nep-mic New Economics Papers
on Microeconomics
Issue of 2010‒12‒11
twenty papers chosen by
Vaishnavi Srivathsan
Indian Institute of Technology

  1. House Prices and School Quality: The Impact of Score and Non-score Components of Contextual Value-Added By Sofia Andreou; Panos Pashardes
  2. A Multi-Level Choice Theory By Raul V. Fabella
  3. Leviathan as a Minority Shareholder: A Study of Equity Purchases by the Brazilian National Development Bank (BNDES), 1995-2003 By Lazzarini, Sergio G.; Musacchio, Aldo
  4. Who leads Research Productivity Change? Guidelines for R&D policy makers By Jiménez-Sáez, Fernando; Zabala, Jon Mikel; Zofío, José L.
  5. The Effect of Conditional Cash Transfers on Educational Opportunities - Experimental Evidence from Latin America By Andrés Ham
  6. Does relative income matter for the very poor? - Evidence from rural Ethiopia By Akay, Alpaslan; Martinsson, Peter
  7. Teams of Rivals: Endogenous Markups in a Ricardian World By Beatriz de Blas; Katheryn Russ
  8. Tacit Lobbying Agreements: An Experimental Study By Großer, Jens; Reuben, Ernesto; Tymula, Agnieszka
  9. Do Terms-of-Trade Effects Matter for Trade Agreements? Evidence from WTO Countries By Rodney D. Ludema; Anna Maria Mayda
  10. Does Inequality lead to Conflict? By Indranil Dutta; Ajit Mishra
  11. Words speak louder than actions: The impact of politics on economic performance By Osterloh, Steffen
  12. The political cost of reforms By Alessandra Bonfiglioli; Gino Gancia
  13. Does Labor Diversity Affect Firm Productivity? By Parrotta, Pierpaolo; Pozzoli, Dario; Pytlikova, Mariola
  14. A Closer Look at the World Business Cycle Synchronization By Pedro André Cerqueira
  15. Competitive Problem Solving and the Optimal Prize Schemes By Toru Suzuki
  16. Social entrepreneurship: Taking stock and looking ahead By Mair, Johanna
  17. "Pricing and Investments in Matching Markets",Second Version By George J. Mailath; Andrew Postlewaite; Larry Samuelson
  18. Entry Threats, and Inefficiency in ‘Efficient Bargaining’ By Rupayan Pal; Bibhas Saha
  19. Price-Based Combinatorial Auction Design: Representative Valuations By Hitoshi Matsushima
  20. Fiscal Policy and Economic Stability:Does PIGS stand for Procyclicality In Government. By Peter Claeys; Alessandro Maravalle

  1. By: Sofia Andreou; Panos Pashardes
    Abstract: This paper investigates how the newly introduced Contextual Value Added (CVA) indicator of school quality affects house prices in the catchment area of primary and secondary schools in England. The empirical analysis, based on the data drawn from three independent and previously unexplored UK data sources, shows that the score component of CVA has a strong positive effect on house prices at both primary and secondary levels of education; while the non-score component of this school quality indicator has a significant (negative) effect only in the analysis of secondary school data. Nevertheless, the effect of CVA and its score and non-score components on house prices also varies with the level of spatial aggregation at which empirical investigation is pursued, assuming a more positive role between rather than within Local Authorities (Las). This reflects the emphasis placed by CVA on public good aspects of school quality and suggests that LA policies aimed at raising the average non-score quality characteristics of school conform to household preferences.
    Keywords: School quality, hedonic regression, house prices
    Date: 2010–07
  2. By: Raul V. Fabella (School of Economics, University of the Philippines Diliman)
    Abstract: The Great Recession has called into question many tenets of Neo-classical Microeconomics. Neo-classical theory allows each agent only one fixed type, homo economicus, while not denying other possible types as in adverse selection.We propose that economic agents not only choose their market basket but also their types. Agents are members of groups and each group has social norms to which the agent more or less conforms. His/her market behavior trades off private well being which responds to prices but also social well being which responds to norms. We show how deviation from norms are determined. We also discuss other anomalies in the light of this model.
    Date: 2010–12
  3. By: Lazzarini, Sergio G.; Musacchio, Aldo
    Date: 2010–10
  4. By: Jiménez-Sáez, Fernando (INGENIO (CSIC-UPV), Institute of Innovation and Knowledge Management, Univ. Polytechnic of Valencia); Zabala, Jon Mikel (CIRCLE, Lund University); Zofío, José L. (Department of Economic Analysis, Autonomous University of Madrid, Spain)
    Abstract: Relying on efficiency analysis we evaluate to what extent policy makers have been able to promote the establishment of consolidated and comprehensive research groups to contribute to the implementation of a successful innovation system for the Spanish food technology sector, oriented to the production of knowledge based on an application model. Using data envelopment analysis techniques and Malmquist productivity indices we find pervasive levels of inefficiency and a typology of different research strategies. Among these, in contrast to what has been assumed, established groups do not play the pre-eminent benchmarking role; rather, partially oriented, specialized and "shooting star" groups are the most common patterns. These results correspond with an infant innovation system, where the fostering of higher levels of efficiency and promotion of the desired research patterns are ongoing.
    Keywords: Innovation Policy; Management; Productivity Change; Malmquist Index; Distance Function
    JEL: C43 D24 O47
    Date: 2010–10–30
  5. By: Andrés Ham (Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS) - FCE - UNLP y CONICET)
    Abstract: Conditional Cash Transfers (CCTs) provide income to the poor in an effort to improve current welfare and promote investment in human and social capital to prevent future deprivation. So far, the impact evaluation literature has focused on estimating current effects on outcomes such as school attendance, consumption and labor supply. However, these studies overlook potential redistributive effects, mainly via the equalization of opportunities. The ensuing analysis draws from recent contributions in the literature on opportunities and incorporates these with impact evaluation methods. The main findings indicate a remarkable redistributive effect of CCTs and a positive initial impact on opportunities. However, while mean outcomes improve markedly, the evidence suggests that the distribution of opportunities readjusts to the positive gains, perhaps indicating deeply rooted inequities. These results are expected to encourage discussion on program impact beyond those evaluated and addressing the programs’ long-term consequences.
    Keywords: poverty, opportunities, education, children, impact evaluation, conditional cash transfers
    JEL: D30 D63 I38 J22
    Date: 2010–12
  6. By: Akay, Alpaslan (IZA (Institute for the Study of Labor), 53113, Bonn, Germany); Martinsson, Peter (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: We studied whether relative income has an impact on subjective well-being among extremely poor people. Contrary to the findings in developed countries, we cannot reject the hypothesis that relative income has no impact on subjective well-being in rural areas of northern Ethiopia.<p>
    Keywords: Absolute income; relative income; subjective well-being
    JEL: D10 I31 I32
    Date: 2010–12–02
  7. By: Beatriz de Blas; Katheryn Russ
    Abstract: We show that an ostensibly disparate set of stylized facts regarding firm pricing behavior can arise in a Ricardian model with Bertrand competition. Generalizing the Bernard, Eaton, Jenson, and Kortum (2003) model allows firms' markups over marginal cost to fall under trade liberalization, but increase with FDI, matching empirical studies in international trade, generate the existence of pricing-to-market and imperfect pass-through, and capture stylized facts regarding the frequency and synchronization of price adjustment across markets. The result is a well specified distribution for markups that previously could only be seen numerically and a way to quantify endogenous pricing rigidities emerging from a market structure governed by fierce competition among rivals.
    JEL: F0 F1 F4
    Date: 2010–12
  8. By: Großer, Jens (Florida State University); Reuben, Ernesto (Columbia University); Tymula, Agnieszka (New York University)
    Abstract: We experimentally study the common wisdom that money buys political influence. In the game, one lobbyist has the opportunity to influence redistributive tax policies in her favor by transferring money to two competing candidates. The success of the lobbying investment depends on whether or not the candidates are willing to respond and able to collude on low-tax policies that do not harm their relative chances in the elections. In the experiment, we find that lobbying is never successful when the lobbyist and candidates interact just once. By contrast, it yields substantially lower redistribution in about 40% of societies with finitely-repeated encounters. However, lobbying investments are not always profitable, and profit-sharing between the lobbyist and candidates depends on prominent equity norms. Our experimental results shed new light on the complex process of buying political influence in everyday politics and help explain why only relatively few corporate firms do actually lobby.
    Keywords: lobbying, redistribution, elections, bargaining, collusion
    JEL: D72 H10 K42
    Date: 2010–11
  9. By: Rodney D. Ludema (Georgetown University); Anna Maria Mayda (Georgetown University, CEPR and Centro Studi Luca d’Agliano)
    Abstract: In the literature on the economics of international trade institutions, a key question is whether or not terms-of-trade effects drive international trade agreements. Recent empirical work addressing terms-of-trade effects has been restricted to non-WTO countries or accession countries, which differ markedly from existing WTO members and account for only a tiny fraction of world trade. This paper investigates whether MFN tariffs set by existing WTO members in the Uruguay round are consistent with the terms-of-trade hypothesis. We present a model of multilateral trade negotia-tions featuring free riding on MFN that leads the resulting tariff schedule to display terms-of-trade effects. Specifically, the model predicts that the level of the importer’s tariff resulting from negotia-tions should be negatively related to the product of exporter concentration, as measured by a Her-findahl-Hirschman index (sum of squared export shares), and the importer’s market power, as measured by the inverse elasticity of export supply, on a product-by-product basis. We test this hy-pothesis using data on tariffs, trade and production across more than 30 WTO countries and find strong support. We estimate that the internalization of terms of trade effects through WTO negotia-tions has lowered the average tariff of these countries by about 20% compared to its non-cooperative level.
    Date: 2010–07–31
  10. By: Indranil Dutta; Ajit Mishra
    Abstract: This paper presents a simple model to show how distributional concerns can engender social conflict. They have a two period model, where the cost of conflict is endogenous in the sense that parties involved have full control over how much conflict they can create. We find that anticipated future inequality plays a crucial role in determining the level of conflict in the current period. The model also provides an explanation for why similar levels of inequality may exhibit drastically different levels of conflict. Further, they argue that the link between inequality and conflict may be non-monotonic. [Research Paper No. 2005/34]
    Keywords: conflict, wealth inequality, Nash bargaining
    Date: 2010
  11. By: Osterloh, Steffen
    Abstract: In this paper, a new approach to disclose the impact of politics on economic growth is presented: we use data derived from content analysis of party manifestos as measures of party preferences. In a panel of 23 OECD countries, we detect a positive impact of party support for various market-liberal policies on economic performance. In particular, we show that parties which were more concerned with market interventions and - to a lesser extent - welfare state policies impacted on growth negatively; those which proposed incentives for business as well as technology and infrastructure had a positive impact. Moreover, the robustness of the results is demonstrated in a model averaging framework. --
    Keywords: economic growth,political economy,ideology,panel data,model averaging
    JEL: O40 H11 P16
    Date: 2010
  12. By: Alessandra Bonfiglioli; Gino Gancia
    Abstract: This paper formalizes in a fully-rational model the popular idea that politicians perceive an electoral cost in adopting costly reforms with future benefits and reconciles it with the evidence that reformist governments are not punished by voters. To do so, it proposes a model of elections where political ability is ex-ante unknown and investment in reforms is unobservable. On the one hand, elections improve accountability and allow to keep well-performing incumbents. On the other, politicians make too little reforms in an attempt to signal high ability and increase their reappointment probability. Although in a rational expectation equilibrium voters cannot be fooled and hence reelection does not depend on reforms, the strategy of underinvesting in reforms is nonetheless sustained by out-of-equilibrium beliefs. Contrary to the conventional wisdom, uncertainty makes reforms more politically viable and may, under some conditions, increase social welfare. The model is then used to study how political rewards can be set so as to maximize social welfare and the desirability of imposing a one-term limit to governments. The predictions of this theory are consistent with a number of empirical regularities on the determinants of reforms and reelection. They are also consistent with a new stylized fact documented in this paper: economic uncertainty is associated to more reforms in a panel of 20 OECD countries.
    Keywords: Elections, Reforms, Asymmetric Information, Uncertainty.
    JEL: E6 H3
    Date: 2010–01
  13. By: Parrotta, Pierpaolo (Department of Economics, Aarhus School of Business); Pozzoli, Dario (Department of Economics, Aarhus School of Business); Pytlikova, Mariola (Department of Economics, Aarhus School of Business)
    Abstract: Using an employer-employee dataset, we analyze how diversity in cultural background, skills and demographic characteristics affects total factor productivity (TFP) of firms in Denmark. Implementing structural estimation of firms’ production function, we find evidence that labor diversity in skills/education significantly enhances firm performance as measured by firm TFP. Conversely, diversity in demographics and ethnicity brings mixed results – both dimensions of workforce diversity have either no or negative effects on firm TFP. Hence, it seems as if the negative effects, coming from communication and integration costs connected to a more demographically and culturally diverse workforce, counteract the positive effects of diversity on firm TFP, coming from creativity and knowledge spillovers. However, we find that ethnic diversity is valuable for firms operating in industries characterized by above-average trade openness, giving support to the hypothesis that an ethnically diverse workforce provides information and access to global markets.
    Keywords: Labor diversity; skill complementarities; communication barriers; total factor productivity
    JEL: C23 J24 L20
    Date: 2010–12–01
  14. By: Pedro André Cerqueira (GEMF/Faculdade de Economia, Universidade de Coimbra, Portugal)
    Abstract: This paper uses the period by period correlation index proposed by Cerqueira and Martins(2009) and two transformations that correct some shortcomings of this index to analyze how business cycle synchronization has changed since 1960. These indexes by distinguishing negative correlations due to episodes in single years, asynchronous behavior in turbulent times and synchronous behavior over stable periods will allow a more detailed analysis than if we used the linear correlation coefficient over time windows.
    Keywords: Globalization, Business cycle synchronization, Convergence.
    JEL: C33 E32 F42
    Date: 2010–09
  15. By: Toru Suzuki (Max Planck Institute of Economics, Jena)
    Abstract: Agents compete to solve a problem. Each agent knows own computational capacity as private information and simultaneously chooses either a risky or a safe problem solving method. This paper analyzes the optimal prize schemes from the perspective of the prize designer who wishes to find a solution as quick as possible. It is shown that (i) the winner- take-all scheme can induce excessive risk taking and make problem solving slower (ii) prize schemes with milder competitive pressure induce the optimal risk taking and quicker problem solving.
    Keywords: Optimal prize scheme, Risk taking, Problem solving
    JEL: D82
    Date: 2010–12–02
  16. By: Mair, Johanna (IESE Business School)
    Abstract: This essay sets out to take stock of existing endeavors to conceptualize Social Entrepreneurship. We illustrate the context-specific nature of the phenomenon and derive implications for fostering social entrepreneurship as a positive force for social and economic development. The paper has two main objectives: first, to stimulate a productive agenda for future research that goes beyond questions of 'who' and 'what' by pursuing the important considerations of 'where', 'why' and 'how'; and second, in so doing, to generate real insights for advances in both theory and practice.
    Keywords: social entrepreneurship; institutions; capitalism;
    Date: 2010–11–03
  17. By: George J. Mailath (Department of Economics, University of Pennsylvania); Andrew Postlewaite (Department of Economics, University of Pennsylvania); Larry Samuelson (Department of Economics, Yale University)
    Abstract: Different markets are cleared by different types of prices---seller-specific prices that are uniform across buyers in some markets, and personalized prices tailored to the buyer in others. We examine a setting in which buyers and sellers make investments before matching in a competitive market. We introduce the notion of premuneration values---the values to the transacting agents prior to any transfers---created by a buyer-seller match. Personalized price equilibrium outcomes are independent of premuneration values and exhibit inefficiencies only in the event of "coordination failures," while uniform-price equilibria depend on premuneration values and in general feature inefficient investments even without coordination failures. There is thus a trade-off between the costs of personalizing prices and the inefficient investments under uniform prices. We characterize the premuneration values under which uniform-price equilibria similarly exhibit inefficiencies only in the event of coordination failures.
    Keywords: Directed search, matching, premuneration value, prematch investments, search
    JEL: C78 D40 D41 D50 D83
    Date: 2010–01–26
  18. By: Rupayan Pal; Bibhas Saha (Indira Gandhi Institute of Development Research)
    Abstract: We examine whether the outcome of bargaining over wage and employment between an incumbent firm and a union remains efficient under entry threat. The workers\' reservation wage is not known to the entrant, and entry is profitable only against the high reservation wage. The entrant observes the pre-entry price, but not necessarily the wage agreements. When wage is not observed, contracts feature over-employment. Under separating equilibrium the low type is over-employed, and under pooling equilibrium the high type is over-employed. But when wage is observed, pooling equilibrium may not always exist, and separating equilibrium does not involve any inefficiency.
    Keywords: Efficient Bargaining, Entry Threat, Signalling, Inefficiency
    JEL: J51 L12 D43 J58
    Date: 2010
  19. By: Hitoshi Matsushima (Department of Economics, University of Tokyo)
    Abstract: We investigate price-based mechanisms with connectedness in combinatorial auctions, where with restrictions of privacy and complexity, the auctioneer asks a limited number of prices to buyers who provide demand responses. Consistent with the price-based property, several necessary and sufficient conditions are presented for the existence of the VCG mechanism, strategy-proofness with participation constraints, approximate strategy-proofness, Nash equilibrium, efficiency, core, and others. In all cases, the concept of the representative valuation function, which assigns the minimal valuation in both absolute and relative terms to any revealed package, plays the central role in determining whether these conditions are satisfied.
    Keywords: Combinatorial Auctions, Price-Based Mechanisms, VCG Mechanisms, Connectedness, Representative Valuation Functions
    JEL: D44 D61 D82
    Date: 2010–11
  20. By: Peter Claeys (Universitat de Barcelona,); Alessandro Maravalle (University of the Basque Country,)
    Abstract: The Financial Crisis has hit particularly hard countries like Ireland or Spain. Procyclical fiscal policy has contributed to a boom-bust cycle that undermined fiscal positions and deepened current account deficits during the boom. We set up an RBC model of a small open economy, following Mendoza (1991), and introduce the effect of fiscal policy decisions that change over the cycle. We calibrate the model on data for Ireland, and simulate the effect of different spending policies in response to supply shocks. Procyclical fiscal policy distorts intertemporal allocation decisions. Temporary spending boosts in booms spur investment, and hence the need for external finance, and so generates very volatile cycles in investment and the current account. This economic instability is also harmful for the steady state level of output. Our model is able to replicate the relation between the degree of cyclicality of fiscal policy, and the volatility of consumption, investment and the current account observed in OECD countries.
    Keywords: RBC, current account, small open economy, fiscal rule, spending
    JEL: E32 E62 F41 H62
    Date: 2010–12–02

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