nep-pbe New Economics Papers
on Public Economics
Issue of 2006‒02‒19
28 papers chosen by
Peren Arin
Massey University

  1. Vying for Foreign Direct Investment: An EU-Type Model of Tax Competition By Razin, Assaf; Sadka, Efraim
  2. Higher Education: Does Public Expenditure Increase Enrollment? By Bergh, Andreas; Fink, Günther
  5. Increasing Returns in a Standard Tax Competition Model By Signe Krogstrup
  6. FISCAL COMPETITION AND PUBLIC EDUCATION IN REGIONS By Jorge Durán; Charles Figuieres; Alexandra Rillaers
  7. Globalisation and the mix of wage and profit taxes By Haufler, Andreas; Klemm, Alexander; Schjelderup, Guttorm
  8. Pigouvian Taxation in Tourism By Claudio A. Piga
  9. Progressivity, Inequality Reduction, and Merging-Proofness in Taxation By Biung-Ghi Ju; Juan D. Moreno-Ternero
  11. On Substituting Consumption Taxes for Unemployment Insurance Contributions to Reduce Unemployment By Tomas Kögel
  12. Politico-Economic Determinants of the Crowding-in Effects of Public Investments in Developing Countries By Erdal Atukeren
  13. Corruption, Exogenous Changes in Incentives and Deterrence By Giuseppe Di Vita
  14. Inducing a Self-Fulfilling Prophecy in Public Goods Games. By Pablo Brañas-Garza; Enrique Fatas; Pablo Guillen
  15. Performance related pay and labor productivity By Gielen,Anne C.; Kerkhofs,Marcel J.M.; Ours,Jan C. van
  16. India's Public Finances: Excessive Budget Deficits, a Government-Abused Financial System and Fiscal Rules By Buiter, Willem H; Patel, Urjit R.
  17. Fiscal Hedging and the Yield Curve(joint with Chris Sleet, CMU, and Sevin Yeltekin (CMU)) By Hanno Lustig
  18. Public Implementation Eliminates Detrimental Effects of Punishment on Human Cooperation By Erte Xiao; Daniel Houser
  19. Israel, the Palestinian Factions and the Cycle of Violence By Jaeger, David A; Paserman, Marco Daniele
  20. The Timing of National Greenhouse Gas Emission Reductions in the Presence of Other Environmental Policies By Rob B. Dellink; Marjan W. Hofkes
  21. Strategic investment and pricing decisions in a congested transport corridor By Proost Stef; De Borger Bruno
  22. A Model of Income Insurance and Social Norms By Lindbeck, Assar; Persson, Mats
  23. Stabilisation Targets, Technical Change and the Macroeconomic Costs of Climate Change Control By Valentina Bosetti; Carlo Carraro; Marzio Galeotti
  25. Admission to Selective Schools, Alphabetically By Stepan Jurajda; Daniel Munich
  26. Can New Orleans Play Its Way Past Katrina? By Victor Matheson; Robert Baade
  27. Modeling the Effects of Economic Behavior in Determining the Organization of Society By Wicks, Rick
  28. The Role of Community in Migration Dynamics By Sergio Vergalli

  1. By: Razin, Assaf; Sadka, Efraim
    Abstract: This paper brings out the special mechanism through which taxes influence bilateral FDI, when investment decisions are two-fold in the presence of fixed setup flows costs. For each pair of source-host countries, there is a set of factors determining whether aggregate FDI flows will occur at all, and a different set of factors determining the volume of FDI flows (provided that they occur). We develop a two-country tax competition model which yield an asymmetric Nash-equilibrium with high corporate tax rate and high level of public good provision in the rich source country for FDI outflows and with low corporate tax rate and low level of public good provision in the poor host country for FDI inflows. This is akin to the asymmetry among the EU 15 and EU 10 in the enlarged European Union, as of 2004. We also demonstrate that the notion that the mere international tax differentials are a key factor behind the direction and magnitude of FDI flows, the traditional race to the bottom argument in tax competition are too simple.
    Keywords: enlarged European Union; source-host country foreign direct investment; tax competition
    JEL: F15 F2 H3
    Date: 2006–02
  2. By: Bergh, Andreas (The Ratio Institute); Fink, Günther (Bocconi University)
    Abstract: This paper evaluates the effects of public education expenditure on student enrollment in tertiary education. We use a cross-section of 132 countries to demonstrate that public expenditure on primary and secondary education positively affects tertiary enrollment rates, while the generosity of tertiary education subsidies themselves do not appear to have any signifcant impact on tertiary enrollment. The results presented are robust to various specifcations, and raise serious concerns regarding the within country allocation of public resources on education, which seems to be biased towards higher education, especially for less developed countries.
    Keywords: Higher (Tertiary) Education; Enrollment
    JEL: H52 I22
    Date: 2006–02–15
  3. By: Iñigo Iturbe Ormaetxe (Universidad de Alicante); Guadalupe Valera (Universidad Pablo de Olavide)
    Abstract: The provision of pensions for the old and public education for the young represent a large share of public budgets. In most Western countries, current Social Security systems are under a big financial stress. Several reforms have been proposed to solve this problem. This paper deals with the impact that some of these reforms have, through a political process, on publicly financed education. We develop a model linking both public transfer schemes, in which heterogeneous individuals vote the educational tax. Our findings show that most of the proposals that entail a partial privatization of the pension system have a negative impact on public education and, thus, on economic growth.
    Keywords: Social Security Reform, Human Capital, Public Education, Voting.
    JEL: D72 H55 I22 J24
    Date: 2004–05
  4. By: José Ramón García (Dpto. Análisis Económico, Universitat de València); José Vicente Ríos (Dpto. Análisis Económico, Universitat de València)
    Abstract: In this paper we introduce a progressive income tax in the shirking model with union bargaining presented by in Altenburg and Straub (2002). Indeed, we differentiate taxation on employees and employers for the fiscal policy analysis. The main results show that it is possible, with a constant revenue reform, to enhance employment by shifting the tax imposition towards lower firm taxation. And, that it is crucial to consider a proportional or progressive taxation on labour income in order to be able to analyse the effect on unemployment for a constant replacement rate.
    Keywords: Labour taxation, union bargaining, efficiency wages
    JEL: E24 J32 J41 J51
    Date: 2004–11
  5. By: Signe Krogstrup (IUHEI)
    Abstract: The standard tax competition literature predicts a race to the bottom in capital tax rates as capital mobility increases. Recently, the very different modeling framework of the new economic geography literature has produced the contrasting result that economic integration leads to agglomeration rents to capital which can be taxed away, in turn leading to higher corporate taxation. This paper incorporates increasing returns directly into the standard tax competition modeling framework to identify the origin of this disparity of results. The model illustrates that increasing returns reduce traditional tax competition pressures as capital mobility increases, and that changes in preferences for the public good, combined with increasing cross-border ownership of capital, and thus taxexporting incentives, are the main factors driving tax rates higher. Tax exporting has not previously been linked endogenously to capital mobility in standard tax competition models or new economic geography models.
    Keywords: Tax competition; Capital mobility; Economic Geography; Increasing Returns; Tax Exporting.
    Date: 2004–06–10
  6. By: Jorge Durán (Universidad de Alicante); Charles Figuieres (INRA); Alexandra Rillaers (Universidad de Alicante)
    Abstract: We explore an economy with two regions and independent local administrations. Local governments collect taxes to finance public education, but once educated agents can choose to migrate to the other region. The Nash equilibrium of the long-run game between the two governments is compared to a golden rule-type social optimum. Preliminary results show that the Nash equilibrium will result in over- or under-investment depending on the extent to which public education is subject to congestion.
    Keywords: Successive generations, Public education, Federal and local government, Fiscal games.
    JEL: E13 O41 I29
    Date: 2004–11
  7. By: Haufler, Andreas; Klemm, Alexander; Schjelderup, Guttorm
    Abstract: This paper analyses the development of the ratio of corporate taxes to wage taxes using a simple political economy model with internationally mobile and immobile firms. Among other results, our model predicts that countries reduce their corporate tax rate, relative to the wage tax, either when preferences for public goods increase or when a rising share of capital is employed in multinational firms. The predicted relationships are tested using panel data for 23 OECD countries for the period 1980 through 2001. The results of the empirical analysis support our central hypotheses.
    JEL: F23 F15 H73 H20
    Date: 2006–02
  8. By: Claudio A. Piga (Dept of Economics, Loughborough University)
    Abstract: The paper studies the characteristics and the effects of a tax imposed by a local government on the land used to create new tourists' accommodations. First, a dynamic policy game between a monopolist in a tourist area and a local government is considered. In each period the former has to decide the size of land undergoing development whereas the latter has to choose the tax to levy on each newly developed area unit. Linear Perfect Markov strategies are derived for both the non-cooperative and the public monopoly case. In equilibrium a public monopoly would develop land more rapidly than a private monopoly. Furthermore, the more the monopolist discounts the future, the more the long run use of the natural resource is reduced. Second, the properties of the tax are studied considering an oligopolistic market structure. The tax alone does not lead to the socially optimal level of land use. However, its combined eect with another policy instrument such as a quota induces the optimal level of resource use.
    Keywords: Tourism, Taxation, Land Use, differential game, time consistency.
    JEL: H21 Q32 R52 L83 L50
    Date: 2006–01
  9. By: Biung-Ghi Ju (Department of Economics, The University of Kansas); Juan D. Moreno-Ternero (CORE, Universite Catholique de Louvain)
    Abstract: Progressivity, inequality reduction and merging-proofness are three well-known axioms in taxation. We investigate implications of each of the three axioms through characterizations of several families of taxation rules and their logical relations. We also study the preservation of these axioms under two operators on taxation rules, the so-called convexity operator and minimal-burden operator, which give intuitive procedures of determining a tax schedules.
    Keywords: taxation, progressivity, inequality reduction, merging-proofness, convexity operator, minimal-burden operator.
    Date: 2006–02
  10. By: José Rueda-Llano (Universidad de Alicante); Luis Corchón (Universidad de Alicante)
    Abstract: In this paper we develop a differentiable approach to deal with incentives in a, possibly small, subset of a general domain of preferences in economies with one public and one private good. We show that, for two agents, there is no social rule which is efficient, nondictatorial and strategy-proof. For the case of more agents the same result occurs when nondictatorship is replaced by Individual Rationality or by Envy-Freeness. Journal of Economic Literature
    Keywords: Strategy-proofness, public goods economies, differentiable mechanisms
    JEL: D61 D78 H41
    Date: 2004–08
  11. By: Tomas Kögel (Dept of Economics, Loughborough University)
    Abstract: The German conservative party (consisting of two sister parties) planned in case of victory in the national election on 18 September 2005 to reduce the unemployment insurance contributions by 2 percent and to finance this with an increase in the consumption tax by 2 percent. The present paper shows in a Layard-Nickell-Jackman type wage bargaining model that this tax reform does not reduce unemployment; neither in the short to medium run, nor in the long run. When there is short-to-medium-run real wage resistance, then in the short to medium run unemployment depends on the overall tax burden, but not on the composition of the tax burden. In the long run the wage setting curve is vertical and hence in the long run unemployment is even invariant of the overall tax burden.
    Keywords: Consumption taxes, unemployment insurance contributions, payroll taxes. wage bargaining, unemployment.
    JEL: H20 J51
    Date: 2005–09
  12. By: Erdal Atukeren (Swiss Institute for Business Cycle Research (KOF), Swiss Federal Institute of Technology Zurich (ETH))
    Abstract: This study investigates the politico-economic determinants of the crowding-in effects of public investments in a cross-section of 25 developing countries for the 1975-2000 period using multivariate probit analysis. The estimation results show that public fixed capital investments may crowd in private investments, but this still depends on the developments in the economic, political, and legal environment of business in individual countries. As such, our findings capture the essence of the mixed results found in this literature well and shed further light on the conditions under which public investments are more likely (not) to crowd in private investments in developing countries.
    Keywords: Public investment, crowding-in effects, environment of private business, institutions, rule of law, property rights
    JEL: E62 H54 O11
    Date: 2006–01
  13. By: Giuseppe Di Vita
    Abstract: In this article we apply and extend the model elaborated by Acemoglu and Verdier in their seminal paper (2000), to examine how the economy represented in their theoretical framework responds to an exogenous change in the agent's incentive. In particular, we focus on the consequences of a famous sentence of the Italian Supreme Court in plenary session, no. 500 of 1999, in which a revolutionary interpretation of civil liability rules is introduced, allowing private agents of our economy to appear before the court to demand reimbursement for the damages suffered as a consequence of illicit behavior of the public administration. This is one of the few cases in which the judex substantially makes law in a system of civil law, and the modification in incentive whether or not to be corrupted comes from an authority that is not part of the game (the jurisdictional power). Basing our affirmations on the model, we can say that corruption may have declined in Italy since the year 2000, as a result of a change in the incentives for both private agents and bureaucrats.
    Keywords: Bureaucrats, Government failure, Incentives, Market failure, Public goods
    JEL: K13 D23 H41
    Date: 2006–01
  14. By: Pablo Brañas-Garza (Department of Economic Theory and Economic History, University of Granada.); Enrique Fatas (LINEEX, Universidad de Valencia); Pablo Guillen (Harvard Business School)
    Abstract: This study explores how a self-fulfilling prophecy can solve a social dilemma. We ran two experimental treatments, baseline and automata. Both consisted of a finitely repeated public goods game with a surprise restart. In the automata treatment it was announced that there might be automata playing a grim trigger strategy. This announcement became a self-fulfilling prophecy. That is, most participants actually followed a grim trigger strategy in the automata treatment resulting on an increase on the average contributions to the public good relative to the baseline treatment. Moreover, four out of nine groups managed to fully cooperate almost until the last period. Furthermore, after the surprise restart, when the automata threat is less credible, subjects’ behavior was very close to that in the original game.
    Keywords: self-fulfilling prophecy, public goods game, grim trigger strategy,cooperation, automata, beliefs.
    JEL: C92 H41 C72
    Date: 2006–02–08
  15. By: Gielen,Anne C.; Kerkhofs,Marcel J.M.; Ours,Jan C. van (Tilburg University, Center for Economic Research)
    Abstract: This paper uses information from a panel of Dutch firms to investigate the labor productivity effects of performance related pay (PRP). We find that PRP increases labor productivity at the firm level with about 9%.
    Keywords: performance related pay; labour productivity
    JEL: C41 H55 J64 J65
    Date: 2006
  16. By: Buiter, Willem H; Patel, Urjit R.
    Abstract: Capital formation is a key driver of the growth of potential output. With continuing widespread capital controls and persistently small inward FDI the volume of capital formation in India is constrained by domestic saving. The national saving rate in India (the sum of the saving rates of households, enterprises and the state) is depressed by the continuing large public sector deficits (and much below the near 40% of GDP saving rates achieved by China). Even this saving rate should be able to support a higher growth rate than has been achieved thus far. The reason it does not is that the intermediation of this saving into domestic capital formation is inefficient. Since the middle of the 1990s, India's public debt has risen steadily as a share of GDP, but remains below the levels achieved at the time of the 1991 currency crisis. The composition of this debt is, however, significantly different from that in 1991: external public debt is modest and international gold and foreign exchange reserves stand at historically high levels. The domestic debt is rupee-denominated. For all these reasons, government solvency may not be a pressing issue at this stage. Globally, risk-free rates at all maturities and all imaginable credit risk spreads are extraordinarily and unsustainably low. Continuation of the pattern of recent years - a steady increase in the debt-GDP ratio - will sooner or later raise the public debt to unsustainable levels. The fiscal rules adopted by the Indian Central Government under the Fiscal Responsibility and Budget Management Act do not address the key distortions imposed by the authorities on the private sector through financial repression, misguided regulations and inefficient ownership and incentive structures. Nor do they address the underlying fiscal sustainability problem faced by the Indian state. In addition, they create a mechanism for macroeconomic volatility-enhancing, pro-cyclical fiscal policy.
    Keywords: financial intermediation; financial repression; fiscal sustainability; Indian public finance
    JEL: E5 E6 G1 G2 H6 O5
    Date: 2006–02
  17. By: Hanno Lustig
    Date: 2005–03–22
  18. By: Erte Xiao (George Mason University and IZA Bonn); Daniel Houser (George Mason University)
    Abstract: Development of human societies requires cooperation among unrelated individuals and obedience to social norms. Although punishment is widely agreed to be potentially useful in fostering cooperation, many recent results in psychology and economics highlight punishments' failures in this regard. These studies ignore punishments' social effects, and particularly its role in promoting social norms. We show here, using experiments with human subjects, that public implementation of punishment can eliminate its detrimental effects on cooperation. In a public goods game designed to create tension between group and individual interests, we find that privately implemented punishment reduces cooperation relative to a baseline treatment without punishment. However, when that same incentive is implemented publicly, but anonymously, cooperation is sustained at significantly higher rates than in both baseline and private punishment treatments. These data support our hypothesis that public implementation of punishment enhances the salience of the violated social norm to both the punished and those who observed the punishment, and that this increased salience positively affects group members' norm obedience. Our findings point to the importance of accounting for social consequences of punishment when designing procedures to deter misconduct in social environments including schools, companies, markets and courts.
    Keywords: punishment, cooperation, public goods game, social norms, experiments, behavioral economics
    JEL: C92 D71 H41
    Date: 2006–02
  19. By: Jaeger, David A; Paserman, Marco Daniele
    Abstract: In this study we extend our previous work to examine the dynamic relationship between violence committed by Palestinian factions and that committed by Israel during the Second Intifada. We find a statistically significant relationship between Israeli fatalities claimed by groups associated with the ruling political party, Fatah, and subsequent Palestinian fatalities. We do not find a similar relationship for Israeli fatalities claimed by Hamas, Palestinian Islamic Jihad, and other Palestinian factions. We conjecture that these differences are due to the different positions of the factions vis-à-vis bargaining over a two-state solution to the conflict as well as the organizational structures of the factions.
    Keywords: bargaining; conflict resolution; Intifada; terrorism; violence
    JEL: C32 D71 D74 H56
    Date: 2006–02
  20. By: Rob B. Dellink (Wageningen University); Marjan W. Hofkes (Vrije Universiteit)
    Abstract: This paper shows in an empirical context that substantial cost reductions can be achieved in the implementation of Dutch national climate policy by (i) targeting the policy at the stock of greenhouse gases, thus allowing polluters flexibility in their timing of emission reductions; and (ii) integrating climate policy with other policies, thereby optimising the restructuring of the economy needed to achieve environmental policy targets. A dynamic applied general equilibrium model with bottom-up information on abatement techniques is used to show that the optimal timing of GHG emission reductions tends to follow the timing for the other environmental themes with an additional emphasis on emission reductions in the later periods. The optimal mix of technical measures and economic restructuring as source of emission reductions is affected by the strictness of environmental policy targets for all themes and hence can only be derived from an integrated analysis of these policies.
    Keywords: Economic growth, Applied general equilibrium model, Climate change, Environmental policy
    JEL: D58 H23 O41 Q28
    Date: 2006–01
  21. By: Proost Stef (K.U.Leuven-Center for Economic Studies; UCL - CORE); De Borger Bruno (University of Antwerp)
    Abstract: This paper studies pricing and investment decisions on a congested transport corridor where the elements of the corridor are controlled by different governments. A corridor can be an interstate highway or railway line or an inter-modal connection. We model the simplest corridor: two transport links in series where each of the links is controlled by a different government. Each link is used by transit as well as by local traffic; both links are subject to congestion. We consider a two stage non-cooperative game where both governments strategically set capacity in the first stage and play a pricing game in the second stage. Three pricing regimes are distinguished: (i) differentiated tolls between local and transit transport, (ii) one uniform toll on local and transit traffic, and (iii) only the local users can be tolled. Numerical analysis illustrates all theoretical insights. A number of interesting results are obtained. First, transit tolls on the network will be inefficiently high. If only local traffic can be tolled, however, the Nash equilibrium tolls are inefficiently low. Second, raising the toll on transit through a given country by one euro raises the toll on the whole trajectory by less than one euro. Third, higher capacity investment in a given region not only reduces optimal tolls in this region under all pricing regimes but it also increases the transit tolls on the other link of the corridor. Fourth, capacities in the different regions are strategic complements: when one country on the corridor increases transport capacity, it forces the other country to do the same. Fifth, we find interesting interactions between optimal capacities and the set of pricing instruments used: capacity with differentiated tolls is substantially higher than in the case of uniform tolls but overall welfare is lower. Finally, if transit is sufficiently important, it may be welfare improving not to allow any tolling at all, or to only allow the tolling of locals if this does not lead to capacity reductions.
    Keywords: congestion pricing, transport investment, transit traffic
    JEL: H23 H71 R41 R48
    Date: 2006–02
  22. By: Lindbeck, Assar (Institute for International Economic Studies, Stockholm University); Persson, Mats (Institute for International Economic Studies, Stockholm University)
    Abstract: A large literature on ex ante moral hazard in income insurance emphasizes that the individual can affect the probability of an income loss by choice of lifestyle and hence, the degree of risk-taking. The much smaller literature on moral hazard ex post mainly analyzes how a “moral hazard constraint†can make the individual abstain from fraud (“mimickingâ€). The present paper instead presents a model of moral hazard ex post without a moral hazard constraint; the individual's ability and willingness to work is represented by a continuous stochastic variable in the utility function, and the extent of moral hazard depends on the generosity of the insurance system. Our model is also well suited for analyzing social norms concerning work and benefit dependency.
    Keywords: Moral hazard; sick pay insurance; labor supply; asymmetric information
    JEL: G22 H53 I38 J21
    Date: 2006–02–14
  23. By: Valentina Bosetti (Fondazione Eni Enrico Mattei); Carlo Carraro (Università Ca’ Foscari di Venezia and Fondazione Eni Enrico Mattei); Marzio Galeotti (Università di Milano and Fondazione Eni Enrico Mattei)
    Abstract: The issue of greenhouse gas (GHG) stabilization stands on three critical open questions. Namely, what are the impacts deriving from different levels of climate change and their distribution. What are the levels at which GHG concentration should be stabilized in order to avoid unacceptable impacts. And, finally, what are the costs and what are the instruments available to reach such stabilization targets. In the present paper, we address the latter question, in the specific attempt of shedding some light on the debated role of technological progress in lowering the costs of GHG stabilization. In particular, we use an optimal growth climate-economy model, where technical change is endogenously driven by learning by researching and learning by doing. In the model, when an ambitious stabilization target has to be reached, some additional technological innovation and diffusion is induced. The magnitude of this induced effect substantially affects the costs of stabilizing greenhouse gasses and may even make a well-designed climate policy a win-win strategy. A sensitivity analysis on the model crucial parameters is performed to account for structural and parametric uncertainties on learning effects, on the relationship between knowledge accumulation and the energy and carbon intensity of the economic system, and on the crowding out of investments in the energy sector R&D with respect to other research fields.
    Keywords: Climate policy, Environmental modelling, Integrated assessment, Technical change
    JEL: H0 H2 H3
    Date: 2006–01
  24. By: Christophe Muller (Universidad de Alicante)
    Abstract: Many policies simultaneously affect the distribution of prices and incomes in the economy. Moreover, a bias may occur when there is a stochastic relationship between prices and incomes and this relationship is being ignored. It is therefore important to dispose of an analytical framework for welfare analysis that could account for changes in this joint distribution. How can the joint influences of price and income distributions on poverty and inequality indicators be analysed? We offer a method to deal with this problem by using parametric formulae of poverty and inequality measures. We propose statistical indicators for the levels, variabilities and a statistical link of price indices and nominal living standards. These indicators are consistent with an approximation of the problem based on a bivariate lognormal distribution of price indices and nominal living standards. Our analysis provides hints about the social welfare impact of economic shocks or policies affecting levels, variabilities and correlation of prices and incomes. Intuitive insights are obtained, while using arithmetic means and variances instead does not lead to illuminating results. The role of price and income variabilities for poverty and inequality is more complex than generally expected, with the possibility of several variation regimes. Empirical investigation of these statistics would guide social policies.
    Keywords: Strategy-proofness, public goods economies, differentiable mechanisms
    JEL: D61 D78 H41
    Date: 2004–08
  25. By: Stepan Jurajda; Daniel Munich
    Abstract: One’s position in an alphabetically sorted list may be important in determining access to rationed goods or oversubscribed public services. Motivated by anecdotal evidence, we investigate the importance of the position in the alphabet of the last name initial of Czech students for their admission chances into oversubscribed schools. Empirical evidence based on the population of students applying to universities in 1999 suggests that, among marginal applicants, moving from the top to the bottom of the alphabet decreases admission chances by over 2 percent. The implication of such admission procedures for student ability sorting across differently oversubscribed schools is then confirmed by evidence based on a national survey of secondary students’ test scores.
    JEL: H4 J71 J78 I21
    Date: 2005–12
  26. By: Victor Matheson (Department of Economics, College of the Holy Cross); Robert Baade (Department of Economics and Business, Lake Forest College)
    Abstract: Hurricane Katrina devastated the city of New Orleans in late August 2005, and debates are now underway across the country concerning strategies for reconstructing the City. A key to redevelopment involves encouraging former citizens and businesses to return. Both of New Orleans’s professional sports teams, the National Football League Saints and the National Basketball Association Hornets, have taken up residence in other cities, and the question of what the city should provide in the way of financial accommodation to encourage them to return should be considered in devising a reconstruction plan. Infrastructure to facilitate professional sports and mega-events constitutes a significant fraction of capital budgets for even the largest cities. New Orleans has hosted a disproportionate share of mega-sports events in the United States given its size and demographics. An important question concerns whether these events have contributed enough to the New Orleans economy to justify reinvestment in infrastructure to restore New Orleans’s place as a leading host of professional sports and mega-events in the United States. A careful review of the evidence suggests that the redevelopment efforts of New Orleans are better directed at first providing infrastructure that will encourage the return of its middle class citizenry and the restoration of its culture. Playing host to professional sports and mega-events does have symbolic significance, but it is arguable that the city cannot afford to invite guests until it has the means to accommodate them.
    Keywords: sports, public finance, economic impact, New Orleans, Hurricane Katrina
    JEL: H25 H71 H40 L83 Q54
    Date: 2006–02
  27. By: Wicks, Rick (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: The three “spheres” of society (governments, markets, and communities) are widely acknowledged yet the overall organization is analyzed only rarely, and interactions between the spheres have perhaps never been modeled. Fiske’s four relational models (community-sharing, authority-ranking, equality-matching, and marketpricing) are used as the theoretical underpinning for a model of these three spheres, which is then used briefly to examine the effects of economic behavior (including economic thinking and theorizing) in determining the balance between them. Each of the spheres is assumed to have a fairly fixed core, plus some space between the cores which may be designated to one or another sphere. In the long run, this designation may reflect meta-economic efficiency, influenced by changes in physical, social, psychological, and information technology. In the short run, however, the outcome depends on human choice and will, in evaluating uncertain information about technologies and the meta-economic efficiency of changing sphereassignments (including possible changing cultural and historical differences in the relative evaluation of public, private, and social goods produced in the three spheres). It can thus be influenced by ideology, specifically through the application of inappropriate relational models to any particular social function or situation. For example, applying economic thinking to communities may undermine them, especially if the social sphere of communities operating under its own relational models is not acknowledged. <p>
    Keywords: three social spheres; communities; social goods; relational models; community-sharing; authority-ranking; equality-matching; market-pricing; metaeconomic efficiency
    JEL: A10 D20 H10 N00 O10 O30 P00 Z10
    Date: 2006–02–08
  28. By: Sergio Vergalli (University of Brescia)
    Abstract: In this paper, we present a theoretical model that, implementing the pioneering work of Burda (1995), based on the Real Option Theory, investigates the roots of the migration dynamics. In the model the decision to migrate of each individual depends not only on the wage differential, but also on a U-shaped benefit function of a community of homogeneous ethnic individuals, modelled according to the "theory of clubs". The theoretical results are able to give an explanation to the observable "jumps" in the migration flows and to describe how the trigger for entry can change depending on the dimension of the district. The analysis of the results also sheds light on the dynamics of the districts’ development: some possible rigidities in the adjustment of the district dimension, as regards the optimal levels, could magnify the hysteresis process.
    Keywords: Migration, Real option, Theory of clubs, Network effect
    JEL: F22 H49 O15 R23
    Date: 2006–01

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