nep-mic New Economics Papers
on Microeconomics
Issue of 2010‒11‒13
nineteen papers chosen by
Vaishnavi Srivathsan
Indian Institute of Technology

  1. Initial Allocation Effects in Permit Markets with Bertrand Output Oligopoly By Calford, Evan M.; Heinzel, Christoph; Betz, Regina
  2. Legitimate Punishment, Feedback, and the Enforcement of Cooperation By Marco Faillo; Daniela Grieco; Luca Zarri
  3. Ecological, Heterodox and Neoclassical Economics: Investigating the Differences By Spash, Clive L.; Ryan, Anthony M.
  4. Do Salaries Improve Worker Performance? By Alex Bryson; Babatunde Buraimo; Rob Simmons
  5. The Personal Travel Assistant (PTA): Measuring the dynamics of human travel behavior By Recker, W.; Marca, J.; Rindt, C.; Dechter, R.
  6. Maximizing Human Development By Merwan Engineer; Ian King
  7. The Effects of Increased Competition in a Vertically Separated Railway Market By Markus Lang; Marc Laperrouza; Matthias Finger
  8. Tradable Green Certificates as a Policy Instrument? A Discussion on the Case of Poland By Heinzel, Christoph; Winkler, Thomas
  9. Microfinance and Poverty A Macro Perspective By Katsushi Imai; Raghav Gaiha; Ganesh Thapa; Samuel Kobina Annim
  10. The Uneasy Case for Product Liability By Polinsky, A. Mitchell; Shavell, Steven M.
  11. Ordinal efficiency under the lens of duality theory By Athanassoglou, Stergios
  12. Evaluating the implementation process of LEADER in Romania By Marquardt, Doris; Moellers, Judith
  13. Dynamic incentives in organizations: Success and inertia By Ruckes, Martin; Rønde, Thomas
  14. New Keynesian DSGE Models and the IS-LM Paradigm By Ulrich Frische; Ingrid Größl
  15. The impact of external environment on organizational development strategy By Voiculet, Alina; Belu, Nicoleta; Parpandel, Denisa Elena; Rizea, Ionela Carmen
  16. The Tradeoff of the Commons By McAfee, R. Preston; Miller, ALan
  17. Japan's Bubble, America's Bubble and China's Bubble By Kazuo Ueda
  18. What do foreigners want? Evidence from;targets in bank cross-border M&As By Stafano Caiazza; Andrew Clare; Alberto Franco Pozzolo
  19. Rebalancing Growth in the Republic of Korea By Joonkyung Ha; Jong-Wha Lee; Lea Sumulong

  1. By: Calford, Evan M.; Heinzel, Christoph; Betz, Regina
    Abstract: We analyse the eciency eects of the initial permit allocation given to rms with market power in both permit and output market. We examine two models: a long- run model with endogenous technology and capacity choice, and a short-run model with xed technology and capacity. In the long run, quantity pre-commitment with Bertrand competition can yield Cournot outcomes also under emissions trading. In the short run, Bertrand output competition reproduces the eects derived under Cournot competition, but displays higher pass-through prots. In a second-best setting of overallocation, a tighter emissions target tends to improve permit-market eciency in the short run.
    Keywords: Emissions trading, Initial permit allocation, Bertrand competition, EU ETS, Endogenous technology choice, Kreps and Scheinkman, Resource /Energy Economics and Policy, L13, Q28, D43,
    Date: 2010–03
  2. By: Marco Faillo (Department of Economics, University of Trento); Daniela Grieco (Department of Economics (University of Verona)); Luca Zarri (Department of Economics (University of Verona))
    Abstract: In the framework of a finitely repeated public goods game with costly punishment options, we introduce a novel restrictive setup where a principle of legitimacy holds, in the sense that only virtuous behavior (that is, being a high contributor) allows one to gain access to sanctioning opportunities (‘entitlement’) and only wrongful behavior (that is, being a low contributor) makes one a potential target of peer punishment (‘desert’). As a consequence, acting virtuously guarantees that it will not be possible to be punished by less virtuous subjects (‘immunity’). These restrictions, by allowing for ‘legitimate punishment’ only, rule out by construction so called antisocial punishment as well as vengeful behavior. Moreover, we manipulate the amount of information over others’ contributions that subjects receive before making their punishment decisions. Our preliminary results show that restrictions lead to an increase of cooperation levels and virtuous restrictions combined with detailed feedback on peers’ contribution significantly increase contribution levels and make cooperation sustainable over time.
    Keywords: Experimental Economics, Public Good Games, Costly Punishment, Cooperation, Legitimacy, Immunity
    JEL: C72 C91 C92 D23 D72
    Date: 2010–11
  3. By: Spash, Clive L.; Ryan, Anthony M.
    Abstract: How heterodox are ecological economists and how ecological are heterodox economists? How do both differ, if at all, from neoclassical economists when addressing environmental problems? In 2009 we probed such questions by conducting an international survey at economic conferences on the environment and sustainability. This paper reports on surveys conducted at conferences of the European Society for Ecological Economics, the European Association of Environmental and Resource Economics, and the Association of Heterodox Economists. A key aim was to gain insight into the extent to which ecological economics can be described as a distinct field of research from orthodox environmental and resource economics. Conflict within the field has meant a prevalence of neoclassical articles and thought mixed in amongst more heterodox work. The question then arises are those participating in ecological economics ideologically and methodologically similar to those schools of thought falling under the heterodox economic umbrella or the orthodox? In addressing this question problems are identified with economic understanding of environmental problems and the lack of communication across schools and disciplines. Suggestions are made as to how we might, as a community of concerned scholars and activists, move forward.
    Keywords: Ecological economics; heterodox; neoclassical; methodology; ideology
    JEL: B40 Q0 B59
    Date: 2010–10–29
  4. By: Alex Bryson; Babatunde Buraimo; Rob Simmons
    Abstract: We establish the effects of salaries on worker performance by exploiting a natural experimentin which some workers in a particular occupation (football referees) switch from short-termcontracts to salaried contracts. Worker performance improves among those who move ontosalaried contracts relative to those who do not. The finding is robust to the introduction ofworker fixed effects indicating that it is not driven by better workers being awarded salarycontracts. Nor is it sensitive to workers sorting into or out of the profession. Improvedperformance could arise from the additional effort workers exert due to career concerns, thehigher income associated with career contracts (an efficiency wage effect) or improvementsin worker quality arising from off-the-job training which accompanies the salaried contracts.
    Keywords: incentives, salaries, productivity, sports
    JEL: J33 M52
    Date: 2010–10
  5. By: Recker, W.; Marca, J.; Rindt, C.; Dechter, R.
    Abstract: The fundamental research question that was addressed with the project is whether a simple, continuously collected GPS sequence can be used to accurately measure human behavior. We applied Hybrid Dynamic Mixed Network (HDMN) modeling techniques to learn behaviors given an extended GPS data stream. This research project was designed to be an important component of a much larger effort. Unfortunately, the promised funding from a commercial sponsor for the larger project did not materialize, and so we did not have the resources to deploy a prototype personal travel assistant system. Work focused on developing the HDMN model. The learning and inference steps using the HDMN model were much slower than would be acceptable in an operational Personal Travel Assistant (PTA) system. We conducted research into alternate formulations that would improve convergence, handle noisy data more robustly and reduce the need for human intervention. This report describes how this project’s results fit into the larger research context, details the work done for this UCTC grant, and outlines future directions of research based on the findings of this project.
    Date: 2010–08–01
  6. By: Merwan Engineer; Ian King
    Abstract: The Human Development Index (HDI) is widely used as an aggregate measure of overall human well being. We examine the allocations implied by the maximization of this index, using a standard growth model — an extended version of Mankiw, Romer, andWeil’s (1992) model — and compare these with the allocations implied by the golden rule in that model. We find that maximization of the HDI leads to the overaccumulation of both physical and human capital, relative to the golden rule, and consumption is pushed to minimal levels. We then propose an alternative specification of the HDI, which replaces its income component with a consumption component. Maximization of this modified HDI yields a “human development golden rule” which balances consumption, education and health expenditures, and avoids the more extreme implications of the existing HDI.
    Keywords: Economic growth, Human Development Index, Planning
    Date: 2010
  7. By: Markus Lang; Marc Laperrouza; Matthias Finger
    Abstract: This paper presents a game-theoretic model of a liberalized railway market, in which train operation and ownership of infrastructure are vertically separated. We analyze how the regulatory agency will optimally set the charges that operators have to pay to the infrastructure manager for access to the tracks and how these charges change with increased competition in the railway market. Our analysis shows that an increased number of competitors in the freight and/or passenger segment reduces prices per kilometer and increases total output in train kilometers. The regulatory agency reacts to more competition with a reduction in access charges in the corresponding segment. Consumers benefit through lower prices, while the effect on the operators' profits is ambiguous and depends on the degree of competition. We further show that social welfare always increases through more competition in the freight and/or passenger segment. Finally, social welfare is higher under two-part tariffs than under one-part tariffs if raising public funds is costly to society.
    Keywords: Access charge, optimal pricing, railways, regulation, vertical integration
    JEL: D40 L22 L51 L92
    Date: 2010–10
  8. By: Heinzel, Christoph; Winkler, Thomas
    Abstract: Quota obligation schemes based on tradable green certicates have become a popular policy instrument to expand power generation from renewable energy sources (RES). Their application, however, can neither be justied as a rst-best response to a market failure, nor, in a second-best sense, as an instrument mitigating distortionary eects of the emissions externality, if an emissions trading system exists that fully covers the energy industry. We study how ancillary reasons, in form of overcoming various barriers for RES use and establishing benecial side-eects, such as industry development, energy security, and abatement of pollutants not covered under the ETS, apply to the scheme recently introduced in Poland. While setting substantial expansion incentives, an advantage for local industry or job-market development or energy security can hardly be seen. With rising power prices for end consumers and awareness that the extra rents from the schemes mostly accrue to foreign investors and renewable and polluting generators, we expect a negative impact on social acceptance for RES and RES deployment support policies.
    Keywords: tradable green certicates, environmental policy, Poland, Resource /Energy Economics and Policy,
    Date: 2010–03
  9. By: Katsushi Imai; Raghav Gaiha; Ganesh Thapa; Samuel Kobina Annim
    Date: 2010
  10. By: Polinsky, A. Mitchell; Shavell, Steven M.
    Abstract: In this Article we compare the benefits of product liability to its costs and conclude that the case for product liability is weak for a wide range of products. One benefit of product liability is that it can induce firms to improve product safety. Even in the absence of product liability, however, firms would often be motivated by market forces to enhance product safety because their sales may fall if their products harm consumers. Moreover, products must frequently conform to safety regulations. Consequently, product liability might not exert a significant additional influence on product safety for many products — and empirical studies of several widely sold products lend support to this hypothesis. A second benefit of product liability is that it can improve consumer purchase decisions by causing product prices to increase to reflect product risks. But because of litigation costs and other factors, product liability may raise prices excessively and undesirably chill purchases. A third benefit of product liability is that it compensates victims of product-related accidents for their losses. Yet this benefit is only partial, for accident victims are frequently compensated by insurers for some or all of their losses. Furthermore, the award of damages for pain and suffering tends to reduce the welfare of individuals because it effectively forces them to purchase insurance for a type of loss for which they ordinarily do not wish to be covered. Opposing the benefits of product liability are its costs, which are great. Notably, the transfer of a dollar to a victim of a product accident through the liability system requires more than a dollar on average in legal expenses. Given the limited nature of the benefits and the high costs of product liability, we come to the judgment that its use is often unwarranted. This is especially likely for products for which market forces and regulation are relatively strong, which includes many widely sold products. Our generally skeptical assessment of product liability for such products is in tension with the broad social endorsement of this form of liability.
    Date: 2010–04
  11. By: Athanassoglou, Stergios
    Abstract: An allocation's ordinal efficiency deficit (OED) is defined as the greatest ordinal efficiency loss that can result from its application. More precisely, an allocation's OED is the negative of the greatest total amount by which it may be stochastically dominated by another feasible allocation. Thus, an allocation is ordinally efficient if and only if its OED is zero. Using this insight, we set up a linear program whose optimal objective value corresponds to a given allocation's OED. Furthermore, we show that the OED is a piecewise-linear convex function on the set of allocations. We use the optimal dual variables of the linear program to construct a profile of von Neumann-Morgenstern (vNM) utilities that is compatible with the underlying ordinal preferences, and which is a subgradient of the OED at the given allocation. When the given allocation is ordinally efficient, our analysis implies that it is ex-ante welfare maximizing at the constructed vNM profile, and we recover the ordinal efficiency theorem due to McLennan (2002)
    Keywords: random assignment; ordinal efficiency; linear programming; duality
    JEL: C61 D01 D60
    Date: 2010–08–20
  12. By: Marquardt, Doris; Moellers, Judith
    Abstract: LEADER supports integrated rural regional development. The programme is characterized by a participatory and bottom-up approach, public-private partnerships, multi-sectoral regional development strategies and innovation. An obligatory Common Monitoring and Evaluation Framework (CMEF) was set up for evaluating EU interventions. The CMEF builds upon sets of common indicators and evaluation questions. Romania, where LEADER is currently introduced, has set national priorities for the programme implementation. For assessing the impact of LEADER in Romania meaningfully, an extension of the CMEF is needed. This paper, identifies and suggests appropriate indicators. Social Network Analysis is proposed as a tool for investigating intangible outcomes of LEADER in a quantitative way.
    Keywords: LEADER, evaluation, Romania, social network analysis, common monitoring and evaluation system, Community/Rural/Urban Development, D79, P25, R19, R59,
    Date: 2010–08
  13. By: Ruckes, Martin; Rønde, Thomas
    Abstract: We present a dynamic model in which an employee of a firm searches for business projects in a changing environment. It is costly to induce the employee who found a successful project in the past period to search for a new project. Past success can therefore result in profitreducing corporate inertia. Still, when the firm chooses to counteract the reluctance to search by increasing the power of the incentives, it stimulates initial search efforts and results in higher profits. Corporate restructuring and increasing the employee's authority over time are means to alleviate inertia but may undermine initial search incentives. --
    Keywords: incentives in organizations,inertia,innovation,restructuring
    JEL: L2 M12 M54 O31 O32
    Date: 2010
  14. By: Ulrich Frische (University of Hamburg); Ingrid Größl (University of Hamburg)
    Abstract: New Keynesian DSGE models propose a dynamic and expectational version of the old IS-LM paradigm. Acknowledging that the Taylor rule as a substitute for the LM-curve has its merits we show that standard DSGE models do not model how the central bank achieves its targets. In filling this gap we make evident that models neglecting a store-of-value function of money but still assuming a Taylor rule are inconsistent. Our major point concerns the-so called new Keynesian IS-curve. We prove that DSGE models which typically rest on the assumption of representative agents are unable to derive the IS-curve. This implies that these models lack the capability to analyse the role of savings as a a gap in aggregate demand. By assuming overlapping generations we make evident how this shortcoming can be avoided. We also show how OLG models add a richer dynamics to the standard DSGE approach.
    Date: 2010
  15. By: Voiculet, Alina; Belu, Nicoleta; Parpandel, Denisa Elena; Rizea, Ionela Carmen
    Abstract: Abstract External environment of an organization includes a variety of factors, whose existence, influence its behavior and performance. The action of these factors may be direct (for example, the actions of competitors) or indirect (for example, changes in business climate), and external environmental analysis is done in two different contexts: meso and macro environment. Are concerned, to be analyzed, those major variables that are affecting the organization, providing, strategic diagnosis, information on strategic situation complementary to those offered by internal analysis. Tests results at this level senses opportunities and threats existing and potential success factors of field work. Analyzing thus two types of environment, (meso and macro environment) can be identified strategic directions for action or policy options.
    Keywords: Keywords: strategy; external environment; factors
    JEL: O1 P23 L1
    Date: 2010–10–29
  16. By: McAfee, R. Preston; Miller, ALan
    Abstract: We develop a model of scarce, renewable resources to study the commons problem. We show that, contrary to conventional wisdom, property rights can often be less efficient than a commons. In particular, we study two effects: (1) waste which arises when individuals expend resources to use a resource unavailable due to congestion and (2) the risk of underutilization of the resource. We provide necessary and sufficient conditions for each effect to dominate the other when the cost of determining the availability of a resource is low.
    Keywords: Tragedy of the Commons; Spectrum; Open Access; Appointments; Property Rights; Reservations
    JEL: D23 K23 D45
    Date: 2010–11–04
  17. By: Kazuo Ueda (Faculty of Economics, University of Tokyo)
    Abstract: This paper compares the three recent episodes of boom and bust cycles in asset prices: Japan in the late 1980s to the 1990s; the U.S. since the mid 1990s; and China during the last decade. Although we have not yet seen a collapse of Chinese property prices, the increases so far are comparable to those in the other two episodes and seem to warrant a careful comparative study. I first examine the behavior of asset prices, especially, property prices in the three cases and point out some similarities. I then go on to discuss some backgrounds for the behavior of asset prices. I emphasize the role played by extremely easy monetary policy for generating bubble like asset price behaviors in the three cases. Monetary policy was shown to be easier than standard policy rules like the Taylor rule indicates. The reason for easy monetary policies is investigated. In the U.S. case the monetary authority was concerned over the risk of deflation in the early to mid 2000s. The experiences of Japan and China are quite similar in that the authorities of both countries were seriously concerned with possible deflationary effects of exchange rate appreciation on the economy. Japan let the exchange rate appreciate, while China has resisted a large scale intervention. It is shown, however, that the behavior of real exchange rates has not been that different. Implications of such a finding for the future of the Chinese economy are also discussed.
    Date: 2010–11
  18. By: Stafano Caiazza (Universit… Tor Vergata di Roma); Andrew Clare (Cass Business School, London); Alberto Franco Pozzolo (University of Molise, Centro Studi Luca d'Agliano)
    Abstract: Given the recent traumatic events in the world?s banking industry it is important to understand what drives bankers to create larger and larger, often multinational, banking groups. In this paper we investigate whether the targets in cross-border bank M&As are materially different from those banks targeted in domestic M&A deals. To address this question we use a sample of over 24,000 banks from more than 100 countries. We begin by estimating the probability that a bank will be a M&A target; this probability is based upon both bank specific and country specific characteristics. The sample also naturally includes banks that were not involved in any M&A deal, this set of banks acts as a control sample for the study. We then estimate a multinomial model that distinguishes between (i) targets in domestic operations, (ii) targets in cross-border operations and (iii) non-targets. The main message of the paper is that, with few exceptions, domestic and foreign investors target similar banks. In particular, contrary to what one might expect, bank size does not affect differently the probability of being a domestic or a cross-border target, but it has a positive and highly significant effect in both cases. What differs between national and international M&As are the characteristics of the countries where banks operate. On average, banking systems characterized by lower leverage, higher cost inefficiency and lower liquidity are more likely to be targets of cross-border acquisitions, while none of this characteristics affects the likelihood of being acquired domestically.
    Keywords: M&As, bank, bank internationalisation
    JEL: G15 G21 G34
    Date: 2010–11
  19. By: Joonkyung Ha; Jong-Wha Lee; Lea Sumulong
    Abstract: The current account surplus of the Republic of Korea (henceforth Korea) increased significantly in the immediate recovery period after the 1997–1998 Asian financial crisis. Since then the surplus has gradually diminished, and from 2006 to 2008, the current account was close to being balanced. Econometric analysis reveals that the effect of exchange rate changes on Korea's trade is not robust during non-crisis periods. Exchange rates only significantly affect trade when observations during crisis periods are included. This suggests that exchange rate adjustments alone will not solve the imbalance issue. Korea's external imbalances are not only caused by external factors; they also reflect internal and policy factors such as: (i) saving-investment imbalances; (ii) export-oriented policies; and (iii) the unbalanced structure of manufacturing and services. These internal imbalances result from domestic distortions and structural imbalances arising from market inefficiencies and public policies. These must be addressed to ensure balanced and sustained economic growth. [ADBI Working Paper 224]
    Keywords: Republic of Korea, Asian, policy, domestic, economic
    Date: 2010

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