nep-hme New Economics Papers
on Heterodox Microeconomics
Issue of 2011‒04‒02
twenty-two papers chosen by
Frederic S. Lee
University of Missouri-Kansas City

  1. Antitrust Immunity and International Airline Alliances By William Gillespie; Oliver M. Richard
  2. Blame the Switchman? Russian Railways Restructuring After Ten Years By Russell Pittman
  3. Clean energy technology and the role of non-carbon price based policy: an evolutionary economics perspective By Eric Knight; Nicholas Howarth
  4. National energy security in a world where use of fossil fuels is constrained By Hugh Saddler
  5. Why Are Some Prices Stickier Than Others? Firm-Data Evidence on Price Adjustment Lags By Daniel Dias; Carlos Robalo Marques; Fernando Martins; J.M.C.Santos Silva
  6. Institutions, policies and economic development. What are the causes of the shadow economy? By Luisanna Onnis; Patrizio Tirelli
  7. A Preliminary Analysis of SACMEQ III South Africa By Nic Spaull
  8. Price Points and Price Rigidity By Daniel Levy; Dongwon Lee; Haipeng (Allan) Chen; Robert J. Kauffman; Mark Bergen
  9. Price Setting and Price Adjustment in Some European Union Countries: Introduction to the Special Issue By Daniel Levy; Frank Smets
  10. Business as Usual: A Consumer Search Theory of Sticky Prices and Asymmetric Price Adjustment By Luís Cabral; Arthur Fishman
  11. Shrinking Goods and Sticky Prices: Theory and Evidence By Avichai Snir; Daniel Levy
  12. Division of Household Labor and Marital Satisfaction in China, Japan, and Korea By Oshio, Takashi; Nozaki, Kayo; Kobayashi, Miki
  13. The Evolution of Income Concentration in the Swiss Federalism over the Twentieth Century By Christoph A. Schaltegger; Christoph Gorgas
  14. The strength of strong ties: Co-authorship and productivity among Italian economists By Giulio Cainelli; Mario Maggioni; Erika Uberti; Annunziata De Felice
  15. Repositioning Dynamics and Pricing Strategy By Ellickson, Paul B.; Misra, Sanjog; Nair, Harikesh S.
  16. Job Polarization in the U.S.: A Reassessment of the Evidence from the 1980s and 1990s By Lefter, Alexandru; Sand, Benjamin M.
  17. What Drives the Relationship Between Inflation and Price Dispersion? Market Power vs. Price Rigidity By Sascha S. Becker
  18. Citizenship without Respect: The EU's Troubled Equality Ideal By Dimitry Kochenov
  19. Determinants of Individual Investor Behaviour: An Orthogonal Linear Transformation Approach By Chandra, Abhijeet; Kumar, Ravinder
  20. Neoliberalism as Liberation: The Statehood Program and the Remaking of the Palestinian National Movement By Khalidi, Raja J.; Samour, Sobhi
  21. The Palestinian economy and its trade pattern: Stylised facts and alternative modelling strategies By Botta, Alberto
  22. Inflationary effect of oil-price shocks in an imperfect market: a partial transmission input-output analysis By Libo Wu; Jing Li; ZhongXiang Zhang

  1. By: William Gillespie (Economic Analysis Group, Antitrust Division, U.S. Department of Justice); Oliver M. Richard
    Abstract: Most of the major carriers worldwide have joined one of three international airline alliances. The U.S. Department of Transportation has granted immunity from the U.S. antitrust laws to many carriers within these alliances. This article assesses the competitive effects and efficiencies associated with such grants. A grant of antitrust immunity to carriers in an alliance reduces competition in routes where these carriers offer competing flights, and the data show that fares paid by passengers for travel in non-stop trans-Atlantic flights are higher in routes with fewer independent competitors. The data also show that the alliances can produce pricing efficiencies for trans-Atlantic passengers who travel with connecting itineraries, but antitrust immunity within an alliance is not necessary to achieve such efficiencies.
    Date: 2011–02
  2. By: Russell Pittman (Economic Analysis Group, Antitrust Division, U.S. Department of Justice)
    Abstract: The Russian economy relies on the Russian freight railways to an extraordinary degree. In 2001, after years of debate, the Russian government adopted an ambitious plan to transform this vertically integrated, government owned monopoly into a system that would rely more on private investment and competition and less on government ownership and regulation. This paper examines the state of the industry after ten years of reforms, with a focus on competition, tariffs, and private sector participation. Much remains to be decided, in particular the question of whether Russia will settle on its own unique model of railways restructuring or will move in the direction of one of the three standard models seen in other countries: vertical separation as in the UK and Sweden, third party access as in Germany and France, or horizontal separation, as in the US, Canada, and Mexico.
    Keywords: freight railways, restructuring, competition, Russian Federation, vertical separation, third party access, horizontal separation
    Date: 2011–02
  3. By: Eric Knight (Department of Geography and the Environment, University of Oxford, Oxford, UK); Nicholas Howarth (Department of Geography and the Environment, University of Oxford, Oxford, UK)
    Abstract: Much academic attention has been paid to the role of carbon pricing in developing a market-led response to low carbon energy innovation. Taking an evolutionary economics perspective this paper makes the case as to why price mechanisms alone are insufficient to support new energy technologies coming to market. In doing so, we set out the unique investment barriers in the clean energy space. For guidance on possible approaches to non-carbon price based policies that seek to tackle these barriers we turn to case studies from Asia, a region which has experienced a strong uptake in climate policy in recent years.
    JEL: Q48 Q42 Q55
    Date: 2011–02
  4. By: Hugh Saddler (Crawford School of Economics and Government, The Australian National University, Canberra, Australia)
    Abstract: This paper focuses on the domestic energy policies of industrialised states and, in particular, those states which have been at the forefront in applying neo-liberal policies to the reform and restructuring of their energy supply industries. It examines the interactions between the neo-liberal and climate change mitigation agendas, as they have been applied to energy policy, and the consequences these interactions are having for energy security, which is a core objective of energy policy for all states. A case study approach is taken using the United Kingdom and Australia as examples. The overall conclusion is that if states set themselves ambitious emissions reduction goals they will need to make radical changes to their energy systems, which, in the absence of decisive policy action, are likely to be deleterious to domestic energy security. By contrast, modest reduction goals will not require far-reaching energy system changes and will pose little threat to energy security, but will also do little to mitigate climate change.
    JEL: Q48
    Date: 2011–01
  5. By: Daniel Dias; Carlos Robalo Marques; Fernando Martins; J.M.C.Santos Silva
    Abstract: Infrequent price changes at the firm level are now well documented in the literature. However, a number of issues remain partly unaddressed. This paper contributes to the literature on price stickiness by investigating the lags of price adjustments to different types of shocks. We find that adjustment lags to cost and demand shocks vary with firm characteristics, namely the firm’s cost structure, the type of pricing policy, and the type of good. We also document that firms react asymmetrically to demand and cost shocks, as well as to positive and negative shocks, and that the degree and direction of the asymmetry varies across firms.
    JEL: C41 D40 E31
    Date: 2011
  6. By: Luisanna Onnis; Patrizio Tirelli
    Abstract: What are the causes of the shadow economy? We provide new answers to this old question. The sharp distinction between theoretical priors on the institutional determinants of the shadow economy and the technique used for its measurement is the first novel contribution of the paper. The second innovation is that, unlike previ- ous contributions, we document a specific role for institutional variables in shaping economic incentives to "go underground", irrespective of the stage of economic de- velopment. The third innovation is that - after controlling for institutional quality and for the level of development - public expenditures have a negative impact on the shadow economy.
    Keywords: Institutional quality, shadow economy.
    Date: 2011–03
  7. By: Nic Spaull (Department of Economics, University of Stellenbosch)
    Abstract: The many and varied links between student socio-economic status and educational outcomes have been well documented in the South African economics of education literature. The strong legacy of apartheid and the consequent correlation between education and wealth have meant that, generally speaking, poorer students perform worse academically. The present study uses the recent Southern and East African Consortium for Monitoring Educational Quality (SACMEQ III) dataset for South Africa to identify those factors that have a significant effect on student maths and reading performance in Grade 6. The research confirms previous findings that socio-economic status, and particularly school socioeconomic status, is important when understanding student success or failure. Other factors which contribute significantly to student performance are homework frequency, preschool education, and the availability of reading textbooks. In contrast, teacher-subject knowledge was found to have only a modest impact on Grade 6 student performance. Policy interventions are also highlighted. The study concludes that South Africa is still a tale of two schools: one which is wealthy, functional and able to educate students, while the other is poor, dysfunctional, and unable to equip students with the necessary numeracy and literacy skills they should be acquiring in primary school. Nevertheless, it suggests that there are some options available to policy-makers which are expected to have a positive effect on student performance.
    Keywords: SACMEQ, South Africa, primary education, education, education production function, education policy, economics of education
    JEL: I20 I21 I28
    Date: 2011
  8. By: Daniel Levy (Department of Economics, Bar Ilan University and RCEA); Dongwon Lee (Korea University); Haipeng (Allan) Chen (Texas A&M University); Robert J. Kauffman (Arizona State University); Mark Bergen (University of Minnesota)
    Abstract: We study the link between price points and price rigidity, using two datasets: weekly scanner data, and Internet data. We find that: “9” is the most frequent ending for the penny, dime, dollar and ten-dollar digits; the most common price changes are those that keep the price endings at “9”; 9-ending prices are less likely to change than non-9-ending prices; and the average size of price change is larger for 9-ending than non-9-ending prices. We conclude that 9-ending contributes to price rigidity from penny to dollar digits, and across a wide range of product categories, retail formats and retailers.
    Keywords: Price Point, 9-Ending Price, Price Rigidity
    JEL: E31 L16 D80 M21 M30
    Date: 2010–12
  9. By: Daniel Levy (Department of Economics, Bar Ilan University and RCEA); Frank Smets (European Central Bank and CEPR)
    Abstract: This introductory essay briefly summarizes the eleven empirical studies of price setting and price adjustment that are included in this special issue. The studies, which use data from several European countries, were conducted as part of the European Central Bank’s Inflation Persistence Network.
    Keywords: Price Rigidity, Price Flexibility, Cost of Price Adjustment, Menu Cost, Managerial and Customer Cost of Price Adjustment, Pricing, Price System, Price Setting, New Keynesian Economics, Store-Level Data, Micro-Level Data, Product-Level Data
    JEL: D21 D40 E12 E31 E50 E52 E58 L11 L16 M20 M30
    Date: 2010–12
  10. By: Luís Cabral (IESE Business School and NYU); Arthur Fishman (Bar-Ilan University)
    Abstract: Empirical evidence suggests that prices are sticky with respect to cost changes. Moreover, prices respond more rapidly to cost increases than to cost decreases. We develop a search theoretic model which is consistent with this evidence and allows for additional testable predictions. Our results are based on the assumption that buyers do not observe the sellers costs, but know that cost changes are positively correlated across sellers. In equilibrium, a change in price is likely to induce consumer search, which explains sticky prices. Moreover, the signal conveyed by a price decrease is different from the signal conveyed by a price increase, which explains asymmetry in price adjustment.
    Date: 2011–01
  11. By: Avichai Snir (Bar-Ilan University and Humboldt-Universität zu Berlin); Daniel Levy (Department of Economics, Bar Ilan University and RCEA)
    Abstract: If producers have more information than consumers about goods’ attributes, then they may use non-price (rather than price) adjustment mechanisms and, consequently, the market may reach a new equilibrium even if prices remain sticky. We study a situation where producers adjust the quantity (per package) rather than the price in response to changes in market conditions. Although consumers should be indifferent between equivalent changes in goods' prices and quantities, empirical evidence suggests that consumers often respond differently to price changes and equivalent quantity changes. We offer a possible explanation for this puzzle by constructing and empirically testing a model in which consumers incur cognitive costs when processing goods’ price and quantity information. The model is based on evidence from cognitive psychology and explains consumers’ decision whether or not to process goods’ price and quantity information. Our findings explain why producers sometimes adjust goods’ prices and sometimes goods’ quantities. In addition, they predict variability in price adjustment costs over time and across economic conditions.
    Keywords: Sticky Prices, Rigid Prices, Cognitive Costs of Attention, Information Processing Cost, Price Adjustment, Quantity
    JEL: E31 L16
    Date: 2011–03
  12. By: Oshio, Takashi; Nozaki, Kayo; Kobayashi, Miki
    Abstract: In this study, we compare the association of marital satisfaction with the division of labor between husband and wife in Asia, based on Chinese, Japanese, and Korean General Social Surveys in 2006 (N = 2,346, 997, and 990, respectively). Results show that in all three countries, wives are less satisfied than husbands with marriage, mainly because wives do disproportionately more housework than husbands. Aside from this common gender difference, there are noticeable differences among the three countries. Chinese couples are relatively in favor of an egalitarian division of labor in terms of both market work and housework. Japanese couples are supportive of traditional specialization, with the wives flexibly shifting their efforts between market work and housework. Korean couples are under pressure from conflicts between the wife‘s labor force participation and the traditional division of labor in the household.
    Keywords: Division of household labor, gender difference, marital satisfaction
    Date: 2011–02
  13. By: Christoph A. Schaltegger; Christoph Gorgas
    Abstract: We study the income concentration in the Swiss federalism over the 20th century using the federal income tax statistics. While top-incomes in Switzerland as a whole evolved rather constantly across different income shares, the picture is much more heterogeneous on the subfederal level for the 26 cantons. Some cantons have a secular downward trend, others show a fall and rise of top incomes over the century as exemplified by Kuznets’ hypothesis, some develop rather constantly and even some cantons perceive a striking upward trend. Since Swiss cantons are fiscally rather autonomous, our homogeneous database serves as a basis for an analysis of the long term effects of tax competition on income concentration.
    Keywords: Income inequality; Top incomes; Taxation
    JEL: D31 H2 N3
    Date: 2011–03
  14. By: Giulio Cainelli (Università di Padova); Mario Maggioni (Università Cattolica del Sacro Cuore); Erika Uberti (Università Cattolica del Sacro Cuore); Annunziata De Felice (Università degli Studi di Bari)
    Abstract: Increased specialization and extensive collaboration are common behaviours in the scientific community, as well as the evaluation of scientific research based on bibliometric indicators. This paper aims to analyse the effect of collaboration (co-authorship) on the scientific output of Italian economists. We use Social Network Analysis to investigate the structure of co-authorship, and econometric methodologies to explain the productivity of individual Italian economists, in terms of "attributional" variables (such as age, gender, academic position, tenure, scientific sub-discipline, geographical location, etc.), "relational" variables (such as propensity to cooperate and the stability of cooperation patterns) and "positional" variables (such as betweenness and closeness centrality indexes and clustering coefficients).
    Keywords: co-authorship, scientific productivity, Italian economists, social network analysis.
    JEL: I23 I28 J24
    Date: 2010–12
  15. By: Ellickson, Paul B. (University of Rochester); Misra, Sanjog (University of Rochester); Nair, Harikesh S. (Stanford University)
    Abstract: We measure the revenue and cost implications to supermarkets of changing their price positioning strategy in oligopolistic downstream retail markets. Our estimates have implications for long-run market structure in the supermarket industry, and for measuring the sources of price rigidity in the economy. We exploit a unique dataset containing the price-format decisions of all supermarkets in the U.S. The data contain the format-change decisions of supermarkets in response to a large shock to their local market positions: the entry of Wal-Mart. We exploit the responses of retailers to WalMart entry to infer the cost of changing pricing-formats using a .revealed-preference. argument similar to the spirit of Bresnahan and Reiss (1991). The interaction between retailers and Wal-Mart in each market is modeled as a dynamic game. We find evidence that suggests the entry patterns of WalMart had a significant impact on the costs and incidence of switching pricing strategy. Our results add to the marketing literature on the organization of retail markets, and to a new literature that discusses implications of marketing pricing decisions for macroeconomic studies of price rigidity. More generally, our approach which incorporates long-run dynamic consequences, strategic interaction, and sunk investment costs, outlines how the paradigm of dynamic games may be used to model empirically firms' positioning decisions in Marketing.
    Date: 2011–01
  16. By: Lefter, Alexandru; Sand, Benjamin M.
    Abstract: In this paper, we review the evidence for job polarization in the U.S. and provide a description of the occupational employment changes that characterized the U.S. labor market during the 1970s, 1980s, and 1990s. We begin by replicating the existing job polarization trends, which are produced using a modified occupational coding scheme intended to make occupational categories comparable over time. Using two alternative procedures to obtain consistent occupational codes across decades, we show that the finding that jobs polarized in the 1990s relative to the 1980s no longer holds. Instead, we find that occupational employment shifts were very similar during the two decades. In addition, we demonstrate that the method used to rank occupations according to their skill content has a substantial impact on the employment growth in low-skill job categories. Finally, using an additional occupational crosswalk that allows us to obtain consistent occupational categories from 1970 to 2002, we provide evidence in favor of a long-term trend towards employment growth in high-skill jobs and employment decline in some middle-skill jobs, but no sharp contrast between the 1980s and the 1990s. Our findings suggest that the evolution of the occupational employment structure and the divergent wage growth patterns observed during the 1980s and 1990s do not easily fit within the routinization story as usually told.
    Keywords: Job Polarization, Occupational Employment, Employment Growth, Wage Inequality
    JEL: J21 J31
    Date: 2011–02
  17. By: Sascha S. Becker
    Abstract: Recent monetary search and Calvo-type models predict that the relationship between inflation and price dispersion is U-shaped, implying an optimal rate of inflation above zero. Moreover, monetary search models emphasize a critical dependence of the real effects of inflation on sellers’ market power, whereas Calvotype models suggest that the degree of price rigidity significantly affects the inflation - price dispersion nexus. Using a new set of highly disaggregated sectoral price data from a panel of European countries, this paper contributes to the literature by testing the empirical relevance of these two theoretical predictions. In line with monetary search theory, a U-shaped profile is found, provided that markups are sufficiently high, but the relationship breaks down under a more competitive environment. Contrarily, no evidence is found to support the contentions of Calvo-type models: U-shaped effects of inflation occur in product sectors with sticky as well as highly flexible prices.
    Keywords: Inflation, Relative price variability, Price level index, Euro-area, Market structure, Monetary search model, Dynamic panel data models
    JEL: C23 D40 E31 F15
    Date: 2011–03
  18. By: Dimitry Kochenov
    Abstract: Abstract: The European Union suffers from an empty formalistic reading of the principle of equality when dealing with situations where different legal orders legitimately compete, aspiring to regulate the condition of the same persons in the same circumstances. Consequently, equality before the law is not safeguarded in the Union, and a radical reform of the procedural reading of the principle of equality is required. Most importantly, to live up to being a true principle of EU law, equality in the EU needs to acquire a substantive component which is entirely missing at the moment. This paper looks at the procedural vistas informing the ECJ‘s attempts to address the EU‘s fundamental problems through the redefinition of the scope ratione materiae of EU law following the introduction of Union citizenship, only to find the outcomes of such efforts inadequate and potentially dangerous for the rule of law in Europe. It is suggested that a substantive approach to equality could be employed instead, and that the idea of respect, lying just as equality itself, at the core of the notion of citizenship †and the law as such †could supply the missing core of the equality principle, providing the much-needed cure for some crucial deficiencies of EU law as it currently stands.
    Keywords: law; citizenship; federalism; nationality; sovereignty; competences; European citizenship; European law; German Constitutional Court; non-discrimination; reverse discrimination; European Court of Justice
    Date: 2011–03–23
  19. By: Chandra, Abhijeet; Kumar, Ravinder
    Abstract: Expected utility theory views the individual investment decision as a tradeoff between immediate consumption and deferred consumption. But individuals do not always prefer according to the classical theory of economics. Recent studies on individual investor behavior have shown that they do not act in a rational manner, rather several factors influences their investment decisions in stock market. The present study considers this theory of irrationality of individual investors and investigates into their behaviour relating to investment decisions. We examine whether some psychological and contextual factors affect individual investor behaviour and if yes which factors influences most. Extrapolating from previous literature on economics, finance and psychology, we surveyed individual investors to find what and to what extent affects their investment behaviour. Our conceptual analysis, empirical findings and the perspective framework that we have developed in the present study, provide five major factors that can influence individual investor behaviour in Indian stock market. The findings can be useful in profiling individual investors and designing appropriate investment strategies according to their personal characteristics, thereby enabling them optimum return on their investments.
    Keywords: Individual investor; Psychological biases; Investment behaviour; Indian stock market; Behavioural economics.
    JEL: C39 G11 C93
    Date: 2011–01–13
  20. By: Khalidi, Raja J.; Samour, Sobhi
    Abstract: The Palestinian statehood-by-2011 program, framed through neoliberal institution building, redefines and diverts the Palestinian liberation struggle. Focusing on its economic aspects, and in particular the underlying neoliberal thought that goes beyond narrow economic policy applications, this essay argues that the program cannot succeed either as the midwife of independence or as a strategy for Palestinian economic development. Its weaknesses, the authors contend, derive not only from neoliberalism’s inability to deliver sustainable and equitable economic growth worldwide, but also because neoliberal “governance” under occupation, however “good,” cannot substitute for the broader struggle for national rights nor ensure the Palestinian right to development.
    Keywords: Palestine economy; neoliberalism; development strategies
    JEL: N45 O53 A12 B50 P50
    Date: 2010–11–30
  21. By: Botta, Alberto
    Abstract: The World Bank (WB) Computational General Equilibrium model (CGE) by Claus Astrup and Sebastian Dessus (2001) is a cornerstone study on Palestine. It adopts a strictly neoclassical perspective, in which price-driven adjustments and the Armington/Constant-Elasticity-of-Transformation (CET) apparatus describe the functioning of the Palestinian economy and its foreign trade relations. This paper argues that certain empirical and factual inconsistencies prevent such a “pure” neoclassical approach from representing the Palestinian reality. We firstly argue that quantity-driven adjustments better describe economic adjustments within the Palestinian economy than price-driven adjustments do. Secondly, we stress the prevailing inter-industry nature of Palestinian foreign trade and the relevance of real income variables to explain expenditure allocation between domestic and imported goods. These aspects are hardly caught by the Armington/CET apparatus and require an alternative formalizing strategy. The final section of the paper describes a heterodox/structuralist perspective on Palestine.
    Keywords: Palestine; Foreign trade; Structuralist CGE models
    JEL: C68 F14 B50
    Date: 2010–10
  22. By: Libo Wu (Center for Energy Economics ans Strategy Studies, Fudan University); Jing Li (Department of World Economy, School of Economics, Fudan University); ZhongXiang Zhang (East-West Center)
    Abstract: This paper aims to examine the impacts of oil-price shocks on China’s price levels. To that end, we develop a partial transmission input-output model that captures the uniqueness of the Chinese market. We hypothesize and simulate price control, market factors and technology substitution - the three main factors that restrict the functioning of a price pass-through mechanism during oil-price shocks. Using the models of both China and the U.S., we separate the impact of price control from those of other factors leading to China’s price stickiness under oil-price shocks. The results show a sharp contrast between China and the U.S., with price control in China significantly preventing oil-price shocks from spreading into its domestic inflation, especially in the short term. However, in order to strengthen the economy’s resilience to oil-price shocks, the paper suggests a gradual relaxing of price control in China.
    JEL: Q43 Q41 Q48 O13 O53 P22 E31
    Date: 2011–03

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