nep-mic New Economics Papers
on Microeconomics
Issue of 2011‒04‒16
eighteen papers chosen by
Vaishnavi Srivathsan
Indian Institute of Technology

  1. Romer’s Charter Cities v. Colonization, Imperialism, and Colonialism: A General Characterization By Amavilah, Voxi Heinrich
  2. Is leadership a part of me? Identity centrality, self-role alignment, and the motivation to lead By Laura Guillén; Konstantin Korotov
  3. Mental accounting in the housing market By Johan Almenberg; Artashes Karapetyan
  4. Mediterranean business cycles: structure and characteristics By Fabio Canova; Alain Schlaepfer
  5. Financial imbalances and financial fragility By Frédéric Boissay
  6. From Personal to Impersonal Exchange in Ideas: An Experimental Study of Patent Markets with Transparent Prices By Eskil Ullberg;
  7. Swedish fertility swings and public expenditure for children By Lindh, Thomas; Hong, Ying
  8. Why inferential statistics are inappropriate for development studies and how the same data can be better used By Ballinger, Clint
  9. A tale of two growth engines: The interactive effects of monetary policy and intellectual property rights By Chu, Angus C.; Lai, Ching-Chong; Liao, Chih-Hsing
  11. Poverty, aspirations and wellbeing: afraid to aspire and unable to reach a better life – voices from Egypt By Solava Ibrahim
  12. Mixed contracts for the newsvendor problem with real options By Jörnsten, Kurt; Nonås, Sigrid Lise; Sandal, Leif K.; Ubøe, Jan
  13. Gender and Cooperation in Children: Experiments in Colombia and Sweden By Cárdenas, Juan-Camilo Cárdenas; Dreber, Anna Dreber; von Essen, Emma; Ranehill, Eva
  14. Welfare improving taxation on saving in a growth model By Long Xin; Pelloni Alessandra
  15. Can Vertical Separation Reduce Non-Price Discrimination and Increase Welfare? By Duarte Brito; Pedro Pereira; João Vareda
  16. All solution graphs in multidimensional screening By Kokovin, Sergey; Nahata, Babu; Zhelobodko, Evgeny
  17. Cigarette smoking in Indonesia: examination of a myopic model of addictive behaviour By Hidayat, Budi; Thabrany, Hasbullah
  18. The Relevance of Information Sources on Adoption of Precision Farming Technologies by Cotton Producers By Garcia-Jimenez, Carlos I.; Mishra, Ashok K.; Paxton, Kenneth W.; Lambert, Dayton M.; Velandia, Margarita; Rejesus, Roderick M.; Segarra, Eduardo

  1. By: Amavilah, Voxi Heinrich
    Abstract: Paul Romer’s radical idea of chartering cities to stimulate long run economic growth and development has provoked a hot debate, not all supportive. Some of the opposition argues that the charter-city model is an antiquated idea that conjures up brutal images of failed (neo)colonialism. This essay characterizes colonization, imperialism, and colonialism in order to shed extra light on why and how effects of chartering a city are dissimilar to the effects of colonization, imperialism, and colonialism. The characterization finds that while colonization, imperialism, and colonialism share strong historical affinities, no such connections can reasonably be made to the charter-city idea. A key assumption (requirement) of the charter-city model is voluntary participation of all players. Colonization, imperialism, and colonialism were forceful and repressive systems which relied on both government cohesion and administered prices, and were therefore inefficient. Monopoly gains (rents) from colonization, imperialism, and colonialism came at the expense of reduced consumer surplus elsewhere. Success depended on monopoly rents from the trade in “objects.” Under charter cities the potential benefits to the urbanization and the economic growth of developing countries are huge. The charter-city model requires voluntary agreements. By overcoming the twin problems of consensus building and commitment utilizing market mechanisms, charter cities generate gains from the exchange of ideas. Evidence is starting to emerge suggesting that people understand that charter cities are not tentacles of (neo)colonialism; they promise real benefits if only policy makers decide to break old rules.
    Keywords: charter city; Paul Romer on ideas; colonization; colonialism; imperialism; economic growth
    JEL: O1 F5 O33 F54
    Date: 2011–02–18
  2. By: Laura Guillén (ESMT European School of Management and Technology); Konstantin Korotov (ESMT European School of Management and Technology)
    Abstract: In this article, we studied the affective and social normative motivation to lead (MTL) components among a sample of business executives with considerable leadership experience. We built on a solid stream of the leadership literature which suggested that leadership development processes are ingrained in identity processes. The paper presents two studies. In study 1, we examined the importance and psychological attachment individuals place on the leadership role (what is referred to as ‘leader-identity centrality’) and how it relates to their motivation to lead. The process of building a leader-identity has been described as an alignment process through which leadership skills and values become personally shared. In study 2, we seek to understand how self-role alignment, in terms of skills and values, relates to individuals’ MTL. Self-role alignment was conceptualized as the similarity to a previous leader and as self-role value congruence. Results showed that placing importance on the professional leader-identity had a positive impact on the MTL. The impact of the ‘leader-identity centrality’ was more important for people with low self-efficacy perceptions for the social-normative component. ‘Similarity with a previous leader’ related to the MTL and that relationship was found to be fully mediated by leadership self-efficacy perceptions. Values were found to have significant effects on the MTL. While individual and role values had a linear (additive) relationship in predicting SNMTL, they showed a more complex relationship with respect to the AffMTL component. Findings are discussed with reference to the MTL literature and practical implications are proposed.
    Keywords: motivation to lead, identity, self-role alignment, value congruence
    Date: 2011–04–05
  3. By: Johan Almenberg (Swedish Ministry of Finance); Artashes Karapetyan (Norges Bank (Central Bank of Norway))
    Abstract: We report evidence that salience may have economically significant effects on homeowners' borrowing behavior, through a bias in favour of less salient but more costly loans. We outline a simple model in which some consumers are biased. Under plausible assumptions, the bias may affect prices in equilibrium. Market data support the predictions of the model.
    Keywords: salience, housing market, household finance, co-op, capital structure
    JEL: D12 G14 G21 G32
    Date: 2010–11–16
  4. By: Fabio Canova; Alain Schlaepfer
    Abstract: We date turning points of the reference cycle for 19 countries in the Mediterranean, for selected regions, and for the area. Cycles phases are asymmetric, with expansions lasting, on average, much longer than recessions. Cyclical fluctuations are volatile and not highly correlated across countries. Recessions are not very deep and output losses limited. Heterogeneities across countries and regions are substantial. There are time variations in features of Mediterranean business cycles not clearly linked with the Euro-Mediterranean partnership process. The concordance of cyclical fluctuations in the region is poorly linked to trade as is its evolution over time.
    Keywords: Turning point dates, Reference cycle, Euro Mediterranean partnership, Trade interdependences
    JEL: E32 C32
    Date: 2011–02
  5. By: Frédéric Boissay (European Central Bank, Kaiserstraße 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: This paper develops a general equilibrium model to analyze the link between financial imbalances and financial crises. The model features an interbank market subject to frictions and where two equilibria may (co-)exist. The normal times equilibrium is characterized by a deep market with highly leveraged banks. The crisis times equilibrium is characterized by bank deleveraging, a market run, and a liquidity trap. Crises occur when there is too much liquidity (savings) in the economy with respect to the number of (safe) investment opportunities. In effect, the economy is shown to have a limited liquidity absorption capacity, which depends –inter alia– on the productivity of the real sector, the ultimate borrower. I extend the model in order to analyze the effects of financial integration of an emerging and a developed country. I find results in line with the recent literature on global imbalances. Financial integration permits a more efficient allocation of savings worldwide in normal times. It also implies a current account deficit for the developed country. The current account deficit makes financial crises more likely when it exceeds the liquidity absorption capacity of the developed country. Thus, under some conditions –which this paper spells out– financial integration of emerging countries may increase the fragility of the international financial system. Implications of financial integration and global imbalances in terms of output, wealth distribution, welfare, and policy interventions are also discussed. JEL Classification: E21, F36, G01, G21.
    Keywords: Financial Integration, Global Imbalances, Asymmetric Information, Moral Hazard, Financial Crisis.
    Date: 2011–04
  6. By: Eskil Ullberg (Interdisciplinary Center for Economic Science, George Mason University);
    Abstract: The question of how prices on patents rights should be determined in impersonal exchanges is examined in a laboratory environment. Dynamic gains from such organized trade with public prices are recorded. The experiment introduces a competitive market with impersonal exchange mechanisms and prices in the traditionally hierarchical and personal exchange of patents. A tradable linear contract (fixed fee plus royalty)is investigated with three mechanism designs for demand-side bidding and two levels of presumed legal validity of the underlying patent. A “trader” can split contracts useful for multiple “industries,” creating dynamic gains, potentially increasing the use of technology in the economic system. Previous research on licensing has mostly been limited to one-dimensional auction mechanisms or static environments. The results indicate that agents appear to price the blocking value in the fixed fee and the investment value, net what is paid in fixed, in the royalty component, supporting a proposed theory of prices. Risks are thereby shifted from the invention to the consumer by means of this producer market, increasing the incentives for investment in invention, potentially resulting in a more competitive technology being developed and a more efficient economic system. The results give indications on proper integration of information and rules for mechanisms for organized market on patents with transparent prices. It also shows that intermediaries (traders) are critical to achieve dynamic gains from the system as are high presumed validity of patents.
    Keywords: patents, trade, licensing, intellectual property, experiments
    JEL: D02 D23 L14 L24 O32 O34
    Date: 2010–11
  7. By: Lindh, Thomas (Institute for Futures Studies); Hong, Ying (Institute for Futures Studies)
    Abstract: <p> This paper studies whether Swedish fertility swings and variation in public expenditure for children are related events. In the 1930s Swedish birth rates had fallen to levels close to the death rates and in public discourse this was perceived as a major social and national crisis, spurring a range of social policy reforms. While total fertility rates in Sweden have varied over large spans the completed cohort fertility rates are almost constant around 2 children per woman for women born in the 20th century. Using unique data for the years 1930-1997 on public expenditure per eligible child for schools, child allowances and child care we estimate age-specific fertility for broad age groups as a function of these variables. The results indicate that the age group 25-29 is most sensitive to variations in this public expenditure thus providing a tentative explanation of the swings in period fertility in terms of policy induced tempo variation. School expenditure is negatively correlated to fertility while child care and child allowance is positively correlated. This pattern is consistent with a quantity-quality trade-off by the parents. To check the predictive power of the model we use data from 1998-2007 and get an excellent prediction of the fertility turn-around after 1999 for all age groups except 35 and above where we tend to under-predict at the 10-year horizon. Further research along these lines is needed to uncover the causal mechanisms of these very stable correlations. <p>
    Keywords: Fertility; Children expenditure; Fertility factors; Sweden; Demography
    JEL: J13
    Date: 2011–04–11
  8. By: Ballinger, Clint
    Abstract: The purpose of this paper is twofold: 1) to highlight the widely ignored but fundamental problem of ‘superpopulations’ for the use of inferential statistics in development studies. We do not to dwell on this problem however as it has been sufficiently discussed in older papers by statisticians that social scientists have nevertheless long chosen to ignore; the interested reader can turn to those for greater detail. 2) to show that descriptive statistics both avoid the problem of superpopulations and can be a powerful tool when used correctly. A few examples are provided. The paper ends with considerations of some reasons we think are behind the adherence to methods that are known to be inapplicable to many of the types of questions asked in development studies yet still widely practiced.
    Keywords: frequentist statistics; Bayesian statistics; causation; determinism; explanation; spatial autocorrelation; mulitple regression; international development; econometrics; comparative method; datasets; descriptive statistics; tabular analysis; visual analysis; maps; regession modeling; quantitative; qualitative; macrosociology; superpopulations; apparent populations; indeterminism; statistical assumptions
    JEL: B0 C12 C33 C11 P16 A11 O1 C10 F5 C20 C3 C23 C21
    Date: 2011–01–06
  9. By: Chu, Angus C.; Lai, Ching-Chong; Liao, Chih-Hsing
    Abstract: How do intellectual property rights that determine the market power of firms influence the effects of monetary policy on economic growth and social welfare? To analyze this question, we develop a monetary R&D-based growth model with elastic labor supply. We find that monetary expansion reduces growth and welfare through a decrease in labor supply that reduces R&D. Furthermore, a larger market power of firms strengthens these effects of monetary policy in the R&D model. In contrast, increasing the market power of firms dampens the growth and welfare effects of monetary policy in the AK model. Therefore, the market power of firms has drastically different implications on the welfare cost of inflation under the two growth engines (i.e., innovation versus capital accumulation). We also calibrate the two models using data in the US and the Euro Area to quantitatively evaluate and compare the welfare cost of inflation in the two economies. Finally, we simulate transition dynamics of the R&D model in order to compute the complete welfare changes from reducing inflation.
    Keywords: economic growth; inflation; monetary policy; patent policy; R&D
    JEL: O30 O40 E41
    Date: 2010–10
  10. By: Durand-Morat, Alvaro; Wailes, Eric J.; Chavez, Eddie C.
    Abstract: The hybrid rice technology is one of the many ways in which productivity of scarce resources devoted to rice production could be enhanced, with the consequent alleviation of food insecurity. The findings of this study show that the hybrid rice technology has so far made some sizable contributions to per-capita availability of rice in adopting countries with marginal spillover effects to other regions. However, at forecasted population growths, a massive intensification of adoption would be needed to maintain per-capita availability of rice at baseline levels. But even with adoption rates climbing significantly, much higher equilibrium prices are expected, which will represent a challenge for the hungry in many parts of the world. While hybrid rice has the potential to contribute significantly to improve production and food security, more efforts are needed to improve the productivity of the constraining production resources.
    Keywords: hybrid rice, food security, technology change, Demand and Price Analysis, Food Security and Poverty, International Relations/Trade, Research and Development/Tech Change/Emerging Technologies, Q16, Q55,
    Date: 2011–01–14
  11. By: Solava Ibrahim
    Abstract: Poverty is usually associated with powerlessness, vulnerability and above all failure of aspirations. Poor people might not be able to achieve their capabilities, but this does not mean that they do not have aspirations they wish to fulfil. The concept of aspirations has been explored in the fields of economics, anthropology, psychology and philosophy, but not extensively in development studies. The aim of the paper is to present a conceptual framework for analysing aspirations based on the capability approach and to apply a new methodology to articulate these aspirations. Using Egypt as a case study, the voices of the poor reveal the interrelationships between failure of aspirations, which not only leads to a downward spiral, but also to an intergenerational transfer of aspirations’ failure. The paper concludes that identifying and addressing the causal relationship between poverty, aspirations and wellbeing could be the starting point for effective and more relevant development policies that help poor people to achieve their aspired but unfulfilled capabilities.
    Date: 2011
  12. By: Jörnsten, Kurt (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration); Nonås, Sigrid Lise (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration); Sandal, Leif K. (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration); Ubøe, Jan (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)
    Abstract: In this paper we consider the newsvendor model with real options. We consider a mixed contract where the retailer can order a combination of q units subject to the conditions in a classical newsvendor contract and Q real options on the same items. We provide a closed form solution to this mixed contract when the demand is discrete and study some of its properties. We also offer an explicit solution for the continuous case. In particular we demonstrate that a mixed contract may be superior to a real option contract when a manufacturer has a bound on how much variance she is willing to accept.
    Keywords: Newsvendor model; real options; discrete demand; mixed contract
    JEL: C70 D86
    Date: 2011–04–06
  13. By: Cárdenas, Juan-Camilo Cárdenas (Universidad de los Andes); Dreber, Anna Dreber (Institute for Financial Research (SIFR)); von Essen, Emma (Dept. of Economics, Stockholm University); Ranehill, Eva (Stockholm School of Economics)
    Abstract: We compare how children aged 9-12 in Colombia and Sweden cooperate in a Prisoner’s Dilemma. We introduce a new measurement device for cooperation that can be easily understood by children. There is some evidence of more cooperation in Sweden than in Colombia. Girls in Colombia are less cooperative than boys, whereas our results indicate the opposite in Sweden. Girls are in general more cooperative with boys than with girls. Relating cooperation to competitiveness, this appears to be task and country dependent.
    Keywords: Cooperation; children; gender differences; experiment
    JEL: C91 J16
    Date: 2011–04–11
  14. By: Long Xin; Pelloni Alessandra
    Abstract: We consider the optimal factor income taxation in a standard R&D model with technical change represented by an increase in the variety of intermediate goods. Redistributing the tax burden from labour to capital will increase the employment rate in equilibrium. This has opposite effects on two distortions in the model, one due to monopoly power, the second to the incomplete appropriability of the bene?ts of inventions. Their relative momentum determines the sign of the welfare effect. We show that, for parameter values consistent with available estimates, taxing capital more heavily than labour can be welfare increasing.
    Keywords: Capital income taxes, R&D, growth effect, welfare Effect
    JEL: E62 H21 O41
    Date: 2011–03
  15. By: Duarte Brito (Universidade Nova de Lisboa and CEFAGE-UE); Pedro Pereira (Autoridade da Concorrência and IST); João Vareda (Autoridade da Concorrência and CEFAGE-UE)
    Abstract: We investigate if vertical separation reduces non-price discrimination and increases welfare. Consider an industry consisting of a vertically integrated firm and an independent retailer, which requires access to the vertically integrated firm's wholesaler services. The wholesaler can degrade the quality of input it supplies to either of the retailers. Discrimination occurs if one of the retailers is supplied an input of lower quality than its rival. We show that separation of the vertically integrated firm reduces discrimination against the independent retailer, although it does not guarantee no-discrimination. Furthermore, with separation, the wholesaler may discriminate against the vertically integrated firm's retailer. Vertical separation impacts social welfare through two e¤ects. First, through the double-marginalization effect, which is negative. Second, through the quality degradation effect, which can be positive or negative. Hence, the net welfare impact of vertical separation is negative or potentially ambiguous.
    Keywords: Vertigal integration; Vertical separation; Non-price discrimination.
    Date: 2011
  16. By: Kokovin, Sergey; Nahata, Babu; Zhelobodko, Evgeny
    Abstract: We study general discrete-types multidimensional screening without any noticeable restrictions on valuations, using instead epsilon-relaxation of the incentive-compatibility constraints. Any active (becoming equality) constraint can be perceived as "envy" arc from one type to another, so the set of active constraints is a digraph. We find that: (1) any solution has an in-rooted acyclic graph ("river"); (2) for any logically feasible river there exists a screening problem resulting in such river. Using these results, any solution is characterized both through its spanning-tree and through its Lagrange multipliers, that can help in finding solutions and their efficiency/distortion properties.
    Keywords: incentive compatibility; multidimensional screening; second-degree price discrimination; non-linear pricing; graphs
    JEL: L11 L10 D82 L12 D42
    Date: 2010–11
  17. By: Hidayat, Budi; Thabrany, Hasbullah
    Abstract: Using aggregated panel data taken from three waves of the Indonesian Family Life Survey (1993–2000), this article tests the myopic addiction behaviour of cigarette demand. Sensitivity analysis is done by examining a rational addiction behavior of cigarette demand. The results provide support for myopic addiction. The short- and long-run price elasticities of cigarette demand are estimated at −0.28 and −0.73 respectively. Excise taxes are more likely to act as an effective tobacco control in the long-run rather than a major source of government revenue.
    Keywords: cigarette consumption; myopic addictive models; methodology for panel data; Indonesia
    JEL: I12 C52 C33
    Date: 2010–03–22
  18. By: Garcia-Jimenez, Carlos I.; Mishra, Ashok K.; Paxton, Kenneth W.; Lambert, Dayton M.; Velandia, Margarita; Rejesus, Roderick M.; Segarra, Eduardo
    Abstract: Replaced with revised version of paper 02/16/11.
    Keywords: strategic communication, competitiveness, extension, economics of information, technology diffusion, technology supply, communication methods, knowledge management, Production Economics, Research and Development/Tech Change/Emerging Technologies, Teaching/Communication/Extension/Profession, D22, D80, D82, D83, Q12, Q16,
    Date: 2011–02–05

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