Showing papers in "Journal of the European Economic Association in 2003"

Platform competition in two‐sided markets

Abstract: Many if not most markets with network externalities are two-sided. To succeed, platforms in industries such as software, portals and media, payment systems and the Internet, must “get both sides of the market on board.” Accordingly, platforms devote much attention to their business model, that is, to how they court each side while making money overall. This paper builds a model of platform competition with two-sided markets. It unveils the determinants of price allocation and end-user surplus for different governance structures (profit-maximizing platforms and not-for-profit joint undertakings), and compares the outcomes with those under an integrated monopolist and a Ramsey planner. (JEL: L5, L82, L86, L96)

An estimated dynamic stochastic general equilibrium model of the euro area

Abstract: This paper develops and estimates a dynamic stochastic general equilibrium (DSGE) model with sticky prices and wages for the euro area. The model incorporates various other features such as habit formation, costs of adjustment in capital accumulation and variable capacity utilization. It is estimated with Bayesian techniques using seven key macroeconomic variables: GDP, consumption, investment, prices, real wages, employment, and the nominal interest rate. The introduction of ten orthogonal structural shocks (including productivity, labor supply, investment, preference, cost-push, and monetary policy shocks) allows for an empirical investigation of the effects of such shocks and of their contribution to business cycle e uctuations in the euro area. Using the estimated model, we also analyze the output (real interest rate) gap, dee ned as the difference between the actual and model-based potential output (real interest rate). (JEL: E4, E5)

New evidence on the interest rate effects of budget deficits and debt

Abstract: Estimating the effects of government debt and deficits on Treasury yields is complicated by the need to isolate the effects of fiscal policy from other influences. To control for the effects of the business cycle, and associated monetary policy actions, on debt, deficits, and interest rates, this paper studies the relationship between longhorizon forward rates and future federal government deficits and debt as projected by the Congressional Budget Office. For the entire 30-year sample for which these projections are available, the estimated effects of government deficits and debt on interest rates are statistically significant and economically relevant: about 25 basis points per percentage point increase in the projected deficit/GDP ratio, and 3 to 4 basis points for the debt/GDP ratio. Under plausible assumptions the parameter estimates are shown to be consistent with predictions from the neoclassical growth model. JEL classification: E6, H6.

Rankings of academic journals and institutions in economics

Abstract: We conducted a worldwide ranking of academic institutions that produce research in a list of thirty top research journals in economics. We also computed journal rankings for the same period and hence we do not rely on weights that were computed for research carried out in earlier periods. The United States is clearly the dominant force in the top-fifty group, but European academic institutions are well represented in the group of the top 200 universities worldwide as are universities from Asia and the Far East in particular. (JEL: A14, A10)

Electoral rules and corruption

Abstract: Is corruption systematically related to electoral rules? Recent theoretical work suggests a positive answer. But little is known about the data. We try to address this lacuna by relating corruption to different features of the electoral system in a sample of about eighty democracies in the 1990s. We exploit the cross-country variation in the data, as well as the time variation arising from recent episodes of electoral reform. The evidence is consistent with the theoretical priors. Larger voting districts— and thus lower barriers to entry— are associated with less corruption, whereas larger shares of candidates elected from party lists— and thus less individual accountability— are associated with more corruption. Individual accountability appears to be most strongly tied to personal ballots in plurality-rule elections, even though open party lists also seem to have some effect. Because different aspects roughly offset each other, a switch from strictly proportional to strictly majoritarian elections only has a small negative effect on corruption. (JEL: E62, H3)

A quartet of semigroups for model specification, robustness, prices of risk, and model detection

Abstract: A representative agent fears that his model, a continuous time Markov process with jump and diffusion components, is misspecified and therefore uses robust control theory to make decisions. Under the decision maker’s approximating model, cautious behavior puts adjustments for model misspecification into market prices for risk factors. We use a statistical theory of detection to quantify how much model misspecification the decision maker should fear, given his historical data record. A semigroup is a collection of objects connected by something like the law of iterated expectations. The law of iterated expectations defines the semigroup for a Markov process, while similar laws define other semigroups. Related semigroups describe (1) an approximating model; (2) a model misspecification adjustment to the continuation value in the decision maker’s Bellman equation; (3) asset prices; and (4) the behavior of the model detection statistics that we use to calibrate how much robustness the decision maker prefers. Semigroups 2, 3, and 4 establish a tight link between the market price of uncertainty and a bound on the error in statistically discriminating between an approximating and a worst case model. (JEL: C00, D51, D81, E1, G12)

Labor- and capital-augmenting technical change

Abstract: I analyze an economy in which pro…t-maximizing …rms can undertake both laboror capital-augmenting technological improvements. In the long run, the economy looks like the standard growth model with purely labor-augmenting technical change, and the share of labor in GDP is constant. Along the transition path, however, there is capitalaugmenting technical change and factor shares change. A range of policies may have

The social multiplier

Abstract: Aggregate data is often used to make inferences about individual level behavior. If there are social interactions in which one person's actions influence his neighbor's incentives or information, then these inferences are inappropriate. The presence of positive social interactions, or strategic complementarities, implies the existence of a social multiplier where aggregate relationships will overstate individual elasticities. We present a brief model and then estimate the size of the social multiplier in three areas: the impact of education on wages, the impact of demographics on crime and group membership among Dartmouth roommates. In these contexts, there is a significant social multiplier. (JEL: HO, JO, CO)

Revealed performances: worldwide rankings of economists and economics departments, 1990–2000

Abstract: In this paper, I study the production of academic research by economics departments and economists. Worldwide rankings are provided based on both citations and publications. These rankings reveal a dominant position of the United States in the production of economics literature. Over time, however, the extent of this dominance is decreasing. (JEL: A10, A14)

Elected versus appointed regulators: theory and evidence

Abstract: This paper contrasts direct election with political appointment of regulators. When regulators are appointed, regulatory policy becomes bundled with other policy issues the appointing politicians are responsible for. Because voters have only one vote to cast and regulatory issues are not salient for most voters, there are electoral incentives to respond to stakeholder interests. If regulators are elected, their stance on regulation is the only salient issue so that the electoral incentive is to run a pro-consumer candidate. Using panel data on regulatory outcomes from U.S. states, we find new evidence in favor of the idea that elected states are more pro-consumer in their regulatory policies. (JEL: H1, K2)

Outsourcing versus fdi in industry equilibrium

Abstract: We study the determinants of the extent of outsourcing and of direct foreign investment in an industry in which producers need specialized components. Potential suppliers must make a relationship-specific investment in order to serve each prospective customer. Such investments are governed by imperfect contracts. A final-good producer can manufacture components for itself, but the per-unit cost is higher than for specialized suppliers. We consider how the size of the cost differential, the extent of contractual incompleteness, the size of the industry, and the relative wage rate affect the organization of industry production.

Where the Minimum Wage Bites Hard: Introduction of Minimum Wages to a Low Wage Sector

Abstract: Between 1993 and April 1999 there was no minimum wage in the United Kingdom (except in agriculture). In this paper we study the effects of the introduction of a National Minimum Wage (NMW) in April 1999 on one heavily affected sector, the residential care homes industry. This sector contains a large number of low paid workers and as such can be viewed as being very vulnerable to minimum wage legislation. We look at the impact on both wages and employment. Our results suggest that the minimum wage raised the wages of a large number of care home workers, causing a very big wage compression of the lower end of the wage distribution, thereby strongly reducing wage inequality. There is some evidence of employment and hours reductions after the minimum wage introduction, though the estimated effects are not that sizable given how heavily the wage structure was affected.

Globalization and market structure

Abstract: This paper reviews some puzzling economic aspects of globalization and argues that they cannot be satisfactorily addressed in perfectly or monopolistically competitive models. Drawing on recent work, a model of oligopoly in general equilibrium is sketched. The model ensures theoretical consistency by assuming that firms are large in their own markets but small in the economy as a whole, and ensures tractability by assuming quadratic preferences defined over a continuum of goods. Applications considered include the effects of trade liberalization on industrial structure, on cross-border merger waves, and on the distribution of income between skilled and unskilled workers.

The response of hours to a technology shock: evidence based on direct measures of technology

Abstract: We investigate what happens to hours worked after a positive shock to technology, using the aggregate technology series computed in Basu, Fernald, and Kimball (1999). We conclude that hours worked rise after such a shock. (JEL: E24, E32, O3)

Modeling model uncertainty

Abstract: Recently there has been a great deal of interest in studying monetary policy under model uncertainty. We develop new methods to analyze dierent sources of uncertainty in one coherent structure, which is useful for policy decisions. We show how to estimate the size of the uncertainty based on time series data, and how to incorporate this uncertainty in choosing policy. In particular, we develop a new approach for modeling uncertainty called model error modeling. The approach imposes additional structure on the errors of an estimated model, and builds a statistical description of the uncertainty around the model. We develop both parametric and nonparametric specifications of this approach, and use them to estimate uncertainty in a small model of the US economy. We then use our estimates to compute Bayesian and minimax robust policy rules, which are designed to perform well in the face of uncertainty.

Adverse selection and moral hazard in insurance: Can dynamic data help to distinguish?

Abstract: A standard problem of applied contracts theory is to empirically distinguish between adverse selection and moral hazard. We show that dynamic insurance data allow to distinguish moral hazard from dynamic selection on unobservables. In the presence of moral hazard, experience rating implies negative occurrence dependence: individual claim intensities decrease with the number of past claims. We discuss econometric tests for the various types of data that are typically available. Finally, we argue that dynamic data also allow to test for adverse selection, even if it is based on asymmetric learning. (JEL: D82, G22, C41, C14)

Disease and Development in Historical Perspective

Abstract: Health conditions and disease environments are important for economic outcomes. This paper argues that the main impact of disease environments on the economic development of nations is not due to the direct effect of health conditions on income, but rather because of their indirect effect via institutions. Health does affect income directly, but this can explain only a small fraction of today's differences in per capita income. In contrast, when previously isolated populations came into contact during the period of European colonial expansion, differences in disease environments had a major impact on the path of institutional development and consequently first-order consequences for economic growth. (JEL: I12, O12)

Where Are the Economists Who Publish? Publication Concentration and Rankings in Europe Based on Cumulative Publications

Abstract: We measure the past production of research articles by current members of European economics institutions. All EconLit journals are used, weighted to reflect differences in quality. Both a long (1971–2000) and a short (1996–2000) time period are considered. We also provide production indices that take into account the authors' career length. The total output of each research center is measured as well as its production per member. The focus is on 600 centers from eighteen European countries (EU 14, Israel, Norway, Switzerland, and Turkey). European centers are compared to the top sixty U.S. economics departments. Statistics regarding the concentration of article production across researchers, institutions, and countries are provided, as well as on publication habits. (JEL: A14, L11, R32)

Ranking economics departments in Europe: a statistical approach

Abstract: We provide a ranking of economics departments in Europe and we discuss the methods used to obtain it. The JEL CD-ROM serves as a database for a period covering 10 years. Journals are ranked using a combination of expert opinions and citation data to produce a scale from 1 to 10. The publication output and habits of fifteen European countries plus California are then compared. Individuals with a contribution greater than a predetermined minimum level are regrouped into departments which are ranked according to their total scores. A standard deviation is provided to underline the uncertainty of this ranking.

Does nationality of ownership matter for labor demands

Abstract: Do multinational firms exhibit different patterns of labor demand from purely domestic firms? Many standard models of trade and multinational companies suggest such differences. We examine this question using a plant-level panel covering U.K. manufacturing from 1973 through 1992, where we can distinguish U.K.-headquartered multinationals, foreign-owned multinationals, and domestic U.K. firms. Across these three ownership groups we look for differences both on the intensive margin, in terms of labor-demand elasticities, and on the extensive margin, in terms of plant shutdowns. For our sample period we estimate that both groups of multinational plants had larger increases than did domestic plants in the elasticity of demand for production labor. These increases were driven largely by greater substitutability between production labor and materials. We also estimate that both types of multinational plants are more likely to shut down than domestic plants are, conditional on a set of operational advantages enjoyed by multinationals that make them less likely to shut down.

The Size of Countries: Does It Matter?

Abstract: Borders are a man-made institution, and as such their shape cannot be taken as part of the physical landscape. The size of countries is endogenous to politico-economic forces. This paper discusses recent efforts by economists to study three related questions: What determines the evolution of the size of countries? Does size matter for economic success? Given the trend toward decentralization and of creation of supernational unions such as the EU, is the meaning of national borders evolving? (JEL: H10)

Disease and development: evidence from the american south

Abstract: Hookworm and malaria, parasites that remain a significant public health threat in the tropical belt today, were endemic in the American South as late as the first half of the twentieth century. I discuss how the successful eradication of malaria and hookworm in the American South affected human-capital accumulation. I find that areas that had higher levels of (malaria or hookworm) infection prior to eradication experienced greater increases in school attendance and literacy afterwards. Moreover, I find that adults earned substantially more if they were not exposed to these diseases as children. The estimates are large relative to the subsequent convergence between the North and South in the United States, but small compared to the cross-country distribution of income. Nevertheless, the results indicate potentially large benefits of public health interventions in developing countries. (JEL: I12, J24, O10, H43)

What measure of inflation should a central bank target

Abstract: This paper assumes that a central bank commits itself to maintaining an inflation target and then asks what measure of the inflation rate the central bank should use if it wants to maximize economic stability. The paper first formalizes this problem and examines its microeconomic foundations. It then shows how the weight of a sector in the stability price index depends on the sector's characteristics, including size, cyclical sensitivity, sluggishness of price adjustment, and magnitude of sectoral shocks. When a numerical illustration of the problem is calibrated to U.S. data, one tentative conclusion is that a central bank that wants to achieve maximum stability of economic activity should use a price index that gives

Incomplete social contracts

Abstract: There is a long normative ‘Social Contract’ tradition that attempts to characterize ex-post income inequalities that are agreeable to all ‘behind a veil of ignorance.’ This paper takes a similar normative approach to characterize social decision-making procedures. It is shown that quite generally some form of majority-voting is preferred to unanimity ‘behind a veil of ignorance’ whenever society faces deadweight costs in making compensating transfers. Deviations from unanimity (or ex-post Pareto optimality) are ex-ante efficient to the extent that they economize on costly compensating transfers. Put another way, the optimal decision rule trades off the benefits of minority protection and those from greater flexibility. (JEL: H11, G33, G34, D63, P16, P48)

Evaluating economics research in europe: an introduction

Abstract: This paper introduces a symposium of EEA-funded studies that evaluate economics research in Europe. The paper considers some general issues in evaluations, paying special attention to the problem of selecting journal weights, and notes some special features of the individual studies. Despite their very different approaches, the same group of institutions tend to appear at the top of all lists, though individual ranks are sensitive to the choice of more or less elitist journal weights. All the studies show that the gap between economics research in Europe and the United States is narrowing, but remains very wide. (JEL: A10, J44)

Why do consumer prices react less than import prices to exchange rates

Abstract: Тот факт, что потребительские цены реагируют на изменение номинального курса в меньшей степени, чем цены импорта имеет несколько объяснений в экономической теории. Одно из них базируется на допущении, что издержки распространения занимают существенную долю в цене. Данная статья предлагает другое объяснение, которое является дополнением к уже существующим. В работе рассматривается модель, в которой фирмы импортируют товары промежуточного потребления и создают из них товары конечного пользования. Если эти фирмы начинают конкурировать между собой на внутреннем рынке, их оптимальная стратегия – устанавливать цены в национальной валюте, в то время как поставщикам промежуточных товаров оптимальней устанавливать цены в своей валюте. В этом случае изменение номинального курса полностью отражается на динамике цен импорта и никак не влияет на потребительские цены.

Mortality, health status and wealth

Abstract: In this paper we use the two waves of the British Retirement Survey (1988/1989 and 1994) to quantify the relationship between socioeconomic status and health outcomes. We find that, even after conditioning on the initial health status, wealth rankings are important determinants of mortality and the evolution of the health indicator in the survey. For men aged 65 moving from the 40th percentile to the 60th percentile in the wealth distribution increases the probability of survival by between 1.0 and 1.9 percentage points depending on the measure of wealth used. A similar effect is found for women of between 1.1 and 1.3 percentage points. In the process of estimating these effects we control for nonrandom attrition from our sample.

Measuring labor market frictions: a cross‐country comparison

Abstract: In this paper we define and estimate measures of labor market frictions using data on job durations. We compare different estimation methods and different types of data. We propose and apply an unconditional inference method that can be applied to aggregate duration data. It does not require wage data, it is invariant to the way in which wages are determined, and it allows workers to care about other job characteristics. The empirical analysis focuses on France, but we perform separate analyses for the United States of America, the United Kingdom, Germany, and the Netherlands. We quantify the monopsony power due to search frictions and we examine the policy effects of the minimum wage, unemployment benefits, and search frictions. (JEL: J63, J64)

How Much of Cross-Country Income Variation is Explained by Health?

Abstract: We use development accounting techniques to assess the contribution of health to differences in income per capita among countries. Rather than rely on regressions in aggregate data, we build up estimates of the effect of health starting from microeconomic data. We examine both a particular condition, anemia, and a proxy for general health, the adult survival rate. We find that differences in anemia explain 1.3 percent of the log variance of income per capita, and that differences in adult survival explain 19 percent of the log variance of income per capita. The latter figure is almost one third of the variation in output that is left unexplained by other In this paper, we examine quantitatively the effect of health on income per capita as well as the contribution of health to differences in income among countries. Understanding the effect of health on income is important for two reasons. First, if health does have a large effect on income per capita, then this would be an important additional benefit of health improvement (beyond the direct effect on the quality of life) that should be taken into account when tallying up the costs and benefits of health interventions in developing countries. Second, for economists trying to understand differences in income per capita among countries, a proper accounting of the role of health is essential both for telling the complete story of economic growth and for evaluating the role of other factors that affect income. Specifically, accounting for health differences will reduce the size of the unexplained residual variance in income among countries that is currently attributed to productivity. In this paper we examine both a single condition, anemia, and a measure of overall health, the adult survival rate. Figure 1 shows the relationship between income per capita and our two health measures. Both measures are strongly correlated with income, but using this data to infer the effect of health on economic outcomes presents two problems: first, health is itself endogenous.

Diversity in economics: an analysis of journal quality perceptions

Abstract: It is still debatable whether scientific diversity is a virtue or a disadvantage for the development of a discipline. Nonetheless, diversity among scientists with respect to their journal quality perceptions plays an important role in hiring and promotion decisions. In this article we examine the degree of diversity within economics based on the journal quality perceptions of 2,103 AEA economists worldwide. Specifically, we empirically test for factors that might explain differences in an economist's journal quality perceptions. These factors include an economist's geographic origin, school of thought, journal affiliation, field of specialization and research orientation. Indeed, we find that a significant degree of diversity in journal quality perceptions exists between economists that belong in different subgroups. These results might explain the frequent debates in tenure and promotion committees where journal standings are used for the evaluation of a researcher's output.