Most recent papers:

• Option Contracts in a Vertical Industry.
  Manel Antelo, Lluís Bru.
  Manchester School. October 17, 2017
  We examine the strategic role of horizontal subcontracting through option contracts by a downstream dominant firm competing with a fringe. Downstream production requires an input from imperfectly competitive suppliers. We show that the dominant firm outsources downstream production from fringe firms to gain bargaining clout in the input market. Option contracts are preferred to forwards, because leverage against suppliers is gained at lower contract prices. With no market uncertainty, option contracts do not alter final prices beyond changes caused by unavoidable market power. Whenever demand is uncertain, however, option contracts increase final prices and are therefore harmful for consumers.

  October 17, 2017   doi: 10.1111/manc.12204   open full text
• Partial Privatization of State Holding Corporations.
  Quan Dong, Juan Carlos Bárcena‐Ruiz, María Begoña Garzón.
  Manchester School. September 14, 2017
  We consider a state holding corporation with two plants that may produce complementary or substitute goods and that competes with one or two private firms. We find that the government partially privatizes the two plants of the state holding corporation and is indifferent between selling them partially to a single investor and to different investors. However, in the former case the government retains a greater (smaller) stake in the state corporation if goods are substitutes (complements).

  September 14, 2017   doi: 10.1111/manc.12200   open full text
• Job Search Methods and Wages: Are Natives and Immigrants Different?
  Magnus Carlsson, Stefan Eriksson, Dan‐Olof Rooth.
  Manchester School. September 14, 2017
  We conduct a survey of newly hired workers in the Swedish labour market to analyse if there are differences between natives and immigrants in the choice of search intensity/methods and in the search method getting the job. We further investigate if the wage and other characteristics of the new job differ depending on the successful search method. We find that immigrants use all search methods more than natives, but they especially rely on informal search. Immigrants are more likely than natives to find a job using informal search through friends and relatives, and these jobs are associated with lower wages.

  September 14, 2017   doi: 10.1111/manc.12202   open full text
• Experts’ Perceptions Versus Firms’ Experiences of Corruption and Foreign Direct Investment.
  Robert Gillanders, Sinikka Parviainen.
  Manchester School. August 31, 2017
  This paper documents that standard measures of corruption based on the perceptions of experts and opinion surveys and measures based on the experiences of firms can in some cases lead to quite different conclusions as to how much of a problem corruption is in a country. We then show that while perceptions of corruption are significantly associated with the amount of foreign direct investment that a country attracts, the experience on the ground is not. We find some evidence that greenfield investment is significantly associated with the experience of corruption while mergers and acquisitions is driven by perceptions.

  August 31, 2017   doi: 10.1111/manc.12199   open full text
• What Drives Firm Profitability? A Comparison of the US and EU Food Processing Industry.
  Adelina Gschwandtner, Stefan Hirsch.
  Manchester School. August 31, 2017
  This paper analyzes persistence and the drivers of profitability in US and EU food processing using GMM estimations. Due to different firm size structures first comparable samples of US and EU food processors are derived using Propensity Score Matching. The GMM results indicate that profit persistence in food processing is lower than in other manufacturing sectors. Firm‐specific drivers of profitability are size and financial risk. Regarding industry characteristics concentration and the growth rate significantly influence profitability. The findings provide insights for the management of US and EU food processing firms aiming to enhance their competitiveness.

  August 31, 2017   doi: 10.1111/manc.12201   open full text
• Club Classification of US Divorce Rates.
  Rafael González‐Val, Miriam Marcén.
  Manchester School. August 31, 2017
  In this paper, we study the evolution of US divorce rates across states, from 1956 to 2014, using a cluster algorithm. This methodology allows us to determine the existence of divorce convergence among the US states. Our findings indicate that there are four patterns of divorce behavior in the US. We explore whether the divorce convergence is due to the liberalization of the divorce laws. Supplementary analysis of the factors related to the club classification reveals that, in the pre‐reform period, geographical variables are important, but in the post‐reform period marital patterns appear to be associated with the club classification.

  August 31, 2017   doi: 10.1111/manc.12203   open full text
• Efficient Networks in Models with Player and Partner Heterogeneity.
  Emre Unlu.
  Manchester School. August 10, 2017
  This paper characterizes efficient networks in player and partner heterogeneity models for both the two‐way flow and the one‐way flow networks. Player (partner) dependent network formation allows benefits and costs to be player (partner) heterogeneous, which is an important extension for modeling social networks in the real world. This paper shows that efficient networks are minimally connected and have either a star‐type or a variation of star‐type architectures in the two‐way flow model, and have the wheel architecture in the one‐way flow model.

  August 10, 2017   doi: 10.1111/manc.12196   open full text
• A Geometrical Approach to Giffen Behavior: The Epstein and Spiegel Utility Function Revisited.
  Masaki Fujimoto.
  Manchester School. July 16, 2017
  Weber (The Manchester School, Vol. 69 (2001), No. 6, pp. 616–622) has asserted that if we treat the production function of Epstein and Spiegel (The Manchester School, Vol. 68 (2000), No. 5, pp. 503–515) as a utility function, then an inferior good exhibits Giffen behavior at certain prices and income levels. This paper shows that it is not correct. Furthermore, we develop a geometrical method (i) to identify a region in a consumption set where Giffen behavior appears, (ii) to show that Giffen behavior can be categorized into two types: ‘subsistence‐driven’ and ‘satiation‐driven’, and (iii) to present a new class of Giffen utility functions.

  July 16, 2017   doi: 10.1111/manc.12198   open full text
• Testing the Efficiency of the Art Market Using Quantile‐Based Unit Root Tests with Sharp and Smooth Breaks.
  Goodness C. Aye, Tsang Yao Chang, Wen‐Yi Chen, Rangan Gupta, Mark Wohar.
  Manchester School. June 12, 2017
  This paper examines the efficiency market hypothesis for the art market using a novel nonlinear quantile‐based unit root test while accounting for sharp shifts and smooth breaks in the data. We use quarterly data which covers 1998:1 and 2015:1. Our analysis is based on 15 art price indices: Contemporary, Drawings, France, Global index (Euro), Global index (USD), Modern art, Nineteenth century, Old Masters, Paintings, Photographies, Postwar, Prints, Sculptures, UK and US. We find evidence of structural shifts and nonlinearity in the art indices. We cannot reject the null of unit root and/or stationarity in the art series based on the conventional linear unit root tests and quantile‐based test that did not account for structural breaks. However, when we use the same methods but accounting for sharp shifts and smooth breaks, we are able to reject the unit root null for each of the art indices. Further we find evidence of asymmetric behaviour in some of the indices: two global indices, Paintings, Prints, Sculptures, Modern art and Postwar, where unit root exist at some quantiles but not at others. Overall, our result suggest that the art market is inefficient. We provide some practical and policy implications of our findings.

  June 12, 2017   doi: 10.1111/manc.12192   open full text
• An Investigation of Stackelberg Mixed Oligopoly with Advertising Competition.
  Jiancai Pi, Pengqing Zhang, Xuyang Chen.
  Manchester School. May 07, 2017
  This paper conducts a comprehensive investigation of Stackelberg mixed oligopoly with advertising competition. We focus our attention on misleading advertising, and at the same time derive some results that are closely related to profit‐raising entry. Different from Matsumura and Sunada (Economics Letters, Vol. 119 (2013), pp. 183–185), we find that it is the leadership of the public firm in the advertising stage that may lead to the negative advertising level of the public firm and make the profit of each private firm decrease in the number of the private firms. In addition, we also find that the public leadership in the advertising stage may lead to the negative aggregate advertising level.

  May 07, 2017   doi: 10.1111/manc.12191   open full text
• Asymmetry of Individual and Aggregate Inflation Expectations: A Survey.
  Nikola Mirkov, Andreas Steinhauer.
  Manchester School. May 03, 2017
  We conducted a simple, anonymous survey at the beginning of 2014, asking around 200 economists worldwide to report their medium‐term expectations about US inflation. A significant share of respondents revealed asymmetric inflation expectations with sizeable deviation from symmetry. We obtain an aggregate distribution that is moderately skewed to the right and show that the aggregate skewness is mostly driven by disagreement among respondents and not by asymmetry of their subjective distributions. In fact, ignoring individual asymmetry changes little in terms of mean and variance of the aggregate distribution.

  May 03, 2017   doi: 10.1111/manc.12190   open full text
• Business and Financial Cycles in the Eurozone: Synchronization or Decoupling.
  Jameel Ahmed, Sajid M. Chaudhry, Stefan Straetmans.
  Manchester School. April 02, 2017
  This paper proposes a novel approach, based on probit framework, toward measuring bilateral synchronization, separately within business cycles and within financial cycles, for 11 eurozone economies. We find strong cross‐country synchronization both within real cycles and within financial cycles. Moreover, financial cycle synchronization dominates business cycle synchronization in the eurozone, especially after the introduction of the single currency. For some peripheral country pairs, we even find some evidence of ‘decoupling’ of business cycles relative to the core countries but majority of marginal business cycle effects do not change much before and after the common currency. The former observation supports the plea for more Europe‐wide macro‐prudential regulation whereas the latter observation gives ammunition to those economists who always stress that the euro zone architecture is an unfinished business and that the conditions for an optimum currency area are not fulfilled.

  April 02, 2017   doi: 10.1111/manc.12188   open full text
• Job and Worker Turnover in German Establishments.
  Lutz Bellmann, Hans‐Dieter Gerner, Richard Upward.
  Manchester School. March 10, 2017
  We use a simple nonparametric regression approach to measure the relationship between employment growth, hirings and separations in a large panel of German establishments over the period 1993–2014. Although it is often claimed that firms in Europe have less flexibility in their ability to hire and fire, we find that the relationship between employment growth and worker flows in German establishments is very similar to the behaviour of U.S. establishments. The relationship is stable over time, even during the 2008–9 economic crisis and across different types of establishment. We verify our results with independent measures from administrative data. We suggest that this result is due to: the strong relationship between employment reductions and voluntary separations; the low level of ‘churning’; and the heterogeneity of jobs within establishments.

  March 10, 2017   doi: 10.1111/manc.12187   open full text
• Health Behaviour Convergence: Evidence from Fractional (Long Memory) Convergence and British Microdata.
  Nicholas Apergis.
  Manchester School. March 05, 2017
  This paper uses a fractional methodology to assess convergence in terms of differences in health quality measures, based on six primary criteria, across the English regions. Hence, it uses the English Longitudinal Study of Ageing database and the retrospective interviews from 16,894 participants, aged 50+, with data from three waves–2004/5, 2006/7 and 2008/9, to establish that health quality is characterized by divergences across six health quality criteria. When the overall sample is differentiated through income, education and employment, the evidence favors convergence, indicating that certain socioeconomic factors impose a uniform behavioral attitude of the population toward health quality criteria.

  March 05, 2017   doi: 10.1111/manc.12185   open full text
• Couples' Labour Supply Responses to Job Loss: Growth and Recession Compared.
  Mark Bryan, Simonetta Longhi.
  Manchester School. March 01, 2017
  We examine whether couples in the UK increase labour supply to cushion the fall in earnings from a job loss, comparing periods of growth and recession. We consider both male and female earners and various dimensions of labour supply adjustment. We find evidence of labour supply reactions, but they can be negative as well as positive, particularly at the extensive margin. During the recession, household reactions are either unchanged or couples increase their labour market attachment, with bigger positive reactions and smaller negative ones. People do not react in advance of job losses, suggesting that unemployment is a surprise.

  March 01, 2017   doi: 10.1111/manc.12186   open full text
• Job Search Strategies in Times of Crisis: Natives and Immigrants in Spain.
  Javier Vázquez‐Grenno.
  Manchester School. January 24, 2017
  This paper uses Spanish Labor Force Survey data for the period 2005–2010 to analyze the job search methods adopted by unemployed natives and immigrants. We focus on the determinants of these job search methods and examine the interaction between the methods selected and native and immigrant exit rates from unemployment in a period that covers the transition from economic growth to crisis. Our findings suggest that, irrespective of the job search methods adopted, the hazards of leaving unemployment are greater for natives than they are for immigrants. The gap emerges in the second half of 2006, 1 year before the onset of the international crisis. Prior to this date, no differences were observed in their respective exit rates from unemployment. Finally, we find a mixed correlation between the job search methods and the probability of finding a job.

  January 24, 2017   doi: 10.1111/manc.12183   open full text
• Non‐Comparative and Comparative Advertising in Oligopolistic Markets.
  Maria Alipranti, Evangelos Mitrokostas, Emmanuel Petrakis.
  Manchester School. January 24, 2017
  We study firms’ advertising strategies in an oligopolistic market in which both non‐comparative and comparative advertising are present. We show that in equilibrium firms mix over the two types of advertising, with the intensity of comparative advertising exceeding that of non‐comparative advertising; moreover, that the intensity of comparative increases relatively to non‐comparative advertising as market competition intensifies. Interestingly, the use of comparative advertising may lead to higher consumers’ surplus and welfare in a mixed advertising market than in the absence of advertising or when either comparative or non‐comparative advertising is not present.

  January 24, 2017   doi: 10.1111/manc.12184   open full text
• Time Structure of Emissions and Comparison Between the Optimal Emission Taxes Under Selling and Under Renting in Durable Goods Oligopolies.
  Amagoia Sagasta, José M. Usategui.
  Manchester School. January 06, 2017
  We compare the optimal emission taxes on selling firms and on renting firms in a model of a durable‐goods oligopoly considering three types of emissions: emissions at production, emissions during use and emissions at disposal. We find that the optimal emission tax in the present may be lower when firms sell their output than when they rent their output if emissions are during use or at the disposal of the good. When emissions occur at production that optimal emission tax is higher on selling firms than on renting firms. Moreover, the total expected optimal emission tax per unit produced in the present is higher on selling firms than on renting firms for any of the three types of emissions considered. We provide intuition for these results.

  January 06, 2017   doi: 10.1111/manc.12181   open full text
• Blanchard and Kahn's (1980) Solution for a Linear Rational Expectations Model with One State Variable and One Jump Variable: The Correct Formula.
  Robert Kollmann, Stefan Zeugner.
  Manchester School. December 25, 2016
  This note corrects Blanchard and Kahn's () formula for the solution of a linear dynamic rational expectations model with one predetermined and one non‐predetermined endogenous variable.

  December 25, 2016   doi: 10.1111/manc.12180   open full text
• Using Twins to Resolve the Twin Problem of Having a Bad Job and a Low Wage.
  Petri Böckerman, Pekka Ilmakunnas, Jari Vainiomäki.
  Manchester School. December 15, 2016
  We use twin data linked to register‐based information on earnings to examine the long‐standing puzzle of nonexistent compensating wage differentials. The use of twin data with a panel dimension allows us to alleviate the impact of otherwise unobserved productivity differences that have been the prominent reason for estimation bias in prior studies. Using a twin design, we find some evidence for positive compensation of adverse working conditions in the labor market.

  December 15, 2016   doi: 10.1111/manc.12178   open full text
• The Dynamics of Disability and Work in Britain.
  Melanie K. Jones, Rhys Davies, Stephen Drinkwater.
  Manchester School. December 02, 2016
  This paper examines the dynamic relationship between work‐limiting disability and labour market outcomes using longitudinal data created by matching individuals in the Local Labour Force Survey (2004–10). By applying event‐study methods, changes in employment are traced through the onset of, and exit from, disability. These relationships are examined between subgroups of the population, including those defined by the nature and severity of disability. For most groups we find evidence of asymmetry in the impact of onset and exit: employment is significantly reduced at onset and continues to decline post‐onset whereas, after controlling for unobserved heterogeneity, exiting disability has a limited effect.

  December 02, 2016   doi: 10.1111/manc.12177   open full text
• Puzzling Global Stochastic Trends in Growth, Interest and Inflation and the Volcker Disinflation.
  Reinhold Heinlein, Hans‐Martin Krolzig.
  Manchester School. November 03, 2016
  This paper aims to identify the stable long‐run relationships as well as unstable driving forces of the world economy using a small aggregated cointegrated VAR model encompassing quarterly US, UK, Japanese and Euro Area data for the post‐Bretton‐Woods era. Three stable long‐run relationships are found: output growth, the term spread and the inflation climate. The common stochastic trend of the global macro economy is dominated by the cumulated real short‐term interest rate shocks, reflecting the strong increase of global real rates during the Volcker disinflation period, one of the dominating events of the last 40 years of macro history.

  November 03, 2016   doi: 10.1111/manc.12175   open full text
• The Performance Pay Premium and Wage Dispersion in Britain.
  Alex Bryson, John Forth, Lucy Stokes.
  Manchester School. August 25, 2016
  Estimates of the performance pay (PP) premium using household survey data are upwardly biased due to the use of PP contracts in higher paying workplaces. Using nationally representative linked employer‐employee data we estimate the PP premium at the mean and across the wage distribution, after accounting for workplace heterogeneity. We then present the effects of PP on the wage distribution. Failure to account for the use of PP in high paying workplaces overstates the PP premium by one‐third. The premium rises as one moves up the wage distribution, but the effect is more modest after having accounted for workplace heterogeneity.

  August 25, 2016   doi: 10.1111/manc.12174   open full text
• Monetary and Fiscal Policy in Times of Crisis: A New Keynesian Perspective in Continuous Time.
  Britta Förster, Bernd Hayo.
  Manchester School. August 04, 2016
  To analyse the interdependence between monetary and fiscal policy during a financial crisis, we develop an open‐economy DSGE model with monetary and fiscal policy, as well as financial markets, in a continuous‐time framework based on stochastic differential equations. Monetary policy is modelled using both a standard and a modified Taylor rule and fiscal policy is modelled as either expansionary or austere. In addition, we differentiate between open economies and monetary union members. We find evidence that the modified Taylor rule notably reduces the likelihood that the financial market crisis affects the real economy. However, if we assume that households are averse to outstanding government debt, we find that a combination of expansionary monetary policy and austerity‐oriented fiscal policy does a better job of stabilising both domestic and foreign economies in regard to both output and inflation. In the case of a monetary union, we find that stabilization of output in the country where the financial shock originated is no longer as easy and, in terms of prices, there is now deflation in that country and a positive inflation rate in the other member country of the monetary union.

  August 04, 2016   doi: 10.1111/manc.12173   open full text
• Bank Taxes and Loan Monitoring: A Cautionary Tale.
  Enzo Dia, David Van hoose.
  Manchester School. August 02, 2016
  This paper analyzes a model in which there is excessive bank lending and in which regulators attempt to correct the problem with a tax. A tax on lending can correct the over‐lending problem by reducing the returns from lending. Imposition of the tax has a perverse effect on the composition of lending, however, because it falls more heavily on banks that incur expenses to reduce loan losses. Hence, along the external margin, the share of banks that voluntarily monitor loans decreases. In contrast, monetary policy tightening can produce the optimal level of lending without generating any distortion of monitoring incentives.

  August 02, 2016   doi: 10.1111/manc.12172   open full text
• The National Minimum Wage and the Substitutability Between Young and Old Workers in Low Paid Occupations.
  Gauthier Lanot, Panos Sousounis.
  Manchester School. July 18, 2016
  We study the effect of the National Minimum Wage (NMW) on the workforce age composition within the low paying sectors of the British economy. Our interest is in the degree of substitutability between labour inputs (young and old employees). We find evidence that both the introduction and the regular upratings of the NMW have a significant effect on the observed changes to the relative wages and to the relative wage bills but not to relative employment. We estimate the elasticity of substitution, between ‘young’ age groups and older workers (55+) to be zero, while that of ‘prime’ (22+) age and older workers, to be around 0.79. Our estimates therefore imply significant complementarity between younger and old employees.

  July 18, 2016   doi: 10.1111/manc.12168   open full text
• On the Number of Licenses with Signalling.
  Manel Antelo, Antonio Sampayo.
  Manchester School. July 18, 2016
  We analyse a two‐period licensing game in which a non‐producing upstream patent holder licenses an innovation that lasts for two periods to either one or two downstream users. Licensing is made through a payment based on a two‐part tariff, namely a fixed fee plus a royalty per output unit. Regarding the innovation value when commercialized by each user (high or low), we compare a symmetric information context where such value is publicly known with a situation in which users have private information about the value, but with their period‐1 output signalling that value. We find that the patent holder is more likely to prefer to grant two licenses under signalling than under symmetric information, which highlights the benefits of resorting to market competition between users to reduce the amount of informational rents.

  July 18, 2016   doi: 10.1111/manc.12157   open full text
• How Has the Behavior of Cross‐Market Correlations Altered During Financial and Debt Crises?
  Sercan Demiralay, Veysel Ulusoy.
  Manchester School. July 18, 2016
  In this paper, we analyze the time‐varying behavior of cross‐market correlations between emerging and developed markets. For this, we conduct the Asymmetric Dynamic Conditional Correlation ‐EGARCH model, which captures asymmetries both in the conditional variances and correlations. Our main results suggest the upward patterns of correlations, reflecting the increased equity market integration over time, and also provide that asymmetric behavior in the correlations is not as common as in the volatilities. We further analyze time‐paths of the correlations during the two latest crises; namely global financial crisis (GFC) and European Sovereign Debt Crisis to investigate whether the crises induce contagion effects and significant structural shifts. The empirical findings reveal that the correlation levels significantly increase and the emerging markets recouple in the latest two turmoil episodes, providing evidence of contagion incidences. Moreover, we examine whether the dynamic correlations possess abrupt changes in times of the crisis via multiple structural breakpoint tests and demonstrate that substantial regime shifts in the conditional correlations are present during both the GFC and the ESDC. Our results provide insights and have potential implications for global investors to optimize their portfolios as well as for authorities to handle contagion risk and prevent its adverse impacts.

  July 18, 2016   doi: 10.1111/manc.12171   open full text
• Preemptive Mergers in a Vertically Differentiated Unionized Oligopoly.
  Borja Mesa‐Sánchez.
  Manchester School. July 13, 2016
  In the context of an international unionized oligopoly with vertical differentiation, the pattern of mergers is investigated. We show that mergers between firms producing the same‐quality good lead wages to the reservation level, as well as maximize industry profits. However, it turns out that most of the market structure equilibria are shaped by mergers between producers of differentiated and homogeneous goods. This is so because mergers increase the market share of participating firms at the expense of that of the outsiders, leading to a scenario of preemptive mergers, where the main driving force can be to preempt rival mergers. Finally, it is shown that if three‐firm mergers are not allowed, the strategic behavior of firms is eliminated, mergers between same‐quality producers occur and social welfare is maximized.

  July 13, 2016   doi: 10.1111/manc.12149   open full text
• Unionization Regimes, Capacity Choice by Firms and Welfare Outcomes.
  Luciano Fanti, Nicola Meccheri.
  Manchester School. July 11, 2016
  This paper studies how unionization regimes that differ in the degree of wage setting centralization interplay with the strategic choice of production capacity by firms and how this affects product market outcomes. When labour markets are unionized, firms typically opt for under‐capacity to dampen the unions’ wage claims. This is in contrast with the conventional choice of over‐capacity that applies when labour markets are competitive. Moreover, unless unions are distinctly oriented towards employment, the level of capacity is more efficient under centralized unionization than in a decentralized structure. Relative to more general welfare outcomes, profits are always higher under decentralization, but both consumer surplus and overall welfare can be higher under a centralized structure, depending on the unions’ preference towards wages or employment.

  July 11, 2016   doi: 10.1111/manc.12165   open full text
• Irish Firms’ Productivity and Imported Inputs.
  Emanuele Forlani.
  Manchester School. July 07, 2016
  In this paper, we investigate the empirical relationship between firms’ productivity in manufacturing and imports of intermediate inputs. Using a unique dataset for Ireland, we exploit the variability of import intensity within firm‐year pairs to identify the impact of importing on firms’ efficiency. Our findings show that an increase in the intensive margin of imports affects positively the efficiency of domestic Irish firms, in particular through the imports of materials. Most importantly, we find that responses to variations in import intensity depend on the initial level of productivity. The more efficient a domestic firm is, the larger the benefits from importing are. The results are robust to different estimation techniques and sample composition.

  July 07, 2016   doi: 10.1111/manc.12169   open full text
• Did Purchasing Power Parity Hold in Medieval Europe?
  Adrian R. Bell, Chris Brooks, Tony K. Moore.
  Manchester School. July 07, 2016
  This paper employs a unique, hand‐collected dataset of exchange rates for five major currencies (the lira of Barcelona, the pound sterling of England, the pond groot of Flanders, the florin of Florence and the livre tournois of France) to consider whether the law of one price and purchasing power parity held in Europe during the late fourteenth and early fifteenth centuries. Using single series and panel unit root and stationarity tests and cointegration analysis on 10 real exchange rates between 1383 and 1411, we show that the parity relationship held for the pound sterling and some of the Florentine florin series individually and for almost all of the groups that we investigate. Our findings add to the weight of evidence that trading and arbitrage activities stopped real exchange rates deviating permanently from fair values. This research extends the results reported in other studies back more than 600 years.

  July 07, 2016   doi: 10.1111/manc.12167   open full text
• Solitary City: Time, Space and Urban Policy.
  Jun Oshiro.
  Manchester School. July 06, 2016
  We examine the positive and normative implications of externality‐generating activities in the setting of an urban economy wherein households equilibrate their time allocation between social networking and business networking. Since every interaction is time consuming, households face a trade‐off between enjoying social interaction and participating in business networks. We develop a monocentric city model with a time allocation decision to investigate the influence of externality‐generating activities on the spatial structure of cities and assess the urban policies meant to facilitate social interaction. Two interdependent magnification forces are generated from social interactions and human capital spillovers. Households are subject to too much social isolation when a positive correlation exists between agglomeration and productivity.

  July 06, 2016   doi: 10.1111/manc.12170   open full text
• Privatization and Entry with Switching Costs.
  Quan Dong, Juan Carlos Bàrcena‐Ruiz.
  Manchester School. July 06, 2016
  Although many papers consider the effect of switching costs on entry when the incumbent firm is privately‐owned, the effect when the incumbent firm is publicly‐owned has not been analyzed. We seek to fill that gap here and show that, unlike the case of a private incumbent where entry may decrease welfare, with a public incumbent entry always raises welfare. We also study whether the government privatizes the public incumbent firm and whether it deters entry. We find that switching costs reduce the range of values of the parameters for which privatization is chosen. Moreover, the government may prefer a private monopoly to a public monopoly or even a mixed duopoly. Finally, there is more privatization and less entry if the government decides on both privatization and entry than if it decides only on privatization.

  July 06, 2016   doi: 10.1111/manc.12166   open full text
• Short‐Run Dynamics of the Trade Balance in the Emu‐12 Countries.
  Mika Nieminen, Juha Junttila.
  Manchester School. June 29, 2016
  During the pre‐EMU period real effective exchange rate or domestic and foreign GDP per capita growth rate differential Granger‐caused aggregate trade balance in most of the EMU‐12 countries. However, our data‐driven paper provides evidence that during the EMU period neither the growth differentials nor the CPI‐based real effective exchange rates have Granger‐caused the aggregate trade balances. When we decompose the aggregate trade balances into the intra balances (trade balance vis‐à‐vis the euro area) and the extra balances (trade balance vis‐à‐vis the rest of the world), we find that typically the change in the dynamics of the aggregate trade balance resulted from a change in the dynamics of the intra balance.

  June 29, 2016   doi: 10.1111/manc.12160   open full text
• Much Ado about Something Important: How do Exchange Rate Movements Affect Inflation?
  Kristin Forbes.
  Manchester School. June 29, 2016
  Understanding how exchange rate movements ‘pass‐through’ to prices and inflation is critically important for monetary policy. Yet key tenets of our standard framework for analyzing this ‘pass‐through’ have recently not performed well in the UK. Instead, a new framework is needed—of incorporating the cause of the exchange rate movement when analyzing its effects. This new framework can explain why sterling's movements have had such different effects on import prices and inflation over time. It should also improve the ability of central banks to predict inflation and set monetary policy appropriately.

  June 29, 2016   doi: 10.1111/manc.12159   open full text
• Unemployment, Labour Market Institutions, Fiscal Imbalances and credit Constraints: New Evidence on an Active Debate.
  Evangelia Papapetrou, Pinelopi Tsalaporta.
  Manchester School. June 29, 2016
  Using a sample of 20 OECD countries from 1970 to 2013 and accounting for cross‐sectional and temporal dependence in the regressions' disturbances, the paper examines the combined influence of labour market institutions, fiscal imbalances and credit constraints on unemployment. We demonstrate that unemployment exhibits high persistence. It is also closely associated with business cycle fluctuations, albeit mostly in economies under adjustment programmes (Spain, Ireland, Italy and Portugal). Evidence on the association between labour and product market institutions and unemployment remains inconclusive. The effect of large fiscal consolidation episodes on unemployment is consistently positive and significant, especially during the crisis period (2008–13) and in countries with strict employment protection regulation. High growth rates of GDP that reflect economic activity rebound, may partly neutralize the positive and significant impact of fiscal consolidation on unemployment.

  June 29, 2016   doi: 10.1111/manc.12156   open full text
• Optimal Transparency and Policy Intervention with Heterogeneous Signals and Information Stickiness.
  Jonathan G James, Phillip Lawler.
  Manchester School. June 29, 2016
  This paper investigates optimal central bank disclosure in an economy in which only a proportion of firms adjusts prices each period to reflect current information. Such information comprises a firm‐specific signal of the current state of aggregate demand and, potentially (depending on the transparency regime) a public signal disseminated by the central bank. The economy has two sources of price dispersion: first, the heterogeneity of the private signals of firms whose prices always reflect current information, and second, the non‐adjustment of prices by firms that fail to update their information from period‐to‐period. Monetary policy is conducted by the central bank to maximize expected welfare, with the study's focus on the optimal degree of transparency. A key finding is that, for plausible values of model parameters, full transparency cannot be optimal: whether zero or partial transparency is desirable then depends on the proportion of firms failing to update their information each period.

  June 29, 2016   doi: 10.1111/manc.12161   open full text
• The Storm Before the Calm? Adverse Effects of Tackling Organized Crime.
  Iain W. Long.
  Manchester School. June 29, 2016
  Policies targeted at high‐crime neighbourhoods may have unintended consequences in the presence of organized crime. Whilst they reduce the incentive to commit crime at the margin, those who still choose to join the criminal organization have relatively high criminal propensities. Large organizations take advantage of this, substituting away from membership size towards increased individual criminal activity. Aggregate crime may rise. However, as more would‐be recruits move into the formal labour market, falling revenue causes a reversal of this effect. Thereafter, the policy reduces both size and individual activity simultaneously.

  June 29, 2016   doi: 10.1111/manc.12155   open full text
• Deliberation, Leadership and Information Aggregation.
  Javier Rivas, Carmelo Rodríguez‐Álvarez.
  Manchester School. June 22, 2016
  We analyze a committee of voters who take a decision via a two‐stage process. In a discussion stage, voters share non‐verifiable information about a private signal concerning what is the best decision. In a voting stage, a decision is taken by voting. We introduce the possibility of leadership whereby a certain voter, the leader, is more influential than the rest at the discussion stage even though she is not better informed. We study the effects of leadership on information transmission and the quality of the choice made by the committee, and how these effects depend on the specific voting rule employed. We find that how truthful voters are at the discussion stage depends non‐monotonically on how influential the leader is. Moreover, when the leader's influence is relatively high, supermajority voting rules may increase the probability of choosing the best option when compared with the majority voting rule.

  June 22, 2016   doi: 10.1111/manc.12151   open full text
• Finance, Labour, Capital, and International Integration.
  Giuseppe Bertola.
  Manchester School. June 10, 2016
  Labour incomes depend on structural as well as politico‐economic factors, because labour market policies partially remedy the financial market imperfections that make labour income shocks difficult to insure, and have different implications for labour and capital income. This paper illustrates such theoretical insights with a simple model, and reviews evidence of their empirical relevance generated by international economic, monetary and financial integration.

  June 10, 2016   doi: 10.1111/manc.12158   open full text
• The Portfolio Balance Mechanism and QE in the Euro Area.
  Romanos Priftis, Lukas Vogel.
  Manchester School. June 10, 2016
  The paper analyses quantitative easing (QE) in a dynamic general‐equilibrium model which includes assets of different types and maturity. We explicitly model asset purchases by the central bank and their impact on the central bank's balance sheet. In particular, QE is captured by central bank purchases of long‐term government bonds financed by enhanced liquidity provision to the private sector. With imperfect substitutability between asset classes, QE affects the term premium, stock prices, the exchange rate and the private sector's saving decision. We use the model to simulate the European Central Bank's (ECB's) QE path as announced in early 2015. With six basis points term‐premium reduction the model generates 0.9 per cent effective euro depreciation and raises real GDP in the euro area by 0.3 per cent and prices by 0.5 per cent by 2016. Enduring periods of low interest rates strengthen the expansionary effect of QE in the short and medium term. Frontloading of asset purchases has little impact on output and inflation effects as long as the duration of the balance sheet expansion remains unchanged. Expansionary effects of QE are reduced if the central bank purchases eligible assets from foreign rather than domestic counterparties.

  June 10, 2016   doi: 10.1111/manc.12162   open full text
• Frictional and Non‐Frictional Unemployment in a Labor Market with Matching Frictions.
  José Ramón García, Valeri Sorolla.
  Manchester School. June 10, 2016
  Using the Mortensen and Pissarides model of a labor market with frictions, this paper proposes a new method, simpler than the one presented in Michaillat (), for decomposing unemployment into frictional and non‐frictional (rationing) unemployment for a derived rigid wage‐setting rule. We use it to compute the frictional and non frictional unemployment rate for two economies characterized by different labor market institutions, namely the US and the Spanish economy. For the entire period under study, the US frictional unemployment rate is around 36 per cent of total unemployment, whereas for Spain, approximately 20 per cent of all unemployment is due to frictions. This outcome may be explained by the fact that Spain is a country with more labor market rigidities than the US. The empirical results obtained with our method are also consistent with the main result of Michaillat (): in both countries, non‐frictional unemployment increases in recessions.

  June 10, 2016   doi: 10.1111/manc.12154   open full text
• Mixed Duopoly with a Partial‐Delegated‐Public Firm.
  Jie Shuai.
  Manchester School. May 08, 2016
  We compare the welfare results of mixed duopoly model where a firm can be private, public or partial‐delegated‐public. We consider two types of partial‐delegated‐public firms. In partial‐delegated‐public with location delegation, the firm chooses location to maximize its profit while the social planner chooses price to maximize social surplus. Partial‐delegated‐public firm with price delegation is the opposite where the firm chooses price to maximize its profit. We find significant differences in equilibrium outcomes both between the two types of partial‐delegated‐public firms, and between the partial‐delegated‐public firms and the purely private/public firms. While equilibrium prices in the partial‐delegated‐public firm cases lie in between those in the pure cases (purely private or purely public), the private firm's profit may be higher when its rival is a partial‐delegated‐public firm rather than a purely private/public firm. We also find a ‘trade‐off’ within the two partial‐delegated‐public firm cases: social surplus is higher under location delegation, but consumer surplus and profit of the partial‐delegated‐public firm are higher under price delegation.

  May 08, 2016   doi: 10.1111/manc.12150   open full text
• Market Power of the Input Supplier, Technology Transfer and Consumer Welfare.
  Jiyun Cao, Arijit Mukherjee.
  Manchester School. May 03, 2016
  It is believed that market power of the input supplier, charging a linear price, is detrimental for the consumers since it creates the double marginalisation problem. We show that this view may not be true if the final goods producers can adopt strategies to reduce rent extraction by the input supplier. Market power of the input supplier may encourage a final goods producer either to license its technology to a competitor with a cost advantage or to adopt a less distortionary technology licensing contract. Both these effects may create higher consumer welfare under market power of the input supplier compared to a competitive input market.

  May 03, 2016   doi: 10.1111/manc.12152   open full text
• The Effects of Inter‐Generational Transfers on the Marital Surplus.
  Joaquín Andaluz, Miriam Marcén, José Alberto Molina.
  Manchester School. April 12, 2016
  This paper explores the impact of inter‐generational transfers on the marital surplus, measured as the difference between the utility level in marriage and in divorce. To that end, we consider a three‐generation family playing a two‐stage sequential game. In this framework, we find conditions under which an increase in inter‐generational transfers leads to a decrease in the marital surplus, which may reduce the incentives of parents to donate income to their married children. Supplemental analysis, developed to study whether inter‐generational transfers are crowded out by public transfers, suggests that altruistically‐motivated inter‐generational transfers are not always displaced by public transfers, especially when parents are highly altruistic.

  April 12, 2016   doi: 10.1111/manc.12148   open full text
• Distressed Sales in OTC Markets.
  Cemil Selcuk.
  Manchester School. April 05, 2016
  We present a stylized model of the over‐the‐counter markets in the tradition of Duffie et al. () with two distinctive features: (i) buyers have heterogenous preferences and their willingness to pay is private information and (ii) sellers become financially distressed if they cannot sell for too long. A unique steady‐state equilibrium exists and it is characterized by predatory buying. Specifically, during periods where sellers are more likely to become distressed (e.g. during economic crises, financial turmoils, etc.) buyers become more selective and hold off purchasing despite the abundance of distressed sales and low prices. This reluctance triggers the number of distressed sellers to grow even further and forces them for additional price cuts.

  April 05, 2016   doi: 10.1111/manc.12153   open full text
• Foreign Exchange Inflows in Emerging Markets: How Much are they Sterilised?
  Michael Bleaney, Sharmila Devadas.
  Manchester School. February 26, 2016
  As some emerging market economies have amassed large quantities of foreign exchange reserves, concern has arisen over the sterilisation of the domestic money stock from these flows. Existing studies focus mostly on narrow (reserve) money, and estimate a high degree of sterilisation. Empirical work on the long‐run relationship between money and prices emphasises broad money, yet the long‐run effect of foreign exchange inflows on broad money has been almost entirely ignored. Using a sample of quarterly data from 28 countries over the period 1990–2010, it is shown that broad money is sterilised to a significantly smaller degree than reserve money, raising concerns about the implications for financial imbalances and inflation. This pattern of sterilisation is not confined to any particular group of countries and is unrelated to the nature of the flows (e.g. current account versus capital account surpluses). Sterilisation rates have increased in Asia during the recent period of persistent accumulation of foreign exchange reserves.

  February 26, 2016   doi: 10.1111/manc.12144   open full text
• Signaling Unobservable Quality Choice through Price and Advertising: The Case with Competing Firms.
  Fulan Wu.
  Manchester School. February 18, 2016
  This paper develops a model in which a firm can use price and advertising jointly as a signal of their private choice of quality, whereby quality is endogenously chosen by firms. The monopoly model reveals that there exists a unique equilibrium in which the monopolist chooses high quality but a higher level of advertising compared to the full‐information benchmark. The model is then extended to the case with competition of two imperfectly competitive firms. We find that if competition is not strong enough, then there exists a unique symmetric equilibrium in which both firms choose high quality. The equilibrium outcome shows that both firms will set lower prices and a higher level of advertising as compared to the monopoly case. Interestingly, we find that more competition might lead to a loss of social welfare due to the increasing level of advertising for quality signaling. The numerical results further demonstrate that as competition gets more intense from the monopoly, prices decrease initially, the level of advertising increases, and social welfare decreases, which may make a ban on advertising more recommendable after a certain threshold.

  February 18, 2016   doi: 10.1111/manc.12145   open full text
• Capturing Direct and Cross Price Effects in a Differentiated Products Duopoly Model.
  Michael Kopel, Anna Ressi, Luca Lambertini.
  Manchester School. February 18, 2016
  We show that a frequently used direct demand system with product differentiation in a duopoly market generates unexpected effects of increasing the substitutability of firms’ products on prices, outputs, profits and welfare. Using the original demand system introduced by Bowley (The Mathematical Groundwork of Economics, Oxford, Oxford University Press, 1924) as a reference, we argue that this alternative model does not capture a consumer's taste for variety. Moreover, we demonstrate that positive values for the parameter which represents cross‐price effects in the alternative demand system corresponds to the regime of complementary products in the original Bowley model. As a consequence, for increasing values of this parameter—meant to capture increasing competition in the usual sense—prices do not converge towards marginal costs and profits do not vanish. Finally, we study a duopoly with international transfer pricing and demonstrate that conflicting policy conclusions are derived depending on which of the models is used to capture demand.

  February 18, 2016   doi: 10.1111/manc.12146   open full text
• Performance‐Related Pay, Efficiency Wages and the Shape of the Tenure‐Earnings Profile.
  John G. Sessions, John D. Skåtun.
  Manchester School. February 18, 2016
  Whilst it is well known that performance‐related pay (PRP) may increase wage inequality within a firm, there is an inter‐temporal lifecycle aspect that has been largely ignored in the literature. In this paper, we investigate theoretically how the introduction of PRP will influence the wage and remuneration profile over time. We develop a simple two‐period model of efficiency wages that rationalizes recent empirical findings suggesting PRP flattens the pay‐tenure profile. Such attenuation has important implications for the credibility of long‐term employment contracts as it suggests that agency rather than human capital considerations drive the profile.

  February 18, 2016   doi: 10.1111/manc.12147   open full text
• Interest Rate Sensitivity of Spanish Industries: A Quantile Regression Approach.
  Laura Ferrando, Román Ferrer, Francisco Jareño.
  Manchester School. December 22, 2015
  This paper examines the degree of interest rate exposure of Spanish industries for the period 1993–2012 using the quantile regression methodology. The empirical results show that the Spanish stock market exhibits a significant level of interest rate sensitivity, although there are notable differences across industries and over time. In addition, the impact of changes in interest rates on industry equity returns tends to be more pronounced in extreme market conditions, i.e. during crises or bubbles in stock markets, than in normal periods. This finding may be related to herding behavior of stock investors during periods of market stress.

  December 22, 2015   doi: 10.1111/manc.12143   open full text
• Behavior‐Based Price Discrimination with Experience Goods.
  Hoe Sang Chung.
  Manchester School. November 18, 2015
  This paper examines the profitability of behavior‐based price discrimination (BBPD) by duopolists producing horizontally differentiated experience goods. Considering a three‐stage game in which the firms first make price discrimination decisions followed by two‐stage pricing decisions, the two main results we obtain are the following: (i) if consumers underestimate the quality of the products at a level that is not very low, there are two subgame perfect Nash equilibria where both firms do not collect information about consumers' purchase histories so that neither firm price discriminates and where both firms collect consumer information to practice BBPD; (ii) BBPD is more profitable than uniform pricing if consumers overestimate at a more than moderate level.

  November 18, 2015   doi: 10.1111/manc.12140   open full text
• Labour Market Integration and Innovation: The Implications on Consumers.
  Mehdi Chowdhury, Arijit Mukherjee.
  Manchester School. November 12, 2015
  We show the effects of labour market integration on consumers. Labour market integration allows the firms in the labour‐recipient countries to hire skilled and unskilled workers at lower wages. If labour market integration creates the possibility of migration of skilled workers, it increases investments in innovation and benefits the consumers. However, if labour market integration creates the possibility of migration of unskilled workers, it neither increases investment in innovation nor benefits the consumers always. Our results suggest that the effects of labour market integration on the consumers depend on several factors such as the market size, differences in the labour coefficients and wage and the type of migrated workers (i.e. skilled or unskilled workers).

  November 12, 2015   doi: 10.1111/manc.12132   open full text
• Brain Types and Wages.
  Nick Drydakis.
  Manchester School. November 10, 2015
  We examine the association between brain types and wages using the UK Behavioural Study data set for the period 2011–13. By applying empathizing–systemizing theory, the estimations suggest that, for men and women, systemizing traits are associated with higher wage returns than empathizing traits and that a Type S brain (entailing greater skills in directing systems) is associated with higher wage rewards than a Type E brain (entailing more social skills). Interestingly, the estimations suggest that the wage returns of empathizing and systemizing traits vary by occupation and that each trait might provide an absolute wage return advantage in certain occupations.

  November 10, 2015   doi: 10.1111/manc.12142   open full text
• Economic Freedom and Income Inequality: Evidence from a Panel of Global Economies— A Linear and a Non‐Linear Long‐Run Analysis.
  Nicholas Apergis, Arusha Cooray.
  Manchester School. November 06, 2015
  This study employs panel data from 138 countries (with unbalanced time frameworks) to investigate the relationship between economic freedom and income inequality. Both linear and non‐linear cointegration methodologies are used to identify a long‐run equilibrium relationship between: (i) the overall Economic Freedom of the World index and income inequality, and (ii) the major areas of the index and income inequality. The linear long‐run parameter estimates document that the association turns out to be negative, while the non‐linear long‐run parameter estimates illustrate that above a threshold point the association between economic freedom and income inequality is negative, while below this threshold point, the association turns out to be positive. The empirical findings survive a number of robustness tests, such as alternative measures of income inequality.

  November 06, 2015   doi: 10.1111/manc.12137   open full text
• Pricing an Experience Composite Good as Coordinated Signals.
  Jeong‐Yoo Kim.
  Manchester School. November 06, 2015
  In this paper, we consider an experience composite good, each of whose components is produced by independent firms sharing the information about the quality. We obtain two main results. First, if the production costs are equal across qualities, the undistorted equilibrium is the unique unprejudiced separating equilibrium. Furthermore, in a pooling equilibrium, low‐type firms are able to coordinate their prices upwards to be pooled with high‐type firms. Second, if the production costs differ across qualities, no (universally divine) pooling equilibrium exists and the undistorted equilibrium is the unique unprejudiced, universally divine equilibrium. The implication of our results is that high quality is signaled by high but undistorted prices in the case of experience composite goods, contrary to the case of single experience goods.

  November 06, 2015   doi: 10.1111/manc.12141   open full text
• ‘Putting a Foot in the Door’: Volunteer Hiring and Organizational Form.
  Michael Vlassopoulos.
  Manchester School. October 28, 2015
  Volunteering often acts as a stepping stone into a paid position. This paper provides an explanation for the fact that non‐profit employers are uniquely able to attract volunteers with social concerns and career aspirations and for the related observation that non‐profits figure prominently in mission‐related activities. The theory is predicated on that—by committing to not distributing profits—non‐profit incorporation relaxes the incentive constraint that employers face when implicitly contracting with volunteers. The not‐for‐profit commitment is shown to be effective only in activities where producers, who can choose to be for‐profit or non‐profit, care about the level of the service being provided.

  October 28, 2015   doi: 10.1111/manc.12139   open full text
• Source of Underestimation of the Monetary Policy Effect: Re‐Examination of the Policy Effectiveness in Japan's 1990s.
  Masahiko Shibamoto.
  Manchester School. October 15, 2015
  This paper re‐examines empirical evidence on the potency of Japanese monetary policy in the 1990s by comparing the estimated impacts of various proxies for monetary policy shocks on the macroeconomy. My empirical results demonstrate that surprise target changes modeled as proxies for monetary policy shocks had impacts on real output and financial variables over the period 1990–2001. I also show that the estimated effects of identified monetary policy shocks depend on whether or not the shocks are expected: the monetary policy effects on the economy are underestimated when the empirical models fail to control for the market expectation for the monetary policy stance.

  October 15, 2015   doi: 10.1111/manc.12133   open full text
• Endogenous Product Boundary.
  Takanori Adachi, Takeshi Ebina, Makoto Hanazono.
  Manchester School. October 07, 2015
  This study analyzes the determinants of product boundary choice as discriminatory pricing. Specifically, we consider a model where a monopolist sells a base product with an add‐on valuable only if it is consumed along with the base product. An important feature of this model is that this additional value is contingent on the valuation of the base product. We show that separation, in which case only the base product is sold, yields a higher profit than integration, where only a bundled package is sold, if and only if the range of the add‐on value exceeds a threshold value and that separation is more likely to become optimal as the degree of positive contingency increases. As for welfare, consumer surplus in case of separation is always lower than that when the seller is constrained to sell the bundled package.

  October 07, 2015   doi: 10.1111/manc.12134   open full text
• Why Do Countries Adopt Fiscal Rules?
  Yener Altunbaş, John Thornton.
  Manchester School. October 07, 2015
  This paper examines which economic, institutional and political characteristics of countries affect the likelihood that a numeral rule will be adopted as part of a fiscal strategy to limit the level of public debt. We estimate a panel binary response model over the period 1970–2012 for 110 countries, of which 58 opted to adopt such a rule. Our results suggest that the probability such a rule will be adopted is greater if a country has a high level of public debt, a relatively inflexible exchange rate regime, has already adopted inflation targeting, has deep credit markets and if other countries already have adopted a debt rule. There are some differences in decision factors between high‐income and lower income countries, with the level of economic development and the openness of the economy playing opposite roles in each country group, and the impact of monetary unions on debt rule adoption being much stronger in the former group. The results are robust to testing for reverse causality, including using different econometric techniques.

  October 07, 2015   doi: 10.1111/manc.12136   open full text
• Grades across Universities over Time.
  Geraint Johnes, Kwok Tong Soo.
  Manchester School. October 07, 2015
  This paper examines the determinants of degree outcomes in a sample of UK universities from 2004 to 2012. We use stochastic frontier methods to account for differences in efficiency across universities and over time. The quality of the student intake and the university's research performance are the main determinants of degree outcomes. There is no evidence of grade inflation at the boundary between upper and lower second‐class honours. Decomposing the determinants of degree outcomes, we find that good entry grades yield a higher return in traditional universities than in new universities. Although high‐quality universities award more good degrees, we find little evidence that universities of different quality differ in their propensity to inflate grades over time.

  October 07, 2015   doi: 10.1111/manc.12138   open full text
• Household Preferences and Joint Decisions on Employer‐Provided Health Insurance Access.
  Ji‐Liang Shiu, Meng‐Chi Tang.
  Manchester School. September 28, 2015
  This paper examines how spousal access to employer‐provided health insurance (EPHI) affects preferences to acquire the same access at both the individual and household level. Regarding household decision process as a cooperative, simultaneous game between husband and wife, the empirical results show that spousal access to EPHI is negatively related to own EPHI access, indicating that household members as a unit prefer single EPHI access to dual access. Using family income share as a proxy for individual indirect utility, this study shows that the husband's incremental disutility of having spousal EPHI access is greater than that of the wife.

  September 28, 2015   doi: 10.1111/manc.12129   open full text
• Using Panel Data to Estimate Income Under‐Reporting by the Self‐Employed.
  Bonggeun Kim, John Gibson, Chul Chung.
  Manchester School. September 24, 2015
  Self‐employment income is believed to be understated in economic statistics but there is debate about the extent of under‐reporting. This paper refines the widely used method of Pissarides and Weber (Journal of Public Economics, Vol. 39, No. 1 (1989), pp. 17–32) that relies on discrepancies between food shares and reported incomes. Our panel data approach disentangles under‐reporting from fluctuations in transitory income and gives a point estimate of the under‐reporting rate. Previous studies just give an interval estimate and also make the unlikely assumption that under‐reporting is independent of transitory income fluctuations. Panel data from Korea and Russia are used to illustrate the method, and suggest that in both countries almost one‐quarter of the income of self‐employed households is not reported.

  September 24, 2015   doi: 10.1111/manc.12135   open full text
• Stackelberg Competition, Innovation and Social Efficiency of Entry.
  Angela C. Chao, Jen‐yao Lee, Leonard F.S. Wang.
  Manchester School. September 24, 2015
  In literature, the common wisdom is that entry in an industry with homogeneous products may be socially insufficient instead of excessive in the absence of scale economies. In this paper, we formally introduce endogenous research and development (R&D) and cost asymmetry into both Cournot and Stackelberg competition, and show that entry is socially insufficient in the presence of ex ante asymmetric costs coupled with the spillover effect of R&D.

  September 24, 2015   doi: 10.1111/manc.12130   open full text
• Entry Regulation, Public Ownership and TFP Growth: Industry‐Level Evidence from South European Countries.
  Sophia P. Dimelis, Sotiris K. Papaioannou.
  Manchester School. September 23, 2015
  In this paper, we investigate whether changes in the degree of entry regulation or in the degree of public ownership are associated with higher industry total factor productivity (TFP) growth of south European economies. We first estimate relative TFP levels and TFP growth rates across manufacturing and service industries of Greece, Italy and Spain using an endogenous growth accounting model. Then, we estimate the TFP growth impact of entry regulation and public ownership, within a productivity convergence framework. The empirical results indicate that a reduction in the degree of entry regulation is associated with higher industry TFP growth. On the other hand, the TFP growth impact of public ownership, although negative, is not statistically significant. The econometric estimates show that technology transfer and technological catch‐up are both important for higher productivity growth of south European industries.

  September 23, 2015   doi: 10.1111/manc.12131   open full text
• Fertility and Female Labour Force Participation: Causal Evidence from Urban China.
  Xiaobo He, Rong Zhu.
  Manchester School. September 23, 2015
  Using population census data, this paper examines the causal effect of a second child on married women's labour force participation in urban China. To ameliorate the endogeneity of fertility, we exploited twin births as the source of variation in fertility. Although the ordinary least squares estimates indicate that having one more child significantly reduces female labour force participation by around 6 and 9 percentage points in 1990 and 2000, respectively, our causal analyses suggest very small negative effects in 1990 (around 2 percentage points) and an insignificant effect in 2000.

  September 23, 2015   doi: 10.1111/manc.12128   open full text
• Military Buildups, Economic Development and Corruption.
  Rajeev K. Goel, James W. Saunoris.
  Manchester School. September 23, 2015
  Using cross‐national data for more than two recent decades, this paper examines the effect of military buildups on corruption. Measuring military buildups via military spending and armed forces, and controlling for simultaneity, results consistently find greater military buildups to increase corruption across specifications. However, the level of economic development plays a crucial role, especially with regard to the effect of military forces. Greater state fragility is, ceteris paribus, associated with greater corruption. The influences of other factors are in accord with the literature.

  September 23, 2015   doi: 10.1111/manc.12127   open full text
• Does Daily Sunshine Make You Happy? Subjective Measures of Well‐Being and the Weather.
  Franz Buscha.
  Manchester School. September 22, 2015
  This paper examines to what extent individual measures of well‐being are correlated with daily weather patterns in the United Kingdom. Merging daily weather data into the British Household Panel Survey allows us to test whether measures of self‐reported well‐being are correlated with temperature, sunshine, rainfall and wind speed. We are able to make a strong case for causality due to ‘randomness’ of weather in addition to using methods that eliminate time‐invariant individual‐level heterogeneity. Results suggest that the effect of daily weather on measures of subjective well‐being is negligible; although there is some evidence that sunshine affects job satisfaction negatively.

  September 22, 2015   doi: 10.1111/manc.12126   open full text
• An Empirical Study of Commodity Prices after Sir Arthur Lewis.
  Atanu Ghoshray, Ashira Perera.
  Manchester School. September 07, 2015
  This paper builds on the work of Deaton and Laroque (Journal of Development Economics, Vol. 71 (2003), pp. 289–310) by empirically testing for long‐run commodity price adjustment in a non‐linear framework. We propose a non‐linear adjustment mechanism of commodity price dynamics linked to the Lewis model. Using more recent data by updating the price, income and production indices, we employ advanced econometric techniques in order to investigate whether there is empirical evidence to support the arguments of the non‐linear model. The findings lend support to the underlying non‐linear framework proposed in this paper.

  September 07, 2015   doi: 10.1111/manc.12123   open full text
• Agricultural Productivity, Infrastructures and the Optimal Timing of Opening Trade.
  Keita Kamei, Hiroaki Sasaki.
  Manchester School. August 13, 2015
  This study develops a dynamic Ricardian trade model that incorporates productive infrastructures into the manufacturing sector. The costs of building infrastructures are financed by tax. We investigate the relationship between the timing of opening trade and total welfare. The main results are as follows: (1) there is the optimal tax rate maximizing the total welfare; (2) an increase in agricultural productivity can accelerate the timing of opening trade, which, however, does not necessarily improve total welfare; and (3) total welfare under specialization in manufacturing can be higher than that under specialization in agriculture depending on the prevailing conditions.

  August 13, 2015   doi: 10.1111/manc.12125   open full text
• Monitoring Costs, Credit Constraints and Entrepreneurship.
  Sanjay Banerji, Rajesh S. N. Raj, Kunal Sen.
  Manchester School. July 27, 2015
  Access to finance is seen as a binding constraint on the growth of household enterprises in developing countries. We develop a principal agent model of a household enterprise and show that limited access to finance and monitoring costs constrain the firm size via both a direct and indirect effect. Although greater access to finance has a positive direct effect on the hiring of paid labour, firms may not choose to expand and use paid labour via an indirect route that operates through the monitoring costs of employing paid workers. We use large nationally representative surveys of household enterprises in Indian manufacturing and find support for the predictions of our theory.

  July 27, 2015   doi: 10.1111/manc.12122   open full text
• Subject‐Specific League Tables and Students' Application Decisions.
  Arnaud Chevalier, Xiaoxuan Jia.
  Manchester School. July 27, 2015
  Do applicants to higher education rely on expert judgement about the quality of the course when applying? Using application data across UK universities over a period of 8 years, we investigate how league tables affect prospective students' application decisions. We use subject‐specific ranking rather than the commonly used institution‐level ranking. We find that a one standard deviation change in the subject‐level ranking score of an institution is associated with, on average, a 4.3 per cent increase in application numbers per faculty. This effect is particularly pronounced among faculties with the best scores, and overseas applicants. Limits to the number of choices per applicant have increased the preponderance of league tables.

  July 27, 2015   doi: 10.1111/manc.12124   open full text
• The Puzzling Fall of the Wage Skill Premium in Spain.
  Florentino Felgueroso, Manuel Hidalgo‐Pérez, Sergi Jiménez‐Martín.
  Manchester School. July 22, 2015
  In contrast to most EU countries and other developed economies, the wage skill premium has been steadily falling between 1988–2008 in Spain. Using Spanish Social Security data we extend Dustman and Meghir work and find that the fall in the wage skill premium can be explained in part by an increase in the share of college graduates that are mismatched. However, this phenomenon only partially explains the fall in the WSP: differences between high and low‐educated workers in the returns to general experience and firm tenure have been substantially reduced since the end of the 90s.

  July 22, 2015   doi: 10.1111/manc.12116   open full text
• Monetary Policy Preferences of the EMU and the UK.
  Philip Arestis, Michail Karoglou, Kostas Mouratidis.
  Manchester School. July 22, 2015
  We estimate the central bank policy preferences for the European Monetary Union and for the UK. In doing so, we extend the theoretical framework suggested by Cecchetti et al. (The Manchester School, Vol. 70 (2002), pp. 596–618), by assuming that policy preferences change across different regimes. Our empirical results suggest that the weight that policy makers put on inflation is typically profound. Furthermore, it appears that volatility shifts of the economic disturbances are the main factor, which generates variation in policy preferences.

  July 22, 2015   doi: 10.1111/manc.12121   open full text
• Democratic Reforms, Foreign Aid and Production Inefficiency.
  Dimitris K Christopoulos, Gregorios Siourounis, Irene Vlachaki.
  Manchester School. July 17, 2015
  We employ empirical analysis to investigate the link between foreign aid and production inefficiency in the presence of different political orientations in the recipient country. Using a set of 124 countries from 1971 to 2007 and the production frontier toolbox, controlling for unobserved heterogeneity, time horizons, the sources of aid and the timing of aid impact, we document that foreign aid is associated with higher production inefficiency and that this inefficiency is reduced considerably if countries switch to democratic governance. Our study contributes to the aid literature by pointing to the institutional enhancement of the recipient countries through the adoption of democratic rule.

  July 17, 2015   doi: 10.1111/manc.12107   open full text
• The Impact of the Euro on the Quality of Trade: Evidence from the European Union.
  Tadashi Ito, Toshihiro Okubo.
  Manchester School. July 17, 2015
  This paper examines the effects of a common currency on the quality of traded goods. For this purpose, we construct a quality‐based heterogeneous firm trade model to incorporate the formation of currency unions and the ensuing elimination of exchange rate volatility. Our main hypothesis is that a common currency enables low‐quality (low marginal cost) firms to commence exporting to the common currency's member countries, which causes the average export price to fall. We empirically test this hypothesis for the euro and the eurozone using Harmonized System 8‐digit traded product data for European Union countries.

  July 17, 2015   doi: 10.1111/manc.12112   open full text
• Price Discrimination in Quantity Setting Oligopoly*.
  Rajnish Kumar, Levent Kutlu.
  Manchester School. July 01, 2015
  We analyze a two‐stage quantity setting oligopolistic price discrimination game. In the first stage, firms choose capacities and in the second stage they simultaneously choose the share that they assign to each segment. At the equilibrium, the firms focus more on the high‐valuation customers. When the capacities in the first stage are endogenous, the deadweight loss does not vanish with the level of price discrimination, as it does in one‐stage games and monopoly. Moreover, the quantity‐weighted average price increases with the level of price discrimination as opposed to the established results in the literature for one‐stage games.

  July 01, 2015   doi: 10.1111/manc.12106   open full text
• Does the Excess Entry Theorem Hold in a Differentiated Oligopoly?
  Koichi Kagitani, Takao Ohkawa, Makoto Okamura.
  Manchester School. April 21, 2015
  Though it is generally believed that increasing competition improves social welfare, we are able to show with a Shubik–Levitan demand function for differentiated goods that this is not always the case. Under Cournot and Bertrand competition, market entry increases the equilibrium total output and lowers the equilibrium price in the case of substitutes, but it reduces the total output and raises the price in the case of complements. In the long run, the equilibrium number of firms is excessive and the equilibrium cannot achieve even the second‐best social welfare under either type of competition, regardless of product substitutability or complementarity.

  April 21, 2015   doi: 10.1111/manc.12104   open full text
• Business Cycle Spillovers in the European Union: What is the Message Transmitted to the Core?*.
  Nikolaos Antonakakis, Ioannis Chatziantoniou, George Filis.
  Manchester School. March 31, 2015
  We examine business cycle spillovers in the European Union over the period 1977–2014. The results of our analysis reveal that: (i) The total spillover indices are of high magnitude and very responsive to extreme economic events. (ii) The direction and magnitude of spillovers among group members (i.e. Eurozone core, Eurozone periphery, new Euro Area countries and non‐European Monetary Union countries) is changing overtime. (iii) The widening of the European debt crisis can be explained by business cycle shocks in the whole Eurozone periphery. Thus, appropriate macroprudential stabilization policies aiming to steer peripheral economies towards growth should be formulated.

  March 31, 2015   doi: 10.1111/manc.12101   open full text
• Strategic Capacity Investment under Hold‐up Threats: The Role of Contract Length and Width.
  Laure Durand‐Viel, Bertrand Villeneuve.
  Manchester School. March 26, 2015
  We analyze the impact of the length of incomplete contracts on investment and surplus sharing. In the bilateral relationship explored, the seller controls the input and the buyer invests. With two‐part tariffs, the length of the contract is irrelevant: the surplus is maximal and goes to the seller. In linear contracts, the seller prefers the shortest contract and the buyer the longest one. Further, the commitment period concentrates the incentives, whereas afterwards there is rent extraction. The socially efficient contract is as short as possible; yet, long contracts can be promoted because of the surplus they allocate to the buyer.

  March 26, 2015   doi: 10.1111/manc.12100   open full text
• Competition and Growth: Reinterpreting their Relationship.
  Daria Onori.
  Manchester School. May 08, 2014
  In this paper we modify a standard quality ladder model by assuming that the winners of the R&D race sell licenses over their to the intermediate good firms. These ones compete à la Cournot and it is assumed that there are positive spillovers on costs: in‐house and rivals' experience reduces firms' cost. We prove that there exists an interval of values of the spillover parameter such that the relationship between competition and growth is an inverted U shape. In this interval, overall welfare is inverted U‐shaped in competition for lower values of the externality parameter and increasing for higher values.

  May 08, 2014   doi: 10.1111/manc.12063   open full text
• Direct and Indirect Influences of Parental Background on Children's Earnings: a Comparison across Countries and Genders.
  Michele Raitano, Francesco Vona.
  Manchester School. May 08, 2014
  The association between parental occupation and children's earnings in eight EU countries is compared using the European Union Survey on Income and Living Conditions (EU‐SILC) data set, analysing: (i) residual background correlations (RBCs) on earnings, controlling for children's education and occupation, and (ii) patterns by gender, controlling for selection into employment. Findings on cross‐country differences confirm well‐known differences in intergenerational income inequality. RBCs are statistically significant irrespective of gender in the UK, Spain and Italy, for men in France and Ireland, for women in Denmark and not significant in Germany and Finland. Not controlling for selection delivers downward biased estimates of RBCs, highlighting the effect of family background on employability.

  May 08, 2014   doi: 10.1111/manc.12064   open full text
• Basel III: Long‐term Impact on Economic Performance and Fluctuations.
  Paolo Angelini, Laurent Clerc, Vasco Cúrdia, Leonardo Gambacorta, Andrea Gerali, Alberto Locarno, Roberto Motto, Werner Roeger, Skander Van den Heuvel, Jan Vlček.
  Manchester School. April 24, 2014
  Using a wide range of macroeconomic and econometric models we assess the long‐term economic impact of the Basel III reform. Our main results are the following. (1) The economic costs of the new regulatory standards for bank capital and liquidity are considerably below existing estimates of the benefits that the reform should have by reducing the probability of banking crises (Basel Committee on Banking Supervision (2010) ‘An Assessment of the Long‐term Impact of Stronger Capital and Liquidity Requirements’, Basel). (2) The reform dampens output volatility modestly, although there is some heterogeneity across models. (3) The adoption of countercyclical capital buffers can substantially amplify the dampening effect on output volatility.

  April 24, 2014   doi: 10.1111/manc.12056   open full text
• Gender Wage Gaps within a Public Sector: Evidence from Personnel Data.
  Steve Bradley, Colin Green, John Mangan.
  Manchester School. April 17, 2014
  A standard finding is that the public sector exhibits lower gender wage gaps than the private sector. This is attributed to less gender discrimination in the public sector. We show that this conclusion is flawed as the standard finding for the public sector is driven by the dominating influence of large feminized occupational groups, such as nursing and teaching, which have flat job hierarchies and low wage variance. Other occupations within the public sector exhibit sizeable wage gaps which cannot be explained by workplace or worker characteristics. This implies that gender discrimination is substantial in some public sector occupations.

  April 17, 2014   doi: 10.1111/manc.12061   open full text
• Economic Growth under Stochastic Population and Pollution Shocks.
  Théophile T. Azomahou, Tapas Mishra, Mamata Parhi.
  Manchester School. April 17, 2014
  We study dynamics of interactions among economic growth, population, and environmental quality when stochastic shocks in these systems display long‐memory property. We make two important contributions. First, we show that the long‐memory persistence in economic growth is determined jointly by the convergence speed of shocks in both environmental quality and population. Second, by simulating a modified Solow‐Swan economy we demonstrate that the convergence‐speed of shocks in these systems significantly affects the long‐run growth trajectory of output. Our empirical examination evince that adjustment of output to long‐run equilibrium is very slow, thanks to the slowly dissipating population and pollution shocks.

  April 17, 2014   doi: 10.1111/manc.12062   open full text
• Okun's Law—a Meta‐analysis.
  Roger Perman, Gaetan Stephan, Christophe Tavéra.
  Manchester School. March 27, 2014
  This paper seeks to identify whether there is a representative empirical Okun's law coefficient (OLC) and to measure its size. We carry out a meta‐regression analysis on a sample of 269 estimates of the OLC to uncover reasons for differences in empirical results and to estimate the ‘true’ OLC. On statistical (and other) grounds, we find it appropriate to investigate two separate subsamples, using respectively (some measure of) unemployment or output as dependent variable. Our results can be summarized as follows. First, there is evidence of type II publication bias in both subsamples, but a type I bias is present only among the papers using some measure of unemployment as the dependent variable. Second, after correction for publication bias, authentic and statistically significant OLC effects are present in both subsamples. Third, bias‐corrected estimated true OLCs are significantly lower (in absolute value) with models using some measure of unemployment as the dependent variable. Using a bivariate MRA approach, the estimated true effects are −0.25 for the unemployment subsample and −0.61 for the output subsample; with a multivariate MRA methodology, the estimated true effects are −0.40 and −1.02 for the unemployment and the output subsamples respectively.

  March 27, 2014   doi: 10.1111/manc.12057   open full text
• Coalitional Approaches to Collusive Agreements in Oligopoly Games.
  Sergio Currarini, Marco A. Marini.
  Manchester School. March 27, 2014
  In this paper we review a number of coalitional solution concepts for the analysis of cartel and merger stability in oligopoly. We show that, although so far the industrial organization and the cooperative game theoretic literature have proceeded somehow independently on this topic, the two approaches are highly inter‐connected. We show that different assumptions on the behaviour and on the timing of the coalitions of firms yield very different results on the associations of firms which are stable. We conclude by reviewing some recent extensions of the coalitional analysis to oligopolistic markets with heterogeneous firms and incomplete information.

  March 27, 2014   doi: 10.1111/manc.12058   open full text
• Optimal Two‐part Tariff Licensing Mechanisms.
  Marta San Martín, Ana I. Saracho.
  Manchester School. March 27, 2014
  This paper studies the optimal two‐part tariff licensing contract for an internal patentee in a differentiated Cournot duopoly. We find that the type of the royalty payment, whether ad valorem or per‐unit, that it is optimal for the patentee depends on the kind of goods produced in the industry, more precisely on whether they are substitutes or complements and on the degree of product differentiation. We also find that licensing always increases social welfare, although it may hurt consumers.

  March 27, 2014   doi: 10.1111/manc.12059   open full text
• Peer Salaries and Gender Differences in Job Satisfaction in the Workplace.
  Karen Mumford, Peter N. Smith.
  Manchester School. March 27, 2014
  A substantial and persistent earnings gap exists between male and female employees in Britain. Despite this gap, British women typically report higher levels of job satisfaction than men. We consider this apparent contradiction by asking whether the higher job satisfaction reported by female employees is associated with their being less concerned by the level of co‐worker wages. We explore the relationship between reported job satisfaction and own, relative and comparison‐group wage; allowing for asymmetry in responses across genders. We find that choice of relevant comparison group is affected by gender; men display behaviour characteristic of competitiveness while women do not.

  March 27, 2014   doi: 10.1111/manc.12060   open full text
• Patent Licensing with Bertrand Competitors.
  Stefano Colombo, Luigi Filippini.
  Manchester School. February 21, 2014
  This paper analyses an optimal two‐part licensing scheme based on ad valorem royalties within a differentiated Bertrand duopoly where the innovator is also the downstream producer, and compares it with the optimal two‐part per‐unit royalty mechanism. After showing that the optimal two‐part ad valorem licensing scheme reduces to a pure ad valorem royalty scheme, we show that per‐unit contracts are typically preferred to ad valorem contracts by the patentee, as, under price competition, the per‐unit royalty has a stronger strategic effect than the ad valorem royalty. In contrast, welfare is higher under the ad valorem contract than under the per‐unit mechanism.

  February 21, 2014   doi: 10.1111/manc.12050   open full text
• Influence, Interactions and Heterogeneity: Taking Personalities out of Monetary Policy Decision‐making.
  Arnab Bhattacharjee, Sean Holly.
  Manchester School. January 22, 2014
  It is widely believed that setting monetary policy through a majority voting committee has major benefits. A monetary policy committee can take personalities out of monetary policy decisions. Critical to understanding these claims is an assessment of how such a committee functions. In this paper we examine interactions and influences between committee members when there is heterogeneity among members. We are able to identify significant interactions and directions of influence among Monetary Policy Committee members at the Bank of England.

  January 22, 2014   doi: 10.1111/manc.12051   open full text
• Insular Decision Making in the Board Room: Why Boards Retain and Hire Substandard CEOs.
  Meg Adachi‐Sato.
  Manchester School. January 22, 2014
  This paper explores why a corporate board often fails to replace a substandard CEO. I consider the situation in which the incumbent CEO and directors make decisions in the absence of the new CEO. I show that the board and the CEO maximize the expected utilities of the negotiating parties that do not include the expected utility of the potential CEO. This sometimes results in the retention of an inefficient CEO. I argue this same logic provides a theoretical explanation for how a new CEO is chosen in relation to both the voluntary and enforced replacement of an existing CEO.

  January 22, 2014   doi: 10.1111/manc.12055   open full text
• Investor Cash Flow and Mutual Fund Behavior.
  Xiangbo Liu, Zijun Liu, Zhigang Qiu.
  Manchester School. January 10, 2014
  We study the behavior of a mutual fund manager in a discrete‐time model, in which new investors may choose to invest in the fund after the fund manager has made trading decisions. We show that under certain conditions the fund manager may choose to buy overvalued assets at the expense of the investors in order to attract new investments, who would otherwise not invest in the fund. This can potentially lead to higher risky asset prices and a higher‐than‐optimal proportion of investment in risky assets in the active fund management industry.

  January 10, 2014   doi: 10.1111/manc.12053   open full text
• Asymmetric Complements in a Vertically Differentiated Market: Competition or Integration?
  Ornella Tarola, Cecilia Vergari.
  Manchester School. January 10, 2014
  We study the effects of integration of asymmetric complements when they are vertically differentiated. While confirming the standard effects of integration, namely the internalization of the double marginalization externality and the reduction of competition, we point out a new positive quality effect, due to an increase in the average quality of the goods on sale. We also characterize the conditions under which integration turns out to be optimal for both firms' and consumers. We thus provide valuable directions for competition agencies when considering the joint ownership in vertically differentiated markets.

  January 10, 2014   doi: 10.1111/manc.12054   open full text
• The Efficiency of Multivariate Macroeconomic Forecasts.
  Bruno Deschamps, Christos Ioannidis.
  Manchester School. January 06, 2014
  We examine the efficiency of multivariate macroeconomic forecasts by estimating a vector autoregressive model on the forecast revisions of four variables (GDP, inflation, unemployment and wages). Using a data set of professional forecasts for the G7 countries, we find evidence of cross‐series revision dynamics. Specifically, forecasts revisions are conditionally correlated to the lagged forecast revisions of other macroeconomic variables, and the sign of the correlation is as predicted by conventional economic theory. This indicates that forecasters are slow to incorporate news across variables. We show that this finding can be explained by forecast underreaction.

  January 06, 2014   doi: 10.1111/manc.12016   open full text
• A Generalized Bayesian Instrumental Variable Approach under Student t‐distributed Errors with Application.
  Matthew J. Salois, Kelvin G. Balcombe.
  Manchester School. January 06, 2014
  Bayesian analysis is given of an instrumental variable model that allows for t‐distributed errors in both the structural equation and the instrument equation. Specifically, the approach for dealing with t‐distributed errors is extended to the Bayesian instrumental variable estimator by modelling the variance for each error using a Gamma distributed hierarchical prior. The computation is carried out by using a Markov chain Monte Carlo sampling algorithm for the heteroskedastic case. An example using data illustrates the approach and shows that ignoring the presence of error terms with heavy tails in the instrument equation when it exists may lead to biased estimates.

  January 06, 2014   doi: 10.1111/manc.12048   open full text
• Peer Group and Distance: When Widening University Participation is Better.
  Berardino Cesi, Dimitri Paolini.
  Manchester School. December 11, 2013
  We study the effect of a new university in a two‐city model in which individuals’ utility depends on own ability, peer group ability, formal education and mobility costs. We compare a monopoly (one university in one city) with a two‐university system (one university in each city). Introducing the second university improves welfare when the fixed cost of each university is low. With two universities, we obtain a symmetric equilibrium for every mobility cost and asymmetric equilibria for low mobility costs. The symmetric system induces the highest welfare and is also Strong Nash (for high mobility costs).

  December 11, 2013   doi: 10.1111/manc.12049   open full text
• Atypical Jobs: Stepping Stones or Dead Ends? Evidence from the NLSY79.
  John T. Addison, Chad D. Cotti, Christopher J. Surfield.
  Manchester School. December 11, 2013
  Atypical work arrangements have long been criticized as offering more precarious and lower paid work than regular open‐ended employment. An important British paper by Booth et al. (Economic Journal, Vol. 112 (2002), No. 480, pp. F189–F213) was among the first to recognize such jobs also functioned as a stepping stone to permanent work. This conclusion proved prescient, receiving increased support in Europe. Here, we provide a broadly parallel analysis for the USA, where research has been less targeted on this issue. We report similar findings for temporary workers in the USA as found for fixed‐term contract workers in Britain.

  December 11, 2013   doi: 10.1111/manc.12052   open full text
• Breaks in the UK Household Sector Money Demand Function.
  Rakesh Bissoondeeal, Michail Karoglou, Andy Mullineux.
  Manchester School. November 24, 2013
  We use non‐parametric procedures to identify breaks in the underlying series of UK household sector money demand functions. Money demand functions are estimated using cointegration techniques and by employing both the Simple Sum and Divisia measures of money. P‐star models are also estimated for out‐of‐sample inflation forecasting. Our findings suggest that the presence of breaks affects both the estimation of cointegrated money demand functions and the inflation forecasts. P‐star forecast models based on Divisia measures appear more accurate at longer horizons and the majority of models with fundamentals perform better than a random walk model.

  November 24, 2013   doi: 10.1111/manc.12043   open full text
• Sectoral Money Demand Behaviour and the Welfare Cost of Inflation in the UK.
  John Ashworth, David Barlow, Lynne Evans.
  Manchester School. October 31, 2013
  In this paper, we estimate separate UK money demand functions for the household and corporate sectors; and calculate estimates of the welfare cost of inflation. We find that the household sector bears most of the welfare burden which is in sharp contrast to previous (US) evidence. Also, we find aggregate welfare cost estimates that are much smaller than previous (largely US) estimates—sufficiently smaller as to challenge the oft‐quoted Lucas finding that shoe leather costs are by no means trivial. For the UK, we find welfare costs no greater than one tenth of a per cent of real income.

  October 31, 2013   doi: 10.1111/manc.12047   open full text
• Entry, Profit and Welfare under Asymmetric R&D Costs.
  Arijit Mukherjee, Achintya Ray.
  Manchester School. August 27, 2013
  We show the effects of entry of a new firm on the profits and welfare when the firms share the same initial cost of production but differ in terms of the costs of undertaking R&D. Considering a Cournot oligopoly model with innovation and linear demand and production costs, we show that entry reduces the profits of the incumbent firms and it can be welfare reducing.

  August 27, 2013   doi: 10.1111/manc.12015   open full text
• Public Sector Capital and the Transition from Dictatorship to Democracy.
  Christopher J. Ellis, John Fender.
  Manchester School. August 19, 2013
  A model where a dictator decides on both the level of public‐sector capital and whether to democratize is constructed. Under dictatorship the labour market is monopsonistic; democratization involves instituting a competitive labour market. Workers sometimes have a credible threat of revolution and this may affect the dictator's investment decision; it may also induce democratization. The possibility of a ‘political development trap’, where the dictator stifles development to stay in power, emerges. The model is used, inter alia, to explain the effects of the 1832 Reform Act in the UK and the worldwide positive correlation between income and democracy.

  August 19, 2013   doi: 10.1111/manc.12027   open full text
• A Generalized Goodness‐of‐functional Form Test for Binary and Fractional Regression Models.
  Esmeralda A. Ramalho, Joaquim J. S. Ramalho, José M. R. Murteira.
  Manchester School. August 19, 2013
  This paper proposes a new conditional mean test to assess the validity of binary and fractional parametric regression models. The new test checks the joint significance of two simple functions of the fitted index and is based on a very flexible parametric generalization of the postulated model. A Monte Carlo study reveals a promising behaviour for the new test, which compares favourably with that of the well‐known RESET test as well as with tests where the alternative model is non‐parametric.

  August 19, 2013   doi: 10.1111/manc.12032   open full text
• Efficiency and Mergers in English Higher Education 1996/97 to 2008/9: Parametric and Non‐parametric Estimation of the Multi‐input Multi‐output Distance Function.
  Jill Johnes.
  Manchester School. August 19, 2013
  This paper explores the issue of efficiency in English higher education using data envelopment analysis and stochastic frontier analysis to estimate an output distance function (which incorporates measures of both quantity and quality of teaching and research inputs and outputs) over a 13‐year period. The study compares the efficiency estimates derived from various estimation methods, and uses the results to provide guidance to researchers, managers and policymakers on undertaking efficiency studies. The length of the study under consideration allows a preliminary statistical investigation of the effects on efficiency of merger activity in higher education.

  August 19, 2013   doi: 10.1111/manc.12030   open full text
• Robust Forecast Methods and Monitoring during Structural Change.
  Jana Eklund, George Kapetanios, Simon Price.
  Manchester School. August 01, 2013
  We examine how to forecast after a recent break, introducing a new approach, monitoring for change and then combining forecasts from a model using the full sample and another using post‐break data. We compare this to some robust techniques: rolling regressions, forecast averaging over all possible windows and exponentially weighted forecasts. We examine relative efficacy with Monte Carlo experiments given single deterministic or multiple stochastic location shifts, and for many UK and US macroeconomic series. No single method is uniformly superior. Monitoring brings only small improvements, so robust methods are preferred.

  August 01, 2013   doi: 10.1111/manc.12011   open full text
• Inference on Structural Breaks using Information Criteria.
  Alastair R. Hall, Denise R. Osborn, Nikolaos Sakkas.
  Manchester School. July 29, 2013
  This paper investigates the usefulness of information criteria for inference on the number of structural breaks in a standard linear regression model. In particular, we propose a modified penalty function for such criteria, which implies each break is equivalent to estimation of three individual regression coefficients. A Monte Carlo analysis compares information criteria to sequential testing, with the modified Bayesian and Hannan–Quinn criteria performing well overall, for data‐generating processes both without and with breaks. The methods are also used to examine changes in Euro area monetary policy between 1971 and 2007.

  July 29, 2013   doi: 10.1111/manc.12017   open full text
• Determinants of the EONIA Spread and the Financial Crisis.
  Carla Soares, Paulo M. M. Rodrigues.
  Manchester School. July 29, 2013
  To understand the impact of the 2007–9 financial crisis, we model the Euro overnight interest rate average (EONIA) spread against the main reference rate as an exponential general autoregressive conditional heteroskedastic (EGARCH) model. Before the fixed rate full allotment policy of the European Central Bank (ECB) (period 2004–8), we follow a two regime approach, however afterwards (2008–9), a conventional EGARCH seems more adequate. The results suggest a greater difficulty during the turmoil for the ECB to steer the EONIA spread. The liquidity policy and in particular the provision of long‐term liquidity was effective in reducing market volatility.

  July 29, 2013   doi: 10.1111/manc.12010   open full text
• Monetary Policy Reaction Functions in Small Open Economies: a Quantile Regression Approach.
  Thanaset Chevapatrakul, Juan Paez‐Farrell.
  Manchester School. July 29, 2013
  We use quantile regressions to model monetary policy reaction functions in three small open economies: Australia, Canada and New Zealand. Focusing on Taylor‐type rules, we find evidence of asymmetric interest rate responses for all the countries considered, with monetary policy reacting more strongly to inflation when interest rates are high than when they are low. This is consistent with previous research suggesting that central bankers place more weight on positive deviations of inflation from its target than negative ones. In contrast, the interest rate response to the output gap is largely symmetric and small.

  July 29, 2013   doi: 10.1111/manc.12014   open full text
• Employment and the Business Cycle.
  Marcelle Chauvet, Jeremy Piger.
  Manchester School. July 29, 2013
  This paper investigates the differences in the cyclical dynamics in employment on non‐agricultural payroll (ENAP) and total civilian employment (TCE), and the implications for monitoring US business cycles in real time. We find that employment measures have diverged considerably around the last three recessions and subsequent recoveries. This significantly impacts identification of turning points. Models that use TCE are more in line with the National Bureau of Economic Research (NBER) recession dating, and deliver faster call of troughs in real time, whereas models that include ENAP series yield delays in signaling troughs, especially the most recent ones.

  July 29, 2013   doi: 10.1111/manc.12026   open full text
• Financial Frictions and Inflation Differentials in a Monetary Union.
  Nikolay Hristov, Oliver Hülsewig, Timo Wollmershäuser.
  Manchester School. July 29, 2013
  This paper presents a stylized New Keynesian dynamic stochastic general equilibrium (DSGE) model for a monetary union to analyze whether cyclical inflation differentials can be explained by cross‐country differences concerning the characteristics of financial markets. Our results suggest that empirically plausible degrees of heterogeneity with respect to two important credit market characteristics, i.e. the access to credit and the fraction of households holding debt, are a relevant source of inflation dispersion across European Monetary Union (EMU) member countries.

  July 29, 2013   doi: 10.1111/manc.12034   open full text
• Vertically Differentiated Mixed Oligopoly with Quality‐dependent Fixed Costs.
  Stefan Lutz, Mario Pezzino.
  Manchester School. July 29, 2013
  The paper studies duopolistic competition when firms face fixed quality‐dependent costs of production and one of the two firms targets (at least in the long run) welfare maximization. We show that mixed oligopoly is in general socially desirable compared with a private duopoly regardless of the type of competition in the short run and the equilibrium quality ranking. In addition, the nationalization of one of the firms seems to be a more efficient regulatory instrument than the adoption of minimum quality standard or subsidization of the high‐quality provider.

  July 29, 2013   doi: 10.1111/manc.12035   open full text
• Licensing to a More Efficient Rival.
  Fridtjof Anderson.
  Manchester School. July 29, 2013
  This paper studies licensing of a cost‐reducing innovation in an environment with horizontal product differentiation where the licensee is the most efficient firm in absence of the innovation. We derive the optimal two‐part tariff and show that when we allow for negative royalty rates, the optimal contract may involve the patentee paying its rival a per‐unit subsidy.

  July 29, 2013   doi: 10.1111/manc.12036   open full text
• Post‐secondary School Type and Academic Achievement.
  Elena Meschi, Anna Vignoles, Robert Cassen.
  Manchester School. July 25, 2013
  The Further Education (FE) sector has been the Cinderella of English education, attracting less research, despite the large number of students who attend FE colleges. We ask whether the post‐16 institution attended by the pupil, i.e. FE college or school‐based provision, influences pupils' final achievement and whether the gain in pupil achievement at A level is greater in FE colleges as compared with school‐based provision. Allowing for the fact that FE colleges admit more disadvantaged pupils, those who attend an FE college do marginally less well at A level. Sixth form colleges have significantly higher value‐added, particularly for higher achieving pupils.

  July 25, 2013   doi: 10.1111/manc.12006   open full text
• Giffen Goods and their Reflexion Property.
  P. G. Moffatt, H. K. Moffatt.
  Manchester School. July 04, 2013
  The following ‘reflexion property’ of Giffen behaviour is proved: the two‐good direct utility function (DUF) obtained by reversing the sign of two‐good indirect utility function (IUF) displays Giffen behaviour with respect to one of the two goods if and only if the IUF itself displays Giffen behaviour with respect to the other good. A particular IUF showing Giffen behaviour for both goods (in non‐overlapping regions of the price space) is constructed and the reflexion property is verified. The example IUF is extended to more than two goods, and Giffenity is verified in this case.

  July 04, 2013   doi: 10.1111/manc.12003   open full text
• New Model Introductions, Cannibalization and Market Stealing: Evidence from Shopbot Data.
  Michelle Haynes, Steve Thompson, Peter W. Wright.
  Manchester School. July 04, 2013
  Incremental innovation plays an important role in competitive conduct in high‐tech industries. This paper explores the impact of new model introduction by employing a nested logit specification to investigate the determination of market shares across and within submarkets for a panel of 336 digital cameras. Our results confirm the existence of pronounced life cycle effects and the existence of statistically significant market stealing and cannibalization effects, particularly associated with the introduction of a technologically superior entrant into the model's market segment. The paper reveals significant differences in market outcomes, in both elasticity and response to entry, across submarkets.

  July 04, 2013   doi: 10.1111/manc.12024   open full text
• Licensing of a Drastic Innovation with Product Differentiation.
  Toker Doganoglu, Firat Inceoglu.
  Manchester School. July 04, 2013
  We analyze the licensing of a drastic innovation when products are differentiated due to consumer and/or product heterogeneity. We show that an industry insider prefers to divest its production arm and license the new technology as an industry outsider, in which case it can replicate multiproduct monopoly profit. We derive the optimal contracts and the optimal number of licenses by assuming a logit demand system. Optimal number of licenses, quite strikingly, increases when the technology has a higher relative value than a commercialized alternative. This result stands in sharp contrast with the literature on the licensing of a homogenous good.

  July 04, 2013   doi: 10.1111/manc.12025   open full text
• What can we Learn from Bargaining Models about Union Power? The Decline in Union Power in Germany, 1992–2009.
  Boris Hirsch, Claus Schnabel.
  Manchester School. July 04, 2013
  Building on the right‐to‐manage model of collective bargaining, this paper tries to infer union power from the observed results in wage setting. It derives a time‐varying indicator of union strength taking account of taxation, unemployment benefits, and the labour market situation and confronts this indicator with annual data for Germany. The results show that union power did not change much from 1992 to 2002 but fell markedly (by about one‐third) from 2002 to 2007 in the aftermath of substantial labour market reforms.

  July 04, 2013   doi: 10.1111/manc.12028   open full text
• Exchange Rate and Interest Rate Exposure of UK Industries Using First‐order Autoregressive Exponential GARCH‐in‐mean (EGARCH‐M) Approach.
  Mojisola Olugbode, Ahmed El‐Masry, John Pointon.
  Manchester School. July 04, 2013
  We examine the sensitivity of 31 UK non‐financial industries to exchange and interest rate exposure from 1990 to 2006 using first‐order autoregressive exponential GARCH‐in‐mean (EGARCH‐M) model. We find that the stock returns of UK industries are more affected by long‐term interest rate risk than exchange rate risk and short‐term interest rate risk. Moreover, the euro introduction decreases exchange and interest rate exposure and competitive industries exhibit higher returns volatility than concentrated industries. Furthermore, for most UK industries: increased risk does not necessarily lead to an increase in returns and persistence of volatility is much higher in some industries than others.

  July 04, 2013   doi: 10.1111/manc.12029   open full text
• Labour Market Effects of Eastern European Migration in Wales.
  Sara Lemos.
  Manchester School. July 04, 2013
  The enlargement of the European Union in May 2004 triggered a relatively large and rapid migration inflow into Wales which was concentrated into narrow districts and occupations. We found little evidence that the inflow of migrants contributed to a fall in wages or a rise in claimant unemployment in Wales between 2004 and 2006. In particular, we found no evidence of an adverse impact on young, female or low‐skilled claimant unemployment and no evidence of an adverse impact on the wages of the low‐paid.

  July 04, 2013   doi: 10.1111/manc.12033   open full text
• Group Inequality and Conflict.
  Indranil Dutta, Paul Madden, Ajit Mishra.
  Manchester School. May 31, 2013
  This paper presents a theoretical model to show how distributional concerns can engender social conflict. We have a two‐period model that highlights the crucial role of future inequality. Equality of assets and income in the current period does not stop conflict from arising the anticipated future inequality is significant. Further we find that the impact of inequality on conflict is not straightforward. Societies with low levels of inequality show no conflict; groups engage in conflict only when inequality exceeds a certain threshold level. Additionally the model shows that the link between inequality and conflict may be non‐monotonic.

  May 31, 2013   doi: 10.1111/manc.12009   open full text
• Financial Shocks, Unemployment and Public Policy.
  John Driffill.
  Manchester School. May 31, 2013
  This paper reviews key features of the 2007–08 financial crisis, ‘Great Recession’ and European public debt problem. In the light of these it discusses new avenues of research that have opened up. A large body of opinion supports continued research within the dynamic stochastic general equilibrium (DSGE) paradigm, dealing incrementally with inter alia financial frictions, heterogeneous agents, and more descriptively realistic models of wage and price adjustment than ‘Calvo contracts’. However, the crisis has boosted more radical approaches to money and finance, modelling bubbles in asset prices, and taking forward insights from psychological research and experimental and behavioural economics.

  May 31, 2013   doi: 10.1111/manc.12012   open full text
• The Short‐term Effectiveness of a Remedial Mathematics Course: Evidence from a UK University.
  Giorgio Di Pietro.
  Manchester School. May 31, 2013
  While there is growing debate in the USA about the effectiveness of remedial university courses, there have been fewer questions raised in the UK. Using a sharp regression discontinuity approach and data from a large School within a post‐1992 UK university, we estimate the effect of remediation on student outcomes. We find no evidence that taking a math remedial course improves student performance in the first year. This finding is consistent and complements that of a recent study by Lagerlöf and Seltzer (2009, Journal of Economic Education, Vol. 40, pp. 115–136), which is based on data from a pre‐1992 UK university.

  May 31, 2013   doi: 10.1111/manc.12013   open full text
• Options in Agency with Binary Uncertainty.
  Óscar Gutiérrez, Vicente Salas‐Fumás.
  Manchester School. May 22, 2013
  This paper uses a stylized agency model to evaluate the economic efficiency of options contracts when pay‐off uncertainty is bimodal, a situation rather common when projects either ‘fail’ or ‘succeed’. We find that ‘options’ are strictly preferred to ‘stock’ (i.e. linear contracts) when output uncertainty is large, i.e. when the spread between the modes of the pay‐off distribution is sufficiently high.

  May 22, 2013   doi: 10.1111/manc.12008   open full text
• The Impact of Truancy on Educational Attainment during Compulsory Schooling: a Bivariate Ordered Probit Estimator with Mixed Effects.
  Franz Buscha, Anna Conte.
  Manchester School. May 22, 2013
  This paper investigates the relationship between educational attainment in compulsory schooling and truancy. Using data from the Youth Cohort Study (YCS) of England and Wales and the Longitudinal Study of Young People in England (LSYPE), we estimate the impact of truancy on indicators of educational performance. The YCS measures both truancy and attainment as ordered responses. Our bivariate ordered probit model with mixed effects deals with both the ordered nature of the data and the potential endogeneity of truancy. In addition, it allows us to estimate the distribution of the truancy effect on educational attainment.

  May 22, 2013   doi: 10.1111/manc.12002   open full text
• Network Effects, Spillovers and Market Structure.
  Stefan Behringer.
  Manchester School. May 22, 2013
  This paper investigates the effect of spillovers in a model of endogenous technical change resulting from network effects as can be, for example, found in the market for hand‐held video consoles on the existence of a lower bound to market concentration.

  May 22, 2013   doi: 10.1111/manc.12004   open full text
• Keep your Word: Time‐varying Inflation Targets and Inflation Targeting Performance.
  Bedri Kamil Onur Tas, Ishak Demir.
  Manchester School. May 22, 2013
  This paper investigates the implicit inflation targets of inflation targeting (IT) central banks (CBs). The implicit (perceived) inflation targets of IT CBs derived from their actions (policy interest rates) are calculated before and after IT adoption. We conclude that after adoption of IT implicit targets become significantly lower. Other factors that cause CBs to change their implicit targets are inflation, exchange rate and trade balance. Finally, we find that CBs that do not follow their announced targets miss their inflation targets. The results indicate that IT CBs should follow their announced targets when setting policy interest rates.

  May 22, 2013   doi: 10.1111/manc.12005   open full text
• The Optimal Licensing Policy.
  Shuai Niu.
  Manchester School. May 22, 2013
  In this paper, we discuss the optimal public policy towards two‐part tariff licensing, under the assumption that the government intervenes in licensing by setting an upper limit on the royalty level. Compared with the traditional constraint on licensing, the new derived licensing policy in this paper will bring two kinds of welfare improvement. First of all, when licensing is welfare reducing the new policy can prevent it from happening. Second, when licensing is potentially welfare improving the new policy can take full advantage of its benefits.

  May 22, 2013   doi: 10.1111/manc.12007   open full text
• Meta Taylor Rules for the UK and Australia; Accommodating Regime Uncertainty in Monetary Policy Analysis Using Model Averaging Methods.
  Kevin Lee, Nilss Olekalns, Kalvinder Shields.
  Manchester School. January 16, 2013
  This paper provides a characterization of UK and Australian monetary policy within a Taylor rule framework, accommodating uncertainties about the nature and duration of policy regimes in a flexible but easy‐to‐implement analysis. Our approach involves estimation and inference based on a set of Taylor rules obtained through linear regression methods, but combined into a ‘meta’ rule using model averaging techniques. Using data that were available in real time, the estimated version of the meta Taylor rule provides a useful and detailed characterization of monetary policies in the UK and Australia over the last 30 years.

  January 16, 2013   doi: 10.1111/manc.12000   open full text
• A Monte Carlo Simulation Approach to Forecasting Multi‐period Value‐at‐Risk and Expected Shortfall Using the FIGARCH‐skT Specification.
  Stavros Degiannakis, Pamela Dent, Christos Floros.
  Manchester School. December 06, 2012
  The paper provides a methodological contribution to the multi‐step Value‐at‐Risk (VaR) and Expected Shortfall (ES) forecasting through a new adaptation of the Monte Carlo simulation approach for forecasting multi‐period volatility to a Fractionally Integrated Generalized Autoregressive Conditional Heteroscedasticity (FIGARCH) framework for leptokurtic and asymmetrically distributed portfolio returns. Accounting for long memory within the conditional variance process with skewed Student‐t (skT) conditionally distributed innovations, accurate 95 per cent and 99 per cent VaR and ES forecasts are calculated for multi‐period time horizons. The results show that the FIGARCH‐skT model has a superior multi‐period VaR and ES forecasting performance.

  December 06, 2012   doi: 10.1111/manc.12001   open full text
• The Conflating Effects Of Education And Financial Competition In An Overlapping Generations‐Growth Model With Nelson–Phelps Human Capital*.
  Mark A. Roberts.
  Manchester School. December 04, 2012
  The Nelson–Phelps concept of human capital, determining the speed at which a new technology may be implemented, is considered within an AK, overlapping‐generations model, where finance firms act as local monopolies in the loan market but as monopsonistic price‐takers in the deposit market. Households also vote for taxes earmarked for public investment in education and, thence, the subsequent level of human capital. A concentrated financial market structure, despite directly lowering economic growth, may indirectly raise it through provoking a political economy response of voting for higher taxes for greater levels of Nelson–Phelps human capital.

  December 04, 2012   doi: 10.1111/j.1467-9957.2012.02324.x   open full text
• Human Capital, Social Capital And Scientific Research In Europe: An Application Of Linear Hierarchical Models*.
  Mathieu Goudard, Michel Lubrano.
  Manchester School. December 04, 2012
  The theory of human capital, even if it reckons the importance of time in science, is too short for explaining the existing diversity of scientific output. The paper introduces social capital as a necessary complement to explain the creation of scientific human capital. It connects these two concepts by means of a hierarchical econometric model. Bibliographical databases contain much information which is exploited to figure out collaboration, mobility, publishing habits and institutional characteristics. The two level hierarchical model is estimated on 14 European countries using bibliometric data in the fields of economics.

  December 04, 2012   doi: 10.1111/j.1467-9957.2012.02331.x   open full text
• Technology Diffusion with Learning Spillovers: Patent Versus Free Access.
  Matthieu Glachant, Yann Ménière.
  Manchester School. November 01, 2012
  This paper analyses the interplay between technology diffusion and patent law. We develop a dynamic model where initial adoptions generate learning spillovers that reduce the cost of subsequent adoptions. In this setting, we contrast technology diffusion paths under competitive supply, subsidized adoption and patent protection. Competitive supply entails various coordination failures that cannot be fully fixed by public subsidy. We show that a patent holder can internalize externalities more efficiently, insofar as patent protection is fully effective. In contrast, fully competitive supply may be more efficient when patent enforcement is imperfect.

  November 01, 2012   doi: 10.1111/j.1467-9957.2012.02337.x   open full text
• The Influence of Central Bank Transparency on Labor Market Regulation.
  Carsten Hefeker, Michael Neugart.
  Manchester School. November 01, 2012
  The paper develops a theory about the relation between monetary uncertainty and government incentives to implement reforms to reduce structural distortions in labor markets. We show that uncertainty about the central bank's behavior leads to more reforms. Empirical tests employing recently developed measures of central bank transparency around the world support our main propositions.

  November 01, 2012   doi: 10.1111/j.1467-9957.2012.02334.x   open full text
• Complementary Alliances in Composite Good Markets with Network Structure.
  Keisuke Hattori, Lin Ming Hsin.
  Manchester School. November 01, 2012
  This paper investigates the feasibility of full/partial complementary alliances in composite goods markets with network structure. There are multiple producers who each provide a complementary component of the composite good. In another related market, one single firm (a monopolist) produces another composite good which could be a substitute or complement of the composite good. The analysis shows that even a full alliance cannot be profitable when the number of producers is small and the two goods are close substitutes or complements. Moreover, none of the profitable alliances is stable, except the full alliance with two component producers.

  November 01, 2012   doi: 10.1111/j.1467-9957.2012.02335.x   open full text
• R&D Cooperation with Entry.
  Siddhartha Bandyopadhyay, Arijit Mukherjee.
  Manchester School. November 01, 2012
  We show the effects of entry by a non‐innovating firm on the innovating firms' incentive for undertaking cooperative R&D, highlighting the implications of knowledge spillover. Entry by a non‐innovating firm may either increase or decrease the incentive for cooperative R&D compared with no entry, depending on the innovating and the non‐innovating firms' gains from knowledge spillover. The entry deterrence motive, which has so far been ignored in the literature, plays an important role in determining R&D organization in our analysis.

  November 01, 2012   doi: 10.1111/j.1467-9957.2012.02336.x   open full text
• Monetary Policy Rules And Macroeconomic Stabilization In Small Open Economies Under Behavioral Fx Trading: Insights From Numerical Simulations*.
  Christian R. Proaño.
  Manchester School. November 01, 2012
  In this paper the interaction between foreign exchange (FX) markets driven by trading based on behavioral forecasting rules and the macroeconomy of a small open economy is investigated. A special focus of the paper is set on the consequences of chartism or technical analysis for the stability at the macroeconomic level. Furthermore, the performance of alternative monetary policy rules concerning the overall stabilization of the economy is investigated through numerical analysis.

  November 01, 2012   doi: 10.1111/j.1467-9957.2012.02308.x   open full text
• Accounting For The Great Recession In The Uk: Real Business Cycles And Financial Frictions*.
  Jagjit S. Chadha, James Warren.
  Manchester School. November 01, 2012
  Using the business cycle accounting (BCA) framework, we examine the 2008–9 recession in the UK. The recession appears to have been mostly driven by shocks to the efficiency wedge in total production, rather than intertemporal (asset price) consumption. From an expenditure perspective this result is consistent with the large observed falls in both consumption and investment. Simulated data from a dynamic stochastic general equilibrium (DSGE) model in which asset price shocks dominate finds no strong role for the intertemporal consumption wedge. This result implies that financial frictions work through more than just this channel.

  November 01, 2012   doi: 10.1111/j.1467-9957.2012.02320.x   open full text
• Households' Forming Subjective Expectations Using Perceived News: Do Shocks To ‘Good’ News Matter More Than ‘Bad’ News?*.
  Joshy Easaw, Atanu Ghoshray, Saeed Heravi.
  Manchester School. November 01, 2012
  The present paper examines the microfoundations of how households form subjective expectations about the macroeconomy using a novel survey‐based data set. In particular, we are interested in the role of perceived news. The paper outlines a model where households may give unequal importance (or weights) to ‘good’ and ‘bad’ news. We also consider whether the relationship is state‐varying and has any structural changes. The ensuing empirical investigation uses time‐varying smooth transition autoregressive models. We find that weights given to the news are state‐varying, with little, or no, weight given to bad news. There is also a clear structural change in the relationship after September 2001.

  November 01, 2012   doi: 10.1111/j.1467-9957.2012.02333.x   open full text
• Productivity Differences And Strategic Plant Location*.
  Alessandra Guariglia, Arijit Mukherjee, Kullapat Suetrong.
  Manchester School. September 27, 2012
  We consider the plant location decision of a multinational company (MNC), which has the option to invest in technologically differentiated countries. We show that the MNC's investment decision depends on the market structure of the host countries and on the possibility of exporting by the host‐country firms. We also show that a conflict of interest does not necessarily arise between the plant location decision of the MNC and the preferences of the host countries.

  September 27, 2012   doi: 10.1111/j.1467-9957.2012.02332.x   open full text
• Liquidity Risk, Credit Risk And The Overnight Interest Rate Spread: A Stochastic Volatility Modelling Approach*.
  John Beirne, Guglielmo Maria Caporale, Nicola Spagnolo.
  Manchester School. September 27, 2012
  In this paper we model the volatility of the spread between the overnight interest rate and the central bank policy rate (the policy spread) for the euro area and the UK during the two main phases of the financial crisis that began in late 2007. We find a strong role played by liquidity risk volatility, but also private bank credit risk volatility after the collapse of Lehman Brothers. The main implication is that, in crisis times, a sufficiently flexible operational framework for monetary policy implementation produces the most timely response to market tensions.

  September 27, 2012   doi: 10.1111/j.1467-9957.2012.02330.x   open full text
• Mixed Duopoly, Product Differentiation And Competition*.
  Minoru Kitahara, Toshihiro Matsumura.
  Manchester School. September 14, 2012
  We examine the relationship between the equilibrium price and the degree of product differentiation in a mixed duopoly in which a welfare‐maximizing public enterprise competes against a profit‐maximizing private firm. Existing works on private economy show that increased product differentiation mitigates price competition. We find that, in a mixed economy, increased product differentiation can accelerate competition when the demand is elastic. The private firm chooses to locate itself too close to the public firm (and thus makes the resulting degree of product differentiation too low) for social welfare, which never appears in the private economy.

  September 14, 2012   doi: 10.1111/j.1467-9957.2012.02329.x   open full text
• Robust Estimation For The Orthogonal Garch Model *.
  Farhat Iqbal.
  Manchester School. August 29, 2012
  In this paper, we propose a class of robust M‐estimators for the orthogonal generalized autoregressive conditional heteroscedastic (GARCH) model. The method involves the estimation of only univariate GARCH models and hence easy to estimate and does not put additional constraints on the model. The forecasting performance of the class of robust estimators in predicting correlation and value‐at‐risk using various evaluation measures are investigated. We found empirical evidences of the better predictive potential of estimators such as least absolute deviation and B‐estimator over the widely used quasi‐maximum likelihood estimator when the error distribution is heavy‐tailed and asymmetric. Applications to real data sets are also presented.

  August 29, 2012   doi: 10.1111/j.1467-9957.2012.02315.x   open full text
• Uk Fiscal Policy Sustainability, 1955–2006*.
  Jingwen Fan, Michael G. Arghyrou.
  Manchester School. August 29, 2012
  We test for fiscal policy sustainability in the UK over the period 1955–2006. We find evidence of sustainability with three structural breaks, respectively occurring in the early 1970s, early 1980s and late 1990s. UK fiscal policy was not sustainable between 1973 and 1981. Within the fiscal regimes correction of fiscal disequilibrium occurs through adjustments in public revenue. Changes in fiscal regimes, however, occur through shifts in public expenditure. UK authorities do not react to relatively small deficits but correct exceedingly large deficits relatively fast. Finally, the recent financial crisis may have caused a substantial deterioration of UK fiscal dynamics.

  August 29, 2012   doi: 10.1111/j.1467-9957.2012.02319.x   open full text
• Optimal Two‐Part Tariff Licensing Contracts With Differentiated Goods And Endogenous R&D*.
  Ramon Faulí‐Oller, Xulia González, Joel Sandonís.
  Manchester School. August 24, 2012
  In this paper we derive the optimal two‐part tariff contract for the licensing of a cost‐reducing innovation to a differentiated goods industry of a general size. We analyze the cases where the patentee is an independent laboratory or an incumbent firm. We show that, regardless of the number of firms, the degree of product differentiation and the type of patentee, the innovation is licensed to all firms. Moreover, we endogenize research and development (R&D) investment and obtain that an internal patentee invests more (less) in R&D when the technological opportunity is low (high), which is supported by an empirical test using data on R&D expenditures of Spanish manufacturing firms.

  August 24, 2012   doi: 10.1111/j.1467-9957.2012.02311.x   open full text
• Status In A Canonical Macro Model: Labour Supply, Growth And Inequality*.
  Christopher Tsoukis, Frédéric Tournemaine.
  Manchester School. August 24, 2012
  We introduce status in a standard (‘canonical’) macro model of growth and distribution. Status is introduced in a flexible way that allows for intrinsic and extrinsic motivation, loss aversion, heterogeneity in motives and inequality aversion. We incorporate such considerations in the model and derive implications for growth, inequality and labour supply. We review empirical evidence related to these variables, and show that the predictions of the model with status are consistent with these observations. Thus, status can offer a rich set of new explanations related to important empirical patterns.

  August 24, 2012   doi: 10.1111/j.1467-9957.2012.02317.x   open full text
• Job Cuts, Job Guarantees And Unions*.
  Michael White, Alex Bryson.
  Manchester School. August 24, 2012
  Using unique nationally representative workplace data this paper shows that unionization increased the probability of within‐workplace job cuts and the incidence of job security guarantees. As theory predicts, both are more prevalent among market‐sector workplaces with higher union density and multi‐unionism. In the public sector, levels of unionization affect only job security guarantees, not job cuts. Explanations are developed in terms of union bargaining power and union voice services.

  August 24, 2012   doi: 10.1111/j.1467-9957.2012.02325.x   open full text
• A Note On Infrastructure Expenditure, Uncertainty And Growth*.
  Cruz A. Echevarria.
  Manchester School. August 24, 2012
  This note extends the Barro (Journal of Political Economy, Vol. 98 (1990), No. 5 part II, pp. S103–S125) model to a two‐period, OLG economy with aggregate uncertainty. We show that the government sizes maximizing average growth and individual welfare in a market economy coincide and are not affected by the introduction of uncertainty. The maximum average growth rate, however, does depend on the aggregate uncertainty, the individuals' risk aversion and how the intertemporal elasticity of substitution compares with one. Individual welfare is lower in the stochastic economy. Failing to include uncertainty overestimates the effect of changes in the government size.

  August 24, 2012   doi: 10.1111/j.1467-9957.2012.02328.x   open full text
• Tacit Collusion With Low‐Price Guarantees*.
  Qihong Liu.
  Manchester School. August 02, 2012
  Existing studies on low‐price guarantees (LPGs) typically employ static models and the results are sensitive to modeling assumptions such as the type of guarantees, hassle costs and consumer heterogeneity. In contrast, we employ a fully dynamic model and show that LPGs robustly facilitate tacit collusion, by reducing a deviating firm's immediate deviation profit. This difference of results is because in a static model, any equilibrium has to be immune from any deviation, including infinitesimal deviation. In a dynamic model, however, one can ignore infinitesimal deviations since firms never have an incentive for such deviations.

  August 02, 2012   doi: 10.1111/j.1467-9957.2012.02316.x   open full text
• On ‘Nice’ And ‘Very Nice’ Autarkic Equilibria In Strategic Market Games*.
  Alex Dickson, Roger Hartley.
  Manchester School. August 02, 2012
  We study a strategic market game in which traders are endowed with both a good and money and can choose whether to buy or sell the good. We derive conditions under which a non‐autarkic equilibrium exists and when the only equilibrium is autarky. Autarky is ‘nice’ (robust to small perturbations in the game) when it is the only equilibrium, and ‘very nice’ (robust to large perturbations) when no gains from trade exist. We characterize economies where autarky is nice but not very nice, i.e. when gains from trade exist and yet no trade takes place.

  August 02, 2012   doi: 10.1111/j.1467-9957.2012.02318.x   open full text
• Emission Permits Trading And Downstream Strategic Market Interaction*.
  Giuseppe De Feo, Joana Resende, María Eugenia Sanin.
  Manchester School. June 25, 2012
  This paper studies inefficiencies arising in oligopolies subject to environmental regulation based on tradable emission permits. We propose a duopoly model of upstream–downstream strategic competition: in the permits market a leader sets the price, whereas in the output market Cournot competition occurs. We find that strategic interaction in the output market gives rise to an additional distortion in the permits market where both firms adopt ‘rival's cost‐rising’ strategies to gain a competitive advantage in the output market. As a result, the price of permits is always higher than firms' marginal abatement costs.

  June 25, 2012   doi: 10.1111/j.1467-9957.2012.02310.x   open full text
• Competitive Privatization And Tariff Policies In An International Mixed Duopoly*.
  Sang‐Ho Lee, Lili Xu, Zhao Chen.
  Manchester School. June 19, 2012
  We consider the interaction of two countries regarding strategic choices on privatization policy in an international mixed market under an open economy. We demonstrate that the equilibrium degree of privatization depends not only on the relative efficiency of the state‐owned enterprise, but also on trade policy. We show that, if the state‐owned enterprise is relatively inefficient, the competitive optimal degree of privatization is lower in open competition than in closed competition. We also show that the international competitive equilibrium involves less privatization and a higher tariff, even though they are jointly suboptimal.

  June 19, 2012   doi: 10.1111/j.1467-9957.2012.02309.x   open full text
• Business Cycle Phases And Coherence—A Spectral Analysis Of Uk Sectoral Output*.
  Peijie Wang.
  Manchester School. May 28, 2012
  In this paper we study business cycle coherence and phases among UK GDP sectors in the frequency domain. We investigate interactive fluctuations in sectoral output in terms of coherence and phase, focusing on their similarities–dissimilarities and synchronous–asynchronous relations in business cycles. It is further found that longer cycles are dominant cycles, and coherence is the highest in longer cycles and the lowest in medium cycles.

  May 28, 2012   doi: 10.1111/j.1467-9957.2012.02304.x   open full text