Showing papers by "Central Economics and Mathematics Institute published in 2007"

Democratization, quality of institutions and economic growth

Abstract: There are two innovations in the paper as compared to the previous literature on democracy and growth. First, we consider not only the level of democracy, but also changes in this level in the 1970s-1990s as measured by increments of Freedom House political rights indices. Second, the distinction is made between democracy and law and order (order based on legal rules); the latter is measured by the rule of law, investors' risk and corruption indices. We discuss two interconnected threshold hypotheses: (1) in countries where law and order is strong enough, democratization stimulates economic growth, whereas in countries with poor law and order democratization undermines growth; (2) if democratization occurs under the conditions of poor law and order (so that illiberal democracy emerges), then shadow economy expands, quality of governance worsens, and macroeconomic policy becomes less prudent. We adduce a number of stylized facts to support our hypotheses. However our econometric findings are mixed: we report results that support the hypotheses as well as regressions that contradict them.

Resource Abundance, Political Corruption And Instability Of Democracy

Abstract: In this paper we analyze data on sustainability of democratic regimes in resource rich countries and suggest a model to explain why resource abundance may lead to instability of democracy in some countries, but does not create any difficulties for a democratic system in other ones. Rate of resource rent tax is considered as the only policy instrument in our simple model. The tax affects the income of a representative voter. Choosing a tax rate, Autocrat competes with conventional Politician (a representative political party) for the office. Our model demonstrates the existence of a threshold for propensity to corruption (a measure of the institutional quality). The probability of the democracy preservation is decreasing in the amount of resources if the propensity is high and is independent of resources or even grows with the amount of resources if the propensity is low. It is shown also that Autocrat may use two types of policies depending on the qualities of governance (abilities to allocate tax revenues without big losses) that the public assigns to her and to Politician. More efficient Autocrat is inclined to follow populist high tax policy whereas lower Autocrat’s efficiency results in pro-Oligarch low tax policy when the country is resource abundant.

Stability under unanimous consent, free mobility and core

Abstract: In this paper, we consider a population represented by a continuum of individuals uniformly distributed over the unit interval that faces a problem of location and financing of public facilities under the equal share rule. We examine three notions of stability of emerging jurisdiction structures (stability under unanimous consent, free mobility and core) and provide a characterization of stable structures.

The effect of depreciation allowances on the timing of investment and government tax revenue

Abstract: We develop a model of the behavior of a potential investor (under uncertainty and in a fiscal environment) who wishes to invest into a project in the real sector of an economy and faces a timing problem. We find an optimal solution within this model and examine the dependence of the tax revenue from the newly created firm on the depreciation policy. It is shown that there exists a domain in the space of the parameters of the investment project where both the tax revenue and the incentives can be increased by using the depreciation policy.

Life Cycle of the Centrally Planned Economy: Why Soviet Growth Rates Peaked in the 1950s

Abstract: In the second half of the twentieth century the Soviet Union experienced the most dramatic shift in economic growth patterns. High post-war growth rates of the 1950s gave way to the slowdown of growth in the 1960s–80s and later — to the unprecedented depression of the 1990s associated with the transition from a centrally planned economy (CPE) to a market one. Productivity growth rates (output per worker, Western data) fell from an exceptionally high 6 per cent a year in the 1950s to 3 per cent in the 1960s, 2 per cent in the 1970s and 1 per cent in the 1980s. In 1989 transformational recession started and continued for almost a decade: output was constantly falling until 1999 with the exception of one single year — 1997, when GDP increased by a barely noticeable 0.8 per cent. If viewed as an inevitable and logical result of the Soviet growth model, this transformational recession substantially worsens the general record of Soviet economic growth.

No-arbitrage criteria for financial markets with transaction costs and incomplete information

Abstract: This note deals with criteria of absence of arbitrage opportunities for an investor acting in a market with frictions and having a limited access to the information flow. We develop a mathematical scheme covering major models of financial markets with transaction costs and prove several results including a criterion for the robust no-arbitrage property and a hedging theorem.

A positive interest rate model with sticky barrier

Abstract: This paper proposes an efficient model for the term structure of interest rates when the interest rate takes very small values. We make the following choices: (i) we model the short-term interest rate, (ii) we assume that once the interest rate reaches zero, it stays there and we have to wait for a random time until the rate is reinitialized to a (possibly random) strictly positive value. This setting ensures that all term rates are strictly positive. Our objective is to provide a simple method to price zero-coupon bonds. A basic statistical study of the data at hand indeed suggests a switch to a different mode of behaviour when we get to a low level of interest rates. We introduce a variable for the time already spent at 0 (during the last stay) and derive the pricing equation for the bond. We then solve this partial integro-differential equation (PIDE) on its entire domain using a finite difference method (Cranck–Nicholson scheme), a method of characteristics and a fixed point algorithm. Resulting yield...

Russian Banks' Private Deposit Interest Rates and Market Discipline

Abstract: This paper examines the extent to which the observed diversity of private deposit interest rates in Russia is explained by bank financial indicators. We also test for whether the introduction of the bank deposit insurance scheme in 2005 affected deposit interest rates. Our results suggest market discipline in the Russian banking system involves Russian depositors demanding higher deposit interest rates from banks with risky financial policies. This discipline seems stronger than in developed countries. Our study suggests also that the risks taken by banks increased after introducing the deposit insurance.

Out-of-Pocket Health Care Expenditures by Russian Consumers with Different Health Status

Abstract: The paper uses the Russia Longitudinal Monitoring Survey 2003 database to study the types of official and shadow out-of-pocket health care expenditures by consumers with high and low health status. The analysis shows that the inability of less healthy people to pay unofficially for more effective outpatient care results in their higher demand for official inpatient and outpatient treatment. This pattern creates the need to sustain excessive inpatient facilities and slows down health care restructuring. Yet, since the state is incapable of fulfilling its obligations for providing free health care and meet the current demand, in inpatient institutions all consumers, and less healthy ones in particular, spend considerable sums on drugs, even though the latter are guaranteed to be free. Consequently, the current Russian health system itself leads to replacing outpatient with inpatient care, which is more costly both for the patients and for the state.

China's rise, Russia's fall: Medium term perspective

Abstract: This chapter is an attempt to interpret recent rapid Chinese growth in a longer term perspective. First, it is argued that recent economic liberalization produced spectacular results (1979-onwards) because reform strategy was very different from the Washington consensus package (gradual rather than instant deregulation of prices, no mass privatization, strong industrial policy, undervaluation of the exchange rate via accumulation of reserves). Besides, the recent Chinese success (1979-onwards) is based on the achievements of the Mao period (1949-76) - strong state institutions, efficient government and increased pool of human capital. Unlike in the former Soviet Union, these achievements were not squandered in China due to gradual rather than shock-therapy type democratization.

Abstract Convexity and the Monge-Kantorovich Duality

Abstract: In the present survey, we reveal links between abstract convex analysis and two variants of the Monge-Kantorovich problem (MKP), with given marginals and with a given marginal difference. It includes: (1) the equivalence of the validity of duality theorems for MKP and appropriate abstract convexity of the corresponding cost functions; (2) a characterization of a (maximal) abstract cyclic monotone map F: X → L ⊂ IRX in terms connected with the constraint set $$ Q_0 (\varphi ): = \{ u \in \mathbb{R}^z :u(z_1 ) - u(z_2 ) \leqslant \varphi (z_1 ,z_2 ){\text{ }}\forall z_1 ,z_1 \in Z = dom{\text{ }}F\} $$ of a particular dual MKP with a given marginal difference and in terms of L-subdifferentials of L-convex functions; (3) optimality criteria for MKP (and Monge problems) in terms of abstract cyclic monotonicity and non-emptiness of the constraint set Q 0(ϕ), where ϕ is a special cost function on X × X determined by the original cost function c on X × Y. The Monge-Kantorovich duality is applied then to several problems of mathematical economics relating to utility theory, demand analysis, generalized dynamics optimization models, and economics of corruption, as well as to a best approximation problem.

Non-classical expected utility theory with application to type indeterminacy

Abstract: In this paper we extend Savage's theory of decision-making under uncertainty from a classical environment into a non-classical one. We formulate the corresponding axioms and provide representation theorems for qualitative measures and expected utility. We also propose an application in simple game context in the spirit of Harsanyi.

New variants of the generalized level method for minimization of convex nondifferentiable functions taking infinite values

Abstract: New variants of the generalized level method for minimization of convex Lipschitz functions on a compact set with a nonempty interior are proposed. These variants include the well-known generalized and classical level methods. For the new variants, an estimate of the convergence rate is found, including the variants in which the auxiliary problems are solved approximately.

Existence of fixed points for mappings of finite sets

Abstract: We show that the existence theorem for zeros of a vector field (fixed points of a mapping) holds in the case of a “convex” finite set X and a “continuous” vector field (a self-mapping) directed inwards into the convex hull co X of X. The main goal is to give correct definitions of the notions of “continuity” and “convexity”. We formalize both these notions using a reflexive and symmetric binary relation on X, i.e., using a proximity relation. Continuity (we shall say smoothness) is formulated with respect to any proximity relation, and an additional requirement on the proximity (we shall call it the acyclicity condition) transforms X into a “convex” set. If these two requirements are satisfied, then the vector field has a zero (i.e., a fixed point).

Optimization of the structure of production systems

Abstract: It is shown that optimal solutions for a class of linear programming problems with partially integer variables (the PILP problems) can be constructed at the first stage of the Danzig-Wolfe decomposition [1]. Using this result allows one to simplify sufficiently the structure of production systems independently of the dimension of an initial problem.

Geometry of paired comparisons

Abstract: Paired comparisons of n objects with draws are considered. To each matrix of paired comparisons a point in the n-dimensional space is put in agreement. The obtained configuration of points is processed by the methods of convex analysis and linear programming.

Mean characteristics of Markov queueing systems

Abstract: Consideration is given to queueing systems described by nonstationary birth-death processes with rates close to periodic. Questions connected with the existence and design of limiting mean characteristics are studied. Some examples of designing the means for concrete queueing systems are considered.

Soft loss of stability in an ocean circulation box model with turbulent fluxes

Abstract: For a 2D system of ordinary differential equations that gives a qualitative description of the thermohaline circulation in the ocean, we prove the existence of a limit cycle for a large class of transfer functions. We show that this cycle arises in the system as a result of the soft loss of stability of a steady state when a step transfer function is smoothed by functions from the above-mentioned class.