nep-mic New Economics Papers
on Microeconomics
Issue of 2011‒05‒30
twenty papers chosen by
Vaishnavi Srivathsan
Indian Institute of Technology

  1. Quality distortions in vertical relations By Baake, Pio; von Schlippenbach, Vanessa
  2. Does intellectual monopoly stimulate or stifle innovation? By Chu, Angus C.; Cozzi, Guido; Galli, Silvia
  3. Re-examination of supply response to changes in food commodity prices in Asian countries By Katsushi Imai; Raghav Gaiha; Ganesh Thapa; Abdilahi Ali
  4. Equity in the City: On Measuring Urban (Ine)Quality of Life By Marco Giovanni Brambilla; Alessandra Michelangeli; Eugenio Peluso
  5. Economic performance under NAFTA : a firm-level analysis of the trade-productivity linkages By De Hoyos, Rafael E.; Iacovone, Leonardo
  6. Comparing estimation methods for spatial econometrics techniques using R. By Bivand, Roger
  7. Merger negotiations with stock market feedback By Betton, Sandra; Eckbo, B. Espen; Thompson, Rex; Thorburn, Karin S.
  8. Public Good and Private Good Valuation for Waiting, Time Reduction: A Laboratory Study By Tibor Neugebauer; Stefan Traub
  9. War Signals: A Theory of Trade, Trust and Conflict By Dominic Rohner; Mathias Thoenig; Fabrizio Zilibottix
  10. Flu Shots, Mammograms, and the Perception of Probabilities By Carman, Katherine Grace; Kooreman, Peter
  11. The Organization of R&D in American Corporations: The Determinants and Consequences of Decentralization By Ashish Arora; Sharon Belenzon; Luis A. Rios
  12. Policy Analysis Tool Applied to Colombian Needs: PATACON Model Description By Andrés González; Lavan Mahadeva; Juan D. Prada; Diego Rodríguez
  13. "Are genetically modified foods bad for my health?". Individuals' valutation and the choice among different information sources By Sergio Beraldo; Stefania Ottone; Gilberto Turati
  14. Εφαρμογή μετρήσεων απόδοσης – αποτελεσματικότητας - αποδοτικότητας στη δημόσια διοίκηση: διεθνής και ελληνική εμπειρία By Zervopoulos, Panagiotis; Palaskas, Theodosios
  15. The Puzzle of Index Option Returns By George M. Constantinides; Jens Carsten Jackwerth; Alexi Savov
  16. On mission drift in microfinance institutions By Armendáriz, Beatriz; Szafarz, Ariane
  17. The new way forward: Using collaborations and partnerships for greater efficiency and impact By Dee Walsh; Robert Zdenek
  18. When Striking an Awkward Balance Means Striking Out: Budget 2011 By Alexandre Laurin; Finn Poschmann; William B.P. Robson
  19. Compensation of Unusual Working Schedules By Juliane Scheffel
  20. Optimal decisions on pension plans in the presence of financial literacy costs and income inequalities By Corsini, Lorenzo; Spataro, Luca

  1. By: Baake, Pio; von Schlippenbach, Vanessa
    Abstract: This paper examines how delivery tariffs and private quality standards are determined in vertical relations that are subject to asymmetric information. We consider an infinitely repeated game where an upstream firm sells a product to a downstream firm. In each period, the firms negotiate a delivery contract comprising the quality of the good as well as a nonlinear tariff. Assuming asymmetric information about the actual quality of the product and focusing on incentive compatible contracts, we show that from the firms' perspective delivery contracts lead to more efficient contracts and thus higher overall profits the lower the firms' outside options, i.e. the higher their mutual dependency. Buyer power driven by a reduced outside option of the upstream firm enhances the efficiency of vertical relations, while buyer power due to an improved outside option of the downstream firm implies less effcient outcomes. --
    Keywords: Quality Uncertainty,Private Standards,Vertical Relations,Buyer Power
    JEL: D82 L14 L15
    Date: 2011
  2. By: Chu, Angus C.; Cozzi, Guido; Galli, Silvia
    Abstract: This study develops an R&D-based growth model with vertical and horizontal innovation to shed some light on the current debate on whether patent protection stimulates or stifles innovation. We analyze the effects of patent protection in the form of blocking patents. We show that patent protection changes the direction of innovation by having asymmetric effects on vertical innovation (i.e., quality improvement) and horizontal innovation (i.e., variety expansion). Calibrating the model and simulating the transition dynamics, we find that strengthening the effect of blocking patents stifles vertical innovation and decreases economic growth but increases social welfare due to an increase in horizontal innovation. In light of this finding, we argue that in order to properly analyze the growth and welfare implications of patents, it is important to consider their often neglected compositional effects on vertical and horizontal innovation.
    Keywords: economic growth; innovation; intellectual property rights
    JEL: O34 O31 O40
    Date: 2010–11
  3. By: Katsushi Imai; Raghav Gaiha; Ganesh Thapa; Abdilahi Ali
    Date: 2011
  4. By: Marco Giovanni Brambilla; Alessandra Michelangeli; Eugenio Peluso (DISCE, Università Cattolica)
    Abstract: We merge contributions from the New Urban Economics and inequality measurement to assess quality of life (QOL) in a given city. We take the point of view of a city planner in favor of an even accessibility to amenities within the city. Instead of the average value of amenities computed in the Roback (1982) QOL index, our index captures the value of its multidimensional "certainty equivalent". We apply this methodology to derive a QOL index for the city of Milan.
    Keywords: Urban quality of life, amenities, hedonic prices, inequality index, just city.
    JEL: D63 H4 R1 R2
    Date: 2011–05
  5. By: De Hoyos, Rafael E.; Iacovone, Leonardo
    Abstract: Did the North American Free Trade Agreement make Mexican firms more productive? If so, through which channels? This paper addresses these questions by deploying an innovative microeconometric approach that disentangles the various channels through which integration with the global markets (via international trade) can affect firm-level productivity. The results show that the North American Free Trade Agreement stimulated the productivity of Mexican plants via: (1) an increase in import competition and (2) a positive effect on access to imported intermediate inputs. However, the impact of trade reforms was not identical for all integrated firms, with fully integrated firms (i.e. firms simultaneously exporting and importing) benefiting more than other integrated firms. Contrary to previous results, once self-selection problems are solved, the analysis finds a rather weak relationship between exports and productivity growth.
    Keywords: Economic Theory&Research,Free Trade,Labor Policies,Knowledge for Development,Microfinance
    Date: 2011–05–01
  6. By: Bivand, Roger (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: Recent advances in spatial econometrics model fitting techniques have made it more desirable to be able to compare results and timings. Results should correspond between implementations using different applications, while timings are more readily compared within a single application. A broad range of model fitting techniques are provided by the contributed R packages for spatial econometrics. These model fitting techniques are associated with methods for estimating impacts and some tests, which will also be presented and compared. This review constitutes an up-to-date demonstration of techniques now available in R, and mentions some that will shortly become more generally available.
    Keywords: Spatial autoregression; Econometric software.
    JEL: C13 C21 C87
    Date: 2010–10–06
  7. By: Betton, Sandra (John Molson School of Business, Concordia University); Eckbo, B. Espen (Tuck School of Business, Dartmouth College); Thompson, Rex (Cox School of Business, Southern Methodist University); Thorburn, Karin S. (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)
    Abstract: Merger negotiations routinely occur amidst economically significant a target stock price runups. Since the source of the runup is unobservable (is it a target stand-alone value change and/or deal anticipation?), feeding the runup back into the offer price risks "paying twice" for the target shares. We present a novel structural empirical analysis of this runup feedback hypothesis. We show that rational deal anticipation implies a nonlinear relationship between the runup and the offer price markup (offer price minus runup). Our large-sample tests confirm the existence of this nonlinearity and reject the feedback hypothesis for the portion of the runup not driven by the market return over the runup period. Also, rational bidding implies that bidder takeover gains are increasing in target runups, which our evidence supports. Bidder toehold acquisitions in the runup period are shown to fuel target runups, but lower rather than raise offer premiums. We conclude that the parties to merger negotiations interpret market-adjusted target runups as reflecting deal anticipation.
    Keywords: Merger negotiations; stock market feedback
    JEL: G00
    Date: 2011–05–10
  8. By: Tibor Neugebauer (Luxembourg School of Finance, University of Luxembourg); Stefan Traub (University of Bremen)
    Abstract: In a laboratory experiment subjects were endowed with money and waiting time. Preferences for waiting time reduction were elicited with salient rewards both as a private good and as a public good. The allocations of the public good that were theoretically predicted by the Nash equilibrium and the Lindahl equilibrium, respectively, were computed from the individual private good valuations and compared with the subjects’ actual contributions. We found a significant positive correlation between private good valuations in terms of willingness-to-pay and public good valuations in terms of voluntary contributions. Group contributions to public waiting time reduction significantly exceeded the non-cooperative prediction and were close to the socially optimal level. However, for a majority of subjects, the Lindahl equilibrium was not able to predict the observed contributions.
    Keywords: Cartel Stability, Delegation, Relative Performance Evaluation
    JEL: H41 D61 C90
    Date: 2011
  9. By: Dominic Rohner (Department of Economics, University of Zurich); Mathias Thoenig (Department of Economics, University of Lausanne); Fabrizio Zilibottix (Department of Economics, University of Zurich)
    Abstract: We construct a dynamic theory of civil conflict hinging on inter-ethnic trust and trade. The model economy is inhabited by two ethnic groups. Inter-ethnic trade requires imperfectly observed bilateral investments and one group has to form beliefs on the average propensity to trade of the other group. Since conflict disrupts trade, the onset of a conflict signals that the aggressor has a low propensity to trade. Agents observe the history of conflicts and update their beliefs over time, transmitting them to the next generation. The theory bears a set of testable predictions. First, war is a stochastic process whose frequency depends on the state of endogenous beliefs. Second, the probability of future conflicts increases after each conflict episode. Third, "accidental" conflicts that do not reflect economic fundamentals can lead to a permanent breakdown of trust, plunging a society into a vicious cycle of recurrent conflicts (a war trap). The incidence of conflict can be reduced by policies abating cultural barriers, fostering inter-ethnic trade and human capital, and shifting beliefs. Coercive peace policies such as peacekeeping forces or externally imposed regime changes have instead no persistent effects.
    Date: 2011–01
  10. By: Carman, Katherine Grace (Tilburg University); Kooreman, Peter (Tilburg University)
    Abstract: We study individuals' decisions to decline or accept preventive health care interventions such as flu shots and mammograms. In particular, we analyze the role of perceptions of the effectiveness of the intervention, by eliciting individuals' subjective probabilities of sickness and survival, with and without the interventions. Respondents appear to be aware of some of the qualitative relationships between risk factors and probabilities. However, on average they have very poor perceptions of the absolute probability levels as reported in the epidemiological literature. Perceptions are less accurate if a respondent is female and has no college degree. Perceived probabilities significantly affect the subsequent take-up rate of flu shots and mammograms.
    Keywords: preventive health care, probability perceptions
    JEL: I10
    Date: 2011–05
  11. By: Ashish Arora; Sharon Belenzon; Luis A. Rios
    Abstract: We study the relationship between decentralization of R&D, innovation and firm performance using a novel dataset on the organizational structure of 1,290 American publicly-listed corporations, 2,615 of their affiliate firms, as well as characteristics of 594,903 patents that they hold. We explore the tension between centralization and decentralization of R&D, which trades off between responsiveness to immediate and local business needs and the type of research that can benefit the firm as a whole. To do this, we develop two novel measures of decentralization. First, using intra-firm patent assignments, we distinguish between patents that are assigned to the inventing unit rather than to corporate headquarters. Second, we exploit the variation between firms which posses a central corporate R&D labs and those that do not. We find that centralized R&D tends be more scientific, broader in scope, and have more technical impact, while being more likely in firms that operate within a narrower range of businesses, in complex technologies, or that are less reliant upon acquisitions. Additionally, we find that firms with a more decentralized structure, on average, invest less in R&D, generate fewer patents per R&D, and exhibit greater sales growth and higher market value. We discuss several theories that can explain these relationships, as well as potential avenues for future research.
    JEL: D23 D83 L22 O32
    Date: 2011–05
  12. By: Andrés González; Lavan Mahadeva; Juan D. Prada; Diego Rodríguez
    Abstract: In this document we lay out the microeconomic foundations of a dynamic stochastic general equilibrium model designed to forecast and to advice monetary policy authorities in Colombia. The model is called Policy Analysis Tool Applied to Colombian Needs (PATACON). In companion documents we present other aspects of the model and its platform, including the estimation of the parameters that affect the dynamics and the impulse responses functions.
    Date: 2011–05–17
  13. By: Sergio Beraldo; Stefania Ottone; Gilberto Turati
    Abstract: We investigate the role of information on consumers’ valuation for food products containing genetically modified organisms (GMOs), using data from a specifically designed survey. We provide three main results. First, we show that introducing mandatory labels to identify whether or not a food product contains GMOs, significantly reduces consumers’ valuation. Second, adding to the label additional information on GMOs significantly affects valuation. Third, no matter the sign of the information previously received, consumers are more willing to trust General Practitioners (GPs), the information source they prefer most. Overall, these results indicate that the crucial issue is not the presence of the label per se, but the availability of the necessary information to make good use of the label content to assess potential health risks deriving from GM foods. In particular, our findings suggest that this can be achieved by properly informing (and convincing) GPs and other health professionals that risks for human health are minimal.
    Keywords: Genetically modified foods, information, health risks, General practitioners, labelling.
    JEL: C91 D82
    Date: 2011–04
  14. By: Zervopoulos, Panagiotis; Palaskas, Theodosios
    Abstract: A plethora of performance – effectiveness – efficiency measurement methods have been developed and implemented to public organizations since the mid-nineteenth century. However, the ’60s have been considered a milestone for the measurement methods embraced by the public sector, initially in the United States and later in most of the OECD countries, when sophisticated accounting and financial performance methods were developed. During the first era, of the ’60s and ’70s, the public administration became process-oriented and adopted output assessment methods. The second era of measurement methods’ implementation to public organizations started in very early ’80s and continues today. During the second period, the public administration’s strategy started becoming extroverted focusing on the outcomes assessment rather than the output, shifting from financial performance assessment methods to those of efficiency, effectiveness and performance. The main goals set for the second period are expenses squeeze for public organizations, efficiency and effectiveness attainment, transparency and accountability. The implementation of performance – effectiveness – efficiency measurement methods within public organizations is a condition for measuring and assessing the output and outcome of the administrative units, and for establishing operational optimization plans, though, it is not adequate to ensure the accomplishment of the aforementioned goals. Political and managerial commitment to the implementation and handling of measurement methods, the application of the proposed methods’ reforms to the operational units, personnel experience to the usage of measurement methods, and readiness for change are considered vital prerequisites for success. It has been established that the more sophisticated the method, the more demanding it turns to be. As a consequence, the failure rate is greater for the performance assessment methods (i.e., for the Balanced Scorecard) than the straight financial performance ones or the efficiency measurement methods. Given the drawbacks of most of the existing performance – effectiveness –efficiency measurement methods, which are already adopted by public organizations, and the attributes of public administration, we have developed a comparative effectiveness measurement method called Quality-driven – Efficiency-adjusted Data Envelopment Analysis (QE-DEA). This method introduces synchronous analysis of operational efficiency and citizen satisfaction for a group of homogeneous operational/administrative units. It’s not demanding in terms of data collection, imputation, elaboration and report, hence, skilled personnel are not required. Nevertheless, similar to the rest of the performance – effectiveness – efficiency measurement methods, QE-DEA goal attainment depends on political and managerial commitment to restructuring the assessed public organizations according to a road-map provided in order to improve their effectiveness.
    Keywords: Efficiency; Effectiveness; Performance; Public Management; Greek Public Sector Reform; QE-DEA
    JEL: D73 P41 C61
    Date: 2010–08–12
  15. By: George M. Constantinides (Center for Reserach in Security Prices, University of Chicago and NBER, Booth School of Business, USA); Jens Carsten Jackwerth (Department of Economics, University of Konstanz, Germany); Alexi Savov (Leonard N. Stern School of Business, New York University, USA)
    Abstract: We document that the leverage-adjusted returns on S&P 500 index call and put portfolios are decreasing in their strike-to-price ratio over 1986-2009, contrary to the prediction of the Black-Scholes-Merton model. We test a large number of plausible factor models in order to learn what drives the violations of the Black-Scholes-Merton model. Consistent with the picture that crisis-related factors operate across the equities and index options markets, factors which capture jumps in market volatility, jumps in the market index, and changes in liquidity work reasonably well in explaining the cross-section of index option returns, even when we impose the restriction that the premia are estimated from the universe of equities. Furthermore, the factor that captures jumps in market volatility also reduces the pricing errors of the 25 Fama-French portfolios by more than Size and only a bit less than Value.
    Keywords: index option returns, option mispricing, volatility jumps, price jumps, liquidity, market efficiency
    JEL: G11 G13 G14
    Date: 2011–05–24
  16. By: Armendáriz, Beatriz; Szafarz, Ariane
    Abstract: This paper sheds light on a poorly understood phenomenon in microfinance which is often referred to as "mission drift": A tendency reviewd by numerous microfinance institutions to extend larger average loan sizes in the process of scaling-up. . We argue that this phenomenon is not driven by transaction cost minimization alone. Instead, poverty-oriented microfinance institutions could potentially deviate from their mission by extending larger loan sizes neither because of "progressive lending" nor because of "cross-subsidization" but because of the interplay between their own mission, the cost differentials between poor and unbanked wealthier clients, and region-specific clientele parameters. In a simple one-period framework we pin down the conditions under which mission drift can emerge. Our framework shows that there is a thin line between mission drift and cross-subsidization, which in turn makes it difficult for empirical researchers to establish whether a microfinance institution has deviated from its poverty-reduction mission. This paper also suggests that institutions operating in regions which host a relatively small number of very poor individuals might be misleadingly perceived as deviating from their social objectives. Because existing empirical studies cannot differentiate between mission drift and cross-subsidization, these studies can potentially mislead donors and socially responsible investors pertaining resource allocation across institutions offering financial services to the poor. The difficulty in separating cross-subsidization and mission drift is discussed in light of the contrasting experiences between microfinance institutions operating in Latin America and South Asia.
    Keywords: Microfinance; Loan Size; Mission Drift; Cross-subsidization
    JEL: O1 O16
    Date: 2011
  17. By: Dee Walsh; Robert Zdenek
    Abstract: This paper uses seven short case studies of nonprofit housing and community development organizations to explore three different collaborative strategies that increase their efficiency and impact. These case studies include both recent and long-standing partnerships in affordable housing, community development finance, neighborhood stabilization, and transit-oriented development. It concludes with recommendations based on the examples, including effective strategies for successful innovation, collaboration, and partnership formation.
    Keywords: Housing ; Community development
    Date: 2011
  18. By: Alexandre Laurin (C.D. Howe Institute); Finn Poschmann (C.D. Howe Institute); William B.P. Robson (C.D. Howe Institute)
    Abstract: The 2011 Canadian federal budget, should it succeed in Parliament, would launch a new strategic spending review, alongside minor cost-cutting initiatives. The fate of the budget balance and the potential for an early return to surplus as envisioned, therefore, depend entirely on the effectiveness of these measures, which cannot be known before next year.
    Keywords: Fiscal and Tax Competitiveness, Canada, Federal Budget, balanced budget
    JEL: H60 H62
    Date: 2011–03
  19. By: Juliane Scheffel
    Abstract: This paper examines pecuniary aspects of work during unusual hours based on the German Time Use Data for 2001/02. The findings show positive wage premia of 9 – 10 percent for shift workers and men who work during unusual hours. There is some evidence of negative selection which suggests that men with lower potential daytime earnings have a higher propensity to choose these jobs because of the associated wage premium. The findings further show a U-shaped impact of temporal work disamenity across the wage distribution with higher wage premia paid to the extreme 5-percentiles.
    Keywords: Shift Work, Non-Standard Working Hours, Time Allocation, Compensating Wage Differentials, Wage Premia, Quantile Regression
    JEL: J22 J31 J33 J81
    Date: 2011–05
  20. By: Corsini, Lorenzo; Spataro, Luca
    Abstract: Pension reforms are on the political agenda of many countries. Such reforms imply an increasing responsibility on individuals’ side in building an efficient portfolio for retirement. In this paper we provide a model describing workers’ choices on the allocation of retirement savings in presence of a) mandatory contribution; b) portfolio decision; c) financial literacy costs. In particular, we characterise the results both from a positive and normative standpoint, by highlighting the determinants of the individual’s choice, with special focus on financial literacy costs and wage level inequalities and by characterizing the optimal contribution rate to mandatory complementary pension schemes.
    Keywords: Financial literacy; Choice on pension Plans; Optimal portfolio composition; Income inequality.
    JEL: G11 H55 G23 D91
    Date: 2011

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