nep-mic New Economics Papers
on Microeconomics
Issue of 2011‒03‒05
nineteen papers chosen by
Vaishnavi Srivathsan
Indian Institute of Technology

  1. Ruin probabilities in tough times - Part 2 - Heavy-traffic approximation for fractionally differentiated random walks in the domain of attraction of a nonGaussian stable distribution By Ph. Barbe; W. P. McCormick
  2. Does intellectual monopoly stimulate or stifle innovation? By Chu, Angus C.; Cozzi, Guido; Galli, Silvia
  3. Spatio-Temporal Dynamics in Swiss Regional Unemployment By Rolf Schenker; Martin Straub
  4. ADOPT: a tool for predicting adoption of agricultural innovations By Kuehne, G; Llewellyn, Rick S.; Pannell, D; Wilkinson, R; Dolling, P; Ewing, M
  5. Farm-level data integration: future problems and consequences for public and private structures By Mayer, Walter H.
  6. Contracts and Market: Risk Sharing with Hidden Types By Guido Maretto
  7. Capital Requirements and Business Cycles with Credit Market Imperfections By Pierre-Richard; K. Alper; L. Pereira da Silva
  8. Can Korea Learn from German Unification? By Ulrich Blum
  9. Open to Ideas: Information flows from Dairy Directions to Dairy Farmers By Tarrant, KA; Malcolm, B
  10. Migration, Skills and Productivity By Michael Landesmann; Robert Stehrer; Robert Hierländer; Peter Huber; Anna Iara; Klaus Nowotny; Mary O'Mahony; Fei Peng; Catherine Robinson
  11. Moderate Deviations of Generalized Method of Moments and  Empirical Likelihood Estimators By Taisuke Otsu
  12. Myopic or Farsighted? An Experiment on Network Formation By Marco Mantovani; Georg Kirchsteiger; Ana Mauleon; Vincent Vannetelbosch
  13. Evaluating the Improvement of Quality of Life in Rural Areas By Cagliero, Roberto; Cristiano, Simona; Pierangeli, Fabio; Tarangioli, Serena
  14. Developing supply chain maturity By Done, Adrian
  15. Retirement and Subjective Well-Being By Bonsang, Eric; Klein, Tobias J.
  16. A model of music piracy with popularity-dependent copying costs By Amedeo Piolatto; Florian Schuett
  17. Policy Briefings: Are Delays to the Foreclosure Process a Good Thing? By Higgins, Eric; Calomiris, Charles
  18. On Butterflies and Frankenstein: A Dynamic Theory of Regulation By Johan F.M.Swinnen; Thijs Vandemoortele;
  19. European integration and banking efficiency: a panel cost frontier approach By Cândida Ferreira

  1. By: Ph. Barbe (CNRS); W. P. McCormick (UGA)
    Abstract: Motivated by applications to insurance mathematics, we prove some heavy-traffic limit theorems for processes which encompass the fractionally differentiated random walk as well as some FARIMA processes, when the innovations are in the domain of attraction of a nonGaussian stable distribution.
    Date: 2011–02
  2. By: Chu, Angus C.; Cozzi, Guido; Galli, Silvia
    Abstract: This study develops an R&D-based growth model that features both vertical and horizontal innovation to shed some light on the current debate on whether patent protection stimulates or stifles innovation. Specifically, we analyze the growth and welfare effects of patent protection in the form of profit division between sequential innovators along the quality ladder. We show that patent protection has asymmetric effects on vertical innovation (i.e., quality improvement) and horizontal innovation (i.e., variety expansion). Maximizing the incentives for vertical (horizontal) innovation requires a profit-division rule that assigns the entire flow profit to the entrant (incumbent) of a quality ladder. In light of this finding, we argue that in order to properly analyze the growth and welfare implications of patent protection, it is important to disentangle its different effects on vertical and horizontal innovation.
    Keywords: economic growth; innovation; intellectual property rights
    JEL: O34 O31 O40
    Date: 2010–11
  3. By: Rolf Schenker (City of Zurich, Statistik, Switzerland); Martin Straub (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: It is generally accepted that regional labor markets are characterized by strong interdependencies. However, only few studies include spatial elements to their estimations. Using the model framework proposed by Cliff and Ord (1973, 1981) and the estimation technique proposed by Kelejian and Prucha (1998), we estimate a spatial time series model for the Swiss cantonal unemployment rates on a quarterly level. Our model contains a spatial lag in the level and in the error term, as well as further exogenous explanatory variables. While both spatial lags turn out to be significant in our estimations, the dependency in the error term seems to be even stronger than the one in the level.
    Keywords: Regional Unemployment, Spatial Econometrics, Switzerland
    JEL: C31 C32 E24 R11
    Date: 2011–02
  4. By: Kuehne, G; Llewellyn, Rick S.; Pannell, D; Wilkinson, R; Dolling, P; Ewing, M
    Abstract: A wealth of evidence exists about the adoption of new practices and technologies in agriculture but there does not appear to have been any attempt to simplify this vast body of research knowledge into a model to make quantitative predictions across a broad range of contexts. This is despite increasing demand from research, development and extension agencies for estimates of likely extent of adoption and the likely timeframes for project impacts. This paper reports on the reasoning underpinning the development of ADOPT (Adoption and Diffusion Outcome Prediction Tool). The tool has been designed to: 1) predict an innovationâs likely peak extent of adoption and likely time for reaching that peak; 2) encourage users to consider the influence of a structured set of factors affecting adoption; and 3) engage R, D & E managers and practitioners by making adoptability knowledge and considerations more transparent and understandable. The tool is structured around four aspects of adoption: 1) characteristics of the innovation, 2) characteristics of the population, 3) actual advantage of using the innovation, and 4) learning of the actual advantage of the innovation. The conceptual framework used for developing ADOPT is described.
    Keywords: Adoption, Diffusion, Prediction, Research and Development/Tech Change/Emerging Technologies,
    Date: 2011
  5. By: Mayer, Walter H.
    Abstract: One of the outcomes of the EC-FP7 project âFuture Farmâ was showing the need of INTEGRATION, something that PROGIS has been doing for 15 years. Within the whole sector agricultureâforestry-environment-risk management there is an enormous need for integration that is not available yet, because of on side the existing admin-sector-structures plus on the other side diverse public and/or private interests with opposite directions and in many cases the not streamlined interest of ALL involved parties. On the other hand we have the nature that is fully integrated and should be managed by us! Nothing happens without being related to something else within the nature. We have to be more aware of this and have also to understand that ICT will be the driver of integration as data and based on it these information is necessary and urgently needed for public and for private structures. We can do it separately, doing things in parallel and multiple times with multiple costs and reduced results. The other option is to cooperate on an integrative model!
    Keywords: Commons, farm management, valuation of land, ICT, Farm Management,
    Date: 2011–02–10
  6. By: Guido Maretto
    Abstract: I study two way effects between financial markets and other contractual agreements, such as compensation packages within a firm, or mortgages and loans. I construct a model with many Units, in which one of the contracting individuals, the Agent, has private information, while the uninformed individual, the Principal, has the opportunity to trade with those in the other Units. I give general conditions under which financial markets induce a transfer of risk from Agents to Principals. These conditions boil down to a limited amount of correlation among Units' returns. Under the same conditions, I show that markets induce a transfer of welfare from the best Agents to Principals. Conversely, the information problem within firms leads to excessive aggregate risk. However, this problem vanishes in a large economy.
    Date: 2011–02
  7. By: Pierre-Richard; K. Alper; L. Pereira da Silva
    Date: 2011–01
  8. By: Ulrich Blum
    Abstract: We first analyze pre-unification similarities and differences between the two Germanys and the two Koreas in terms of demographic, social, political and economic status. An important issue is the degree of international openness. “Stone-age” type communism of North Korea and the seclusion of the population prevented inner-Korean contacts and contacts with rest of the world. This may create enormous adjustment costs if institutions, especially informal institutions, change. We go on by showing how transition and integration interact in a potential unification process based on the World Bank Revised Minimum Standard Model (RMSM) and on the Salter-Swan-Meade model. In doing so, we relate the macro and external impacts on an open economy to its macro-sectoral structural dynamics. The findings suggest that it is of utmost importance to relate microeconomic policies to the macroeconomic ties and side conditions for both parts of the country. Evidence from Germany suggests that the biggest general error in unification was neglecting these limits, especially limitations to policy instruments. Econometric analysis supports these findings. In the empirical part, we consider unification as an “investment” and track down the (by-and-large immediate to medium-term) costs and the (by-and-large long-term) benefits of retooling a retarded communist economy. We conclude that, from a South-Korean perspective, the Korean unification will become relatively much more expensive than the German unification and, thus, not only economic, but to a much larger degree political considerations must include the tying of neighboring countries into the convergence process. We finally provide, 62 years after Germany’s division and 20 years after unification, an outlook on the strength of economic inertia in order to show that it may take much more than a generation to compensate the damage inflicted by the communist system.
    Keywords: division, integration, transition, Germany, Korea
    JEL: D2 E6 P5
    Date: 2011–02
  9. By: Tarrant, KA; Malcolm, B
    Abstract: The âopennessâ of farming systems that is the focus of this paper is âopen to informationâ, in particular the way that new information from the farming systems research project, Dairy Directions, flows from research outputs to dairy farmers. Dairy Directions is a multidisciplinary research activity centred on a steering group of interested parties, mostly farmers, scientists and economists, but also drawing on extension agents, natural resource managers, water service providers, community service providers and public policy participants. The core general research question of Dairy Directions is âWhat options do farmers running different dairy farming systems have to achieve their goals in an uncertain future?â The goals analysed by the project are predominantly economic and financial â maintaining or increasing profit and cash flow, growing wealth, managing risk, preparing for succession and balancing the dairy work-life balance. Their uncertain future encompasses variability in prices, as well as the natural environment and the policy setting.
    Keywords: Farm Management,
    Date: 2011
  10. By: Michael Landesmann (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw); Robert Hierländer; Peter Huber; Anna Iara; Klaus Nowotny; Mary O'Mahony; Fei Peng; Catherine Robinson
    Abstract: The literature on international migration has repeatedly emphasized that the extent and structure of migration has an important impact on the competitiveness of regions and countries. This report provides an overview of the extent and the potential effects of high-skill migration to the EU27. It shows how many high-skilled migrants live in the EU, where these migrants come from, and how the European Union is positioned in the international competition for talent. Second, we examine how high-skilled migrants fare in European labour markets. Finally we address the issue of the effects of high-skill migration on multifactor productivity, gross value added and GDP per capita growth as well as patenting activities at the sectoral and regional levels. We find that - despite substantial heterogeneity among individual EU countries - high-skilled foreign-born are an important source for high-skilled labour in the EU27. There was some evidence that - on average - EU OECD economies (EU) had a lower share of highly qualified migrants than the (arithmetic) average of the (high migration) non-EU OECD economies. However, our results also suggest that this increasing selectivity of immigration regimes is countered by a relatively low qualification structure of short-term migrants in the EU. A second important policy relevant finding of this study is that high-skilled migrants in the EU face a number of challenges when entering the European labour market, that make them distinct from other migrant groups such as less skilled migrants. In particular the high-skilled migrants - in contrast to less skilled migrants - have lower labour market participation rates, higher unemployment rates and lower employment rates than comparable natives and face substantially higher risks of being employed in jobs that do not fit their skill structure. Our analysis regarding the impact of migration and of high-skilled migration in particular on sectoral productivity and gross value added (levels and growth) yielded a number of interesting results though still being preliminary. Particularly interesting was the difference of the impact of the share of migrants in levels and growth specifications, as well as the importance of a break-down by different groups of migrants (from EU and RoW). There was also a relatively robust result of a positive impact of the share of high-skill migrants and of an interactive effect of high-skill migrant share and ICT technology. As regards the analysis of migrants and regional growth and regional technological development (proxied by patents per capita) we found a positive relationship between the share of high-skilled employed persons and of high-skilled migrants and the growth rate of regional GDP per capita.
    Keywords: migration patterns, high-skill migration, job mismatch, productivity effects
    JEL: J61 I21 J11
    Date: 2010–11
  11. By: Taisuke Otsu (Cowles Foundation, Yale University)
    Abstract: This paper studies moderate deviation behaviors of the generalized method of moments and generalized empirical likelihood estimators for generalized estimating equations, where the number of equations can be larger than the number of unknown parameters. We consider two cases for the data generating probability measure: the model assumption and local contaminations or deviations from the model assumption. For both cases, we characterize the first-order terms of the moderate deviation error probabilities of these estimators. Our moderate deviation analysis complements the existing literature of the local asymptotic analysis and misspecification analysis for estimating equations, and is useful to evaluate power and robust properties of statistical tests for estimating equations which typically involve some estimators for nuisance parameters.
    Keywords: Generalized method of moments, Empirical likelihood, Moderate deviations, Large deviations
    JEL: C13 C14
    Date: 2011–02
  12. By: Marco Mantovani; Georg Kirchsteiger; Ana Mauleon; Vincent Vannetelbosch
    Abstract: Pairwise stability (Jackson and Wolinsky, 1996) is the standard stability concept in network formation. It assumes myopic behavior of the agents in the sense that they do not forecast how others might react to their actions. Assuming that agents are farsighted, related stability concepts have been proposed. We design a simple network formation experiment to test these theories. Our results provide support for farsighted stability and strongly reject the idea of myopic behavior.
    Keywords: Network fomation; Experiment; Myopic and farsighted stability
    JEL: D85 C91 C92
    Date: 2011–02
  13. By: Cagliero, Roberto; Cristiano, Simona; Pierangeli, Fabio; Tarangioli, Serena
    Abstract: The research starts from the necessity to create specific tools for evaluating the impacts of rural development policies on fragile areas. The study is motivated by the need for developing an appropriate evaluation method that leads to gather meaningful information for a broader understanding of the quality of life in rural areas, including the subjective well-beingâs dimensions and its determinants and feeds the policy designs on this specific domain. The multidimensional nature of quality of life is a main challenge in terms of evaluation. Indeed, within the Rural Development Programmes 2007-2013, the enhancement of the quality of life in rural areas is one of the major strategic objectives to be addressed by a menu of measures. Selections of some current literature on the multidimensional nature of quality of life have been used as conceptual basis for analysing the extent to which the European evaluation framework for rural development programmes (EC 1999, 2006, 2010) - based on the intervention logic model, the use of economic indicators and evaluative questions - is able to capture the relevant dimensions of well-being rural peopleâs lives. A part of the research is based on the analysis of ex-post evaluations carried out in Italy. The evaluations are expected to assess the improvement of quality of life in rural areas as effect of programmesâ implementation. The paper provides two different experiences of quantification of quality of life in rural area: a synthetic measure of marginality as a proxy of quality of life indicators (in Piedmont) and a synthetic index of quality of life (in Emilia Romagna). The paper proposes a wider integrated evaluation approach to be used in the context of the evaluation of impacts of rural development programmes, that through the combined utilization of quantitative and qualitative indicators and additional evaluative questions, allows a more comprehensive assessment of quality of life in rural areas.
    Keywords: evaluation, quality of life, marginality, qualitative indicators, Agricultural and Food Policy, O180,
    Date: 2011–02–10
  14. By: Done, Adrian (IESE Business School)
    Abstract: This study introduces an empirical model of supply chain maturity and assesses its impact upon performance. Findings suggest that supply chain maturity is multi-dimensional including the areas of planning, sourcing, making, delivering, new product development, and returning. Valid and reliable measures, scales and supply chain maturity constructs were formulated and significant positive links found with multiple objective performance measures. The supply chain maturity framework is thus concluded to be robust for answering questions relating to where a supply chain is in developmental terms and what may be done to continue improving upon the design. Possible areas for further research and implications for managers are also raised.
    Keywords: Supply Chain Design; Supply Chain Coordination;
    Date: 2011–01–19
  15. By: Bonsang, Eric (ROA, Maastricht University); Klein, Tobias J. (Tilburg University)
    Abstract: We provide an explanation for the common finding that the effect of retirement on life satisfaction is negligible. For this we use subjective well-being measures for life and domains of life satisfaction that are available in the German Socio-Economic Panel (GSOEP) and show that the effect of voluntary retirement on satisfaction with current household income is negative, while the effect on satisfaction with leisure is positive. At the same time, the effect on health satisfaction is positive but small. Following the life domain approach we then argue that these effects offset each other for an average individual and that therefore the overall effect is negligible. Furthermore, we show that it is important to distinguish between voluntary and involuntary retirement. The effect of involuntary retirement is negative because the adverse effect on satisfaction with household income is bigger, the favorable effect on satisfaction with leisure is smaller, and the effect on satisfaction with health is not significantly different from zero. These results turn out to be robust to using different identification strategies such as fixed effects and first differences estimation, as well as instrumental variables estimation using eligibility ages and plant closures as instruments for voluntary and involuntary retirement.
    Keywords: retirement, subjective well-being, satisfaction measurement
    JEL: J26 J14
    Date: 2011–02
  16. By: Amedeo Piolatto (IEB, University of Barcelona); Florian Schuett (TILEC, CentER, Tilburg University)
    Abstract: Anecdotal evidence and recent empirical work suggest that music piracy has differential effects on artists depending on their popularity. Existing theoretical literature cannot explain such differential effects since it is exclusively concerned with single-firm models. We present a model with two types of artists who differ in their popularity. We assume that the costs of illegal downloads increase with the scarcity of a recording, and that scarcity is negatively related to the artist’s popularity. Moreover, we allow for a second source of revenues for artists apart from CD sales. These alternative revenues depend on an artist's recognition as measured by the number of consumers who obtain his recording either by purchasing the original or downloading a copy. Our findings for the more popular artist generalize a result found by Gayer and Shy (2006) who show that piracy is beneficial to the artist when alternative revenues are important. In our model, however, this does not carry over to the less popular artist, who is often harmed by piracy even when alternative revenues are important. We conclude that piracy tends to reduce musical variety.
    Keywords: Piracy, file sharing, heterogeneous artists
    JEL: L82 K42
    Date: 2011
  17. By: Higgins, Eric; Calomiris, Charles
    Abstract: The United States faces a foreclosure crisis. The Mortgage Bankers Association reported that slightly more than four percent of the loans in the United States are in the foreclosure process as of the third quarter of 2010. RealtyTrac reported in January 2011 that nearly three million homes received foreclosure filings in 2010. In addition to the current foreclosures, there exist a substantial number of potential foreclosures that will occur in the next several years. Goodman (2010) estimates that there may be another seven million homes that will face foreclosure. CoreLogic estimated that nearly 23 percent of all mortgages are underwater as of the third quarter of 2010. This number spikes in the areas hardest hit by the mortgage crisis. The sheer volume of actual and pending foreclosures coupled with a slowdown in the foreclosure process due to legal and political wrangling has increased the time that a home is in foreclosure. The purpose of this policy briefing is to analyze the economics of delaying the resolution of the foreclosure process. We review the literature relating to the macroeconomic effects of delaying foreclosures. We begin by identifying four types of potential costs of delay. First, foreclosure delays inject uncertainty in the consumer balance sheet, which leads to unnecessary and economically damaging delays in consumption. This reverse-stimulus alone could dwarf any further plausible price effects of delaying foreclosures at this stage of the business cycle. Second, delaying foreclosures could impede new housing construction. Housing construction is predicated upon a positive and consistent upward price gradient in the housing market, which will not be established until the market is cleared of delinquent homes. Third, and similar to a consumer’s balance sheet, delaying foreclosures creates uncertainty in banks’ balance sheets, potentially blocking channels of credit and undermining lending. Fourth, delinquent homes that are heading to foreclosure have been shown to aggravate neighborhood blight.
    Date: 2011–02
  18. By: Johan F.M.Swinnen; Thijs Vandemoortele;
    Abstract: There are major differences in regulation among various countries. A particular case is the difference between the EU and US in regulating biotechnology.We develop a formal and dynamic model of government decision-making on regulation. We show that minor differences in consumer preferences can lead to important and persistent regulatory differences, and that temporary shocks to preferences can have long-lasting effects. This hysteresis in regulatory differences is shown to be caused by producer protectionist motives. We argue that this model may contribute to explain the difference between EU and US biotechnology regulation.
    Date: 2011
  19. By: Cândida Ferreira
    Abstract: The aim of this paper is to contribute to the relatively scarce published research on the relationship between European integration and banking efficiency. Estimating cost translog frontier functions for different panels of European Union countries for the time period 1994- 2008 we conclude that there is always technical inefficiency. Additionally, although country inefficiencies have decreased in recent years (2000-2008), there are no remarkable changes in the countries’ ranking positions. Our results also point to the existence of a quite slow convergence process across EU countries during the period analysed, as well as its acceleration after the establishment of the European Monetary Union.
    Keywords: Bank efficiency; European integration; convergence; cost frontier approach.
    JEL: G15 G21 F36
    Date: 2011–02

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