nep-sea New Economics Papers
on South East Asia
Issue of 2016‒03‒29
twenty-two papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Mangroves as protection from storm surges in a changing climate By Blankespoor,Brian; Dasgupta,Susmita; Lange,Glenn-Marie
  2. Double for Nothing? Experimental Evidence on the Impact of an Unconditional Teacher Salary Increase on Student Performance in Indonesia By Joppe de Ree; Karthik Muralidharan; Menno Pradhan; Halsey Rogers
  3. Asia SME Finance Monitor 2014 By Asian Development Bank (ADB); Asian Development Bank (ADB); Asian Development Bank (ADB); Asian Development Bank (ADB)
  4. Pancasila Economic and the Challenges of Globalization and Free Market In Indonesia By Jaelani, Aan
  5. Why Inequality Matters in Poverty Reduction and Why the Middle Class Needs Policy Attention By Albert, Jose Ramon G.; Raymundo, Martin Joseph M.
  6. The National System of Technical Vocational Education and Training in the Philippines: Review and Reform Ideas By Orbeta, Aniceto Jr. C.; Esguerra, Emmanuel
  7. Contracting out the Last-Mile of Service Delivery: Subsidized Food Distribution in Indonesia By Abhijit Banerjee; Rema Hanna; Jordan C. Kyle; Benjamin A. Olken; Sudarno Sumarto
  8. Exchange Rates and Macro News in Emerging Markets By Guglielmo Maria Caporale; Fabio Spagnolo; Nicola Spagnolo
  9. Facilitating Foreign Exchange Risk Management for Bond Investments in ASEAN+3 By Asian Development Bank (ADB); Asian Development Bank (ADB); Asian Development Bank (ADB); Asian Development Bank (ADB)
  10. Expanding Governance as Development: Evidence on Child Nutrition in the Philippines By Eli Berman; Mitch Downey; Joseph Felter
  11. Double Trouble? Meeting the Export Target for Asia-Pacific Least Developed Countries in the 2030 Agenda for Sustainable Development By Adam Heal
  12. Vietnam's responses to provincial economic disparities through central-provincial government financial relations By Vu, Binh; Nguyen, Tom; Smith, Christine; Nghiem, Son
  13. The effect of peer observation on consumption choices: experimental evidence By Sakha, Sahra; Grohmann, Antonia
  14. Financial Soundness Indicators for Financial Sector Stability: A Tale of Three Asian Countries By Asian Development Bank (ADB); Asian Development Bank (ADB); Asian Development Bank (ADB); Asian Development Bank (ADB)
  15. The measurement of disaster risk: An example from tropical cyclones in the Philippines By Yonson, Rio; Gaillard, J. C.; Noy, Ilan
  16. Housing the Rangoon poor : Indians, Burmese, and town planning in colonial Burma By Osada, Noriyuki
  17. Determinants of local public expenditures on education: empirical evidence for Indonesian districts between 2005 and 2012 By Ivo Bischoff; Ferry Prasetyia
  18. Greater Mekong Subregion Urban Development Strategic Framework 2015-2022 By Asian Development Bank (ADB); Asian Development Bank (ADB); Asian Development Bank (ADB); Asian Development Bank (ADB)
  19. ADB Brief No. 42: Climate Change in Coral Triangle of the Pacific Countries: Supporting Communities to Adapt By Asian Development Bank (ADB); Asian Development Bank (ADB); Asian Development Bank (ADB); Asian Development Bank (ADB)
  21. Harmful transparency in teams By Kanti Parimal Bag; Nona Pepito
  22. Common Threshold in Quantile Regressions with an Application to Pricing for Reputation By Liangjun Su; Pai Xu; Heng Ju

  1. By: Blankespoor,Brian; Dasgupta,Susmita; Lange,Glenn-Marie
    Abstract: Adaptation to climate change includes addressing sea level rise and increased storm surges in many coastal areas. Mangroves can substantially reduce the vulnerability of the adjacent coastal land from inundation and erosion. However, climate change poses a large threat to mangroves. This paper quantifies the coastal protection provided by mangroves for 42 developing countries in the current climate, and a future climate change scenario with a one-meter sea level rise and 10 percent intensification of storms. The benefits of the coastal protection provided by mangroves are measured in terms of population and gross domestic product at a reduced risk from inundation; the loss of benefits under climate change is measured as the increased population and gross domestic product at risk. The findings demonstrate that although sea level rise and increased storm intensity would increase storm surge areas and the amounts of built resources at risk, the greatest impact is the expected loss of mangroves. Under current climate and mangrove coverage, 3.5 million people and roughly $400 million in gross domestic product of are at risk. In the future climate change scenario, the vulnerable population and gross domestic product at risk would increase by 103 and 233 percent, respectively. The greatest risk is in East Asia, especially in Indonesia, the Philippines, and Myanmar.
    Keywords: Water Resources Assessment,Wildlife Resources,Climate Change Mitigation and Green House Gases,Wetlands,Coastal and Marine Environment
    Date: 2016–03–14
  2. By: Joppe de Ree; Karthik Muralidharan; Menno Pradhan; Halsey Rogers
    Abstract: How does a large unconditional increase in salary affect employee performance in the public sector? We present the first experimental evidence on this question to date in the context of a unique policy change in Indonesia that led to a permanent doubling of base teacher salaries. Using a large-scale randomized experiment across a representative sample of Indonesian schools that affected more than 3,000 teachers and 80,000 students, we find that the doubling of pay significantly improved teacher satisfaction with their income, reduced the incidence of teachers holding outside jobs, and reduced self-reported financial stress. Nevertheless, after two and three years, the doubling in pay led to no improvements in measures of teacher effort or student learning outcomes, suggesting that the salary increase was a transfer to teachers with no discernible impact on student outcomes. Thus, contrary to the predictions of various efficiency wage models of employee behavior (including gift-exchange, reciprocity, and reduced shirking), as well as those of a model where effort on pro-social tasks is a normal good with a positive income elasticity, we find that unconditional increases in salaries of incumbent teachers had no meaningful positive impact on student learning.
    JEL: C93 I21 J31 J45 O15
    Date: 2015–12
  3. By: Asian Development Bank (ADB); Asian Development Bank (ADB) (Sustainable Development and Climate Change Department, ADB); Asian Development Bank (ADB) (Sustainable Development and Climate Change Department, ADB); Asian Development Bank (ADB)
    Abstract: The Asia SME Finance Monitor 2014 is the knowledge sharing product on small and medium-sized enterprises (SMEs) in Asia and the Pacific, specially focusing on SME access to finance. This publication reviews various country aspects of SME finance covering the banking sector, nonbank sector, and capital markets. It is expected to support evidence-based policy making and regulations on SME finance in the region.
    Keywords: small and medium enterprise, SME, SME finance, micro SME, access to finance, inclusive finance, venture capital
    Date: 2015–09
  4. By: Jaelani, Aan
    Abstract: The crisis of economy in Indonesia forces the government to reform its economic development paradigm. The new paradigm development refers to great attention of economic-societies such as cooperation. Those involve in the planning of national economic development as well as the planning of society development. This article aims to define the combination between Islamic economic and economic of Pancasila to pressure the identity of Indonesian state in globalization era.
    Keywords: Pancasila economic, Islamic economic, globalization, free market
    JEL: A11 B0 G18 H1 I2 N2 O57 P4 P5 Z12
    Date: 2016–03–08
  5. By: Albert, Jose Ramon G.; Raymundo, Martin Joseph M.
    Abstract: While the Philippines has had a new economic growth trajectory in recent years, the country has had little progress in reducing poverty and in making growth more inclusive. This paper examines trends in macroeconomic statistics, and the progress government has had in its Philippine Development Plan and in achieving the Millennium Development Goals. It discusses the need to address the lack of political inclusion. It also looks into income distribution and income inequality; and proposes a definition of the middle-income class, laying down seven income classes based on the national poverty lines. It also profiles the middle-income class vis-a-vis other income classes given the potential of the middle-income class to sustain economic growth. It argues that government need not only focus its attention to the poor, but also strengthen the middle class toward improving opportunities and reducing inequalities.
    Keywords: Philippines, income inequality, inclusive growth, middle-income class
    Date: 2015
  6. By: Orbeta, Aniceto Jr. C.; Esguerra, Emmanuel
    Abstract: The role of the National System of Technical Vocational Education and Training (NSTVET) is critical in skill upgrading and development. The rapidly changing technology highlights this need even more. This paper reviews the state of Philippine NSTVET, and identifies and discusses reform ideas. It does so by doing three things, namely, (a) provide a description of the characteristics of an improved NSTVET described in recent sectoral reviews, (b) provide a description of the characteristics and analysis of the performance of the existing Philippine NSTVET, and (c) provide recommendations to improve the system. Among the recommendations provided in the study are: (a) TESDA should focus more on regulation and information provision, (b) greater emphasis on enterprise-based training, (c) make training continuously relevant to industry needs, (d) greater performance orientation in access to public training funds, (e) improved targeting and sufficiency of financial assistance for TVET, (f) ensure quality in community-based training, (g) improve data generation and dissemination, (h) improve capacity for monitoring and evaluation, and (i) improve the image of TVET.
    Keywords: Philippines, technical vocational education and training, National System of Technical Vocational Education and Training (NSTVET), TESDA, employment
    Date: 2016
  7. By: Abhijit Banerjee; Rema Hanna; Jordan C. Kyle; Benjamin A. Olken; Sudarno Sumarto
    Abstract: Outsourcing government service provision to private firms can improve efficiency and reduce rents, but there are risks that non-contractible quality will decline and that reform could be blocked by vested interests exactly where potential gains are greatest. We examine these issues by conducting a randomized field experiment in 572 Indonesian localities in which a procurement process was introduced that allowed citizens to bid to take over the implementation of a subsidized rice distribution program. This led 17 percent of treated locations to switch distributors. Introducing the possibility of outsourcing led to a 4.6 percent reduction in the markup paid by households. Quality did not suffer and, if anything, households reported the quality of the rice improved. Bidding committees may have avoided quality problems by choosing bidders who had relevant experience as traders, even if they proposed slightly higher prices. Mandating higher levels of competition by encouraging additional bidders further reduced prices. We document offsetting effects of having high rents at baseline: when the initial price charged was high and when baseline satisfaction levels were low, entry was higher and committees were more likely to replace the status quo distributor; but, incumbents measured to be more dishonest on an experimental measure of cheating were also more likely to block the outsourcing process. We find no effect on price or quality of providing information about program functioning without the opportunity to privatize, implying that the observed effect was not solely due to increased transparency. On net, the results suggest that contracting out has the potential to improve performance, though the magnitude of the effects may be partially muted due to push back from powerful elites.
    JEL: D73 H57
    Date: 2015–12
  8. By: Guglielmo Maria Caporale; Fabio Spagnolo; Nicola Spagnolo
    Abstract: This paper uses a VAR-GARCH(1,1) model to analyse mean and volatility spillovers between macro news (in the form of newspaper headlines) and the exchange rates vis-avis both the US dollar and the euro of the currencies of a group of emerging countries including the Czech Republic, Hungary, Indonesia, Korea, Mexico, Poland, South Africa, Thailand and Turkey over the period 02/1/2003-23/9/2014. The results suggest limited dynamic linkages between the first moments compared to the second moments, causality-in-variance being found in a number of cases. The conditional correlations also provide evidence of co-movement. Finally, the recent global financial crisis appears to have had a significant impact.
    Keywords: Emerging markets, Exchange Rates, GARCH model, Macro news
    JEL: C32 F36 G15
    Date: 2016
  9. By: Asian Development Bank (ADB); Asian Development Bank (ADB) (Sustainable Development and Climate Change Department, ADB); Asian Development Bank (ADB) (Sustainable Development and Climate Change Department, ADB); Asian Development Bank (ADB)
    Abstract: The Asian Development Bank (ADB) has been working closely with the Association of Southeast Asian Nations (ASEAN) and the People’s Republic of China, Japan, and the Republic of Korea—collectively known as ASEAN+3—to foster the development of local currency bond markets and facilitate regional bond market integration under the Asian Bond Markets Initiative (ABMI). ABMI was launched in 2002 to strengthen the resilience of the region’s financial system by developing local currency bond markets as an alternative source to foreign currency denominated short-term bank loans for long-term investment. Bond investors typically have a long position in local currency bond markets. To manage their foreign exchange (FX) risk, they may want to hedge that exposure for a period of time. They also want to be sure they can easily convert the local currency to dollars upon the sale of a bond. This study was undertaken under ABMI and funded by the Government of Japan. It reviews the FX and FX hedging markets in ASEAN+3 as they relate to cross-border investments in local currency bonds, and makes recommendations to facilitate the development of the markets and FX risk management.
    Keywords: Regional cooperation, Regional integration, ASEAN+3, Local currency bonds, and Foreign exchange risk management
    Date: 2015–08
  10. By: Eli Berman; Mitch Downey; Joseph Felter
    Abstract: Worldwide, extreme poverty is often concentrated in spaces where people and property are not safe enough to sustain effective markets, and where development assistance is dangerous – and might even induce violence. Expanding governance by coercively taking control of territory may enable markets and development programs, but costs to local residents may exceed benefits, especially if that expansion is violent. We estimate for the first time whether a large counterinsurgency program improves welfare. We exploit the staggered roll-out of the Philippine “Peace and Development Teams” counterinsurgency program, which treated 12% of the population between 2002 and 2010. Though treatment temporarily increased violence, the program progressively reduced child malnutrition: by 10% in the first year, and by 30% from year three onwards. Improved nutritional status was not due to increased health and welfare expenditures, but instead to improved governance. Treatment effects are comparable to those of conventional child health interventions, though conventional programs are likely infeasible in this setting. Rebels apparently react to treatment by shifting to neighboring municipalities, as malnutrition worsens there – with statistically significant 'treatment' effects of similar size. Thus overall program effects are close to zero. These findings invite an evidence-based discussion of governance expansion, an extensive margin of development.
    JEL: F51 I15 O53
    Date: 2016–01
  11. By: Adam Heal (United Nations Economic and Social Commission for Asia and the Pacific (ESCAP))
    Abstract: The 2030 Agenda for Sustainable Development sets forth seventeen goals (known as the Sustainable Development Goals or SDGs) which will define global development priorities for the next fifteen years. The importance of trade as an engine of growth is recognised in a number of targets, most notably within Goal 17 on partnerships for the goals and the means of implementation. This goal sets, among other objectives, a target for least developed countries to double their share of global exports by 2020. This note assesses the prospects for Asia-Pacific least developed countries (LDCs) meeting this goal.
    Keywords: export, least developed countries, asia-pacific, sustainable development
    JEL: F1
    Date: 2016–02
  12. By: Vu, Binh; Nguyen, Tom; Smith, Christine; Nghiem, Son
    Abstract: The paper examines key changes in central-provincial government financial arrangements and their effects on provincial economic disparities in Vietnam over the period 2000-2008. We find that after 2004, transfers from the central to provincial governments conformed much more closely to objective and pre-determined criteria than before. Econometric estimations indicate that in the post-2004 sub-period, poorer provinces obtained more-than-proportionate assistance from the central government, and the favourable treatment was statistically significant. Responses from interviews and statistical data suggest that transfers from the central government played an important role in reducing poverty and provincial output disparities after 2004. The difficulties experienced by the central government in securing adequate resources to finance such transfers, the over-reliance of some provinces on the transfers, and related policy implications are also discussed in the paper.
    Keywords: Provincial Economic Disparities and Vietnam's Responses
    JEL: P52
    Date: 2015
  13. By: Sakha, Sahra; Grohmann, Antonia
    Abstract: This paper investigates the impact of peer observation on the consumption decisions of rural households in Thailand using a lab-in-the-field experiment. We find that those groups that observe each other show lower within group standard deviation in their decisions. Thus, we find evidence for conformity. Further, we find that individual's consumption choice is influenced by the group choice controlling for large number of individual, household, and village characteristics. We find that unfamiliarity of the product is counteracted by peer effects. Finally, we find evidence of treatment heterogeneity with regards to cognitive ability and village size.
    Keywords: Consumption,Peer Effects,Conformity
    JEL: D12 C21 C92
    Date: 2016
  14. By: Asian Development Bank (ADB); Asian Development Bank (ADB) (Economic Research and Regional Cooperation Department, ADB); Asian Development Bank (ADB) (Economic Research and Regional Cooperation Department, ADB); Asian Development Bank (ADB)
    Abstract: The development and analysis of financial soundness indicators (FSIs) help policy makers identify the strengths and vulnerabilities in their countries’ financial systems and take preventive action to avert a crisis or at least minimize its effects. This publication presents the country-case studies for Bangladesh, Georgia, and Viet Nam focusing on the growing evidences in the development of financial soundness indicators to effectively monitor the financial performance of the country. With the support from Investment Climate Facilitation Fund under the Regional Cooperation and Integration Financing Facility, the tales of three countries shows the diverse financial vulnerabilities of each economy. For example, Georgia and Viet Nam have met capital adequacy standards but Bangladesh has faltered in this aspect for it requires an injection of capital into state owned commercial banks that is contingent upon improved governance. On the other hand, Georgia and Viet Nam could have been more susceptible to global economic crises than Bangladesh. A significant amount of public and private debt in Georgia is denominated in foreign currency while Viet Nam’s economic openness—largely because of rapid economic integration in East Asia—has made it vulnerable to global economic slowdowns.
    Keywords: financial sector, financial soundness indicators, asia, pacific, adb, investment climate, core indicators, encouraged indicators, deposit takers, financial corporations, nonfinancial sectors, bangladesh, georgia, viet nam, finance, financial institutions, financial markets
    Date: 2015–09
  15. By: Yonson, Rio; Gaillard, J. C.; Noy, Ilan
    Abstract: What shapes people’s disaster risk exposure? Using a sub-national (provincial) panel econometric and deductive approach we answer this question by focussing on tropical cyclones, and using the Philippines as a case study for our measurement approach. We construct a new provincial level panel dataset, and use panel estimation methods to assess the influence of socioeconomic (vulnerability), geographic, demographic, topographic (exposure), and meteorological (hazard) characteristics on the resulting fatalities and affected persons from recent tropical cyclones. We find strong evidence that socioeconomic development reduces people’s vulnerability and loss of human lives. Further, good local governance is associated with fewer fatalities. Rapid and unplanned urbanization generates vulnerabilities and increases harm. Exposure, including topography, and hazard strength are likewise important determinants. However, disaster impacts on people appear to be influenced much more by vulnerability and exposure, than by the hazard itself. We quantify this difference in order to contribute to policy planning at national and sub-national scales.
    Keywords: Natural disasters, Risk, Tropical cyclones,
    Date: 2016
  16. By: Osada, Noriyuki
    Abstract: In Rangoon/Yangon, the ex-capital city of Burma/Myanmar, there still remain many old buildings today. Those buildings were constructed in the British colonial period, especially from the 1900s to the 1930s, and formed Rangoon's built environment as something modern. In focusing on the period before and after the inauguration of the Rangoon Development Trust in 1921, this paper describes how the colonial administrative authorities perceived urban problems and how their policy and practice affected urban society. It also suggests the possibility that competition for habitation among the lower strata of Rangoon society was a cause of the serious urban riot in 1930.
    Keywords: Myanmar, Urban planning, Housing, Colonial policy, Colonialism, Migration, Urban societies, History, Burma/Myanmar, Urban history, Town-planning, Immigration
    JEL: N95
    Date: 2016–03
  17. By: Ivo Bischoff (University of Kassel); Ferry Prasetyia (Brawijaya University)
    Abstract: We provide an empirical analysis of the factors that drive expenditures on primary and secondary education in Indonesian districts. We use a panel-data set covering 398 districts between 2005 and 2012. We account for the impact of socio-economic, political and geographical factors on expenditures per pupil and on the share of the overall budget spent on education. Our results are in line studies from other countries showing that educational expenditures are rising in the municipalities’ fiscal capacity. Landlocked districts are found to spend less on education than non-landlocked ones. We find some support for the notion that the share of educational expenditures in total expenditures increases in the demand for education, though our indicators for demand are not associated with higher expenditures per pupil. Somewhat surprisingly, the characteristics of the local municipal council do not influence educational expenditures.
    Keywords: Indonesia, local government, educational expenditures, determinants
    JEL: H75 I25 N35
    Date: 2015
  18. By: Asian Development Bank (ADB); Asian Development Bank (ADB) (Southeast Asia Department, ADB); Asian Development Bank (ADB) (Southeast Asia Department, ADB); Asian Development Bank (ADB)
    Abstract: This Greater Mekong Subregion (GMS) Urban Development Strategic Framework, – sets out a broad framework to encourage and facilitate a coordinated approach to the development of urban areas throughout the GMS. The framework includes three pillars: (i) planning and development of key urban areas, (ii) planning and development of border areas, and (iii) capacity development in urban planning and management. Underlying these are four crosscutting themes—green development and climate change resilience, disaster risk management, inclusive development, and competitiveness. The GMS Urban Development Strategic Framework also provides the context for ongoing and planned projects in the six GMS member countries.
    Keywords: Greater Mekong Subregion, GMS Program, regional cooperation, urban development, urban planning and management, spatial planning, capacity development, urban centers, special economic zones, border economic zones, priority border areas, urban task force, results framework, GMS Strategic Framework, Regional Investment Framework, economic corridors, Cambodia, PRC: Yunnan Province and Guangxi Zhuang Autonomous Region, Lao PDR, Myanmar, Thailand, Viet Nam, green development, climate change resilience, disaster risk management, inclusive development, competitiveness
    Date: 2015–08
  19. By: Asian Development Bank (ADB); Asian Development Bank (ADB) (Pacific Department, ADB); Asian Development Bank (ADB) (Pacific Department, ADB); Asian Development Bank (ADB)
    Abstract: This brief provides representatives of national government and regional organizations—and other key decision makers in climate change, development, fisheries, agriculture, environment, and natural resource management in Coral Triangle of the Pacific (CTP) and similar countries—with policy advice to help rural communities adapt to climate change. The brief also provides donor organizations with information on where to target resources to support fishing and farming communities as they adapt to climate change. Policy interventions and issues to be considered are highlighted.
    Keywords: climate change adaptation, coral triangle, community adaptation, pacific, fiji, papua new guinea, solomon islands, timor-leste, vanuatu, integrated coastal management, integrated water resources management, natural resources conservation, coral triangle initiative, CTI, coral reefs fisheries, food security, fishing and farming communities, adb briefs 42
    Date: 2015–09
  20. By: Monica Martinez-Bravo (CEMFI, Centro de Estudios Monetarios y Financieros); Priya Mukherjee (College of William and Mary); Andreas Stegmann (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: A large theoretical literature argues that legacies of non-democratic regimes can affect the quality of governance in new democracies. However, the empirical evidence is scarce. This paper exploits a natural experiment that took place in the Indonesian democratic transition: the Soeharto-regime mayors were allowed to finish their five year terms before being replaced by new leaders. Since mayors' political cycles were not synchronized, this event generated exogenous variation in how long the agents of the old regime remained in their position during the democratic transition. The results suggest that districts which had an old-regime mayor for longer exhibit worse governance outcomes, lower public good provision, and greater electoral support for Soeharto's party. These effects persist several years after the oldregime mayors are no longer in office. The results are consistent with the hypothesis that slower transitions towards democracy allow the old-regime elites to find ways of capturing democracy in the medium and long run.
    Keywords: Institutions, elections, elite capture.
    JEL: D72 H75 O12 P16
    Date: 2016–01
  21. By: Kanti Parimal Bag (Department of Economics - NUS - National University of Singapore); Nona Pepito (ESSEC - ESSEC Business School - Essec Business School - Economics Department - Essec Business School, THEMA - Théorie économique, modélisation et applications - Université de Cergy Pontoise - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In a two-period continuous effort investment game as in Mohnen, et al. (2008), we demonstrate that peer transparency can be strictly harmful. This contrasts with Mohnen et al.'s result that transparency, through the observability of interim efforts, induces more effort and is thus beneficial if team members are inequity-averse. If, instead, preferences are standard utilitarian, the marginal benefit is decreasing and marginal cost is increasing in a player's own effort, then players' collective and individual efforts are strictly less with transparency than under non-transparency.
    Keywords: free-riding,Transparency, team, perfect substitution
    Date: 2016–01–26
  22. By: Liangjun Su (Singapore Management University); Pai Xu (University of Hong Kong); Heng Ju (Shanghai University of Finance and Economics)
    Abstract: The paper develops a systematic estimation and inference procedure for quantile regression models where there may exist a common threshold effect across different quantile indices. We first propose a sup-Wald test for the existence of a threshold effect, and then study the asymptotic properties of the estimators in a threshold quantile regression model under the shrinking-threshold-effect framework. We consider several tests for the presence of a common threshold value across different quantile indices and obtain their limiting distributions. We apply our methodology to study the pricing strategy for reputation via the use of a dataset from In our economic model, an online seller maximizes the sum of the profit from current sales and the possible future gain from a targeted higher reputation level. We show that the model can predict a jump in optimal pricing behavior, which is considered as “reputation effect” in this paper. The use of threshold quantile regression model allows us to identify and explore the reputation effect and its heterogeneity in data. We find both reputation effects and common thresholds for a range of quantile indices in seller’s pricing strategy in our application.
    Keywords: Common threshold effect; Pricing strategy; Regime change; Specification test; Threshold quantile regression
    JEL: L10 C12 C13
    Date: 2016–02

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