Showing papers in "Economics Bulletin in 2004"

Minimum LM Unit Root Test with One Structural Break

Abstract: In this paper, we propose a minimum LM unit root test that endogenously determines a structural break in intercept and trend. Critical values are provided, and size and power properties are compared to the endogenous one-break unit root test of Zivot and Andrews (1992). Nunes, Newbold, and Kuan (1997) and Lee and Strazicich (2001) previously demonstrated that the Zivot and Andrews test exhibits size distortions in the presence of a break under the null. In contrast, the one-break minimum LM unit root test exhibits no size distortions in the presence of a break under the null. As such, rejection of the null unambiguously implies a trend stationary process.

Explaining Disparities between Actual and Hypothetical Stated Values: Further Investigation Using Meta-Analysis

Abstract: Spurred by the need to account for non-market values in various policy applications, a lively and extended debate has surrounded the presence and magnitude of hypothetical bias in stated value studies (e.g., applications of the survey-based contingent valuation method). Using the rapidly accumulating set of comparison studies, List and Gallet (2001) conducted an initial meta-analysis of the experimental protocol that may be influencing the disparity between real and hypothetical values in stated value studies. We expand the original meta-analysis by using a significantly larger (29%) data set, including variables to account for referendum formats, certainty corrections, and cheap talk scripts.

Which Lag Length Selection Criteria Should We Employ

Abstract: Estimating the lag length of autoregressive process for a time series is a crucial econometric exercise in most economic studies. This study attempts to provide helpfully guidelines regarding the use of lag length selection criteria in determining the autoregressive lag length. The most interesting finding of this study is that Akaike's information criterion (AIC) and final prediction error (FPE) are superior than the other criteria under study in the case of small sample (60 observations and below), in the manners that they minimize the chance of under estimation while maximizing the chance of recovering the true lag length. One immediate econometric implication of this study is that as most economic sample data can seldom be considered “large” in size, AIC and FPE are recommended for the estimation the autoregressive lag length.

Trade liberalization and the environment: Carbon dioxide for 1960-1999

Abstract: This paper examines the empirical question of whether free trade is harmful or beneficial for the environment. Using a comprehensive panel data for 63 developed and developing countries over 1960-1999, the result for CO2 suggests further trade liberalization will increase the emissions with the elasticity of 0.579. In my best knowledge, this is the first study that estimates the overall effects of trade liberalization to the environment.

Integrated volatility measuring from unevenly sampled observations

Abstract: This paper derives the linear interpolation bias of realized volatility. To avoid the bias, the Fourier series estimator has been proposed by Malliavin and Mancino (2002). We examine the theoretical relationship between the Fourier estimator and realized volatility and show that the latter is the most efficient estimator in the class of the former.

Endogenous longevity, health and economic growth: a slow growth for a longer life?

Abstract: We establish a theoretical set-up that is able to endogenously integrate growth and longevity. Our model captures three links between them: a longer life expectancy results in an increase in savings as well as an increase in the workforce, but health and growth compete for resources. We find that the key element is the response of longevity to an increase in health resources. Our model suggests that the first two links could be the most important in poor countries, which could explain their experience of simultaneous increases in growth and life expectancy. The reverse result may apply for developed countries.

Environmental Productivity in China

Abstract: Environmental problems are threatening China's sustainable future. China began implementation of several environmental policies for the late 1970s and stringency of the regulations is increasing over time. We utilize a province-level economy wide data set over 1987-2001 to measure various components of productivity within a joint production model, which considers both market and environmental outputs. While productivity level of a joint production is relatively constant over time, environmental productivity decreased, especially during the periods of 1991-1994. This was a period of significant improvements in the economy and productivity for the Chinese market. This inescapable fact directs our attention to a conventionally neglected dimension of productivity, i.e., the less efficient utilization of pollution abatement technologies.

Do Firms Always Choose Excess Capacity

Abstract: We analyze the capacity choice of firms in a long-run mixed oligopoly market, in which firms decide not only production quantity but also capacity scale. Our main purpose is to show that while a profit-maximizing firm maintains over capacity as a strategic device, a firm pursuing non-pure profit chooses under capacity.

Principal Portfolios: Recasting the Efficient Frontier

Abstract: A new method of analyzing the efficient portfolio problem under the assumption that short sales are allowed is presented. It is based on the remarkable finding that the original asset set can be reorganized as a set of uncorrelated portfolios, here named principal portfolios. The original problem of portfolio selection from the existing, correlated assets is thereby traded for the reduced problem of choosing from a set of uncorrelated portfolios. These portfolios constitute a new investment environment of uncorrelated assets, thereby providing significant conceptual and practical simplification in any portfolio optimization process such as the determination of the efficient frontier. The principal portfolio analysis of the efficient frontier reveals new features of the volatility structure of the optimal portfolios.

The Spatial Solow Model

Abstract: In this paper, we solve a Solow model in continuous time and space. We prove the existence of a solution to the problem and its convergence to a stationary solution. The simulation of various scenarios in the last section of the paper illustrates the convergence issue.

Information goods and endogenous pricing strategies: the case of academic journals

Abstract: I model journal pricing behavior in a portfolio demand environment and consider how the ongoing transition from print to digital distribution has lead to endogenous changes in pricing behavior. Specifically, when choosing whether or not to price discriminate, publishers compare the benefits of selling more content to each set of buyers against the associated additional costs. As the distribution costs decline, price discrimination becomes more attractive. However, since this cost decline also creates new entry opportunities, incumbent firms may also need to bundle their journals to avoid displacement of individual titles.

A new approach to causality in the frequency domain

Abstract: This study refers to the earlier work of analysis in the frequency domain. A different definition of causality is made, and its implications to the general idea of causality are discussed. The causality relationship between two monetary aggregates, simple sum and Divisia indices, and their relation with the personal income is analyzed using wavelet time-scale decomposition.

Favoritism in the Public Provision of Goods in Developing Countries

Abstract: Goods are often allocated publically by means of queuing processes in developing countries. In such situations, which group of citizens should a corrupt government official favor? In addition, what should be the basis for this favoritism? To the best of our knowledge, these salient questions have received scant attention in the literature. Consequently, we use queuing theory to first demonstrate that when allocating goods publically, a case can be made for favoring a particular group of citizens. Next, we show that the nature of this favoritism depends not only on the bribes received by the corrupt government official but also on the efficiency with which this official discharges his duties.

Matching Markets: the Particular Case of Couples

Abstract: We consider one-to-one markets where workers can apply to a centralized procedure either alone or as a couple, in order to reach a core- stable matching of firms and workers. We impose stringent restrictions on the preferences of couples capturing the fact that spouses want to live in the same region, which are shown to be incompatible with the guarantee of the existence of a stable matching.

Money and output interaction in Nigeria: an econometric investigation using multivariate cointegration technique

Abstract: This paper derives and estimates a barro-type reduced form equation for domestic real output from a simple structural model of an open developing economy in which markets clear continuously and expectations are rational. The form in which open economy variables appeared was explicitly derived from an underlying structural model. The model was adapted to Nigerian Economy by according an important role to imported intermediate goods. The empirical result provided support for the open economy model of output determination in Nigeria.

Intergenerational Transfer and Effective Demand

Abstract: This paper analyzes the effect that an intergenerational redistribution policy has on effective demand by introducing the monetary stagnation model into an overlapping generations economy. We show that the redistribution from a younger generation to an older generation worsens effective demand and the employment rate.

Endogenous lifetime and economic growth revisited

Abstract: Chakraborty [Journal of Economic Theory, 2004] introduces endogenous mortality in a two period overlapping generations model by postulating that the probability of surviving from the first period to the second depends on tax-funded public health. His central result on the existence of multiple steady states (including development traps) summarized in Proposition 1 is incorrect. This paper presents the correct proposition and its proof, and in the process, uncovers several new, interesting results. Contrary to Chakraborty's analysis, high mortality yet high capital nations may not be able to escape the poverty trap. Interestingly, TFP growth can help economies escape the vicious cycle of poverty.

Advance booking, cancellations, and partial refunds

Abstract: We develop methods for calculating profit-maximizing and socially optimal rates of partial refunds on customers' no-shows and cancellations. We demonstrate how partial refunds can be used to screen consumers according to their different probabilities of cancellation and no-shows. Finally, we show that the socially-optimal rate of partial refund exceeds the equilibrium rate of partial refund.

Publications over the academic life−cycle: evidence for academic economists

Abstract: It is widely assumed that the productivity of academic specialists declines with academic age. This paper provides empirical evidence of this phenomenon among economists using a panel data set from the departments of nine major midwestern universities.

Exchange Rate Pass-Through Into Import Prices In Developing Countries: An Empirical Investigation

Abstract: We define and estimate an exchange rate pass-through equation for 24 developing countries. We find that long run exchange rate pass-through into import price is determined by a combination of nominal effective exchange rate, the price of the competing domestic product, the exporter's cost and domestic demand conditions. Adopting a multi-country framework and using non-stationary panel estimation techniques and tests for panel cointegration, we show that exchange rate pass-through in developing countries is heterogeneous.

On Technology Transfer to an Asymmetric Cournot Duopoly

Abstract: This note studies the transfer of a cost-reducing innovation from an independent patent-holder to an asymmetric Cournot duopoly that has different unit costs of production. It is found that royalty licensing can be superior to fixed-fee licensing for the independent patent-holder.

Toward a Unified Approach to Testing for Weak Separability

Abstract: In this paper we propose a unified framework for testing weak separability We present a new three-step procedure, which is a joint test of necessary and sufficient conditions that takes account of possible measurement error and incomplete adjustment We illustrate the operational capability of the procedure with an empirical example Our procedure works well in medium sized samples, but at the present time may not be practical for datasets with extremely large sample sizes As computing technology continues to advance, however, high-powered methods like the one we propose should supplant testing approaches that were originally designed to circumvent computational limitations

Ricardian Equivalence Revisited: Evidence from OECD countries

Abstract: Using a theoretical model based on dynamic optimizing agents, we test empirically the Ricardian Equivalence Proposition (REP) for 26 OECD countries. The empirical specification allows us to obtain estimates of the structural parameters of the theoretical model and to test directly the hypothesis implied by the REP. We find that the REP cannot be rejected for 10 out of 26 countries, where 9 of these 10 countries are European.

Income Tax Evasion and the Penalty Structure

Abstract: In the Allingham-Sandmo (AS) model of tax evasion, fines are paid on evaded income, whereas in the Yitzhaki (Y) model fines are levied on evaded tax. This note compares the two models. In the Y model, evasion is higher and tax revenue lower than in the AS model. If government seeks to maximize expected tax revenue, it would prefer penalties of the AS type; if it maximizes expected voter welfare, it should choose Y type penalties. A voting model to determine the penalty structure is also considered.

Divisional power, intra-firm bargaining and rent-seeking behavior in multidivisional corporations

Abstract: Increasing divisional operational responsibilities and the dispersal of knowledge creating activities within the firm have loosened the traditional hierarchical structure of multi-divisional firms. In this paper we argue that a similar mixture of competition and cooperation that is found in inter-firm relationships now characterizes intra-firm relationships. Our model describes a situation in which divisional managers have their own objectives that may diverge from those of the firm as a whole.Thus, divisional managers are both profit-seekers in creating value that can be appropriated and rent-seekers in attempting to maximize their divisional share of the value d by the firm. The bargaining power of a division to maintain and increase its share of the profits generated by the operations of the firm as whole is crucially determined on its strategic independence.

Multi-task rank order tournaments

Abstract: This work extends Lazear and Rosen's seminal paper to evaluate the performance of rank order tournaments when agents perform multiple tasks and the principal chooses, together with the prize spread, the weights assigned to each task in determining aggregate performance of each agent. All essential results of one-dimensional tournaments generalize to a multi-dimensional setting. However, the relative performance of tournaments and linear piece rates is shown to also depend on the covariance between measurement errors.

A canonical first passage time model to pricing nature-linked bonds

Abstract: This paper shows that pricing catastrophe bonds boils down to computing first-passage time distributions of jump-diffusion processes. It derives a generic valuation expression by assuming that the jump risk is not systematic and then performs simulations, which can stress the sensitivity of insurance bond values to changes in underlying parameters.

Trade liberalization, consumption externalities and the environment

Abstract: It has conventionally been argued that trade liberalization will degrade the environment of a country that imports a good whose consumption gives rise to pollution. By contrast, this note demonstrates that, if the linkage between the trade and the environmental policies has been taken into consideration, then liberalizing trade in a good that generates consumption-type negative externalities will actually improve the environment of the importing country.

Collusion and the elasticity of demand

Abstract: The analysis of collusion in infinitely repeated Cournot oligopoly games has generally assumed that demand is linear, but this note uses constant-elasticity demand functions to investigate how the elasticity of demand affects the sustainability of collusion.

Rankings of Economists in Teaching Economics Departments in Australia, 1988-2000

Abstract: This paper provides rankings of individual Australian economists in teaching economics departments on the basis of ECONLIT journal articles for the periods 1988-2000 and 1995-2000. In ranking the economists, two types of rankings of journals are employed and approximately 400 journals are taken into account. These are the citation-based rankings and the perception-based rankings.Two different citation-based journal rankings, those by Laband and Piette (1994) and Kalaitzidakis, Mamuneas and Stengos (2001) are used. Perception-based journal rankings from Mason, Steagall and Fabritius are used. The rankings are provided for both 1988-2000 and for 1995-2000.