nep-mic New Economics Papers
on Microeconomics
Issue of 2011‒04‒09
seventeen papers chosen by
Vaishnavi Srivathsan
Indian Institute of Technology

  1. The Sugar Daddy's Game: How Wealthy Investors Change Competition in Professional Team Sports By Markus Lang; Martin Grossmann; Philipp Theiler
  2. Does Banking Competition Alleviate or Worsen Credit Constraints Faced by Small and Medium Enterprises? Evidence from China By Chong, T.T.L.; Lu, L.; Ongena, S.
  3. A Stochastic Frontier Model with short-run and long-run inefficiency random effects By Roberto Colombi; Gianmaria Martini; Giorgio Vittadini
  4. The Nexus between Labor Diversity and Firm´s Innovation By Parrotta, Pierpaolo; Pozzoli, Dario; Pytlikova, Mariola
  5. Challenging the Intrapersonal Empathy Gap An Experiment with Self-Commitment Power By Matthias Uhl
  6. Why Has the Fraction of Contingent Workers Increased? A case study of Japan By ASANO Hirokatsu; ITO Takahiro; KAWAGUCHI Daiji
  7. Physician Density in a Two-Tiered Health Care System By Gächter, Martin; Schwazer, Peter; Theurl, Engelbert; Winner, Hannes
  8. Hedging Effectiveness under Conditions of Asymmetry By John Cotter; Jim Hanly
  9. Trading Directions and the Pricing of Euro Interbank Deposits in the Long Run By Massimiliano Marzo; Paolo Zagaglia
  10. A Simple Test of Momentum in Foreign Exchange Markets By Andres Felipe Garcia-Suaza; Jose Eduardo Gómez
  11. Statistical properties of derivatives: a journey in term structures. By Raynaud, Franck; Lautier, Delphine
  12. Tail Behaviour of the Euro By John Cotter
  13. Campaigns, Political Mobility, and Communication By Hans Gersbach
  14. Bargaining and Collusion in a Regulatory Model By Raffaele Fiocco; Mario Gilli
  15. The Effects of Alcohol Policies in Reducing Entry Rates and Time Spent in Foster Care By Sara Markowitz; Alison Evans Cuellar; Ryan M. Conrad; Michael Grossman
  16. Optimal Degree of Commitment in a Tax Policy By Yusuke Kinai
  17. Macro and micro drivers of house price dynamics: An application to Dutch data By Gabriele Galati; Federica Teppa; Rob Alessie

  1. By: Markus Lang (Institute for Strategy and Business Economics, University of Zurich); Martin Grossmann (Institute for Strategy and Business Economics, University of Zurich); Philipp Theiler (Institute for Strategy and Business Economics, University of Zurich)
    Abstract: Professional sports leagues have witnessed the appearance of so-called "sugar daddies" - people who invest enormous amounts of money into clubs and become their owners. This paper presents a contest model of a professional sports league that incorporates this phenomenon. We analyze how the appearance of a sugar daddy alters competitive balance and social welfare compared to a league with purely profit-maximizing club owners. We further show that the welfare effect of revenue sharing in a sugar daddy league is ambiguous and depends on the degree of redistribution and on whether the sugar daddy invests in a small or large club.
    Keywords: Competitive balance, contest model, social welfare, sports leagues, sugar daddy
    JEL: L83 L2 D43 C72
    Date: 2011–03
  2. By: Chong, T.T.L.; Lu, L.; Ongena, S. (Tilburg University, Center for Economic Research)
    Abstract: Banking competition may enhance or hinder the financing of small and medium enterprises (SMEs). Using a survey on the financing of China’s SMEs combined with detailed bank branch information, we investigate how concentration in the local banking market affects the availability of credit. It is found that lower market concentration alleviates financing constraints. The un-concentrated presence of joint stock banks has a larger effect on alleviating credit constraints, while the presence of state-owned banks has a smaller effect, than the presence of city commercial banks.
    Keywords: Banking Competition;SMEs Financing;Credit Constraints.
    JEL: D41 D43 G21
    Date: 2011
  3. By: Roberto Colombi; Gianmaria Martini; Giorgio Vittadini
    Abstract: This paper presents a new stochastic frontier model for panel data. The model takes into account firm unobservable heterogeneity and short-run and long-run sources of inefficiency. Each of these features is modeled by a specific random effect. In this way, firms’ latent heterogeneity is not wrongly modeled as inefficiency, and it is possible to disentangle a time-persistent component from the total inefficiency. Under reasonable assumptions, we show that the closed-skew normal distribution allows us to derive both the log-likelihood function of the model and the posterior expected values of the random effects. The new model is compared with nested models by analyzing the efficiency of firms belonging to different sectors.
    Keywords: Closed-Skew Normal Distribution, Longitudinal Data Analysis, Mixed Models, Stochastic Frontiers
    Date: 2011
  4. 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: This paper investigates the nexus between labor diversity and innovation in a population of Danish rms. Specically, exploiting information retrieved from a comprehensive linked employer-employee database and implementing a proper instrumental variable strategy, we are able to identify the contribution of diversity in cultural background, skills and demographic characteristics to valuable rm's innovation activity. The latter is measured by: (1) the rm's propensity to apply for a patent, (2) the number of patent applications (intensive margin) and (3) the rm's ability to patent in dierent technological areas (extensive margin). We nd that skill diversity plays a key role in propelling rm's innovation outcomes. The positive inuence of heterogeneity in the ethnic dimension turns to be not negligible, too. Conversely, the eect of demographic diversity typically vanishes once detailed rm specic characteristics are included as control variables
    Keywords: Labor diversity; patenting activity; extensive and intensive margins;
    JEL: C23 J24 L20
    Date: 2010–11–01
  5. By: Matthias Uhl (Max Planck Institute of Economics, IMPRS "Uncertainty", Jena, Germany)
    Abstract: Loewenstein (1996, 2005) identifies an intrapersonal empathy gap. In the respective experiments, subjects make choices with delayed consequences. When entering the state where these consequences would unfold, they get the possibility to revise their initial choice. Revisions are more substantial when these two choices are made in different emotional states. The concept of the empathy gap suggests that the initial choice represents a misprediction of future preferences. However, it might alternatively be based on a well understood disagreement with future preferences. In this sense, people would like to add: "But don't ask me again!" To disentangle both explanations, we induce two different emotional states in each subject and offer a self-commitment device in the first state. In one condition, subjects move from a "cold" state of reflection to a "hot" state of impulsiveness. In the other condition, this order is reversed. We find evidence for the hot-to-cold empathy gap, but not for the cold-to-hot empathy gap when subjects can self-commit to their initial choice.
    Keywords: Intrapersonal empathy gap, self-commitment, intrapersonal conflict, naiveté, sophistication
    JEL: C90
    Date: 2011–04–04
  6. By: ASANO Hirokatsu; ITO Takahiro; KAWAGUCHI Daiji
    Abstract: The fraction of contingent workers among all workers in Japan increased from 17% in 1986 to some 34% in 2008. This paper investigates the reason for this secular trend. Both demand and supply increases of contingent workers relative to regular workers are important, as evidenced by the stable relative wage to regular workers. The increase of female labor-force participation explains the supply increase, and the change of industrial composition explains the demand increase. These compositional changes explain about one quarter of the increase of contingent workers. Uncertainty surrounding product demand and the introduction of information and communication technologies increase firms' usage of contingent workers, but its quantitative effect is limited. These findings suggest that the declining importance of firm-specific human capital is a probable cause for the increase of contingent workers.
    Date: 2011–03
  7. By: Gächter, Martin (Department of Economics and Statistics, University of Innsbruck); Schwazer, Peter (Department of Economics and Statistics, University of Innsbruck); Theurl, Engelbert (Department of Economics and Statistics, University of Innsbruck); Winner, Hannes (University of Salzburg)
    Abstract: We investigate the density of private physicians in a two-tiered health care system, i.e., one with co-existing public and private health care providers. In particular, we analyze how the densities of private and public suppliers of outpatient health care (general practitioners and specialists) are related to each other. Using a panel of 121 Austrian districts between 2002 and 2008, we find that the density of private specialists is positively associated with the density of private general practitioners, but negatively related to the density of public general practitioners. We also observe a negative relationship between the densities of private and public general practitioners and the ones of private and public specialists, indicating competitive forces between the private and the public sector of the outpatient health care provision in Austria.
    Keywords: Competition in health care markets; physician location; panel econometrics
    JEL: C23 I11 I18 L23
    Date: 2011–03–31
  8. By: John Cotter; Jim Hanly
    Abstract: We examine whether hedging effectiveness is affected by asymmetry in the return distribution by applying tail specific metrics to compare the hedging effectiveness of short and long hedgers using crude oil futures contracts. The metrics used include Lower Partial Moments (LPM), Value at Risk (VaR) and Conditional Value at Risk (CVAR). Comparisons are applied to a number of hedging strategies including OLS and both Symmetric and Asymmetric GARCH models. Our findings show that asymmetry reduces in-sample hedging performance and that there are significant differences in hedging performance between short and long hedgers. Thus, tail specific performance metrics should be applied in evaluating hedging effectiveness. We also find that the Ordinary Least Squares (OLS) model provides consistently good performance across different measures of hedging effectiveness and estimation methods irrespective of the characteristics of the underlying distribution.
    Date: 2011–03
  9. By: Massimiliano Marzo (Department of Economics, Università di Bologna); Paolo Zagaglia (Department of Economics, Università di Bologna)
    Abstract: We investigate the relation between aggregate trading imbalances and interest rates in the Euro money market. We use data for OTC contracts as well as information from the major electronic trading platform in Europe to study the presence of cointegration between trading pressures and money market rates. We report strong evidence of a long-term linear relation between trading imbalances and liquidity prices for Euro interbank deposits.
    Keywords: Euro money market, order flow, interest rates
    JEL: G14 E52
    Date: 2011–03
  10. By: Andres Felipe Garcia-Suaza; Jose Eduardo Gómez
    Abstract: This study proposes a new method for testing for the presence of momentum in nominal exchange rates, using a probabilistic approach. We illustrate our methodology estimating a binary response model using information on local currency / US dollar exchange rates of eight emerging economies. After controlling for important variables affecting the behavior of exchange rates in the short-run, we show evidence of exchange rate inertia; in other words, we find that exchange rate momentum is a common feature in this group of emerging economies, and thus foreign exchange traders participating in these markets are able to make excess returns by following technical analysis strategies. We find that the presence of momentum is asymmetric, being stronger in moments of currency depreciation than of appreciation. This behavior may be associated with central bank intervention.
    Date: 2011–03–28
  11. By: Raynaud, Franck; Lautier, Delphine
    Abstract: This article presents an empirical study of thirteen derivative markets for commodity and financial assets. This paper goes beyond statistical analysis by including the maturity as a variable for futures contracts’s daily returns, from 1998 to 2010 and for delivery dates up to 120 months. We observe that the mean and variance of the commodities follow a scaling behavior in the maturity dimension with an exponent characteristic of the Samuelson effect. The comparison of the tails of the probability distribution according to the expiration dates shows that there is a segmentation in the fat tails exponent term structure above the Lévy stable region. Finally, we compute the average tail exponent for each maturity and we observe two regimes of extreme events for derivative markets, reminding of a phase diagram with a sharp transition at the 18th delivery month.
    Keywords: Derivatives; Econophysics; Tail exponents; Term structures;
    JEL: G1
    Date: 2011
  12. By: John Cotter
    Abstract: This paper empirically analyses risk in the Euro relative to other currencies. Comparisons are made between a sub period encompassing the final transitional stage to full monetary union with a sub period prior to this. Stability in the face of speculative attack is examined using Extreme Value Theory to obtain estimates of tail exchange rate changes. The findings are encouraging. The Euro's common risk measures do not deviate substantially from other currencies. Also, the Euro is stable in the face of speculative pressure. For example, the findings consistently show the Euro being less risky than the Yen, and having similar inherent risk to the Deutsche Mark, the currency that it is essentially replacing.
    Date: 2011–03
  13. By: Hans Gersbach (ETH Zurich, Switzerland)
    Abstract: We present a model of elections in which interest group donations allow candidates to shift policy positions. We show that if donations were prohibited, then a unique equilibrium regarding the position choices of candidates would exist. With unrestricted financing of political campaigns two equilibria emerge, depending on whether a majority of interest groups runs to support the leftist or rightist candidate. The equilibria generate a variety of new features of campaign games and may help identify the objective functions of candidates empirically.
    Keywords: elections, campaign contributions, interest groups
    JEL: C72 D72
    Date: 2011–04
  14. By: Raffaele Fiocco; Mario Gilli
    Abstract: We consider the regulation of a monopolistic market when the prin- cipal delegates to a regulatory agency two tasks: the supervision of the firm's unknown costs and the arrangement of a pricing mechanism. As usual, the agency may have an incentive to hide information from the principal to share the informative rent with the firm. The novelty of this paper is that both the regulatory mechanism and the side con- tracting between the agency and the firm are modelled as a bargaining process. This negotiation between the regulator and the monopoly induces a radical change in the extraprofit from private information, which is now equal to the standard informational rent weighted by the agency’ bargaining power. This in turn a¤ects the collusive stage, in particular the firm has the greatest incentive to collude when fac- ing an agency with the same bargaining power. Then, we focus on the optimal organizational responses to the possibility of collusion. In our setting, where incompleteness of contracts prevents the design of a screening mechanism between the agency’ types and thus Tirole’ equivalence principle does not apply, we prove that the stronger the agency in the negotiation process, the greater the incentives for the principal to tolerate collusion in equilibrium.
    Keywords: regulation, bargaining, collusion.
    JEL: D73 D82 L51
    Date: 2011–03
  15. By: Sara Markowitz; Alison Evans Cuellar; Ryan M. Conrad; Michael Grossman
    Abstract: The purpose of this paper is to empirically estimate the propensity for alcohol-related policies to influence rates of entry into foster care and the length of time spent in foster care. Alcohol consumption is believed to be major contributing factor to child maltreatment, associated with an increased likelihood of abuse and longer durations once in foster care. We analyze a panel of state-level foster care entry rates over time, followed by a duration analysis of individual-level cases. The alcohol regulations of interest include beer, wine, and liquor taxes and prices, and a measure of alcohol availability. Overall, these alcohol control policies appear to have limited power to alter foster care entry rates and duration once in care. We find that higher alcohol taxes and prices are not effective in reducing foster care entry rates, however, once in foster care, the duration of stay may be influenced with higher taxes, particularly when the entry was a result of an alcohol abusing parent.
    JEL: I0 J1 K0
    Date: 2011–03
  16. By: Yusuke Kinai (Graduate School of Economics, Osaka University)
    Abstract: In analyzing economic policies, a severe problem is the time-inconsistency problem. In this regard, the choice of commitment vs. discretion engenders a tradeoff of flexibility and credibility. Therefore, it might be necessary and acceptable to adopt a discretionary policy to some degree, but past studies do not clarify the degree to which a government exercises such a discretionary option. This paper clarifies the optimal degree of commitment using the framework of a repeated game reported by Chari and Kehoe (1990). We point out the relation between the optimal degree of commitment and the rate of time preference.
    Keywords: Commitment vs. Flexibility; Degree of Commitment; Imperfect Public Monitoring; Repeated Games; Tax Policy.
    JEL: E61 E62 H11 H30
    Date: 2011–03
  17. By: Gabriele Galati; Federica Teppa; Rob Alessie
    Abstract: What is the role of micro and macro factors in determining house prices? We address this question empirically by analysing survey data on housing and mortgages from the DNB Household Survey for the period 1993–2009. We focus on the determinants of house owners’ subjective assessment of the value of their house. We highlight three main findings. First, subjective house prices are strongly related to household-specific and house-specific factors, including year of construction, cohort, education level, income and wealth. Financing conditions – in particular the presence of a mortgage as well as the mortgage type, and the mortgage rate – play an important role. Second, we find that macro variables such as the long-term interest rate also influence to an important extent how households value their home. Third, there is evidence of “well behaved” dynamics of subjective house prices, both in terms of persistence and in terms of mean reversion, indicating that house prices tend to converge to their long run equilibrium value. Finally, our findings support a certain degree of heterogeneity and segmentation in subjective house prices, especially along the dimensions of geographical region and degree of urbanization, funding conditions, and income expectations.
    Keywords: House prices; survey data; panel analysis
    JEL: D14 E21 G11
    Date: 2011–03

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