Cella, Giovanna Iannantuoni, Elena Manzoni.
    Economica / NEW SERIES. April 10, 2017
    Constitutional structures shape politicians’ behaviour and hence policy outcomes through the different incentives schemes that they generate. In this paper we analyse these mechanisms in parliamentary and presidential systems. The comparison is carried out by analysing how the two systems may select the efficient policy in the presence of asymmetric information. Presidential and parliamentary systems differ in that the policy proposed by the executive in the parliamentary system is confidence‐dependent and observable. The main findings suggest that the parliament responds better to the incentive scheme in the presidential system due to the lower uncertainty faced by legislators over their term limit. However, the parliamentary system generates a more efficient behaviour of the executive due to selection and disciplining effects.
    April 10, 2017   doi: 10.1111/ecca.12236   open full text
  • On the Share of Inheritance in Aggregate Wealth: Europe and the USA, 1900–2010.
    Facundo Alvaredo, Bertrand Garbinti, Thomas Piketty.
    Economica / NEW SERIES. March 27, 2017
    This paper provides historical series on the evolution of the share of inherited wealth in aggregate private wealth in Europe (France, the UK, Germany, Sweden) and the USA over the 1900–2010 period. Until 1910, the inheritance share was very high in Europe (70–80%). It then fell abruptly following the 1914–45 shocks, down to about 30–40% during the 1950–80 period, and is back to 50–60% (and rising) since around 2010. The US pattern also appears to be U‐shaped, albeit less marked, and with significant uncertainty regarding recent trends, due to data limitations. We discuss possible interpretations for these long‐run patterns.
    March 27, 2017   doi: 10.1111/ecca.12233   open full text
  • Inequality with Ordinal Data.
    Frank A. Cowell, Emmanuel Flachaire.
    Economica / NEW SERIES. March 24, 2017
    The standard theory of inequality measurement assumes that the equalisand is a cardinal quantity, with known cardinalization. However, one often needs to make inequality comparisons where either the cardinalization is unknown or the underlying data are categorical. We propose an alternative approach to inequality analysis that is rigorous, has a natural interpretation, and embeds both the ordinal data problem and the well‐known cardinal data problem. We show how the approach can be applied to the inequality of happiness and of health status.
    March 24, 2017   doi: 10.1111/ecca.12232   open full text
  • Wellbeing Inequality and Preference Heterogeneity.
    Koen Decancq, Marc Fleurbaey, Erik Schokkaert.
    Economica / NEW SERIES. March 23, 2017
    Standard measures of multidimensional inequality (implicitly) assume common preferences for all individuals, and hence are not sensitive to preference heterogeneity among members of society. In this paper, we measure the inequality of the distribution of equivalent incomes, which is a preference‐sensitive multidimensional wellbeing measure. To quantify the contribution of preference heterogeneity to wellbeing inequality, we use a decomposition method that calculates wellbeing inequality in different counterfactual distributions. We focus on four sources of wellbeing inequality: the correlation between outcomes and preferences, the preference heterogeneity, the correlation between the outcome dimensions, and the inequality within each of the outcome dimensions. We find that preference heterogeneity accounts for a considerable part of overall wellbeing inequality in Russia for the period 1995–2005.
    March 23, 2017   doi: 10.1111/ecca.12231   open full text
  • Gender Inequality and Economic Development: Fertility, Education and Norms.
    Henrik Kleven, Camille Landais.
    Economica / NEW SERIES. March 14, 2017
    We document the evolution of gender inequality in labour market outcomes—earnings, labour supply and wage rates—over the path of economic development, and present evidence on the potential reasons for this evolution. To this end, we have created a micro database that compiles 248 surveys from 53 countries between 1967 and 2014, covering a wide range of per capita income levels. There is large convergence in the earnings of men and women over the path of development, driven by female labour force participation and wage rates. We argue that the single most important factor behind this convergence is demographic transition: the effects of children on gender gaps (‘child penalties’) are large at both low and high levels of development, but fertility declines drastically over the growth process and thus reduces the aggregate implications of children. We also document gender convergence in educational attainment and consider its effects on earnings inequality, arguing that these are significant but less dramatic than the effects of fertility. Finally, we document striking changes in the values or norms surrounding the role of women with children, implying that such changes could serve as a reinforcing mechanism for gender convergence.
    March 14, 2017   doi: 10.1111/ecca.12230   open full text
  • What Do We Know About the Effects of Macroprudential Policy?
    Gabriele Galati, Richhild Moessner.
    Economica / NEW SERIES. March 09, 2017
    The literature on the effectiveness of macroprudential policy tools is still in its infancy and has so far provided only limited guidance for policy decisions. In recent years, however, increasing efforts have been made to fill this gap. Progress has been made in embedding macroprudential policy in theoretical models. There is increasing empirical work on the effect of some macroprudential tools on a range of target variables, such as quantities and prices of credit, asset prices, and on the amplitude of the financial cycle and financial stability. In this paper we provide a critical review of recent progress in theoretical and empirical research on the effectiveness of macroprudential instruments.
    March 09, 2017   doi: 10.1111/ecca.12229   open full text
  • Social Spillovers in the Classroom: Identification, Estimation and Policy Analysis.
    Santiago Pereda‐Fernández.
    Economica / NEW SERIES. February 28, 2017
    I present a method to jointly estimate social spillovers in the classroom and the distributions of teacher and student effects. This method is based on the covariance and higher‐order moments restrictions of the test scores, requiring the random assignment of teachers and students to classrooms. Using the Tennessee Project STAR dataset, I estimate sizeable spillovers in kindergarten classrooms and departures from normality of the teacher and student ability distributions. The estimates also show that reducing class size has a positive effect on mean performance, but it increases the inequality. Based on these estimates, I perform several input‐neutral policy counterfactuals involving teachers and students assignment rules, and changing the distribution of class sizes. For the latter, I derive an optimal class size distribution rule, which increases mean test scores and reduces the overall variance.
    February 28, 2017   doi: 10.1111/ecca.12228   open full text
  • Trends in Life Expectancy by Income and the Role of Specific Causes of Death.
    Karin Hederos, Markus Jäntti, Lena Lindahl, Jenny Torssander.
    Economica / NEW SERIES. February 28, 2017
    This study explores how life expectancy at age 35 has evolved across the income distribution in Sweden over time. We examine individual income for men 1970–2007 and family income for both men and women 1980–2007. During this period, income inequality increased in most western countries, but especially so in Sweden. Drawing on a large sample of the Swedish population, our results show that the gap in life expectancy between the richest and poorest fifths of the income distribution also increased. This was the case both for individual and family income. The increase was larger for men than for women, but the only group with stagnant life expectancy at age 35 was women in the lowest income quintile group. Between 1986 and 2007, the difference between the lowest and highest family income quintiles increased by about one year for women and by almost two years for men. The causes of death that most significantly contributed to the increased disparities among women were circulatory and respiratory diseases. For men, circulatory disease mortality alone caused most of the increased disparities.
    February 28, 2017   doi: 10.1111/ecca.12224   open full text
  • Death and the Media: Infectious Disease Reporting During the Health Transition.
    Dora L. Costa, Matthew E. Kahn.
    Economica / NEW SERIES. February 27, 2017
    In the late 19th century, cities in Western Europe and the USA suffered from high levels of infectious disease. Over a 40‐year period, there was a dramatic decline in infectious disease deaths in cities. As such objective progress in urban quality of life took place, how did the media report this trend? At that time, newspapers were the major source of information educating urban households about the risks that they faced. By constructing a unique panel database, we find that news reports were positively associated with government‐announced typhoid mortality counts, and the size of this effect actually grew after local governments made large investments in public water works to reduce typhoid rates. News coverage was more responsive to unexpected increases in death rates than to unexpected decreases in death rates.
    February 27, 2017   doi: 10.1111/ecca.12227   open full text
  • Government Size and Macroeconomic Volatility.
    Fabrice Collard, Harris Dellas, George Tavlas.
    Economica / NEW SERIES. January 24, 2017
    We examine the implications of government size for macroeconomic volatility in a standard New‐Keynesian model with multiple shocks. Larger government size mitigates volatility arising from technology, preference, mark‐up and monetary policy shocks, but amplifies that emanating from expenditure shocks. The degree of mitigation‐amplification varies with the size of government, which opens up the possibility of a non‐monotone relationship between volatility and government size. When we estimate the model on US data we find that the relationship is negative around the current US size, but it could eventually turn positive as the ratio of government spending to GDP increased. The location of the turning point in this relationship depends mainly on the type of private expenditure crowded out by higher government spending and on the degree of price stickiness.
    January 24, 2017   doi: 10.1111/ecca.12223   open full text
  • The Discounted Euler Equation: A Note.
    Alisdair McKay, Emi Nakamura, Jón Steinsson.
    Economica / NEW SERIES. January 19, 2017
    We present a simple model with income risk and borrowing constraints that yields a ‘discounted Euler equation’. This feature of the model mutes the extent to which news about far future real interest rates (i.e. forward guidance) affects current outcomes. We show that this simple model approximates the outcomes of a rich model with uninsurable income risk and borrowing constraints in response to a forward guidance shock. The model is simple enough to be easily incorporated into simple New Keynesian models. We illustrate this with an application to the zero lower bound.
    January 19, 2017   doi: 10.1111/ecca.12226   open full text
  • Group Learning, Wage Dispersion and Non‐stationary Offers.
    Julio J. Rotemberg.
    Economica / NEW SERIES. January 19, 2017
    Can differences in equilibrium beliefs among otherwise identical individuals account for a substantial degree of wage inequality? This paper shows that this is possible if two conditions are met. First, people learn about the distribution of wage offers from the experience of their peers, and second, people believe that wage offers are stationary even though offers that arrive later tend to have higher wages than offers that arrive earlier. Peer groups can then end up with different stable beliefs that lead to intergroup wage differences. The non‐stationarity of offers is rationalized in a model where firms can either advertise their job openings or not, and where advertised ones have more influence on more inexperienced job searchers. A statistic is proposed whose application to existing studies suggests that the non‐stationarity considered here is present in data.
    January 19, 2017   doi: 10.1111/ecca.12225   open full text
  • Two Decades of Income Inequality in Britain: The Role of Wages, Household Earnings and Redistribution.
    Chris Belfield, Richard Blundell, Jonathan Cribb, Andrew Hood, Robert Joyce.
    Economica / NEW SERIES. January 17, 2017
    We study earnings and income inequality in Britain over the past two decades, including the period of relatively ‘inclusive’ growth from 1997 to 2004, and the Great Recession. We focus on the middle 90%, where trends have contrasted strongly with the ‘new inequality’ at the very top. Household earnings inequality has risen, driven by male earnings—although a ‘catch‐up’ of female earnings did hold down individual earnings inequality and reduce within‐household inequality. Nevertheless, net household income inequality fell due to deliberate increases in redistribution, the tax and transfer system's insurance role during the Great Recession, falling household worklessness, and rising pensioner incomes.
    January 17, 2017   doi: 10.1111/ecca.12220   open full text
  • The Good, the Bad and the Different: Can Gender Quotas Raise the Quality of Politicians?
    Paulo Júlio, José Tavares.
    Economica / NEW SERIES. January 13, 2017
    The debate over political gender quotas is unduly confined to a supposed trade‐off between diversity and competence. We characterize the effects of a political gender quota in a citizen‐candidate model, to find that quotas do increase the overall quality of those elected whenever the rewards from public office are high, or the skill premium or political gender discrimination are sufficiently low. In such cases, high‐skill women candidates run for office in sufficiently high numbers, driving off low‐skill male and female candidates. Our model compares quotas with other policies in terms of their impact on the number and quality of those elected.
    January 13, 2017   doi: 10.1111/ecca.12222   open full text
  • Baumol's Cost Disease and the Sustainability of the Welfare State.
    Torben M. Andersen, Claus T. Kreiner.
    Economica / NEW SERIES. December 25, 2016
    If productivity increases more slowly for services than for manufactured goods, then services suffer from Baumol's cost disease and tend to become relatively more costly over time. Since the welfare state in all countries is an important supplier of tax financed services, this translates into a financial pressure that seems to leave policymakers with a trilemma: increase tax distortions, cut spending or redistribute less. Under the assumptions underlying Baumol's cost disease, we show that these dismal implications are not warranted. The welfare state is sustainable, and there is even scope for Pareto improvements under Baumol's cost disease.
    December 25, 2016   doi: 10.1111/ecca.12221   open full text
  • Accounting for the UK Productivity Puzzle: A Decomposition and Predictions.
    Peter Goodridge, Jonathan Haskel, Gavin Wallis.
    Economica / NEW SERIES. December 20, 2016
    This paper revisits the UK productivity puzzle using new data on outputs and inputs and clarifying the role of output mismeasurement, input growth and industry effects. Our data indicate an implied labour productivity gap of 13 percentage points in 2011 relative to the productivity level on pre‐recession trends. We find that: (a) the labour productivity puzzle is a TFP puzzle, since it is not explained by the contributions of labour or capital services; (b) the reallocation of labour between industries deepens rather than explains the puzzle (i.e. there has been a reallocation of hours away from low‐productivity industries and toward high productivity industries); (c) capitalization of R&D does not explain the productivity puzzle; (d) assuming increased scrapping rates since the recession, a 25% (50%) increase in depreciation rates post‐2009 can potentially explain 15% (31%) of the productivity puzzle; (e) industry data show that 35% of the TFP puzzle can be explained by weak TFP growth in the oil & gas and finance sectors; and (f) cyclical effects via factor utilization could potentially explain 17% of the productivity puzzle. Continued weakness in finance would suggest a future lowering of TFP growth to around 0.8% p.a. from a baseline of 0.9% p.a.
    December 20, 2016   doi: 10.1111/ecca.12219   open full text
  • The Effects of Recommended Retail Prices on Consumer and Retailer Behaviour.
    Lisa Bruttel.
    Economica / NEW SERIES. December 07, 2016
    This paper presents results from an experiment on the effects of recommended retail prices on consumer and retailer behaviour. We present evidence that recommended retail prices, despite their non‐binding nature, influence consumers’ willingness to pay by setting a reference point. At a given price, consumers buy more the higher the recommended retail price is, and their demand drops at prices above the recommended retail price, even when it is entirely uninformative about the value of the product. Retailers in this study are subject to similar anchoring effects, but they do not anticipate consumers’ behaviour well and are thus not able to exploit their behavioural biases.
    December 07, 2016   doi: 10.1111/ecca.12218   open full text
  • Pareto Models, Top Incomes and Recent Trends in UK Income Inequality.
    Stephen P. Jenkins.
    Economica / NEW SERIES. December 07, 2016
    I determine UK income inequality levels and trends by combining inequality estimates from tax return data (for the ‘rich’) and household survey data (for the ‘non‐rich’), taking advantage of the better coverage of top incomes in tax return data (which I demonstrate) and creating income variables in the survey data with the same definitions as in the tax data to enhance comparability. For top income recipients, I estimate inequality and mean income by fitting Pareto models to the tax data, examining specification issues in depth, notably whether to use Pareto I or Pareto II (generalized Pareto) models, and the choice of income threshold above which the Pareto models apply. The preferred specification is a Pareto II model with a threshold set at the 99th or 95th percentile (depending on year). Conclusions about aggregate UK inequality trends since the mid‐1990s are robust to the way in which tax data are employed. The Gini coefficient for individual gross income rose by around 7% or 8% between 1996/7 and 2007/8, with most of the increase occurring after 2003/4. The corresponding estimate based wholly on the survey data is around −5%.
    December 07, 2016   doi: 10.1111/ecca.12217   open full text
  • Debt Relief for Poor Countries: Conditionality and Effectiveness.
    Almuth Scholl.
    Economica / NEW SERIES. November 29, 2016
    This paper studies the effectiveness of debt relief to stimulate economic growth in the most heavily indebted poor countries. We develop a neoclassical framework with a conflict of interest between the altruistic donor and the recipient government, and model conditionality as an imperfectly enforceable dynamic contract. In contrast to the recent practice of fully cancelling debt, optimal incentive‐compatible conditionality is accompanied by a concessionality level that implies a combination of subsidized loans and outright grants. The optimal concessionality level depends on the recipient's access to international financial markets and on the strength of the conflict of interest. Incentive‐compatible transfers with optimal concessionality levels generate substantial welfare gains. If the donor does not implement the optimal concessionality level and provides subsidized loans only, then the effectiveness of transfers decreases in the long run with severe welfare implications. In contrast, transfers are less effective in the short run if the donor offers outright grants only.
    November 29, 2016   doi: 10.1111/ecca.12216   open full text
  • Pareto and the Upper Tail of the Income Distribution in the UK: 1799 to the Present.
    A. B. Atkinson.
    Economica / NEW SERIES. November 15, 2016
    The Pareto distribution has long been a source of fascination to economists, and the Pareto coefficient is widely used, in theoretical and empirical studies, as a summary of the degree of concentration of top incomes. This paper examines the empirical evidence from income tax data concerning top incomes in the UK, contrasting the dramatic changes that took place in the twentieth century, after 1918, with the much more modest changes in the preceding nineteenth century. Probing beneath the surface, the paper identifies a number of features of the evolution of the UK income inequality that warrant closer attention. These include the changing shape of the upper tail, where there is a link with Pareto's theory of elites, the need for a richer functional form to describe top incomes, and the limited evidence at the top of the distribution for a Kuznets curve in nineteenth century Britain.
    November 15, 2016   doi: 10.1111/ecca.12214   open full text
  • Did the Swedish Tobacco Monopoly Set Monopoly Prices?
    Marcus Asplund.
    Economica / NEW SERIES. November 10, 2016
    Empirical evidence is scarce on whether firms set profit‐maximizing prices, as these typically depend delicately on details of difficult‐to‐observe strategic interactions. To avoid this problem, this paper provides a detailed case study of the Swedish Tobacco Monopoly's pricing with data from 1916 to 1959. Prices are found to be below those that maximize the expected net present value of profits. However, the difference between actual and optimal price diminishes over time, and towards the end of the period the two are almost indistinguishable. The net present value of actual profits is approximately 60% of what could have been obtained. Overall, the pricing patterns appear more consistent with the firm learning about demand conditions than being the result of maximization of something other than profits.
    November 10, 2016   doi: 10.1111/ecca.12215   open full text
  • Defaults, Decision Costs and Welfare in Behavioural Policy Design.
    Nicholas Chesterley.
    Economica / NEW SERIES. November 02, 2016
    This paper studies the welfare effects of behavioural policies that change a consumer's default option or their cost of optimizing. I find that such policies, though increasingly popular, lead not just to changes in the welfare of optimizers or default‐takers in the population—the payoff effect—but also to the membership of those groups—the composition effect. This can lead to costly and potentially counterintuitive effects: improving defaults may actually lower welfare, unlike decision simplification, which is unambiguously positive. Such approaches present a useful policy tool but are not always appropriate, and considerable knowledge of preferences is necessary for effective implementation.
    November 02, 2016   doi: 10.1111/ecca.12213   open full text
  • Friends with Benefits: How Political Connections Help to Sustain Private Enterprise Growth in China.
    James Kai‐sing Kung, Chicheng Ma.
    Economica / NEW SERIES. October 31, 2016
    By analysing data from a survey of 511 Chinese private enterprises, we find that their owners respond to government discrimination by developing political connections with government officials. A one‐standard‐deviation increase in the insecurity of property rights has the effect of increasing the number of ‘friends’ in the government by a substantial 22%. These ‘friends’ significantly help to mitigate by half the negative effect arising from the difficulties of obtaining land and excessive regulations on enterprise growth. This explains why an institutional environment of weak property rights has not stopped private enterprises in China from developing rapidly.
    October 31, 2016   doi: 10.1111/ecca.12212   open full text
  • The Anatomy of Stagnation in a Modern Economy.
    Robert E. Hall.
    Economica / NEW SERIES. September 19, 2016
    In 2008, the worst financial crisis since the Great Depression launched a deep contraction of the US economy. Output fell quickly to a level 10% below trend. Unemployment reached 10% of the labour force. Seven years after the crisis, unemployment was back to normal, but output was 15% below trend. Stagnation had set in. The most important source of the stagnation was a sharp decline in productivity growth. A decline in R&D and other productivity‐enhancing investment was at least partially responsible. That decline began before the crisis, but the financial events of 2008 worsened the cutback. A second major source of stagnated output and income was capital depletion. Investment in business equipment fell in half immediately after the crisis. Cumulatively, the effect of below‐trend investment accounted for 5 of the 15 percentage points of the shortfall in output. The third major development accounting for stagnation in output was a decline in the labour force that remained after unemployment had returned to normal. This development accounted for more than 3 percentage points of the shortfall in output. As a general matter, the direct decline in labour input and in output associated with the rise in unemployment was not important by 2015, but the follow‐on stagnation operating through the effects on the two types of capital formation was substantial.
    September 19, 2016   doi: 10.1111/ecca.12210   open full text
  • Risk Preferences and the Role of Emotions.
    Anna Conte, M. Vittoria Levati, Chiara Nardi.
    Economica / NEW SERIES. September 19, 2016
    There is a large volume of research showing that emotions have relevant effects on decision‐making. We contribute to this literature by experimentally investigating the impact of four specific emotional states—joviality, sadness, fear and anger—on risk attitudes. In order to do so, we fit two models of behaviour under risk: the expected utility model and the rank dependent expected utility model, assuming several functional forms of the weighting function. Our results indicate that all emotional states mitigate risk aversion. Furthermore, we show that there are some differences across gender and participants’ experience in laboratory experiments.
    September 19, 2016   doi: 10.1111/ecca.12209   open full text
  • Do Banks Lend Less in Uncertain Times?
    Burkhard Raunig, Johann Scharler, Friedrich Sindermann.
    Economica / NEW SERIES. September 19, 2016
    We study the development of bank lending in the USA after four large jumps in uncertainty using an event study approach. We find that more liquid banks slow down and lend less after a surge in uncertainty. Lending by smaller banks is also less responsive to increases in uncertainty, which points to an increased importance of bank–customer relationships. For capitalization, we find mixed evidence. These heterogeneities across banks suggest that declines in bank lending following increases in uncertainty result at least partly from a reduced supply of bank loans.
    September 19, 2016   doi: 10.1111/ecca.12211   open full text
  • Assessing Individual Income Growth.
    Stephen P. Jenkins, Philippe Van Kerm.
    Economica / NEW SERIES. September 09, 2016
    We develop methods for describing distributions of income growth across individuals and for comparing changes in growth distributions over time. The methods include graphical devices (‘income growth profiles’) and dominance conditions, and also summary indices, together with associated methods of estimation and inference. Taking an explicitly longitudinal perspective, our approach illuminates clearly who are the gainers and the losers, and also provides distributionally‐sensitive assessments—ones that allow the income growth for different individuals to be weighted differently. Our empirical application shows that the pattern of income growth in Britain over the period 1992–6 was less pro‐poor than that for 1998–2002, and not significantly different from the pattern for 2001–5.
    September 09, 2016   doi: 10.1111/ecca.12205   open full text
  • Resilient Leaders and Institutional Reform: Theory and Evidence.
    Timothy Besley, Torsten Persson, Marta Reynal‐Querol.
    Economica / NEW SERIES. September 09, 2016
    Strengthening executive constraints is one of the key means of improving political governance. This paper argues that resilient leaders who face a lower probability of being replaced are less likely to reform institutions in the direction of constraining executive power. We test this idea empirically using data on leaders since 1875 using two proxies of resilience: whether a leader survives long enough to die in office, and whether recent natural disasters occur during the leader's tenure. We show that both are associated with lower rates of leader turnover and a lower probability of a transition to strong executive constraints. This effect is robust across a wide range of specifications. Moreover, in line with the theory, it is specific to strengthening executive constraints rather than generalized political reform.
    September 09, 2016   doi: 10.1111/ecca.12208   open full text
  • Churn Versus Diversion in Antitrust: An Illustrative Model.
    Yongmin Chen, Marius Schwartz.
    Economica / NEW SERIES. August 31, 2016
    An important question in horizontal merger analysis is what share of a firm's lost output from a unilateral price increase will divert to its merger partner. This ‘diversion ratio’ is often estimated using data on customer switching from a firm to its rivals (‘churn’). We use a tractable oligopoly model to investigate the potential biases of such estimates, depending on what caused the churn: shifts in quality or marginal cost of the firm or of a rival; or demand‐side shifts due to changed circumstances or learning about product attributes. With demand‐side shifts, churn can be greater between more distant competitors.
    August 31, 2016   doi: 10.1111/ecca.12207   open full text
  • Recovery from Work and the Productivity of Working Hours.
    John Pencavel.
    Economica / NEW SERIES. August 23, 2016
    Observations on munitions workers are organized to examine the relationship between their output each week, their working hours and days each week, and their working hours and days in adjacent weeks. The hypothesis is that workers need to recover from work, and a long working week results in greater fatigue and stress, and yet provides insufficient time for recuperation before the next week's work opens. Workers require time off the job to restore their physical, mental and emotional capacities, and if a long working week provides inadequate time to repair, then their subsequent work performance suffers.
    August 23, 2016   doi: 10.1111/ecca.12206   open full text
  • Public–Private Mixed Delivery and Information Effects.
    Illoong Kwon, Sangin Park.
    Economica / NEW SERIES. July 27, 2016
    This paper analyses public–private mixed delivery of essential public services under price regulation. A private firm may have lower production costs and can potentially provide a performance benchmark for a public firm. A public firm may offer higher‐quality service and can reveal the production cost of the private firm to the regulator. However, this paper shows that public–private mixed delivery does not always dominate public delivery or private delivery. Mixed delivery is optimal only when (i) the cost uncertainty of the private firm is large, (ii) the managerial incentive problem of the public firm is large, and (iii) the performances of the public and private firms are highly correlated.
    July 27, 2016   doi: 10.1111/ecca.12203   open full text
  • Sale of Visas: a Smuggler's Final Song?
    Emmanuelle Auriol, Alice Mesnard.
    Economica / NEW SERIES. July 27, 2016
    Is there a way of eliminating human smuggling? We set up a model to simultaneously determine the provision of human smuggling services and the demand from would‐be migrants. A visa‐selling policy may be successful in eliminating smugglers by eroding their profits, but it also increases immigration. In contrast, repression decreases migration but fuels cartelized smugglers. To overcome this trade‐off we show that legalization through selling visas in combination with repression can be used to weaken human smuggling while controlling migration flows. Our results highlight the complementarities between repression and selling visas, and call into question current policies.
    July 27, 2016   doi: 10.1111/ecca.12204   open full text
  • Towards an Understanding of the Origins of the Favourite–Longshot Bias: Evidence from Online Poker Markets, a Real‐money Natural Laboratory.
    Leighton Vaughan Williams, Ming‐Chien Sung, Peter A. F. Fraser‐Mackenzie, John Peirson, Johnnie E. V. Johnson.
    Economica / NEW SERIES. June 27, 2016
    Evidence of differential returns to bets placed with different probabilities of success has revealed a broadly systematic tendency for low/high‐probability events to be relatively overbet/underbet, a phenomenon known as the favourite–longshot bias. While most of the literature focuses on sports, especially horse racing, we report here the existence of the same phenomenon in online poker games. We find that misperception rather than risk‐love offers the best explanation for the behaviour that we identify. This paper contributes to the more general literature explaining betting behaviour as well as the prevalence of the favourite–longshot bias in betting markets.
    June 27, 2016   doi: 10.1111/ecca.12200   open full text
  • International Technology Spillovers and Growth over the Past 142 Years: The Role of Genetic Proximity.
    Jakob B. Madsen, Minoo Farhadi.
    Economica / NEW SERIES. June 21, 2016
    This paper suggests genetic proximity, in addition to geographic proximity and imports, as a factor facilitating international knowledge transmission, where knowledge is measured as the stock of knowledge as well as research intensity to allow for the possibility that international knowledge spillovers have permanent productivity growth effects. Using data for 31 countries with diverse development paths over the period 1870–2011, the results show that genetic proximity and imports are important in facilitating knowledge transmission, and that knowledge spillovers have permanent growth effects.
    June 21, 2016   doi: 10.1111/ecca.12202   open full text
  • Did the Euro Common Currency Increase or Decrease Business Cycle Synchronization for its Member Countries?
    William Miles, Chu‐Ping C. Vijverberg.
    Economica / NEW SERIES. June 10, 2016
    We use two variants of Markov switching models to assess changes in output synchronization since the creation of the euro. Out of eight eurozone countries investigated, only one—the Netherlands—has synchronization increased since euro adoption, supporting the ‘endogenous optimal currency area’ argument of Frankel and Rose. However, in three other cases, business cycle synchronization actually fell since the euro's creation. Thus the ‘endogeneity’ of the optimal currency area criteria can go both ways—adopting a common currency may increase synchronization for nations ready for a common currency, but it can lower synchronization for nations that are far from synchronized before monetary unification.
    June 10, 2016   doi: 10.1111/ecca.12201   open full text
  • Fiscal Policy and Inflation in a Monetary Union.
    José‐Miguel Cardoso‐Costa, Vivien Lewis.
    Economica / NEW SERIES. June 08, 2016
    We study optimal fiscal policies in a small monetary union country. The government uses nominal non‐state‐contingent debt and distortionary labour taxes to finance exogenous spending. Price levels differ across countries due to consumption home bias; thus fiscal policy influences inflation and the terms of trade. Prices are flexible. We show that, unlike in a country with an independent monetary policy, some variability in labour taxes is optimal. With nominal public debt there is an incentive to use taxes to inflate in bad times when debt levels are high, reminiscent of the optimal monetary policy result of Chari et al. ().
    June 08, 2016   doi: 10.1111/ecca.12199   open full text
  • Saints Marching In, 1590–2012.
    Robert J. Barro, Rachel M. McCleary.
    Economica / NEW SERIES. June 01, 2016
    The Catholic Church has been making saints for centuries in the two‐stage process of beatification and canonization. We analyse determinants of numbers beatified and canonized (non‐martyrs) since 1590 across seven world regions. The number beatified is roughly proportional to a pope's tenure and a region's Catholic population, responds positively since the early 20th century to Catholic–Protestant competition and to secularization, and falls after the virtual ending of warfare between European Catholics and Protestants with the Peace of Westphalia in 1648. There is bias in favour of Italy, then Other Western Europe and Eastern Europe countries, and against Africa, Asia, Latin America and North America. The number canonized rises with the stock of beatifieds not yet canonized, rises with Catholic–Protestant competition, and drops after the Peace of Westphalia. Regional bias is minor for canonization, given stocks of beatifieds. The last two popes before Francis, John Paul II and Benedict XVI are large positive outliers in numbers beatified, and John Paul II is also an outlier for numbers canonized.
    June 01, 2016   doi: 10.1111/ecca.12196   open full text
  • Dynamic Equality of Opportunity.
    John E. Roemer, Burak Ünveren.
    Economica / NEW SERIES. June 01, 2016
    What are the long‐term effects of policies intended to equalize opportunities among different social classes of children? To find out, we study the stationary states of an intergenerational model where adults are either White or Blue collar employees. Both adults and the state invest in their children's education. Our analysis indicates that the major obstacle to equalizing opportunities in the long run is private educational investment. Next we examine economies where only the state invests in education, motivated by the Nordic experience. In a majority of these economies, no child lags behind regarding future prospects, a theoretical result confirmed by simulations.
    June 01, 2016   doi: 10.1111/ecca.12197   open full text
  • Measuring Corruption in China: An Expenditure‐based Approach Using Household Survey Data.
    Hai Zhong.
    Economica / NEW SERIES. May 24, 2016
    Most existing micro‐level empirical analyses of corruption rely on administrative records, special‐purpose surveys or field experiments, which can be difficult or very costly to obtain in some situations. In this paper, we apply an expenditure‐based method of quantifying the extent of corruption in a particular country using household survey data. This method utilizes discrepancies between consumption and reported income to measure corruption. Another contribution of this paper is that it provides the first objective estimate of the extent of corruption in China. We use a quadratic clothing expenditure function to estimate the extent of corruption in China in 2002.
    May 24, 2016   doi: 10.1111/ecca.12198   open full text
  • The Importance of Product Reformulation Versus Consumer Choice in Improving Diet Quality.
    Rachel Griffith, Martin O'Connell, Kate Smith.
    Economica / NEW SERIES. May 11, 2016
    Improving diet quality has been a target of public health policy. Governments have encouraged consumers to make healthier food choices and firms to reformulate food products. Evaluation of such policies has focused on the impact on consumer behaviour; firm behaviour has been less well studied. We show that the recent decline in dietary salt intake in the UK was entirely attributable to product reformulation; consumer switching between products worked in the opposite direction and led to a slight increase in grocery salt intensity. These findings point to the important role that firms can play in achieving public policy goals.
    May 11, 2016   doi: 10.1111/ecca.12192   open full text
  • Growth and Violence: Argument for a Per Capita Measure of Civil War.
    Hannes Mueller.
    Economica / NEW SERIES. May 05, 2016
    The economics literature typically uses counts of casualties as a measure of conflict intensity despite the fact that the units of observation vary considerably in population size. When analysing the impact of conflict on economic growth, the use of counts relies on the assumption that a given number of casualties affects large and small populations in the same way. Using within‐ and between‐country evidence, this paper demonstrates that this standard assumption can be rejected. A per capita model of conflict intensity that captures local effects of violence provides a more consistent empirical framework for both between‐country and within‐country studies.
    May 05, 2016   doi: 10.1111/ecca.12193   open full text
  • Demographic Change and R&D‐based Economic Growth.
    Klaus Prettner, Timo Trimborn.
    Economica / NEW SERIES. May 05, 2016
    In the second half of the 20th century, most industrialized countries experienced declining fertility, rising life expectancy and a slowdown of population growth. Standard models of R&D‐based growth predict that a decline in population growth reduces economic growth. We argue that this implication hinges on the assumption of infinitely lived individuals. The semi‐endogenous growth model with overlapping generations that we propose implies a negative relationship between population growth and economic growth during a substantial part of the transitional dynamics if the decline in population growth is accompanied by an increase in life expectancy as observed in industrialized countries.
    May 05, 2016   doi: 10.1111/ecca.12195   open full text
  • Aid, Catastrophes and the Samaritan's Dilemma.
    Paul A. Raschky, Manijeh Schwindt.
    Economica / NEW SERIES. May 05, 2016
    This paper analyses the impact of past foreign aid on the recipient country's preparedness against natural disasters. We estimate the impact of past foreign aid on the occurrence of natural disasters and the death toll from disasters using data from 5089 major natural disasters in 81 developing countries between 1979 and 2012. The results suggest that past foreign aid flows crowd out the recipient's incentives to provide protective measures that decrease the likelihood and the societal impact of a disaster. The crowding‐out effect appears to be stronger in developing countries that are relatively poorer and have weaker political institutions.
    May 05, 2016   doi: 10.1111/ecca.12194   open full text
  • ‘For Richer, For Poorer’: Assortative Mating and Savings Preferences.
    Luc Arrondel, Nicolas Frémeaux.
    Economica / NEW SERIES. April 18, 2016
    Do couples share the same values? The social sciences have mainly concentrated on comparing the socioeconomic characteristics of spouses, but rarely consider their attitudes to risk and time. In this paper, we use conventional measurements and an original method of scoring. We find that spouses are very similar in their savings preferences, even when we control for the individual characteristics. Our results suggest that most of this relationship comes from marital sorting. These conclusions are decisive in explaining the decision process within households and its implications for wealth inequalities between households since homogamy causes a divide in the population.
    April 18, 2016   doi: 10.1111/ecca.12176   open full text
  • Does the Federal Reserve have Private Information about its Future Actions?
    Bedri Kamil Onur Taş.
    Economica / NEW SERIES. April 18, 2016
    This paper contributes to the ongoing debate about the existence and source of asymmetric information between the Federal Reserve and the public by examining the federal funds rate forecasts. It compares the Federal Reserve federal funds rate forecasts with the predictions of alternative forecasting models and forecasts from the futures market for federal funds. The results show that the Federal Reserve has superior information about its own future policy actions, the future federal funds rate. The results are robust to alternative specifications.
    April 18, 2016   doi: 10.1111/ecca.12174   open full text
  • Real Rigidities and Nominal Price Changes.
    Peter J. Klenow, Jonathan L. Willis.
    Economica / NEW SERIES. April 18, 2016
    Real rigidities can help to generate persistent effects of monetary policy shocks. We analyse an industry equilibrium model with two types of real rigidities: a ‘micro’ real rigidity from a kinked demand curve, and a ‘macro’ real rigidity due to sticky intermediate prices. We estimate key model parameters using micro data from the US CPI, which features big movements in relative prices within and across sectors. The micro real rigidity necessitates large idiosyncratic shocks to productivity. The macro real rigidity does not entail such large idiosyncratic shocks, and is consistent with the volatility of sectoral TFP growth.
    April 18, 2016   doi: 10.1111/ecca.12191   open full text
  • Spacey Parents and Spacey Hosts in Foreign Direct Investment.
    Harald Badinger, Peter Egger.
    Economica / NEW SERIES. April 18, 2016
    Shocks on FDI of some parent country in a host affect the same parent's FDI in other hosts. Shocks on a parent's FDI in some host affect other parents' FDI in the same host. In general equilibrium, shocks on FDI between any country pair will affect all country pairs' FDI. Using cross‐sectional data on FDI among 22 OECD countries in 2000, we use a spatial estimation framework to allow for all three modes of interdependence simultaneously, thereby distinguishing between market‐size‐related and remainder interdependence. Our results highlight the complexity of multinational enterprises' investment strategies and the interconnectedness of the world investment system.
    April 18, 2016   doi: 10.1111/ecca.12177   open full text
  • Subjective Expectations and Income Processes in Rural India.
    Orazio Attanasio, Britta Augsburg.
    Economica / NEW SERIES. April 08, 2016
    This paper uses unique primary data on directly elicited individual subjective expectations to analyse and characterize the process that generates the income of poor, rural Indian households. We validate and use responses to subjective expectations questions and a parametric assumption to fit a household‐specific probability distribution for future income. Combining computed moments from this distribution with data for actual current income, we specify and estimate a dynamic model of household income. We find that our households face a very persistent income process. Our paper is one of the first that uses subjective expectations data to model income processes.
    April 08, 2016   doi: 10.1111/ecca.12190   open full text
  • Workplace Productivity and Bonus Preferences: Why Do Men With Low Productivity Prefer Individual Pay?
    Gaute Torsvik.
    Economica / NEW SERIES. April 08, 2016
    This paper examines the relationship between workers' productivity and preferred bonus scheme. The data are from a company where agents work in teams and receive a bonus that depends on individual and team performance. Standard agency theory predicts that workers with productivity below the team average prefer a team bonus, while high‐productivity agents prefer an individual bonus. Risk aversion may temper the taste for individual pay. This model predicts the observed relationship between productivity and bonus preferences very well. There is, however, one pattern that it cannot explain: many low performers—especially men—prefer individual bonuses.
    April 08, 2016   doi: 10.1111/ecca.12188   open full text
  • Centralized Fiscal Spending by Supranational Unions.
    Jenny Simon, Justin Mattias Valasek.
    Economica / NEW SERIES. April 08, 2016
    We study fiscal spending by supranational unions, where participation is voluntary and countries bargain over contributions to and the allocation of a central budget. Since decisions are made by unanimity, bargaining power over the allocation becomes a function of contributions, which generically causes inefficiency in the presence of income asymmetry between member nations. This link between the budget allocation and contributions explains patterns of inefficient spending in the EU, e.g. why resources are diverted to low‐productivity projects in high‐income countries: the option of veto creates a trade‐off between efficiency on the contributions margin and efficiency on the allocation margin.
    April 08, 2016   doi: 10.1111/ecca.12187   open full text
  • The Design of Vertical R&D Collaborations.
    Patrick Herbst, Uwe Walz.
    Economica / NEW SERIES. April 08, 2016
    Suppliers play a major role in firms' innovation processes. We analyse ownership and technology choices in vertical R&D collaborations. Under non‐contractible R&D outcomes, trade‐offs arise between R&D specifically designed towards a manufacturer (increasing investment productivity) and a general technology (hold‐up reduction). Stronger downstream competition shifts optimal ownership towards the supplier and favours contracting over ownership rather than specific performance contracts. Downstream ownership is combined with the specific technology if the supplier's expertise is more pronounced or the specific technology is more productive. Contracts incorporating exit clauses increase the gains from collaborations.
    April 08, 2016   doi: 10.1111/ecca.12183   open full text
  • Revisiting the Forward Premium Anomaly Using Consumption Habits: A New Keynesian Model.
    Bianca De Paoli, Jens Søndergaard.
    Economica / NEW SERIES. April 08, 2016
    This paper revisits the ability of consumption habits to resolve the forward premium anomaly as documented in the literature. We show that the favourable results obtained in an endowment setting crucially depend on having persistent dynamics in excess consumption, and do not appear to hold up in a production economy with nominal rigidities. The inability of such models to match equity and term premium has often been emphasized in the closed economy literature. Our findings suggest that this shortcoming also extends to open economy models and their ability to explain foreign exchange premia.
    April 08, 2016   doi: 10.1111/ecca.12181   open full text
  • Incentive Provision when Contracting is Costly.
    Ola Kvaløy, Trond E. Olsen.
    Economica / NEW SERIES. April 08, 2016
    We analyse optimal incentive contracts in a model where the probability of court enforcement is determined by the costs spent on contracting. The analysis shows that there is no monotonic relationship between contracting costs and incentive intensity, and that an increase in contracting costs may lead to higher‐powered incentives. Moreover, we formulate hypotheses about the relationship between legal systems and incentive provision. Specifically, the model predicts higher‐powered incentives in common law than in civil law systems. We also find that better performance measures may induce lower investments in contracting, and potentially lead to lower‐powered incentives.
    April 08, 2016   doi: 10.1111/ecca.12179   open full text
  • Role‐dependent Social Preferences.
    Friedel Bolle, Philipp E. Otto.
    Economica / NEW SERIES. April 08, 2016
    Bargaining results emerge from the interplay of strategic options and social preferences. For every bargaining game, however, the advantage of a player having certain preferences in terms of negotiated equilibrium revenues might differ. We explore the hypothesis that preferences change according to the players' strength combination. Simple 1×1 bargaining experiments from the literature are discussed, and 2×2 as well as 2×3 assignment market experiments with possible renegotiations are investigated. The assumption that players adopt preferences for two to five roles, defined by strength combinations of the two bargainers, explains the experimental results better than individually constant preferences.
    April 08, 2016   doi: 10.1111/ecca.12180   open full text
  • Long‐term Interest Rates and Public Debt Maturity.
    Roel Beetsma, Massimo Giuliodori, Ieva Sakalauskaite.
    Economica / NEW SERIES. April 08, 2016
    This paper adds to the literature studying how fiscal variables affect long‐term interest rates. Using a sample of sixteen OECD countries over the period 1980–2007, we show that a one‐year increase in the maturity of the public debt lowers the long‐term interest rate by on average 20–30 basis points. This negative effect is found for both static and panel vector autoregressive specifications. Country sample splits suggest that it is present in particular for low‐maturity or high‐inflation countries.
    April 08, 2016   doi: 10.1111/ecca.12178   open full text
  • Marital Sorting, Inequality and the Role of Female Labour Supply: Evidence from East and West Germany.
    Nico Pestel.
    Economica / NEW SERIES. March 03, 2016
    This paper examines the effect of marital sorting on earnings inequality, taking into account extensive and intensive margin labour supply choices. Using German microdata, the observed distribution of couples’ earnings is compared to a counterfactual of random matches. In West Germany, marital sorting is found to be disequalizing only after adjusting for labour supply. This means that positive sorting in earnings potential is veiled by low female participation rates. In East Germany, the impact is highly disequalizing even when earnings are taken as given, due to the fact that East German women are more attached to the labour market.
    March 03, 2016   doi: 10.1111/ecca.12189   open full text
  • Does Job Loss Make You Smoke and Gain Weight?
    Jan Marcus.
    Economica / NEW SERIES. May 21, 2014
    This paper estimates the effect of involuntary job loss on smoking behaviour and body weight using German SOEP data. Baseline non‐smokers are more likely to start smoking due to job loss, while smokers do not intensify smoking. In particular, single individuals and those with lower health or socioeconomic status prior to job loss exhibit high rates of smoking initiation. Job loss increases body weight slightly, but significantly. The applied regression‐adjusted semiparametric difference‐in‐difference matching strategy is robust against selection on observables and time‐invariant unobservables. This paper provides an indirect test that the identifying assumption is not violated.
    May 21, 2014   doi: 10.1111/ecca.12095   open full text
  • Happiness as a Driver of Risk‐avoiding Behaviour: Theory and an Empirical Study of Seatbelt Wearing and Automobile Accidents.
    Robert J. B. Goudie, Sach Mukherjee, Jan‐Emmanuel Neve, Andrew J. Oswald, Stephen Wu.
    Economica / NEW SERIES. April 28, 2014
    Governments try to discourage risky health behaviours, yet such behaviours are bewilderingly persistent. We suggest a new conceptual approach to this puzzle. We show that expected utility theory predicts that unhappy people will be attracted to risk‐taking. Using US seatbelt data, we document evidence strongly consistent with that prediction. We exploit various methodological approaches, including Bayesian model selection and instrumental variable estimation. Using road accident data, we find strongly corroborative longitudinal evidence. Government policy may thus have to change. It may need to improve the underlying happiness of individuals instead of, or in addition to, its traditional concern with society's risk‐taking symptoms.
    April 28, 2014   doi: 10.1111/ecca.12094   open full text
  • Intergenerational Risk Sharing and Endogenous Labour Supply within Funded Pension Schemes.
    Jan Bonenkamp, Ed Westerhout.
    Economica / NEW SERIES. April 28, 2014
    Funded defined‐benefit pensions add to welfare on account of providing intergenerational risk sharing, but lower it on account of inducing labour supply distortions. We show that a properly designed funded defined‐benefit pension scheme involves a welfare improvement even if contributions are distortionary and even if individuals face potentially correlated wage and equity risks. Numerical calculations indicate that diversification gains from risk sharing are large compared to the losses related to labour supply distortions. This result withstands a number of extensions, like the introduction of a short‐sale constraint for individuals or the inclusion of a labour income tax.
    April 28, 2014   doi: 10.1111/ecca.12092   open full text
  • International Competition in Vertically Differentiated Markets with Innovation and Imitation: Trade Policy Versus Free Trade.
    Eugen Kováč, Krešimir Žigić.
    Economica / NEW SERIES. April 25, 2014
    The competition between firms from developed (DC) and less developed countries (LDC) is typically in vertically differentiated products. We consider a model of price competition between DC and LDC firms with quality choice and imitation, and study the effects of ex post tariffs. The government faces a choice between commitment to free trade and imposing a tariff. Tariffs can lead to change in the rank of qualities compared to free trade. We identify conditions under which this quality reversal takes place, and show that quality reversal is necessary for trade policy to be superior to free trade in welfare terms.
    April 25, 2014   doi: 10.1111/ecca.12093   open full text
  • Horizontal Product Differentiation in Auctions and Multilateral Negotiations.
    Charles J. Thomas, Bart J. Wilson.
    Economica / NEW SERIES. April 25, 2014
    We experimentally compare first‐price auctions and multilateral negotiations after introducing horizontal product differentiation into a standard procurement setting. Both institutions yield identical surplus for the buyer, a difference from prior findings with homogeneous products that results from differentiation's influence on sellers' pricing behaviour. The data are consistent with this finding being driven by concessions from low‐cost sellers in response to differentiation reducing their likelihood of being the buyer's surplus‐maximizing trading partner. Further analysis shows that introducing product differentiation increases the intensity of price competition among sellers, which contrasts with the conventional wisdom that product differentiation softens competition.
    April 25, 2014   doi: 10.1111/ecca.12090   open full text
  • Unhappiness and Job Finding.
    Anne C. Gielen, Jan C. Ours.
    Economica / NEW SERIES. April 25, 2014
    It is puzzling that people feel unhappy when they become unemployed, while simultaneously active labour market policies are needed to bring them back to work. We investigate this using GSOEP data. We find that nearly half of the unemployed do not experience a drop in happiness, which might explain why activation is sometimes needed. Furthermore, even though unhappy unemployed search more actively for a job, it does not speed up their job finding. Apparently, there is no link between unhappiness and job finding rate. Hence there is no contradiction between the unemployed being unhappy and the need for activation policies.
    April 25, 2014   doi: 10.1111/ecca.12089   open full text
  • Educational Aspirations and Attitudes over the Business Cycle.
    Mark Taylor, Tina Rampino.
    Economica / NEW SERIES. April 12, 2014
    UK policy debate has recently focused on the role of young people's aspirations and attitudes in raising educational attainment. We use the youth component of the British Household Panel Survey to examine how educational attitudes and aspirations among 11‐ to 15‐year‐olds vary with the local unemployment rate. We find that children who have highly educated parents with positive educational attitudes react more positively to low labour demand than those from less educated families with negative educational attitudes. This reduces social mobility and increases persistence in educational inequality for a cohort growing up in a recession.
    April 12, 2014   doi: 10.1111/ecca.12091   open full text
  • The Distributional Consequences of Tax Reforms Under Capital–Skill Complementarity.
    Konstantinos Angelopoulos, Bernardo X. Fernandez, James R. Malley.
    Economica / NEW SERIES. April 12, 2014
    This paper analyses wage inequality and the welfare effects of changes in capital and labour income tax rates for different types of agents. To achieve this, we develop a model that allows for capital–skill complementarity given non‐uniform distributions of asset holdings and labour skills. We find that capital tax reductions lead to the highest aggregate welfare gains but are skill‐biased and thus increase inequality. However, our analysis also shows that the inequality effects of capital tax reductions are lower over the transition period compared with the long run.
    April 12, 2014   doi: 10.1111/ecca.12087   open full text
  • Risk Tolerance among National Longitudinal Survey of Youth Participants: The Effects of Age and Cognitive Skills.
    Bidisha Mandal, Brian E. Roe.
    Economica / NEW SERIES. April 11, 2014
    We analyse how age and cognitive skills are related to risk tolerance among respondents to the National Longitudinal Survey of Youth between 1993 and 2006. Older individuals display lower risk tolerance than younger individuals, though as the panel ages from their early thirties to their mid‐forties, differences in risk tolerance between the oldest and youngest individuals narrow, while panel‐average risk tolerance declines. In contrast to other studies, we find that cognitive skill measured during respondents' teenage years is related to risk tolerance in a non‐linear fashion, where respondents with the lowest and highest skills reveal the greatest risk tolerance.
    April 11, 2014   doi: 10.1111/ecca.12088   open full text
  • Maids, Appliances and Couples' Housework: The Demand for Inputs to Domestic Production.
    Elena G. F. Stancanelli, Leslie S. Stratton.
    Economica / NEW SERIES. March 24, 2014
    Maids, household appliances and housework time are key inputs to domestic production. This study uses data from the UK and France to estimate the effects of resource prices on the demand for these inputs. We conclude that higher opportunity costs of time increase the likelihood of having maid services and appliances. Women's time costs are also positively related to his housework time and negatively related to hers. Finally, maid service appears to be a closer substitute for housework time on weekend days than weekdays, suggesting smaller labour supply effects than anticipated by earlier literature.
    March 24, 2014   doi: 10.1111/ecca.12083   open full text
  • Do Self‐insurance and Disability Insurance Prevent Consumption Loss on Disability?
    Steffan Ball, Hamish Low.
    Economica / NEW SERIES. March 12, 2014
    We show the extent to which public insurance and self‐insurance mitigate the cost of health shocks that limit the ability to work. We use consumption data from the UK to estimate insurance provided by government disability programmes. Individuals with a work‐limiting health condition, in receipt of disability insurance, have 9% lower consumption than those without such a condition. Self‐insurance through savings and a work‐active partner each improve outcomes by about 3%. Reduced generosity of disability insurance after 1995 is associated with increases in the consumption loss on disability, implying worse insurance, but with fewer false claimants, implying better targeting.
    March 12, 2014   doi: 10.1111/ecca.12079   open full text
  • Unemployment Dynamics among Migrants and Natives.
    Arne Uhlendorff, Klaus F. Zimmermann.
    Economica / NEW SERIES. February 17, 2014
    Unemployment rates are often higher for migrants than for natives. This could result from longer periods of unemployment as well as from shorter periods of employment. We jointly examine male native‐migrant differences in the duration of unemployment and subsequent employment using German panel data and bivariate discrete time duration models. Compared to natives, unemployed male migrant workers do not find less stable positions, but they need more time to find these jobs. The probability of leaving unemployment also varies strongly between ethnicities, while first‐ and second‐generation Turks are identified as the major problem group.
    February 17, 2014   doi: 10.1111/ecca.12077   open full text
  • Age‐biased Technical and Organizational Change, Training and Employment Prospects of Older Workers.
    Luc Behaghel, Eve Caroli, Muriel Roger.
    Economica / NEW SERIES. February 10, 2014
    We analyse the role of training in mitigating the negative impact of technical and organizational changes on the employment prospects of older workers. Using a panel of French firms in the late 1990s, we first estimate wage bill share equations for different age groups. As a second step, we estimate the impact of ICT, innovative work practices and training on employment flows by age group in the next period. Training appears to have a positive impact on the employability of older workers, but it offers limited prospects to dampen the age bias associated with new technologies and innovative work practices.
    February 10, 2014   doi: 10.1111/ecca.12078   open full text
  • Single‐name Credit Risk, Portfolio Risk and Credit Rationing.
    Lutz G. Arnold, Johannes Reeder, Stefanie Trepl.
    Economica / NEW SERIES. February 10, 2014
    In the Stiglitz–Weiss (1981) adverse selection model, pure credit rationing cannot arise in equilibrium. We show that this is due to the fact that single‐name risks are independent and a well‐diversified portfolio contains no risk. We introduce non‐diversifiable macroeconomic risk to the model and show that risk‐averse lenders possibly ration credit. Welfare analysis shows that an interest rate ceiling is potentially welfare enhancing and that equilibrium overinvestment can occur.
    February 10, 2014   doi: 10.1111/ecca.12075   open full text
  • What Do Energy Prices Tell Us About UK Inflation?
    Sohrab Rafiq.
    Economica / NEW SERIES. February 10, 2014
    We investigate the effect of oil price shocks on UK inflation using a time‐varying vector autoregression with stochastic volatility. The estimates show that the oil price–inflation pass‐through declined from the early 1980s until the mid/late 1990s. Post‐2003, however, the importance of oil price shocks for UK inflation rose significantly. The rise in the pass‐through coincided with a significant increase in the size of oil price shocks. This paper shows that allowing for time variation in the stochastic volatilities better captures time variation between oil prices and UK inflation.
    February 10, 2014   doi: 10.1111/ecca.12076   open full text
  • On the Voluntary Provision of International Public Goods.
    Andreas Löschel, Dirk Rübbelke.
    Economica / NEW SERIES. February 10, 2014
    There is no abstract available for this paper.
    February 10, 2014   doi: 10.1111/ecca.12081   open full text
  • Financial Health, Exports and Firm Survival: Evidence from UK and French Firms.
    Holger Görg, Marina‐Eliza Spaliara.
    Economica / NEW SERIES. February 10, 2014
    We use firm‐level data for the UK and France to assess the role of exporting in the link between financial health and firm survival. We examine whether firms at different stages of export activity (starters, exiters, continuers, switchers) react differently to changes in financial variables. In general, export starters and exiters experience much stronger adverse effects of financial constraints for their survival prospects. By contrast, the exit probability of continuous exporters and export switchers is less negatively affected by financial characteristics. These relationships between exporting, finance and survival are broadly similar in the UK and French samples.
    February 10, 2014   doi: 10.1111/ecca.12080   open full text
  • Potentially Harmful International Cooperation on Global Public Good Provision.
    Wolfgang Buchholz, Richard Cornes, Dirk Rübbelke.
    Economica / NEW SERIES. January 30, 2014
    Experience from climate policy suggests that full cooperation among all countries is not a likely outcome. In this paper we therefore consider the case where only members of a subgroup of countries cooperate by reciprocally matching their public good contributions. In a two‐stage game, matching rates are set at stage 1 then national contributions are chosen at stage 2. In the case of small coalitions, negative matching may result in the subgame‐perfect equilibrium that decreases global public good provision and outsiders' welfare. Moreover, a growing number of countries may paradoxically entail a reduction of equilibrium public good supply.
    January 30, 2014   doi: 10.1111/ecca.12074   open full text
  • Stock Prices in the Presence of Liquidity Crises: The Effect of Creditor Protection.
    Galina Hale, Assaf Razin, Hui Tong.
    Economica / NEW SERIES. January 13, 2014
    We develop a model predicting two channels through which creditor protection affects stock prices: (1) the probability of a liquidity crisis leading to a binding investment‐finance constraint falls with better creditor protection; (2) the stock prices under the investment‐constrained regime increase with better creditor protection. We find evidence for both predictions using data on stock markets and creditor protection for 52 countries from 1980 to 2008. In particular, better creditor protection is correlated with lower stock market volatility and lower frequency of crises. Moreover, during crises, stock prices and investment fall more in countries with poor creditor protection.
    January 13, 2014   doi: 10.1111/ecca.12072   open full text
  • Participation and Commitment in Voluntary Coalitions to Provide Public Goods.
    Astrid Dannenberg, Andreas Lange, Bodo Sturm.
    Economica / NEW SERIES. January 13, 2014
    This paper reports experimental evidence on the voluntary formation of coalitions to provide a public good. Participation and commitment in a coalition are either exogenously imposed or endogenously determined by the players themselves. We find larger voluntary participation rates when commitments in the coalition are endogenously determined using a minimum contribution rule rather than exogenously determined. However, due to a trade‐off between participation and commitment, coalitions with voluntary participation are less effective in facilitating cooperation compared to when all players are forced to participate. This paper therefore confirms the rather pessimistic conclusions from coalition formation theories.
    January 13, 2014   doi: 10.1111/ecca.12073   open full text
  • Climate Policy Negotiations with Incomplete Information.
    Kai A. Konrad, Marcel Thum.
    Economica / NEW SERIES. January 13, 2014
    We analyse bargaining over international climate agreements in a setting with incomplete information about abatement costs. Incomplete information is known as one of the key reasons why negotiations may fail more generally, and why efficiency gains cannot be exploited. We ask whether unilateral commitment to high abatement reduces or increases the likelihood for an efficient negotiation outcome. We find that such commitment behaviour reduces the gains from global cooperation and that, in turn, this reduces the probability of reaching efficient international environmental agreements.
    January 13, 2014   doi: 10.1111/ecca.12065   open full text
  • The Assignment of Workers to Tasks with Endogenous Supply of Skills.
    Arnaud Dupuy.
    Economica / NEW SERIES. January 13, 2014
    This paper presents a general equilibrium assignment model of workers to tasks with endogenous supply of skills. In the model, skills are endogenous and multidimensional, and two types of assignment occur: workers self‐select the type of skills to supply, and firms assign workers to tasks. The model shows that the impact of any skill‐biased technical change on wage inequality is tightly related to the distribution of skills in the population. When the supply of skills is endogenous, productivity effects can be overestimated or underestimated by wage data, and Johnson's () distinction between intensive and extensive technical change is impossible.
    January 13, 2014   doi: 10.1111/ecca.12071   open full text
  • The Relativity of Decreasing Inequality Between Countries.
    Kristof Bosmans, Koen Decancq, André Decoster.
    Economica / NEW SERIES. November 11, 2013
    We study the evolution of population‐weighted between‐country inequality in the period 1980–2009. Whereas previous studies almost exclusively focused on relative inequality measures, we consider relative, absolute and intermediate versions of the Lorenz dominance criterion and of the S‐Gini and generalized entropy classes of inequality measures. The analysis yields robust evidence for increasing absolute inequality. Moreover, this conclusion is preserved for intermediate views substantially in the direction of the relative view. In contrast, robust evidence for decreasing inequality—be it relative, absolute or intermediate—is virtually absent. These findings challenge the widely accepted claim of decreasing between‐country inequality.
    November 11, 2013   doi: 10.1111/ecca.12059   open full text
  • The Incumbency Effects of Signalling.
    Francesco Caselli, Tom Cunningham, Massimo Morelli, Inés Moreno Barreda.
    Economica / NEW SERIES. November 11, 2013
    Much literature on political behaviour treats politicians as motivated by re‐election, choosing actions to signal their types to voters. We identify a novel implication of incumbent signalling. Because incumbents only care about clearing a re‐election hurdle, signals will tend to cluster just above the threshold needed for re‐election. This generates a skew distribution of signals leading to an incumbency advantage in the probability of election. We also solve for the optimal threshold when voters have the ability to commit.
    November 11, 2013   doi: 10.1111/ecca.12060   open full text
  • When Samuelson Met Veblen Abroad: National and Global Public Good Provision when Social Comparisons Matter.
    Thomas Aronsson, Olof Johansson‐Stenman.
    Economica / NEW SERIES. November 07, 2013
    This paper derives Pareto‐efficient provision rules for national and global public goods in a two‐country world, where each individual cares about his or her relative consumption of private goods compared to other domestic and foreign residents. We contrast these rules with those following from a non‐cooperative Nash equilibrium. Both national and global public goods are underprovided in Nash equilibrium under such relative consumption concerns. Finally, when individuals also care about the relative consumption of national public goods, based on between‐country comparisons, the optimal provision rule depends on whether or not the national public goods are less positional than private consumption.
    November 07, 2013   doi: 10.1111/ecca.12058   open full text
  • The Effect of Social Entitlement Programmes on Private Transfers: New Evidence of Crowding Out.
    Kristopher Gerardi, Yuping Tsai.
    Economica / NEW SERIES. November 05, 2013
    This paper exploits a policy experiment to identify the crowding‐out effects of public transfers on the incidence and level of private transfers. The introduction of a large social security programme in Taiwan is used to estimate the effect of an exogenous increase in government transfer payments to the elderly on the private transfer behaviour of their adult children. Using an instrumental variables strategy that accounts for the endogeneity of receiving public transfers, the empirical results show some evidence of crowding out on the extensive margin of private transfers.
    November 05, 2013   doi: 10.1111/ecca.12062   open full text
  • Non‐traded Goods, Globalization and Union Influence.
    Udo Kreickemeier, Frode Meland.
    Economica / NEW SERIES. August 14, 2013
    We study how globalization affects sector‐specific wages, employment levels and welfare in a model of general oligopolistic equilibrium with partly unionized labour markets. Globalization is modelled as either reducing trade costs in open sectors or opening up shielded sectors to trade. Both forms of globalization increase union coverage and lead to lower union wage premia in shielded sectors. Trade cost reductions furthermore lead to higher union wage premia in open sectors and to lower aggregate welfare, while an increased number of open sectors lowers the union wage premium in open sectors, and may increase welfare.
    August 14, 2013   doi: 10.1111/ecca.12034   open full text
  • Labour Migration and Social Networks Participation in Southern Mozambique.
    Juan M. Gallego, Mariapia Mendola.
    Economica / NEW SERIES. August 14, 2013
    This paper investigates how social networks in poor developing settings are affected by migration. Using a unique household survey from southern Mozambique, we test the role of labour mobility in shaping participation in groups and interhousehold cooperation by migrant‐sending households in village economies at origin. We find that migration cum remittances boosts household engagement in community‐based social networks. Our findings are robust to alternative definitions of social interaction and to endogeneity concerns, suggesting that stable migration ties and higher income stability through remittances may decrease participation constraints and increase household commitment in cooperative arrangements in migrant‐sending communities.
    August 14, 2013   doi: 10.1111/ecca.12031   open full text
  • The Role of Paternity Presumption and Custodial Rights for Understanding Marriage Patterns.
    Lena Edlund.
    Economica / NEW SERIES. August 14, 2013
    In marriage, men obtain and women surrender parental rights because: (i) by default, an unmarried woman giving birth is the child's only known parent and sole custodian; (ii) a married mother shares custody with her husband and the presumed father; (iii) custody allocation in marriage is fixed; (iv) private contracts on rights over children amount to trade in children and have limited legal validity. As a result: (i) women, not men, marry up; (ii) higher income has opposite effects on men's and women's willingness to marry; (iii) out‐of‐wedlock fertility results when trade is not feasible.
    August 14, 2013   doi: 10.1111/ecca.12035   open full text
  • The Impact of Investment Behaviour for Individual Welfare.
    Thomas Post, Helmut Gründl, Joan T. Schmit, Anja Zimmer.
    Economica / NEW SERIES. August 08, 2013
    The industrialized world has experienced a demographic shift that is straining public pension systems. Employer‐sponsored pension plans change from defined benefit to defined contribution. More emphasis is put on individually managed retirement funds. One concern with this movement is the potential negative effect on individual welfare if households' investment behaviour is suboptimal. Using micro‐level US data, we compare the optimal utility computed using a lifecycle model with the actual utility as reflected in empirical asset allocation choices. Average estimated welfare costs are below 3% of households' endowment (assets and human capital); yet specific population groups experience higher welfare costs.
    August 08, 2013   doi: 10.1111/ecca.12036   open full text
  • Does Education Expansion Increase Intergenerational Mobility?
    Hai Zhong.
    Economica / NEW SERIES. August 01, 2013
    Education expansion may lead to ‘over‐education’, where the social connections of parents may exert more significant influence on the return to education of children. With the assumption of a positive correlation between return on human capital and parental income in the presence of over‐education, we show that: (i) the expansion of education may cause horizontal inequity in education opportunities and inefficiency in human capital accumulation; (ii) the positive correlation between return on human capital and parental income causes a more persistent intergenerational immobility; (iii) an expansion of education (especially higher education) leads to more persistent intergenerational immobility.
    August 01, 2013   doi: 10.1111/ecca.12032   open full text
  • Discounting Behaviour and the Magnitude Effect: Evidence from a Field Experiment in Denmark.
    Steffen Andersen, Glenn W. Harrison, Morten I. Lau, E. Elisabet Rutström.
    Economica / NEW SERIES. July 29, 2013
    We evaluate the claim that individuals exhibit a magnitude effect in their discounting behaviour, where higher discount rates are inferred from choices made with lower principals, all else being equal. If the magnitude effect is quantitatively significant, it is not appropriate to use one discount rate that is independent of the scale of the project for cost–benefit analysis and capital budgeting. Using data from a field experiment in Denmark, we find statistically significant evidence of a magnitude effect that is much smaller than is claimed. This evidence surfaces only if one controls for unobserved individual heterogeneity in the population.
    July 29, 2013   doi: 10.1111/ecca.12028   open full text
  • Unemployment in the Great Recession.
    Christopher A. Pissarides.
    Economica / NEW SERIES. June 28, 2013
    This paper studies the responses of unemployment in Germany, the USA and the UK to the Great Recession of 2008–9 using Beveridge curve analysis, and in the entire OECD using other techniques. It is shown that the UK suffered from recession but no structural problems; the USA suffered from structural unemployment during the recovery; Germany exhibited a much better performance both during and after the recession. The rise in OECD unemployment is broken down into parts due to aggregate activity, the construction sector and a residual attributed to policies and institutions, which is used to reach conclusions about policy.
    June 28, 2013   doi: 10.1111/ecca.12026   open full text
  • Should We Refinance Unfunded Social Security?
    Emin Gahramanov, Xueli Tang.
    Economica / NEW SERIES. April 16, 2013
    Within a continuous‐time overlapping generations model, featuring endogenous intensive margin of the labour supply and retirement decision, we analyse the issue of passing the burden of payroll revenues onto consumption or capital. We find that large long‐run welfare gains occur when pension benefits are refinanced by consumption taxes. However, the transition to the new steady state is very painful for a large fraction of existing cohorts. On the other hand, the capital base is too small to sustain pension benefits but could be made larger if capital taxes are raised. Yet that would entail significant welfare losses.
    April 16, 2013   doi: 10.1111/ecca.12023   open full text
  • Currency Crises and the Labour Share.
    Paul Maarek, Elsa Orgiazzi.
    Economica / NEW SERIES. March 11, 2013
    This paper analyses the impact of currency crises on the labour share and identifies two main types of channel: within‐ and across‐sector effects. First crises erode the bargaining power of workers so that within sectors, crises lower the labour share. Nevertheless, structural changes occurring during currency crises may change the aggregate level of the labour share if sectors differ in their capital intensities. We perform estimations on manufacturing sectoral panel data for 20 countries. We conclude that currency crises lower the aggregate manufacturing labour share by around 2 percentage points, and that this decline reflects mostly changes within manufacturing subsectors.
    March 11, 2013   doi: 10.1111/ecca.12024   open full text
  • Education Externalities on Longevity.
    Francesco Ricci, Marios Zachariadis.
    Economica / NEW SERIES. December 26, 2012
    We argue that education exerts positive external effects on health, beyond the standard internal effects documented in the literature. We implement an innovative approach to control for endogeneity and omitted variables problems, and present evidence for the significant role played by higher education in explaining longevity across countries. Our findings provide empirical evidence in support of our hypothesis of educational externalities on health.
    December 26, 2012   doi: 10.1111/ecca.12013   open full text
  • Information, Learning and Expectations in an Experimental Model Economy.
    Michael W. M. Roos, Wolfgang J. Luhan.
    Economica / NEW SERIES. December 18, 2012
    The experimental ‘learning‐to‐forecast’ literature finds that subjects use simple linear backward‐looking models when forecasting in environments with little to no inout the economic framework. We study the formation of expectations in a laboratory economy of monopolistic firms and labour unions with almost complete knowledge of the model. We observe simple backward‐looking rules, but also a considerable share of model‐based expectations using information on the economic structure. At least for some subjects, expectations are informed by theory. As in the previous literature, we find individual prediction rules to be heterogeneous.
    December 18, 2012   doi: 10.1111/ecca.12003   open full text
  • Appropriate Health R&D and Intellectual Property Rights Reform in Developing Countries.
    Anna‐Maria Aksan.
    Economica / NEW SERIES. December 18, 2012
    Welfare implications of imposing intellectual property rights (IPR) protection on health goods in developing countries are analysed using a North–South model. Consumption of health goods counteracts adverse effects of region‐specific diseases on labour supply. Health needs differ between consumers in innovating and imitating countries, weakening the benefits of southern IPR enforcement for the North and strengthening the benefits for the South. Southern regions with unique health needs are more likely to benefit from IPR enforcement if healthcare infrastructure is adequate and the southern market is large enough to stimulate sufficient innovation. There is then also interregional income convergence.
    December 18, 2012   doi: 10.1111/ecca.12012   open full text
  • Employment Protection, Flexibility and Firms' Strategic Location Decisions under Uncertainty.
    Gerda Dewit, Dermot Leahy, Catia Montagna.
    Economica / NEW SERIES. December 18, 2012
    We construct a model in which oligopolistic firms decide between locating in a country where employment protection implies costly output adjustments and in one without employment protection. Using a two‐period three‐stage game with uncertainty, we demonstrate that location is influenced by both flexibility and strategic concerns. The strategic effects under Cournot work towards domestic anchorage in the country with employment protection, while those under Bertrand do not. Strategic agglomeration can occur in the inflexible country under Cournot and even under Bertrand, provided that uncertainty and foreign direct investment costs are low.
    December 18, 2012   doi: 10.1111/ecca.12006   open full text
  • Is it Just a Bad Class? Assessing the Long‐term Stability of Estimated Teacher Performance.
    Dan Goldhaber, Michael Hansen.
    Economica / NEW SERIES. December 17, 2012
    A number of teacher workforce policies implicitly assume that job performance is a relatively stable attribute within teachers. We use longitudinal data on 5th grade teachers in North Carolina to assess this using value‐added measures (VAMs) of job performance. We find that there is a permanent component of teacher performance that is stable in teachers over long periods—implying that workforce policies selecting teachers based on VAMs could effectively improve student achievement. But importantly, our time series model suggests that the permanent component of performance is considerably smaller than that which is often used to estimate workforce policy impacts.
    December 17, 2012   doi: 10.1111/ecca.12002   open full text
  • Back to Baseline in Britain: Adaptation in the British Household Panel Survey.
    Andrew E. Clark, Yannis Georgellis.
    Economica / NEW SERIES. December 17, 2012
    We look for evidence of adaptation in wellbeing to major life events using eighteen waves of British panel data. Adaptation to marriage, divorce, birth of child and widowhood appears to be rapid and complete; this is not so for unemployment. These findings are remarkably similar to those in previous work on German panel data. Equally, the time profiles with life satisfaction as the wellbeing measure are very close to those using a twelve‐item scale of psychological functioning. As such, the phenomenon of adaptation may be a general one, rather than being found only in German data or using single‐item wellbeing measures.
    December 17, 2012   doi: 10.1111/ecca.12007   open full text