Showing papers by "Central Economics and Mathematics Institute published in 2005"

Existence Theorem in the Optimal Control Problem on an Infinite Time Interval

Abstract: We consider the optimal control problem on an infinite time interval. The system is linear in the control, the functional is convex in the control, and the control set is convex and compact. We propose a new condition on the behavior of the functional at infinity, which is weaker than the previously known conditions, and prove the existence theorem for the solution under this condition. We consider several special cases and propose a general abstract scheme.

On a nonlocal metric regularity of nonlinear operators

Abstract: We consider some versions and generalizations of the classical Lyusternik theorem on the covering property (metric regu- larity) of nonlinear mappings, study some related properties, and propose nonlocal theorems of the given type, which then are used in the proof of a relaxation theorem for a nonlinear control system with sliding modes and terminal equality constraints.

Appropriate Economic Policies at Different Stages of Development

Abstract: This paper summarizes theoretical arguments and provides empirical evidence to support the statement that rational economic policies depend qualitatively on two factors – technological and institutional level of development of a country. We concentrate on the impact of three policies to promote the catch up development – import tariffs, increase of government revenues/spending, and the speed of foreign exchange reserves accumulation ("exchange rate protectionism"). It is shown that the impact of these policies may be positive or negative dependening on a stage of development; in each case we find threshold levels or critical combinations of GDP per capita and/or an institutional quality indicator. A theoretical model demonstrates how tariff protection and accumulation of reserves can boost long term growth in the presence of externalities.

Remarks on the true No-arbitrage Property

Abstract: We discuss conditions of absence of arbitrage in the classical sense (the “true” NA property) for the model given by a family of continuous value processes. In particular, we obtain a criterion for the NA property in a market model with countably many securities with continuous price processes. This result generalizes the well-known criteria due to Levental-Skorohod and Delbaen-Schachermayer.

Democracy and Growth Reconsidered: Why Economic Performance of New Democracies is not Encouraging

Abstract: There are two innovations as compared to the previous literature on democratization and growth. First, not only the level of democracy is taken into account, but also changes in this level in the 1970s-1990s as measured by the political rights indices of the Freedom House. Second, the distinction is made between the rule of law and democracy, the rule of law being defined as the ability to ensure order based on legal rules; it is measured by the rule of law, investors’ risk and corruption indices. It is found that democratization in countries with strong rule of law (liberal democracies) stimulates economic growth, whereas in countries with poor rule of law (illiberal democracies) democratization undermines growth. In illiberal democracies institutions are weaker, shadow economy is larger and macroeconomic policy is less prudent.

Non-classical Measurement Theory: a Framework for Behavioral Sciences ∗

Abstract: Instances of non-commutativity are pervasive in human behavior. In this paper, we suggest that psychological properties such as attitudes, values, preferences and beliefs may be suitably described in terms of the mathematical formalism of quantum mechanics. We expose the foundations of nonclassical measurement theory building on a simple notion of orthospace and ortholattice (logic). Two axioms are formulated and the characteristic state-property duality is derived. A last axiom concerned with the impact of measurements on the state takes us with a leap toward the Hilbert space model of Quantum Mechanics. An application to behavioral sciences is proposed. First, we suggest an interpretation of the axioms and basic properties for human behavior. Then we explore an application to decision theory in an example of preference reversal. We conclude by formulating basic ingredients of a theory of actualized preferences based in non-classical measurement theory. JEL: D80, C65, B41

Innovation And Imitation At Various Stages Of Development: A Model With Capital

Abstract: A simple model of technological imitation and innovation is developed to explain club convergence in the evolution of the distribution of per-capita GDP over countries. Two versions of the model are studied and compared. The first one includes only innovation-imitation tradeoff, and the second one takes into account traditional investment decisions as well. It is shown that the introduction of capital does not affect the general structure of stationary equilibria: in both versions, there are three types of stable steady-state regimes, with only imitation, only innovation or a mixed policy. Using World Bank and ICRG statistical data for the period of 1980-1999, we test our hypothesis about the dependence of innovation and imitation costs on the relative productivity level, savings rate and an indicator of institutional quality. An appropriate choice of adjustment parameters of the model gives a possibility to generate trajectories of more than 80 countries and, for most of them, obtain qualitatively correct pictures of their evolution. The set of these trajectories reveals club convergence. It is shown that taking into account the evolution of the capital stock improves the quality of approximation.

A method in demand analysis connected with the Monge—Kantorovich problem

Abstract: A method in demand analysis based on the Monge—Kantorovich duality is developed. We characterize (insatiate) demand functions that are rationalized, in different meanings, by concave utility functions with some additional properties such as upper semi-continuity, continuity, non-decrease, strict concavity, positive homogeneity and so on. The characterizations are some kinds of abstract cyclic monotonicity strengthening revealed preference axioms, and also they may be considered as an extension of the Afriat—Varian theory to an arbitrary (infinite) set of ‘observed data’. Particular attention is paid to the case of smooth functions.

Contractual Savings for Housing: A Mortgage Institution for Russia

Abstract: The paper argues that introduction of сontractual savings for housing (CSH) - bausparkassen and building and loan cooperatives - is an essential institutional stage in the process of mass mortgage market formation. An attempt to skip over it is a costly mistake and almost doomed to failure. Given an active government support CSH become a primary school of saving and loan behavior for millions and an effective tool for selection and education of steady borrowers for the banking system. In a short period of time they allow to increase substantially aggregate savings. CSH facilitate people's access to credit market and its further institutional evolution. To prove these conclusions the authors investigate specific features of housing markets, the role of CSH in development of housing finances in advanced economies, analyze recent experience of East European countries and numerous attempts to create the mortgage market in Russia in 1992-2003.

Economic State and Institutional Environment of Russian Industrial Enterprises: The Empirical Analysis of Interrelations

Abstract: The paper presents the analysis of the data received from the survey of heads of industrial enterprises and also experts-researchers in 2003-2004. The data describe the economic state of enterprises and their position in competitive, administrative, intermediary, financial etc. environment. The assumption of essential heterogeneity of the set of industrial enterprises, including enterprises of the same sector or the same territorial formation is confirmed. It is shown that Russian industrial enterprises as a rule do not feel influence of the stock market situation while the condition of the currency market influences the majority of enterprises. The sensitivity of enterprises depends on their economic situation: the better is the state, the stronger is the influence. Weak influence of the investment and administrative environment on the state of enterprises and negative influence of the activity of intermediary organizations are registered. More than 2 3 of the respondents consider important strengthening of the responsibility of large proprietors for inefficient activity of their enterprises. Lack of the strategic approach in the activity of authorities of all levels is ascertained and the necessity of development and realization of industrial policy at all administrative levels, including the municipal one, is shown.

Hiring Strategies and the Evolution of Honesty

Abstract: The evolution of honesty norms in a society is studied. Our approach is based on the hypothesis that hiring or firing strategies chosen by firms may affect honesty: if it becomes common knowledge in the society that being honest is better for workers than cheating employers, then the share of opportunists gradually go down. It is shown that different hiring strategies are rational under different honesty standards. If honesty is not a prevailing social norm and volumes of appropriated rent may by high enough, then firms are better off to stimulate honest behavior by increasing wages. For a relatively honest society, firing cheaters is the best strategy. If honesty standards are intermediate or citizens are too impatient, ignorance of cheating may be rational. Therefore one observes three possible patterns of honesty evolution: honesty norms may either descend to critically low level or stabilize at some point or rise and fall cyclically. We prove that honesty standard rises as losses from dishonest behavior or hiring cost increase, honesty standard falls as rent appropriation opportunities expand or citizens get more impatient, and high expectations of economic growth promote honesty.

Exchange rate in a resource based economy in the short term: the case of Russia

Abstract: What should be the appropriate macroeconomic policy to minimize the volatility of output in a resource-based economy, i.e. in an economy that is highly dependent on export of resources with very volatile world prices? This paper examines the sources of volatility of output in Russia as compared to other countries and concludes that in 1994-2004 volatility of Russian growth rates was mostly associated with internal monetary shocks, rather than with external terms of trade shocks. In all countries that export resources with highly volatile prices, like Russia, volatility of economic growth is associated with volatility of RER, which in turn is mostly caused by the inability to accumulate enough foreign exchange reserves (FOREX) in central bank accounts and in stabilization funds (SF). However, in Russia, volatility of RER and GDP growth rates in recent 10 years was associated not so much with objective circumstances (terms of trade – TT – shocks), but with poor macroeconomic policies – despite intuition, volatility of real exchange rate (RER) was caused mostly by internal monetary shocks rather than by external terms of trade shocks. It is argued that the good (minimizing volatility) macroeconomic policy for Russia would be (1) not to generate monetary shocks (2) to cope with inevitable external shocks via changes in FOREX and SF, while keeping the RER stable.

Post-Socialist Privatization and Corporate Governance in the Light of Coase Theorem

Abstract: Problems of verification of Coase theorem in general and in connection with post-socialist privatization and corporate governance in particular are considered in this article. The author discusses the position of W. Andreff presented in his paper (VE, 2001, No 12). The appeal to this theorem is actual because it has been used as the justification of post-socialist economies' privatization methods. Orthodox and heterodox views on privatization and corporate governance are explored. The author analyzes the reasons of reform failures in transitional economies and the ways of emerging markets development basing on two different models - oriented on stock market or banking activity.

The structure of a group quasisymmetrically conjugate to a group of affine transformations of the real line

Abstract: This paper is devoted to the substantiation of a criterion for the quasisymmetric conjugacy of an arbitrary group of homeomorphisms of the real line to a group of affine transformations (the Ahlfors problem). In a criterion suggested by Hinkkanen the constants in the definition of a quasisymmetric homeomorphism were assumed to be uniformly bounded for all elements of the group. Subsequently, for orientation-preserving groups this author put forward a more relaxed criterion, in which one assumes only the uniform boundedness of constants for each cyclic subgroup. In the present paper this relaxed criterion is proved for an arbitrary group of line homeomorphisms, which do not necessarily preserve the orientation.