nep-mic New Economics Papers
on Microeconomics
Issue of 2009‒08‒22
thirty papers chosen by
Vaishnavi Srivathsan
Indian Institute of Technology

  1. Global poverty reduction and Pareto-improving redistribution By Chu, Angus C.
  2. Optimal stabilization policy with endogenous firm entry By Aleksander Berentsen; Christopher J. Waller
  3. Bimodal Bidding in Experimental All-Pay Auctions By Christiane Ernst; Christian Thöni
  4. Playing the Admissions Game: Student Reactions to Increasing College Competition By John Bound; Brad Hershbein; Bridget Terry Long
  5. Labor-Market Matching with Precautionary Savings and Aggregate Fluctuations By Per Krusell; Toshihiko Mukoyama; Aysegul Sahin
  6. Taxes and Trading versus Intensity Standards: Second-Best Environmental Policies with Incomplete Regulation (Leakage) or Market Power By Stephen P. Holland
  7. Genuine Saving under Stochastic Growth By Li, Chuan-Zhong; Löfgren, Karl-Gustaf
  8. Spring Cleaning: Rural Water Impacts, Valuation and Property Rights Institutions By Michael Kremer; Jessica Leino; Edward Miguel; Alix Peterson Zwane
  9. The Deterrence Effect of Prison: Dynamic Theory and Evidence By David S. Lee; Justin McCrary
  10. Internal and external political competition By David Hugh-Jones
  11. Continuity of the value and optimal strategies when common priors change By Einy, Ezra; Haimanko, Ori; Tumendemberelz, Biligbaatar
  12. Easy come, easy go - The role of windfall money in lab and field experiments By Carlsson, Fredrik; He, Haoran; Martinsson, Peter
  13. Evaluating marginal policy changes and the average effect of treatment for individuals at the margin By Pedro Carneiro; James Heckman; Edward Vytlacil
  14. Financing Constraints and Entrepreneurship By William R. Kerr; Ramana Nanda
  15. The Rug Rat Race By Garey Ramey; Valerie A. Ramey
  16. Science and teaching: Two-dimensional signalling in the academic job market By Schneider, Andrea
  17. Does deceptive advertising reduce political participation? Theory and evidence By Daniel Houser; Sandra Ludwig; Thomas Stratmann
  18. Price Dispersion in the Online Auction Markets By Sha Luo
  19. Negative marginal tax rates and heterogeneity By Philippe Choné; Guy Laroque
  20. A New Paradigm: A Joint Test of Structural and Correlation Parameters in Instrumental Variables Regression When Perfect Exogeneity is Violated By Caner, Mehmet; Morrill, Melinda
  21. On the Relevance and Composition of Gifts within the Firm: Evidence from Field Experiments By Bellemare, Charles; Shearer, Bruce S.
  22. Hypothesis testing of multiple inequalities: the method of constraint chaining By Le-Yu Chen; Jerzy Szroeter
  23. Terror and the Costs of Crime By Gould, Eric D.; Stecklov, Guy
  24. Does Leaving Welfare Improve Health? Evidence for Germany By Martin Huber; Michael Lechner; Conny Wunsch
  25. Exploring the Robustness of the Balance of Payments-Constrained Growth Idea in a Multiple Good Framework By Arslan Razmi
  26. Cultural neuroeconomics of intertemporal choice By Takahashi, Taiki; Hadzibeganovic, Tarik; Cannas, Sergio; Makino, Takaki; Fukui, Hiroki; Kitayama, Shinobu
  27. How universal is happiness? By Veenhoven, Ruut
  28. The Political Economy of Regulatory Risk By Roland Strausz
  29. Patience and Prosperity By Strulik, Holger
  30. Population and Health Policies By Schultz, T. Paul

  1. By: Chu, Angus C.
    Abstract: Can a transfer of wealth from the US to least developed countries be Pareto improving? We analyze this question in an open-economy innovation-driven growth model, in which the high-income (low-income) country produces innovative (homogenous) goods. We find that wealth redistribution to the low-income country simultaneously reduces global inequality and stimulates innovation through an increase in labor supply in the high-income country. Given that the market equilibrium of R&D-growth models is usually inefficient due to R&D externalities, the wealth redistribution may lead to a Pareto improvement, which occurs if the discount rate is sufficiently low or R&D productivity is sufficiently high.
    Keywords: innovation-driven growth; wealth redistribution; Pareto improvement
    JEL: O41 O31 F43
    Date: 2009–08
  2. By: Aleksander Berentsen; Christopher J. Waller
    Abstract: We study optimal monetary stabilization policy in a dynamic stochastic general equilibrium model where money is essential for trade and firm entry is endogenous. We do so when all prices are flexible and also when some are sticky. Due to an externality affecting firm entry, the central bank deviates from the Friedman rule. Calibration exercises suggest that the nominal interest rate should have been substantially smoother than the data if preference shocks were the main disturbance and much more volatile if productivity was the driving shock. This result is a direct consequence of policy actions to control entry.
    Keywords: Monetary policy ; Econometric models
    Date: 2009
  3. By: Christiane Ernst; Christian Thöni
    Abstract: We report results from experimental first-price, sealed-bid, all-pay auctions for a good with a common and known value. We observe bidding strategies in groups of two and three bidders and under two extreme information conditions. As predicted by the Nash equilibrium, subjects use mixed strategies. In contrast to the prediction under standard assumptions bids are drawn from a bimodal distribution: very high and very low bids are much more frequent than intermediate bids. Standard risk preferences cannot account for our results. However, bidding behavior is consistent with the predictions of a model with reference dependent preferences as proposed by the prospect theory.
    Keywords: All-pay Auction; Prospect Theory, Experiment
    JEL: D44 D72 D80 C91
    Date: 2009–08
  4. By: John Bound; Brad Hershbein; Bridget Terry Long
    Abstract: Gaining entrance to a four-year college or university, particularly a selective institution, has become increasingly competitive over the last several decades. We document this phenomenon and show how it has varied across different parts of the student ability distribution and across region, with the most pronounced increases in competition being found among higher-ability students and in the Northeast. Additionally, we explore how the college preparatory behavior of high school seniors has changed in response to the growth in competition. We also discuss the theoretical implications of increased competition on longer-term measures of learning and achievement and attempt to test them empirically; the evidence and related literature, while limited, suggests little long-term benefit.
    JEL: I2 J24
    Date: 2009–08
  5. By: Per Krusell; Toshihiko Mukoyama; Aysegul Sahin
    Abstract: We analyze a Bewley-Huggett-Aiyagari incomplete-markets model with labor-market frictions. Consumers are subject to idiosyncratic employment shocks against which they cannot insure directly. The labor market has a Diamond-Mortensen-Pissarides structure: firms enter by posting vacancies and match with workers bilaterally, with match probabilities given by an aggregate matching function. Wages are determined through Nash bargaining. We also consider aggregate productivity shocks, and a complete set of contingent claims conditional on this risk. We use the model to evaluate a tax-financed unemployment insurance scheme. Higher insurance is beneficial for consumption smoothing, but because it raises workers' outside option value, it discourages firm entry. We find that the latter effect is more potent for welfare outcomes; we tabulate the effects quantitatively for different kinds of consumers. We also demonstrate that productivity changes in the model---in steady state as well as stochastic ones---generate rather limited unemployment effects, unless workers are close to indifferent between working and not working; thus, recent findings are corroborated in our more general setting.
    JEL: D31 D52 E32 J63 J64
    Date: 2009–08
  6. By: Stephen P. Holland
    Abstract: This paper investigates whether an emissions tax (equivalent to an emissions cap) maximizes social welfare (defined as the sum of consumer and producer surplus) in the presence of incomplete regulation (leakage) or market power by analyzing an intensity standard regulating emissions per unit of output. With no other market failures, an intensity standard indeed yields lower welfare, although combining it with a consumption tax eliminates this discrepancy. For incomplete regulation, I show that under certain conditions an intensity standard can yield higher welfare than any emissions tax (including the optimal emissions tax). This result persists even with the addition of a consumption tax, which ameliorates output distortions and can sometimes help the intensity standard attain the first best (when an emissions tax/consumption tax combination cannot). Comparing intensity standards to output-based updating shows that the latter yields higher welfare because of its additional flexibility. Finally, I show that with market power an intensity standard can yield higher welfare than the optimal emissions tax. The intuition of these results is relatively straightforward. The weakness of an intensity standard is that it relies more on substitution effects than output effects to reduce emissions. With incomplete regulation or market power, this disadvantage may be helpful since leakage may offset gains from reducing output and since market power already inefficiently reduces output.
    JEL: H23 Q40 Q50
    Date: 2009–08
  7. By: Li, Chuan-Zhong (Department of Economics); Löfgren, Karl-Gustaf (Department of Economics, Umeå University)
    Abstract: The concept of genuine saving appeared for the first time in a proof of a now well known theorem in Weitzman (1976). It was reinvented and used as a local welfare indicator by Pearce and Atkinson (1993). The purpose of this paper is to generalize this welfare measure to a stochastic Brownian motion context. We will use a stochastic version of a growth model introduced by Ramsey (1928). The particular model was developed by Merton (1975). Although the model is simple, it is enough to understand what its welfare results will look like in a general case.
    Keywords: Welfare measures under growth and uncertainty; diversified risk versus undiversified risk
    JEL: D60 O40
    Date: 2009–08–13
  8. By: Michael Kremer; Jessica Leino; Edward Miguel; Alix Peterson Zwane
    Abstract: In many societies, social norms create common property rights in natural resources, limiting incentives for private investment. This paper uses a randomized evaluation in Kenya to measure the health impacts of investments to improve source water quality through spring protection, estimate the value that households place on spring protection, and simulate the welfare impacts of alternative water property rights norms and institutions, including common property, freehold private property, and alternative “Lockean†property rights norms. We find that infrastructure investments reduce fecal contamination by 66% at naturally occurring springs, cutting child diarrhea by one quarter. While households increase their use of protected springs, travel-cost based revealed preference estimates of households’ valuations are only one-half stated preference valuations and are much smaller than levels implied by health planners’ typical valuations of child mortality, consistent with models in which the demand for health is highly income elastic. Simulations suggest that, at current income levels, private property norms would generate little additional investment while imposing large static costs due to spring owners’ local market power, but that private property norms might function better than common property at higher income levels. Alternative institutions, such as “modified Lockean†property rights, government investment or vouchers for improved water, could yield higher social welfare.
    JEL: C93 H75 O13 Q25 Q51
    Date: 2009–08
  9. By: David S. Lee (Princeton University and NBER); Justin McCrary (University of California, Berkeley and NBER)
    Abstract: Using administrative, longitudinal data on felony arrests in Florida, we exploit the discontinuous increase in the punitiveness of criminal sanctions at 18 to estimate the deterrence effect of incarceration. Our analysis suggests a 2 percent decline in the log-odds of offending at 18, with standard errors ruling out declines of 11 percent or more. We interpret these magnitudes using a stochastic dynamic extension of Becker’s (1968) model of criminal behavior. Calibrating the model to match key empirical moments, we conclude that deterrence elasticities with respect to sentence lengths are no more negative than -0.13 for young offenders.
    JEL: D9 K4
    Date: 2009–07
  10. By: David Hugh-Jones
    Abstract: All rulers face political competition, both from rivals within their state, and from other states to which their subjects may exit. In a simple model, both kinds of competition are substitutes. Internal competition (democracy) bene?ts citizens by allowing them to replace rent-seeking rulers. But it also weakens these rulers' incentives to invest. External competition forces rent-seeking rulers to invest so as to prevent migration. As a result, citizens are less willing to ?ght for democracy, and rulers are less eager to oppose it, when external competition is high. In a panel of countries, there are fewer changes towards democracy when states have low GDP relative to their neighbours.
    Keywords: political competition, dictatorship, democracy, transitions
    JEL: D72 H77
    Date: 2009–08–10
  11. By: Einy, Ezra; Haimanko, Ori; Tumendemberelz, Biligbaatar
    Abstract: We show that the value of a zero-sum Bayesian game is a Lipschitz continuous function of the players' common prior belief, with respect to the total variation metric (that induces the topology of setwise convergence on beliefs). This is unlike the case of general Bayesian games, where lower semi-continuity of Bayesian equilibrium payoffs rests on the convergence of conditional beliefs (Engl (1994), Kajii and Morris (1998)). We also show upper, and approximate lower, semi-continuity of the optimal strategy correspondence with respect to the total variation norm, and discuss approximate lower semi-continuity of the Bayesian equilibrium correspondence in the context of zero-sum games.
    Keywords: Zero-Sum Bayesian Games, Common Prior, Value, Optimal Strategies, Upper Semi-Continuity, Lower Approximate Semi-Continuity
    JEL: C72
    Date: 2009–07
  12. By: Carlsson, Fredrik (Department of Economics, School of Business, Economics and Law, Göteborg University); He, Haoran (Department of Economics, School of Business, Economics and Law, Göteborg University); Martinsson, Peter (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: A growing number of experimental studies focus on the differences between the lab and the field. Important in this issue is the role of windfall money. By conducting a dictator game, where the recipient is a charity organization, in exactly the same way in the laboratory and in the field, we investigate the influence of windfall and earned endowment on behavior. We find a strong effect on donation amounts of earned endowment in the lab and the field. Subjects donate more if the endowment is a windfall gain. Thus, windfall money is important not only in a lab environment. However, even for earned endowment, there is a significant difference in behavior between the lab and the field.<p>
    Keywords: Charitable giving; Dictator game; Laboratory experiment; Field experiment; Windfall money
    JEL: C91 C93 D64
    Date: 2009–08–11
  13. By: Pedro Carneiro (Institute for Fiscal Studies and University College London); James Heckman (Institute for Fiscal Studies and University of Chicago); Edward Vytlacil (Institute for Fiscal Studies and Columbia University)
    Abstract: <p>This paper develops methods for evaluating marginal policy changes. We characterize how the effects of marginal policy changes depend on the direction of the policy change, and show that marginal policy effects are fundamentally easier to identify and to estimate than conventional treatment parameters. We develop the connection between marginal policy effects and the average effect of treatment for persons on the margin of indifference between participation in treatment and nonparticipation, and use this connection to analyze both parameters. We apply our analysis to estimate the effect of marginal changes in tuition on the return to going to college.</p>
    Date: 2009–07
  14. By: William R. Kerr (Harvard Business School, Entrepreneurial Management Unit); Ramana Nanda (Harvard Business School, Entrepreneurial Management Unit)
    Abstract: Abstract is not available at this time
    Date: 2009–08
  15. By: Garey Ramey; Valerie A. Ramey
    Abstract: After three decades of decline, the amount of time spent by parents on childcare in the U.S. began to rise dramatically in the mid-1990s. Moreover, the rise in childcare time was particularly pronounced among college-educated parents. Why would highly educated parents increase the amount of time they allocate to childcare at the same time that their own market returns have skyrocketed? After finding no empirical support for standard explanations, such as selection or income effects, we offer a new explanation. We argue that increased competition for college admissions may be an important source of these trends. The number of college-bound students has surged in recent years, coincident with the rise in time spent on childcare. The resulting “cohort crowding†has led parents to compete more aggressively for college slots by spending increasing amounts of time on college preparation. Our theoretical model shows that, since college-educated parents have a comparative advantage in college preparation, rivalry leads them to increase preparation time by a greater amount than less-educated parents. We provide empirical support for our explanation with a comparison of trends between the U.S. and Canada, and a comparison across racial groups in the U.S.
    JEL: J13 J24
    Date: 2009–08
  16. By: Schneider, Andrea (Helmut Schmidt University, Hamburg)
    Abstract: Post-docs signal their ability to do science and teaching to get a tenure giving universities the possibility of separating highly talented agents from the low talented ones. However separating that means signalling effort for the highly talented becomes even more important in a two-dimensional signalling case. This attracts notice to time constraints. Under weak conditions separating equilibria do not exist if time constraints are binding. The existing equilibria are more costly but without additional information compared to the one-dimensional case. Considering this, the efficiency of the current two-dimensional academic job market signalling can be improved by switching to a one-dimensional one.
    Keywords: Multi-dimensional signalling; Academic job market; Teaching and Research
    JEL: D82 I23 J41
    Date: 2009–08–10
  17. By: Daniel Houser (George Mason University); Sandra Ludwig (LMU Munich); Thomas Stratmann (George Mason University)
    Abstract: We examine the effect of deceptive advertising on voting decisions in elections. We model two-candidate elections in which 1) voters are uncertain about candidates' attributes; and 2) candidates can inform voters of their attributes by sending advertisements. We compare political campaigns with truthful advertising to campaigns in which there is a small chance of deceptive advertising. Our theoretical model predicts that informed voters should act on the information contained in the advertisement. Thus, even in deceptive campaigns, informed voters should either vote for the candidate from whom they received an advertisement or abstain from voting; they should never vote for the opposing candidate. We test our model in laboratory elections, and, as predicted, find higher participation among informed voters in elections that allow only for truthful advertisement than in elections that permit deceptive advertising. Contrary to our theoretical predictions, we find substantial differences in voting behavior between truthful and deceptive campaigns. When faced with a small probability of deception, informed voters in deceptive campaigns vote for the candidate who did not send an advertisement, thereby making sub-optimal voting choices. Even when there is only a small chance that an advertisement is deceptive, voters are more likely to elect the candidate who generates less welfare.
    Date: 2009–08
  18. By: Sha Luo
    Abstract: Along the standard measures of price dispersion, this paper proposes a new method, the residual variance model, to examine the levels of price and price variation within and across 10 kinds of physically identical products on eBay UK. The results find that the price levels and price dispersions on eBay are lower than the ones reported in the prior literature regarding other online markets, but the ’law of one price’ has not prevailed in any sample category. It further suggests an important interaction between the extent of price dispersion and the heterogeneities of consumers and sellers.
    Keywords: Price Dispersion, Online Auction Markets.
    JEL: D44 D49
    Date: 2009–07–07
  19. By: Philippe Choné; Guy Laroque (Institute for Fiscal Studies and INSEE - CREST)
    Abstract: <p>Heterogeneity is likely to be an important determinant of the shape of optimal tax schemes. This article addresses the issue in a model à la Mirrlees with a continuum of agents. The agents differ in their productivities and opportunity costs of work, but their labor supplies depend only on a unidimensional combination of their two characteristics. Conditions are given under which the standard result that marginal tax rates are everywhere non-negative holds. This is in particular the case when work opportunity costs are distributed independently of productivities. But one can also get negative marginal tax rates: economies where negative tax rates are optimal at the bottom of the income distribution are studied, and a numerical illustration is given, based on UK data. </p>
    Keywords: Optimal taxation, heterogeneity, welfare.
    JEL: H21 H31
    Date: 2009–05
  20. By: Caner, Mehmet; Morrill, Melinda
    Abstract: The instrumental variables strategy is commonly employed in empirical research. For correct inference using this econometric technique, the instruments must be perfectly exogenous and relevant. In fact, the standard t-ratio test statistic used in this context yields unreliable and often inaccurate results even when there is only a slight violation of the exclusion restriction. It is crucial to realize that to make reliable inferences on the structural parameters we need to know the true correlation between the structural error and the instruments. The main innovation in this paper is to identify an appropriate test in this context: a joint null hypothesis of the structural parameters with the correlation between the instruments and the structural error term. Since correlation cannot be estimated, we propose a test statistic involving a grid search over correlation values. To address inference under violations of exogeneity, significant contributions have been made in the recent literature by assuming some degree of non-exogeneity. We introduce a new approach by deriving a modified t-statistic that corrects for the bias associated with non-exogeneity of the instrument. A key advantage of our approach over that of the previous literature is that we do not need to make any assumptions about the degree of violation of exogeneity either as possible values or prior distributions. In particular, our method is not a form of sensitivity analysis. Since our modified test statistic is continuous and monotonic in correlation it is easy to conduct inference by a simple grid search. Even though the joint null may seem to be limiting in interpreting rejection, we can still make accurate inferences on the structural parameters because of a feature of the grid search over correlation values. The procedure for calculating the modified coefficients and statistics is illustrated with two empirical examples.
    Keywords: Violation of exogeneity; Instrumental variables regression: Joint test
    JEL: C20
    Date: 2009–08–14
  21. By: Bellemare, Charles (Université Laval); Shearer, Bruce S. (Université Laval)
    Abstract: We investigate the economic relevance and the composition of gifts within a firm where output is contractible. We develop a structural econometric model that identifies workers' optimal reaction to monetary gifts received from their employer. We estimate the model using data from two separate field experiments, both conducted within a tree-planting firm. We use the estimated structural parameters to generalize beyond the experiment, simulating how workers would react to different gifts on the part of the firm, within different labour-market settings. We find that gifts have a role to play within this firm, increasing in importance when the workers' outside alternatives deteriorate. Profit-maximizing gifts would increase profits within slack labour markets by up to 10% on average and by up to 17% for certain types of workers. These gifts represent significant increases in worker earnings; the average gift paid to workers attains 22% of average expected earnings in the absence of gifts. We find that gifts should be given by setting piece-rates above the market-clearing level rather than through fixed wages.
    Keywords: gift giving, structural models, field experiments
    JEL: J33 M52 C93
    Date: 2009–08
  22. By: Le-Yu Chen (Institute for Fiscal Studies and Academia Sinica); Jerzy Szroeter
    Abstract: <p><p>Econometric inequality hypotheses arise in diverse ways. Examples include concavity restrictions on technological and behavioural functions, monotonicity and dominance relations, one-sided constraints on conditional moments in GMM estimation, bounds on parameters which are only partially identified, and orderings of predictive performance measures for competing models. In this paper we set forth four key properties which tests of multiple inequality constraints should ideally satisfy. These are (1) (asymptotic) exactness, (2) (asymptotic)similarity on the boundary, (3) absence of nuisance parameters from the asymptotic null distribution of the test statistic, (4) low computational complexity and boostrapping cost. We observe that the predominant tests currently used in econometrics do not appear to enjoy all these properties simultaneously. We therefore ask the question : Does there exist any nontrivial test which, as a mathematical fact, satisfies the first three properties and, by any reasonable measure, satisfies the fourth ? Remarkably the answer is affirmative. The paper demonstrates this constructively. We introduce a method of test construction called chaining which begins by writing multiple inequalities as a single equality using zero-one indicator functions. We then smooth the indicator functions. The approximate equality thus obtained is the basis of a well-behaved test. This test may be considered as the baseline of a wider class of tests. A full asymptotic theory is provided for the baseline. Simulation results show that the finite-sample performance of the test matches the theory quite well.</p></p>
    Date: 2009–06
  23. By: Gould, Eric D. (Hebrew University, Jerusalem); Stecklov, Guy (Hebrew University, Jerusalem)
    Abstract: This paper argues that terrorism, beyond its immediate impact on innocent victims, also raises the costs of crime, and therefore, imposes a negative externality on potential criminals. Terrorism raises the costs of crime through two channels: (i) by increasing the presence and activity of the police force, and (ii) causing more people to stay at home rather than going out for leisure activities. Our analysis exploits a panel of 120 fatal terror attacks and all reported crimes for 17 districts throughout Israel between 2000 and 2005. After controlling for the fixed-effect of each district and for district-specific time trends, we show that terror attacks reduce property crimes such as burglary, auto-theft, and thefts-from-cars. Terror also reduces assaults and aggravated assaults which occur in private homes, but increases incidents of trespassing and "disrupting the police." Taken as a whole, the results are consistent with a stronger deterrence effect produced by an increased police presence after a terror attack. A higher level of policing is likely to catch more people trespassing, and at the same time, reduce the number of property crimes. The decline in crimes committed in private houses is likely an indication that the tendency for individuals to stay home after a terror attack further increases the costs of crime.
    Keywords: crime, police, terror
    JEL: K4
    Date: 2009–08
  24. By: Martin Huber; Michael Lechner; Conny Wunsch
    Abstract: Using exceptionally rich linked administrative and survey information on German welfare recipients we investigate the health effects of transitions from welfare to employment and of assignments to welfare-to-work programmes. Applying semi-parametric propensity score matching estimators we find that employment substantially increases (mental) health. The positive effects are mainly driven by males and individuals with bad initial health conditions and are largest for males with poor health. In contrast, the effects of welfare-to-work pro-grammes, including subsidized jobs, are ambiguous and statistically insignificant for most outcomes. Robustness checks that include a semi-parametric instrumental variable approach do not provide reasons for concern.
    Keywords: Welfare programs, health effects
    JEL: I38 J68 I10
    Date: 2009–08
  25. By: Arslan Razmi (University of Massachusetts Amherst)
    Abstract: This paper derives the balance of payments-constrained growth (BPCG) model as a special case of a three good framework that incorporates exportables, importables, and non-tradables. The conditions under which the canonical form of the BPCG rate can be derived are made explicit and the assumptions scrutinized. It is shown that the presence of non-tradables, substitutability between exportables and importables, and incomplete specialization in expenditure generally dampen the externally-constrained growth rate. These findings help explain why empirical estimates tend to overestimate the BPCG rate. Overall our findings underscore the observation that tests of the BPCG hypothesis are as much a test of the internal structure of the economy under consideration. JEL Categories:
    Date: 2009–08
  26. By: Takahashi, Taiki; Hadzibeganovic, Tarik; Cannas, Sergio; Makino, Takaki; Fukui, Hiroki; Kitayama, Shinobu
    Abstract: According to theories of cultural neuroscience, Westerners and Easterners may have distinct styles of cognition (e.g., different allocation of attention). Previous research has shown that Westerners and Easterners tend to utilize analytical and holistic cognitive styles, respectively. On the other hand, little is known regarding the cultural differences in neuroeconomic behavior. For instance, economic decisions may be affected by cultural differences in neurocomputational processing underlying attention; however, this area of neuroeconomics has been largely understudied. In the present paper, we attempt to bridge this gap by considering the links between the theory of cultural neuroscience and neuroeconomic theory of the role of attention in intertemporal choice. We predict that (i) Westerners are more impulsive and inconsistent in intertemporal choice in comparison to Easterners, and (ii) Westerners more steeply discount delayed monetary losses than Easterners. We examine these predictions by utilizing a novel temporal discounting model based on Tsallis' statistics (i.e. a q-exponential model). Our preliminary analysis of temporal discounting of gains and losses by Americans and Japanese confirmed the predictions from the cultural neuroeconomic theory. Future study directions, employing computational modeling via neural networks, are briefly outlined and discussed.
    Keywords: Cultural neuroscience; neuroeconomics; intertemporal choice; attention allocation; Tsallis’ statistics; neural networks
    JEL: C63 C02 Z19 C49 C91
    Date: 2009
  27. By: Veenhoven, Ruut
    Abstract: There is a longstanding discussion on whether happiness is culturally relative or not. The following questions are addressed in that context: 1) Do we all assess how much we like our life? 2) Do we appraise our life on the same grounds? 3) Are the conditions for happiness similar for all of us? 4) Are the consequences of happiness similar in all cultures? 5) Do we all seek happiness? 6) Do we seek happiness in similar ways? 7) Do we enjoy life about equally much? The available data suggest that all humans tend to assess how much they like their life. The evaluation draws on affective experience, which is linked to gratification of universal human needs and on cognitive comparison which is framed by cultural standards of the good life. The overall appraisal seems to depend more on the former, than on the latter source of information. Conditions for happiness appear to be quite similar across the world and so are the consequences of enjoying life or not. There is more cultural variation in the valuation of happiness and in beliefs about conditions for happiness. The greatest variation is found in how happy people are.
    Keywords: happiness; life satisfaction; cultural relativism; human nature; utilitarianism
    JEL: Z10 I00 D60
    Date: 2008–10–13
  28. By: Roland Strausz
    Abstract: I investigate the argument that, in a two–party system with different regulatory objectives, political uncertainty generates regulatory risk. I show that this risk has a fluctuation effect that hurts both parties and an output–expansion effect that benefits one party. Consequently, at least one party dislikes regulatory risk. Moreover, both political parties gain from eliminating regulatory risk when political divergence is small or the winning probability of the regulatory–risk–averse party is not too large. Because of a commitment problem, direct political bargaining is insufficient to eliminate regulatory risk. Politically independent regulatory agencies solve this commitment problem.
    Keywords: regulation, regulatory risk, political economy, independent regulatory agency
    JEL: D82
    Date: 2009–08
  29. By: Strulik, Holger
    Abstract: This paper introduces wealth-dependent time preference into a simple model of endogenous growth. The model generates adjustment dynamics in line with the historical facts on savings and economic growth in Europe from the High Middle Ages to today. Along a virtuous cycle of development more wealth leads to more patience, which leads to more savings and even higher wealth. Savings rates and income growth rates are thus jointly increasing during the process of development until they converge towards constants along a balanced growth path. During the transition to modern growth an economy in which the association of wealth and patience is stronger overtakes an otherwise identical economy and generates temporarily diverging growth rates. It is shown how wealth-dependent time preference can explain the existence of a locally stable poverty trap as well as the phenomenon of simultaneously falling interest rates and rising growth rates.
    Keywords: economic growth, savings, time preference, poverty trap, moral consequences of economic growth.
    JEL: O11 O41 D90 P48
    Date: 2009–07
  30. By: Schultz, T. Paul (Yale University)
    Abstract: The program evaluation literature for population and health policies is in flux, with many disciplines documenting biological and behavioral linkages from fetal development to late life mortality, chronic disease, and disability, though their implications for policy remain uncertain. Both macro- and microeconomics seek to understand and incorporate connections between economic development and the demographic transition. The focus here is on research methods, findings, and questions that economists can clarify regarding the causal relationships between economic development, health outcomes, and reproductive behavior, which operate in many directions, posing problems for identifying causal pathways. The connection between conditions under which people live and their expected life span and health status refers to "health production functions." The relationships between an individual's stock of health and productivity, well-being, and duration of life encompasses the "returns to health human capital." The control of reproduction improves directly the well-being of women, and the economic opportunities of her offspring. The choice of population policies may be country specific and conditional on institutional setting, even though many advances in biomedical and public health knowledge, including modern methods of birth control, are now widely available. Evaluation of a policy intervention in terms of cost effectiveness is typically more than a question of technological efficiency, but also the motivation for adoption, and the behavioral responsiveness to the intervention of individuals, families, networks, and communities. Well-specified research strategies are required to address (1) the economic production of health capacities from conception to old age; (2) the wage returns to increasing health status attributable to policy interventions; (3) the conditions affecting fertility, family time allocation, and human capital investments; and (4) the consequences for women and their families of policies which change the timing as well as number of births.
    Keywords: fertility and family planning, biology of health human capital, economic development, health
    JEL: D13 I18 J13 O12
    Date: 2009–08

This nep-mic issue is ©2009 by Vaishnavi Srivathsan. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.