nep-mic New Economics Papers
on Microeconomics
Issue of 2010‒09‒11
fourteen papers chosen by
Vaishnavi Srivathsan
Indian Institute of Technology

  1. Market imperfections and firm-sponsored training By Matteo PICCHIO; Jan C. VAN OURS
  2. On the Impact of Financial Structure on Product Selection By Christos Constantatos; Stylianos Perrakis
  3. The Effects of Imbalanced Competition on Demonstration Strategies By Heiman, Amir; Ofir, Chezy
  4. The Falling Time Cost of College: Evidence from Half a Century of Time Use Data By Babcock, Phillip; Marks, Mindy
  5. The Economics of Number Portability: Switching Costs and Two-Part Tariffs By Aoki, Reiko; Small, John
  6. Subjective Risk, Confidence, and Ambiguity By Traeger, Christian P.
  7. A Dynamic Politico-Economic Model of Intergenerational Contracts By Lancia, Francesco; Russo, Alessia
  8. Estimating Subjective Probabilities By Steffen Andersen; John Fountain; Glenn W. Harrison; E. Elisabet Rutström
  9. Incomplete contracts, incentives and economic power By Sripad Motiram
  10. Natural Resource Distribution and Multiple Forms of Civil War By Massimo Morelli; Dominic Rohner
  11. An Adaptive Service Oriented Architecture: Automatically Solving Interoperability Problems. By Hiel, M.
  12. The Law of Holocaust Denial in Europe: Towards a (qualified) EU-wide Criminal Prohibition By Laurent Pech
  13. Risk and aversion in the integrated assessment of climate change By Crost, Benjamin; Traeger, Christian P.
  14. Economics of Nutrition By P.G.K. Panikar

  1. By: Matteo PICCHIO (Department of Economics, Tilburg University and IZA); Jan C. VAN OURS (Department of Economics and CentER, Tilburg University, Department of Economics, University of Melbourne; IZA and CEPR)
    Abstract: Recent human capital theories predict that labor market frictions and product market competition influence firm-sponsored training. Using matched worker-firm data from Dutch manufacturing, our paper empirically assesses the validity of these predictions. We find that a decrease in labor market frictions significantly reduces firms’ training expenditures. Instead, product market competition does not have an effect on firm-sponsored training. We conclude that increasing competition through international integration and globalization does not pose a threat to investments in on-the-job training. An increase in labor market flexibility may reduce incentives of firms to invest in training, but the magnitude of this effect is small.
    Keywords: firm-sponsored training, labor market frictions, product market competition, matched worker-firm data
    JEL: D43 J24 J42 L22 M53
    Date: 2010–08–16
  2. By: Christos Constantatos (Department of Economics, University of Macedonia); Stylianos Perrakis (Department of Finance, the John Molson School of Business, Concordia University)
    Abstract: We examine the interaction between financial and microeconomic decisions in a differentiated duopoly under uncertainty as to consumer taste for quality. Financing is by equity and debt and product specification is endogenous. We consider two three-stage games, according to the order of moves: qualities-financial structure-prices and financial structure-qualities-prices. Once debt is contracted, the manager maximizes equity instead of total value. We find that in both games debt a) increases both prices and qualities but most likely reduces product differentiation due to rival quality response; b) reduces the value of the levered high quality firm because it increases the low quality. Moreover, c) the cost of debt is higher for the second game, implying that it is higher for projects using debt to finance a product’s development-cum-commercialization compared to those financing only the commercialization stage. The results turn out to be robust to alternative specifications of quality and market size uncertainty.
    Keywords: Vertical differentiation; uncertainty; financial structure; leverage; sequential quality choice.
    JEL: L00 G32
    Date: 2010–11
  3. By: Heiman, Amir; Ofir, Chezy
    Abstract: This paper analyzes the effect of competition on product demonstration decisions. Pre-purchase product demonstration enables marketers to differentiate products that are ex-post differentiated but are judged according to perceived fit, rather than actual fit, due to pre-purchase consumer uncertainty. Imbalanced competition accompanied by fit uncertainty motivates the follower to offer demonstrations to avoid a price war. This paper explores the conditions that lead the leader to retaliate. In addition to effects on quantity, competition may increase the quality of demonstrations offered by the leader. We analyze a business case, showing that competition may increase the demonstration intensity and that the leading manufacturerâs response to changes in competition is stronger than the responses of the followers. Our research has the potential to aid mangers in formulating demonstration strategies and in responding to competitorsâ demonstration efforts.
    Keywords: Imbalanced competition, product demonstration, differentiation, test-drive, price war, Political Economy, Production Economics,
    Date: 2010
  4. By: Babcock, Phillip; Marks, Mindy
    Abstract: Using multiple datasets from different time periods, we document declines in academic time investment by full-time college students in the United States between 1961 and 2003. Full-time students allocated 40 hours per week toward class and studying in 1961, whereas by 2003 they were investing about 27 hours per week. Declines were extremely broad-based, and are not easily accounted for by framing effects, work or major choices, or compositional changes in students or schools. We conclude that there have been substantial changes over time in the quantity or manner of human capital production on college campuses.
    Keywords: time use, human capital, education
    Date: 2010–03–24
  5. By: Aoki, Reiko; Small, John
    Abstract: This paper interprets number portability as a reduction of switching costs in a model of competition between telephone companies. We identify several cases by their cost and demand characteristics and show that social benefit of number portability are not guaranteed. Analysis using two-part tariff highlights the effect of how the technological cost of switching cost reduction effects the final market allocation.
    Date: 2010–08
  6. By: Traeger, Christian P.
    Abstract: The paper extends a dynamic version of the classical von Neumann-Morgenstern setting to incorporate a degree of con�dence in or subjectivity of probabilistic beliefs. It provides a simple axiomatic characterization of a new preference representation that addresses ambiguity from a simple perspective, employing only basic tools from risk analysis. Conceptually, the paper renders the concept of smooth ambiguity aversion more precise and extends it to a more general notion of aversion to the subjectivity of belief. The representation maintains the normatively desirable axioms of the standard setting including the von Neumann-Morgenstern axioms and time consistency.
    Keywords: ambiguity, subjective beliefs, expected utility, intertemporal substitutability, intertemporal risk aversion, recursive utility, uncertainty, climate change
    Date: 2010–05–01
  7. By: Lancia, Francesco; Russo, Alessia
    Abstract: This paper investigates the conditions for the emergence of implicit intergenerational contracts without assuming reputation mechanisms, commitment technology and altruism. We present a tractable dynamic politico-economic model in OLG environment where politicians play Markovian strategies in a probabilistic voting environment, setting multidimensional political agenda. Both backward and forward intergenerational transfers, respectively in the form of pension benefits and higher education investments, are simultaneously considered in an endogenous human capital setting with labor income taxation. On the one hand, social security sustains investment in public education; on the other hand investment in education creates a dynamic linkage across periods through both human and physical capital driving the economy toward different Welfare State Regimes. Embedding a repeated-voting setup of electoral competition, we find that in a dynamic efficient economy both forward and backward intergenerational transfers simultaneously arise. The equilibrium allocation is education efficient, but, due to political overrepresentation of elderly agents, the electoral competition process induces overtaxation compared with a Benevolent Government solution with balanced welfare weights.
    Keywords: aging; Benevolent Government allocation; intergenerational redistribution; Markovian equilibria; repeated voting.
    JEL: E62 D71 H11 C61
    Date: 2010–07–26
  8. By: Steffen Andersen; John Fountain; Glenn W. Harrison; E. Elisabet Rutström
    Abstract: Subjective probabilities play a role in many economic decisions. There is a large theoretical literature on the elicitation of subjective probabilities, and an equally large empirical literature. However, there is a gulf between the two. The theoretical literature proposes a range of procedures that can be used to recover subjective probabilities, but stresses the need to make strong auxiliary assumptions or "calibrating adjustments" to elicited reports in order to recover the latent probability. With some notable exceptions, the empirical literature seems intent on either making those strong assumptions or ignoring the need for calibration. We illustrate how the joint estimation of risk attitudes and subjective probabilities using structural maximum likelihood methods can provide the calibration adjustments that theory calls for. This allows the observer to make inferences about the latent subjective probability, calibrating for virtually any well-specified model of choice under uncertainty. We demonstrate our procedures with experiments in which we elicit subjective probabilities. We calibrate the estimates of subjective beliefs assuming that choices are made consistently with expected utility theory or rank-dependent utility theory. Inferred subjective probabilities are significantly different when calibrated according to either theory, thus showing the importance of undertaking such exercises. Our findings also have implications for the interpretation of probabilities inferred from prediction markets.
    Date: 2010–09
  9. By: Sripad Motiram (Indira Gandhi Institute of Development Research)
    Abstract: This paper formalizes ideas from classical and radical political economy on task allocation and technology adoption under capitalism. A few previous studies have attempted this, but the framework and results in this paper are different. I model labor contracts that are incomplete owing to unforeseen/indescribable contingencies, leading to Pareto-improving renegotiation and a hold-up problem. Given path dependence, the allocation is sub-optimal, with the extent of inefficiency depending upon the degree of incompleteness. This model captures insights from the above literature on the microeconomic roots of inefficiency and power. It also provides a concrete setting where indescribable contingencies do (or don't) matter - a much-debated issue.
    Keywords: Incomplete Contracts; Unforeseen/Indescribeable Contingencies; Hold-Up; Classical and Radical Political Economy
    JEL: D86 D21 B1 B2
    Date: 2010–07
  10. By: Massimo Morelli (Columbia University); Dominic Rohner (University of Zurich)
    Abstract: We examine how natural resource location, rent sharing and fighting capacities of different groups matter for ethnic conflict. A new type of bargaining failure due to multiple types of potential conflicts (and hence multiple threat points) is identified. The theory predicts conflict to be more likely when the geographical distribution of natural resources is uneven and when a minority group has better chances to win a secessionist rather than a centrist conflict. For sharing rents, resource proportionality is salient in avoiding secessions and strength proportionality in avoiding centrist civil wars. We present empirical evidence that is consistent with the model.
    Keywords: Natural Resources, Conflict, Strength Proportionality, Resource Proportionality, Secession, Bargaining Failure
    JEL: C72 D74 Q34
    Date: 2010–08
  11. By: Hiel, M. (Tilburg University)
    Abstract: Organizations desire to be able to easily cooperate with other companies and still be flexible. The IT infrastructure used by these companies should facilitate these wishes. Service-Oriented Architecture (SOA) and Autonomic Computing (AC) were introduced in order to realize such an infrastructure, however both have their shortcomings and do not fulfil these wishes. This dissertation addresses these shortcomings and presents an approach for incorporating (self-) adaptive behavior in (Web) services. A conceptual foundation of adaptation is provided and SOA is extended to incorporate adaptive behavior, called Adaptive Service Oriented Architecture (ASOA). To demonstrate our conceptual framework, we implement it to address a crucial aspect of distributed systems, namely interoperability. In particular, we study the situation of a service orchestrator adapting itself to evolving service providers.
    Date: 2010
  12. By: Laurent Pech
    Abstract: Abstract: A majority of EU countries have long considered that the right to freedom of expression precludes the criminalization of Holocaust denial per se. The full implementation of the 2008 EU Framework Decision on combating certain forms and expressions of racism and xenophobia by means of criminal law (hereinafter: the EU FD on racism) will, however, considerably harmonizes the law of Holocaust denial in Europe. While several provisions of the EU FD on racism offer a series of legal options enabling any EU country to limit the scope of national provisions criminalizing “genocide denial,” it remains that all EU Member States are now under the legal obligation to criminalize genocide denial when it is carried out either in a manner likely to incite to violence or hatred or in a manner likely to disturb public order or which is threatening, abusive or insulting. Before offering a critical review of the EU FD on racism and arguing that the political necessity of laws punishing genocide denial and the legal need for an EU-wide prohibition may be seriously questioned, this paper will contend that the legal reasoning developed by national courts in “militant democracies” is far from convincing and that the European Court of Human Rights should have refrained from labeling the Holocaust a clearly established historical fact whose denial constitutes ipso facto an “abuse of right”.
    Keywords: France; Germany; Spain
    Date: 2010–01–04
  13. By: Crost, Benjamin; Traeger, Christian P.
    Abstract: We analyze the impact of uncertainty on optimal mitigation policies derived from the integrated assessment of climate change. For this purpose, we construct a close relative of the DICE model in a recursive dynamic programming framework. First, our framework can capture persistent uncertainty and we compare it to the simpler and more frequently employed analysis of ex-ante uncertainty. Second, our framework makes it possible to disentangle effects deriving from risk, from risk aversion, and from a decision maker’s aversion to intertemporal substitution. We analyze uncertainty over climate sensitivity as well as over damages.
    Keywords: climate change, uncertainty, integrated assessment, risk aversion, intertemporal substitution, recursive utility, dynamic programming
    Date: 2010–06–01
  14. By: P.G.K. Panikar
    Abstract: The main attention on the food front in lndia ts five year plans has been focused on the question of under nutrition rather than malnutrition. This pre occupation with the quantitative instead of the qualitative aspect of food problem is not difficult to understand, in view of the inadequate domestic output and low per capita consumption of all foods, low average calorie intake, and evidence of widespread "hunger" broqght out by diet surveys undertaken in different parts of the country. However the main attention on the food front in lndiats five year plans has been focussed on the question of undernutrition rather than malnutrition. This preo ccupstion with the quanti- tative instead' of the qualitative aspect of food problem is not difficult to understand, in view of the' inadequate domestic output and low per capita consumption of all foods, low average calorie intake, and evidence of widespread l!hungertf broqght out by diet sukveys undertaken in different parts of the country. Hawever, the basic approach of the Planning Commission to the question of nutrition, as indicated briefly in the second plan document, is based on a preconceived notion that "it will not be possible to provide nutrition at optimum levels to everybody". This presumption led them to the conclusion that "priority in improving nutrition should be given to vulnerable groups of the populationt"- such as expectant and nursing mothers, infants, etc. [Working Paper No.4]
    Keywords: India, Nutrition, Malnutrition, qualitative, quantitative, food,
    Date: 2010

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