nep-upt New Economics Papers
on Utility Models and Prospect Theories
Issue of 2007‒02‒03
four papers chosen by
Alexander Harin
Modern University for the Humanities

  1. The Allocation of Resources under Uncertainty By Harris Dellas; Ana Fernandes
  2. A Model of Reciprocal Fairness: Application to the Labour Contract By Stéphane Mahuteau
  3. Malthus Revisited: Fertility Decision Making based on Quasi-Linear Preferences By Jacob L. Weisdorf
  4. Do the World Trade Organization and the Generalized System of Preferences foster bilateral trade? By Bernhard Herz; Marco Wagner

  1. By: Harris Dellas; Ana Fernandes
    Abstract: We study the effects of uncertainty on the allocation of resources in the standard, static, general equilibrium, two-sector, two-factor model. The elasticity of substitution in production vs that in consumption plays a key role in determining whether uncertainty attracts or repels resources. Risk aversion matters, but to a smaller extent, while factor endowments and factor intensities play a more limited role.
    Keywords: Uncertainty; general equilibrium; two-sector model
    JEL: E2 D5 D8
    Date: 2006–12
  2. By: Stéphane Mahuteau (Department of Economics, Macquarie University)
    Abstract: We investigate to what extent reciprocity, exhibited by employers and employees, lead to stable gift exchange practices in the labour contract, giving rise to non-compensating wage differentials among industries and firms. We use the concept of Sequential Reciprocity Equilibrium (Dufwenberg and Kirchsteiger 1998, 2004) to incorporate players’ preferences for reciprocity in their utility function. We show that successful gift exchange practices may arise if both players actually care for reciprocity. We test the predictions of the model using a matched employer-employee French dataset. Our results show that French employers and employees’ decisions are influenced by reciprocity concerns.
    Keywords: reciprocity, fairness, sequential game, cheap-talk, efficiency wages
    JEL: C72 J33 J41
    Date: 2006–11
  3. By: Jacob L. Weisdorf (Department of Economics, University of Copenhagen)
    Abstract: Malthus’ (1798) population hypothesis is inconsistent with the demographic transition and the concurrent massive expansion of incomes observed among industrialised countries. This study shows that eliminating the income-effect on the demand for children from the Malthusian model makes it harmonise well with industrial development.
    Keywords: demographic transition; fertility; Malthus
    JEL: J13 N30 O10
    Date: 2007–01
  4. By: Bernhard Herz; Marco Wagner
    Abstract: World trade has grown exponentially during the last 60 years. Admittedly, it is not clear if this development can be assigned to international trade agreements like the World Trade Organization or the Generalized System of Preferences as previous empirical studies found contradicting results. In this paper we generalize the different approaches used in the literature to estimate the role of GATT/WTO and the Generalized System of Preferences for trade. We use a gravity model and apply FE estimation on a disaggregated bilateral data set of the trade flows between 145 countries across 1962-99. In our analysis we find a significant positive effect of WTO membership on bilateral trade. Referring to other multilateral institutions, we find robust evidence that membership in regional trade agreements or currency unions substantially increase bilateral trade flows as well. By contrast, we find that the Generalized System of Preferences does not foster trade in general, rather the opposite. This might be due to the opportunistic behavior of industrial countries that grant GSP schemes as long as the concerned products are relatively unimportant, but restrict them as soon as they become relevant.
    Keywords: WTO, GSP, regional trade agreements, currency union, gravity model, international trade
    JEL: C13 C15 F13 F15

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