nep-mic New Economics Papers
on Microeconomics
Issue of 2009‒08‒30
twenty papers chosen by
Vaishnavi Srivathsan
Indian Institute of Technology

  1. Applications of Contest Theory in Sports By Helmut Dietl; Egon Franck; Martin Grossmann; Markus Lang
  2. The Global-Local Interplay of MNE and Non-MNE Firms By Johansson, Börje; Lööf, Hans
  3. Equity Financing and Innovation: is Europe different from the United States? By Martinsson, Gustav
  4. FIRM ENTRY, FIRM EXIT, AND URBAN-BIASED GROWTH By Yu, Li; Jolly, Robert W.; Orazem, Peter
  5. Explaining the Price of Voluntary Carbon Offsets By Marc N. Conte; Matthew J. Kotchen
  6. Evaluating Microfoundations for Aggregate Price Rigidities: Evidence from Matched Firm- Level Data on Product Prices and Unit Labor Cost By Carlsson, Mikael; Nordström Skans, Oskar
  7. Piracy on the internet: Accommodate it or fight it? A dynamic approach By Herings P. Jean-Jacques; Peeters Ronald; Yang Michael S.
  8. Spatial competition for passengers and its influence on efficiency of European airports By Pavlyuk, Dmitry
  9. Dependence structure of risk factors and diversification effects By Chen Zou
  10. Repetition of Interaction and Learning: An Experimental Analysis By Bradley R. Staats; Francesca Gino; Gary P. Pisano
  11. Constructing Gender in the Economics Lab By Boschini, Anne; Muren, Astri; Persson, Mats
  12. Sovereign bond market integration: the euro, trading platforms and financial crises By Schulz, Alexander; Wolff, Guntram B.
  13. Non-renewable Resource Prices: Structural Breaks and Long Term Trends By Sharma, Abhijit; Balcombe, Kelvin; Fraser, Iain
  14. Residential Rents and Price Rigidity: Micro structure and macro consequences By SHIMIZU Chihiro; NISHIMURA Kiyohiko G.; WATANABE Tsutomu
  15. Combining parametric and nonparametric approaches for more efficient time series prediction By Dabo-Niang, Sophie; Francq, Christian; Zakoian, Jean-Michel
  16. An Extended Global Simulation Model: Analysis of Tariffs & Anti-Dumping Policy Impacts on Prices, Output, Incomes, and Employment By Joseph Francois
  17. Utility, games, and narratives By Fioretti, Guido
  18. Social stratification and out-of-school learning By Andersson, Christian; Johansson, Per
  19. How Should Monetary Policy Respond to Exogenous Changes in the Relative Price of Oil? By MICHAEL PLANTE
  20. Correlated Equilibrium via Hierarchies of Beliefs By Du, Songzi

  1. By: Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich); Egon Franck (Institute for Strategy and Business Economics, University of Zurich); Martin Grossmann (Institute for Strategy and Business Economics, University of Zurich); Markus Lang (Institute for Strategy and Business Economics, University of Zurich)
    Abstract: This paper explicates how the theory of contests is applied to professional team sports leagues. In the first part, we present the traditional Tullock contest and explain some basic properties of the equilibrium. We will then extend this static contest to a two-period model in order to analyze dynamic aspects of contests. In the second part, we will present applications of contest theory in sports. In particular, we will show how the Tullock framework is applied to models of team sports leagues. For this purpose, we will first explain the value creation process in team sports leagues and show how club revenues are related to the contest success function. Then, we present some basic modeling issues; for instance, we show how the assumption of flexible vs. fixed talent supply depends on the league under consideration and how it influences the equilibria. Furthermore, we explicate the effect of revenue sharing on competitive balance in the different models. Then we address the relationship between competitive balance and social welfare. Finally, we illustrate why many clubs tend to "overinvest" in playing talent in many team sports leagues.
    Keywords: Contest theory, Tullock contest, sports leagues, competitive balance, revenue sharing, social welfare, overinvestment
    JEL: C72 L83
    Date: 2009–08
  2. By: Johansson, Börje (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: During a sequence of decades we can observe a co-evolution of globalization through network formation of multinational (MNE) firms and concentration in specific places due to agglomerative forces. First, innovation ideas arrive at a faster speed to firms with past experience of innovation activities and with established export market contacts. Second, innovativeness is strongly dependent on corporate and ownership structure. Third, the returns to innovation efforts are positively influenced by firms’ capability to exploit extended markets. All these phenomena can be theoretically explained by MNE’s capacity to coordinate global supply chains and orchestrate localized R&D activities and knowledge flows. The paper illuminates how attributes of MNEs and non-MNEs differ, and how these differences affect the productivity and export intensity. It also shows how agglomeration economies affect MNEs and non-MNEs.
    Keywords: globalization; agglomeration; corporate ownership structure; innovation; exports; productivity
    JEL: C16 F14 L25 O33 R12 R30
    Date: 2009–08–26
  3. By: Martinsson, Gustav (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: During the mid and late 1990s young, high-tech firms in the U.S. experienced a supply shift in both internal and external equity fueling a finance driven boom in corporate R&D. I estimate dynamic R&D regression models for high-tech firms, separately for the U.K. and Continental Europe, and find significant cash flow effects for newly listed firms in both samples, but only the new, high-tech firms in the U.K. experienced a supply shift in external equity as well. The findings of this paper suggest a channel through which market based financial systems outperform the bank based economies of Continental Europe.
    Keywords: Financing constraints; R&D; Stock Issues; Econometrics; Financial markets; international economics
    JEL: G32 O32
    Date: 2009–08–26
  4. By: Yu, Li; Jolly, Robert W.; Orazem, Peter
    Abstract: We introduce a taxonomy that classifies industries using three criteria: net growth in the number of firms; the interrelationship between firm entry and firm exit; and the degree of urban-bias in industry growth. We show that in 9 of 15 two-digit NAICS industries investigated, there is evidence of urban bias consistent with a comparative advantage to starting a business in urban markets. The urban advantage is due primarily to faster firm entry rates. Urban and rural firms have similar firm exit rates, consistent with a presumption that there are equal expected profit rates conditional on entry across markets. Urban areas grow faster because they induce faster firm entry and not because urban firms are more likely to succeed.
    Keywords: Entry – Exit Pattern, Taxonomy, Urban-Bias, Expansion, Churning, Entrepreneurship, Economic Development
    JEL: L2
    Date: 2009–08–27
  5. By: Marc N. Conte; Matthew J. Kotchen
    Abstract: This paper investigates factors that explain the large variability in the price of voluntary carbon offsets. We estimate hedonic price functions using a variety of provider- and project-level characteristics as explanatory variables. We find that providers located in Europe sell offsets at prices that are approximately 30 percent higher than providers located in either North America or Australasia. Contrary to what one might expect, offset prices are generally higher, by roughly 20 percent, when projects are located in developing or least-developed nations. But this result does not hold for forestry-based projects. We find evidence that forestry-based offsets sell at lower prices, and the result is particularly strong when projects are located in developing or least-developed nations. Offsets that are certified under the Clean Development Mechanism or the Gold Standard, and therefore qualify for emission reductions under the Kyoto Protocol, sell at a premium of more than 30 percent; however, third-party certification from the Voluntary Carbon Standard, one of the largest certifiers, is associated with a price discount. Variables that have no effect on offset prices are the number of projects that a provider manages and a provider’s status as for-profit or not-for-profit.
    JEL: Q2 Q42 Q5
    Date: 2009–08
  6. By: Carlsson, Mikael (Research Department, Central Bank of Sweden); Nordström Skans, Oskar (Uppsala University and IZA)
    Abstract: Using data on product-level prices matched to the producing firm´s unit labor cost, we reject the hypothesis of a full and immediate pass-through of marginal cost. Since we focus on idiosyncratic variation, this does not fit the predictions of the Ma´ckowiak and Wiederholt (2009) version of the Rational Inattention Model. Neither do we find that firms react strongly to predictable marginal cost changes, as expected from the Mankiw and Reis (2002) Sticky Information Model. We find that, in line with Staggered Contracts models, firms consider both the current and future expected marginal cost when setting prices with a sum of coeffients cients not significantly different from unity.
    Keywords: Price Setting; Business Cycles; Information; Micro Data
    JEL: D80 E30 L16
    Date: 2009–08–01
  7. By: Herings P. Jean-Jacques; Peeters Ronald; Yang Michael S. (METEOR)
    Abstract: This paper uses a dynamic stochastic model to solve for the optimal pricing policy of themusic recording companies in the presence of P2P file-sharing networks eroding their CDsales. We employ a policy iteration algorithm on a discretized state space to numericallycompute the optimal price policy. The realistically calibrated model reflects the real-worldfigures we observe and provides estimates of figures we can not observe, such as changesin total welfare. The results suggest that, thanks to the existence of P2P networks, totalwelfare in 2008 in the U.S. is about $25.6 billion more per annum than in 1999 before P2Pwas introduced. Moreover, the results predict that the current trend of decreasing CDsales will continue until around the year 2020 when it will stabilize at around 231.2 millioncopies per year, comparing to the industry all-time high of 938.9 million in 1999. Thecomparative static analysis shows that full enforcement of intellectual property rights,although helpful for the industrial profit, may have adverse effect on total welfare.
    Keywords: microeconomics ;
    Date: 2009
  8. By: Pavlyuk, Dmitry
    Abstract: This study deals with estimation of European airports' efficiency values and their interrelation with a level of competition pressure for passengers among airports. In this paper we present a new adaptive definition of airport's catchment area. Using this definition we develop an indicator of a level of competition pressure, based on overlapping of airport's potential catchment areas. We apply a stochastic frontier model to estimate efficiencies of airports. The method includes the construction of a production frontier for a sample of airports and estimation of individual airports' efficiency values as distances from this frontier. We use a classic production approach to airport activities, where an airport enterprise uses labour resources (a number of employees) and infrastructure (a number of runways, gates, check-ins and parking spaces) for transportation of passengers. Also we use a re-sampling jack-knife technique to test the reliability of airports' efficiencies estimates. We investigate a relationship between a level of competition pressure and airports' operation efficiencies in case of imperfect spatial competition for passengers.
    Keywords: stochastic frontier; efficiency; airport; spatial competition
    JEL: L93 C51
    Date: 2009–08–14
  9. By: Chen Zou
    Abstract: In this paper, we study the aggregated risk from dependent risk factors under the multivariate Extreme Value theory (EVT) framework. We consider the heavy-tailness of the risk factors as well a non-parametric tail dependence structure. This allows a large scope of models on the dependency. We assess the Value-at-Risk of a diversified portfolio constructed from dependent risk factors. Moreover, we examine the diversification effects under this setup.
    Keywords: Aggregated risk; diversification effect; multivariate Extreme Value Theory
    Date: 2009–07
  10. By: Bradley R. Staats (University of North Carolina at Chapel Hill); Francesca Gino (University of North Carolina at Chapel Hill); Gary P. Pisano (Harvard Business School, Technology and Operations Management Unit)
    Abstract: The learning curve is used to investigate how increasing cumulative experience yields improved performance. Experience, however, can take many forms. Building on recent studies on learning in operations, we distinguish between repetition of task (i.e., prior experience with the task) and repetition of interaction (i.e., prior experience with team members). Repetition of interaction may improve learning, since experience working together aids in the identification, transfer, and application of knowledge among members within a group. Additionally, experience need not be constrained to one task. Prior work examining the relationship of multiple tasks (i.e., varied experience) and learning by groups finds inconsistent results. We hypothesize that repetition of interaction may help explain this difference, as familiar teams may be able to use the knowledge gained from the concurrent completion of multiple tasks while unfamiliar teams may not. Using an experimental study we find that while repetition of interaction has no effect on initial performance, it has a persistent effect on learning. By separately examining the repetition of interaction and repetition of task our work offers new insights and direction for the study of learning in operations.
    Keywords: Learning, Repetition of interaction, Repetition of task, Team familiarity, Varied experience
    Date: 2009–08
  11. By: Boschini, Anne (Dept. of Economics, Stockholm University); Muren, Astri (Dept. of Economics, Stockholm University); Persson, Mats (Institute for International Economic Studies)
    Abstract: Several experimental studies on altruism have found women to be more generous than men. We investigate whether observed gender gaps in generosity can be explained by experimental setting, where some settings are more conducive than others to activating gender identity and social norms. In a dictator game we study priming along two dimensions: 1) some subjects enter their gender on the first page of the questionnaire (Pre) while others enter their gender on the last page (Post) and 2) some subjects are seated in single-sex rooms (Homogeneous) while others are seated in gender-mixed rooms (Mixed). It turns out that gender differences occur (women are more generous than men) only for the combination Pre and Mixed. The effect is driven by males: men are sensitive to priming, while women are not.
    Keywords: Gender roles; social norms; altruism; generosity; dictator game; priming
    JEL: C91 D64 J16
    Date: 2009–07–25
  12. By: Schulz, Alexander; Wolff, Guntram B.
    Abstract: We disentangle different driving factors of sovereign bond market integration by studying yield co-movements of EMU countries, the UK, the US and 16 German states (Länder) since 1992. At a low frequency bond market integration has increased gradually in the course of the last 15 years in EMU countries, as well as the UK, the US and the German Länder. The current financial turmoil has abated low frequency euroarea sovereign bond bond market integration, while it has had little effect on the integration with the US and UK. Bond market integration at a high frequency band remains relatively low until October 2000, when a sharp increase in integration can be observed in all samples. The increase in high frequency integration can be attributed to electronic trading platforms becoming functional. The financial crisis does not effect high frequency integration, as no technology shock occurs.
    Keywords: sovereign bond market; bond market integration; EMU; electronic trading
    JEL: E42 G15 E44 F33
    Date: 2009
  13. By: Sharma, Abhijit; Balcombe, Kelvin; Fraser, Iain
    Abstract: In this paper we examine the time series properties of nine non-renewable resources. In particular we are concerned with understanding the relationship between the number of structural breaks in the data and the nature of the resource price path, i.e. is it stationary or a random walk. To undertake our analysis we employ a number of relevant econometric methods including Bai and Perron's (1998) multiple structural break dating method. Our results indicate that these series are in many cases stationary and subject to a number of structural breaks. These results indicate that a deterministic model of resources prices may well be appropriate.
    Keywords: structural change; non-renewable resources; breaks; resource depletion
    JEL: Q31 C12
    Date: 2009–05
  14. By: SHIMIZU Chihiro; NISHIMURA Kiyohiko G.; WATANABE Tsutomu
    Abstract: Why was the Japanese consumer price index for rents so stable even during the period of the housing bubble in the 1980s? To address this question, we use a unique micro price dataset which we have compiled from individual listings (or transactions) in a widely circulated real estate advertisement magazine. This dataset contains more than 700 thousand listings of housing rents over the last twenty years. We start from the analysis of microeconomic rigidity and then investigate its implications for aggregate price dynamics, closely following the empirical strategy proposed by Caballero and Engel (2007). We find that 90 percent of the units in our dataset had no change in rents per year, indicating that rent stickiness is three times as high as in the United States. We also find that the probability of rent adjustment depends little on the deviation of the actual rent from its target level, suggesting that rent adjustments are not state dependent but time dependent. These two results indicate that both the intensive and extensive margins of rent adjustments are small, resulting in a slow response of the CPI for rent to aggregate shocks. We show that the CPI inflation rate would have been higher by 1 percentage point during the bubble period, and lower by more than 1 percentage point during the period following the burst of the bubble, if Japanese housing rents were as exible as those in the United States.
    Date: 2009–08
  15. By: Dabo-Niang, Sophie; Francq, Christian; Zakoian, Jean-Michel
    Abstract: We introduce a two-step procedure for more efficient nonparametric prediction of a strictly stationary process admitting an ARMA representation. The procedure is based on the estimation of the ARMA representation, followed by a nonparametric regression where the ARMA residuals are used as explanatory variables. Compared to standard nonparametric regression methods, the number of explanatory variables can be reduced because our approach exploits the linear dependence of the process. We establish consistency and asymptotic normality results for our estimator. A Monte Carlo study and an empirical application on stock market indices suggest that significant gains can be achieved with our approach.
    Keywords: ARMA representation; noisy data; Nonparametric regression; optimal prediction
    JEL: C14 C22
    Date: 2009
  16. By: Joseph Francois (Johannes Kepler University Linz; U.S. Bureau of Labor Statistics)
    Abstract: This technical report brings together two papers on the linear and non-linear versions of the multi-region trade simulation model known as GSIM. It outlines a modeling strategy for the partial equilibrium analysis of tariff and antidumping policy on a global level. The framework is scalable, employs national product differentiation, and allows for the simultaneous assessment of trade policy changes (duties and undertakings), at the industry level, on a global, regional, or national level. Results allow the assessment of importer and exporter effects related to tariff revenues, exporter (producer) surplus, and importer (consumer) surplus. With additional data, national employment effects can also be fit into the basic framework. NOTE the *.zip archive includes Excel template models, and the technical papers that explain the model.
    Keywords: GSIM, antidumping, partial equilibrium model, trade policy modeling, simulation model, global markets
    JEL: F17 F14 F21
    Date: 2009–08
  17. By: Fioretti, Guido
    Abstract: This paper provides a general overview of theories and tools to model individual and collective decision-making. In particular, stress is laid on the interaction of several decision-makers. A substantial part of this paper is devoted to utility maximization and its application to collective decision-making, Game Theory. However, the pitfalls of utility maximization are thoroughly discussed, and the radically alternative approach of viewing decision-making as constructing narratives is presented with its emerging computational tools.
    Keywords: Interactions; Collective Decision-Making
    JEL: C79 D79
    Date: 2009–08–10
  18. By: Andersson, Christian (Swedish National Audit Office); Johansson, Per (IFAU - Institute for Labour Market Policy Evaluation)
    Abstract: To study effects of out-of-school learning we use data on boarding home pupils who attended elementary public schools in the 1940’s. The out-of-school environment at the boarding homes could be considered being more learner friendly than the home environment on average: the pupils at the boarding homes had daily scheduled time for doing their homework under assistance of a junior school teacher and, in addition, they had access to a small library. The placement at boarding homes was based on the distance to the nearest school and had, thus, no direct connection to pupils’ skills which simplifies the empirical analysis based on register data. We find that the more learning friendly environment equalize skills at school leaving age. The effect is larger for kids with low initial ability.
    Keywords: Pedagogic personal; homework; early interventions
    JEL: I20 N34
    Date: 2009–08–10
  19. By: MICHAEL PLANTE (Indiana University, Ball State University)
    Abstract: This paper examines welfare maximizing optimal monetary policy and simple mon- etary policy rules in a New Keynesian model that incorporates oil as an intermediate input and as a consumption good. I show under several dierent assumptions that the optimal policy focuses on stabilizing some combination of nominal wage and core ination while allowing for signicant movements in value added and CPI (headline) in- ation. Wage indexation to headline ination does not change this result. The optimal response of the nominal rate is sensitive to the assumptions of the model. For all cases examined the optimal policy is well approximated, in welfare terms, by a simple policy rule that suciently stabilizes core ination. Empirical evidence using data from after 1986 supports the hypothesis that the Federal Reserve has been responding to real oil price changes in a manner similar to what the model says is optimal.
    Date: 2009–08
  20. By: Du, Songzi
    Abstract: We study a model of correlated equilibrium where every player takes actions based on his hierarchies of beliefs (belief on what other players will do, on what other players believe about others will do, etc.) intrinsic to the game. Our model does away with messages from outside mediator that are usually assumed in the interpretation of correlated equilibrium. We characterize in every finite, complete information game the exact sets of correlated equilibria (both subjective and objective) that can be obtained conditioning on hierarchies of beliefs; the characterizations rely on a novel iterated deletion procedure. If the procedure ends after k rounds of deletion for a correlated equilibrium obtained from hierarchies of beliefs, then players in the equilibrium need to reason to at most k-th order beliefs. Further conceptual and geometric properties of the characterizations are studied.
    Keywords: game theory; correlated equilibrium; higher order beliefs; purification; intrinsic correlation
    JEL: D80 C72
    Date: 2009–08–15

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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.