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2008 Working papers


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Title/Author(s) Abstract Number

Simplified Implementation of the Heckman Estimator of the Dynamic Probit Model and a Comparison with Alternative Estimators

Wiji Arulampalam and Mark B. Stewart

This paper presents a convenient shortcut method for implementing the Heckman estimator of the dynamic random effects probit model and other dynamic nonlinear panel data models using standard software. [read more] 884

Income Rank and Upward Comparisons

Christopher J. Boyce and Gordon D. A. Brown

Many studies have argued that relative income predicts individual well-being. More recently, it has been suggested that the relative rank of an individual’s income, rather than how that income compares to a mean or reference income, is important. [read more] 883

Happiness and Productivity

Andrew Oswald, Eugenio Proto and Daniel Sgroi

Little is known by economists about how emotions affect productivity. To make persuasive progress, some way has to be found to assign people exogenously to different feelings. [read more] 881

Intellectual Property Disclosure as 'Threat'

Scott Baker, Pak Yee Lee and Claudio Mezzetti

This paper models the disclosure of knowledge via licensing to outsiders or fringe firms as a threat, useful in ensuring firms keep their commitments. [read more] 882

Trust-Based Mechanisms for Robust and Efficient Task Allocation in the Presence of Execution Uncertainty

Rajdeep K Dash, Andrea Giovannucci, Nicholas R. Jennings, Claudio Mezzetti, Sarvapali D. Ramchurn Juan A. Rodriguez-Aguilar

Vickrey-Clarke-Groves (VCG) mechanisms are often used to allocate tasks to selfish and rational agents. VCG mechanisms are incentive-compatible, direct mechanisms that are efficient (i.e. maximise social utility) and individually rational (i.e. agents prefer to join rather than opt out). [read more] 880

The Frequency of Wars (updated)

Mark Harrison and Nikolaus Wolf

Wars are increasingly frequent, and the trend has been steadily upward since 1870.The main tradition of Western political and philosophical thought suggests that extensive economic globalization and democratization over this period should have reduced appetites for war far below their current level. [read more] 879

On Risk Aversion in the Rubinstein Bargaining Game

Emanuel Kohlscheen and Stephen O’Connell

We derive closed-form solutions for the Rubinstein alternating offers game for cases where the two players have (possibly asymmetric) utility functions that belong to the HARA class and discount the future at a constant rate. [read more] 878

The Optimal Choice of Pre-launch Reviewer: How Best to Transmit Information using Tests and Conditional Pricing

David Gill and Daniel Sgroi

A principal who knows her type can face public testing to help attract endorsements from agents. Tests are pass/fail and have an innate toughness (bias) corresponding to a trade-off between the higher probability of passing a softer test and the greater impact on agents’ beliefs from passing a tougher test. [read more] 877

Testing for Smooth Transition Nonlinearity in Adjustments of Cointegrating Systems

Milan Nedeljkovic

This paper studies testing for the presence of smooth transition nonlinearity in adjustment parameters of the vector error correction model. We specify the generalized model with multiple cointegrating vectors and different transition functions across equations. [read more] 876

Family Labor Supply and Aggregate Saving

Paulo Santos Monteiro

I study the impact of idiosyncratic risk on savings and employment in a small open economy populated by two-member families. Families incur a fixed cost of participation when both members are employed. [read more] 875

Testing Full Consumption Insurance in the Frequency Domain

Paulo Santos Monteiro

Full consumption insurance implies that consumers are able to perfectly share risk by equalizing state by state their inter-temporal marginal rates of substitution in the presence of idiosyncratic endowment shocks. [read more] 874

Cash Breeds Success : The Role of Financing Constraints in Patent Races

Enrique Schroth and Dezsö Szalay

This paper studies the impact of financing constraints on the equilibrium of a patent race. We develop a model where firms finance their R&D expenditures with an investor who cannot verify their effort. [read more] 873

Are Central Banks following a linear or nonlinear (augmented) Taylor rule?

Vítor Castro

The Taylor rule establishes a simple linear relation between the interest rate, inflation and output gap. However, this relation may not be so simple. To get a deeper understanding of central banks’ behaviour, this paper asks whether central banks are indeed following a linear Taylor rule or, instead, a nonlinear rule. [read more] 872

Was Germany ever united? Evidence from Intra- and International Trade 1885 – 1933

Nikolaus Wolf

When did Germany become economically integrated? Within the framework of a gravity model, based on a new data set of about 40,000 observations on trade flows within and across the borders of Germany over the period 1885 – 1933, I explore the geography of trade costs across Central Europe. [read more] 871

Explanations of the inconsistencies in survey respondents'forecasts

Michael P Clements

A comparison of the point forecasts and the central tendencies of probability distributions of inflation and output growth of the SPF indicates that the point forecasts are sometimes optimistic relative to the probability distributions. [read more] 870

Rounding of probability forecasts : The SPF forecast probabilities of negative output growth

Michael P Clements

We consider the possibility that respondents to the Survey of Professional Forecasters round their probability forecasts of the event that real output will decline in the future. [read more] 869

Herding and Contrarianism in a Financial Trading Experiment with Endogenous Timing

Andreas Park and Daniel Sgroi

We undertook the first market trading experiments that allowed heterogeneously informed subjects to trade in endogenous time, collecting over 2000 observed trades. [read more] 868

The Celtic Tiger In Historical And International Perspective

Nicholas Crafts

When Economic Development was published in 1958 there was good reason to worry both about Ireland's economic performance and its economic prospects. While most western European countries were enjoying rapid economic growth Ireland was falling well behind the leaders. [read more] 867

Noncooperative Oligopoly in Markets with a Continuum of Traders

Francesca Busetto, Giulio Codognato and Sayantan Ghosal

In this paper, we study three prototypical models of noncooperative oligopoly in markets with a continuum of traders. [read more] 866

Testing for seasonal unit roots in heterogeneous panels using monthly data in the presence of cross sectional dependence

Jesús Otero, Jeremy Smith and Monica Giulietti

This paper generalises the monthly seasonal unit root tests of Franses (1991) for a heterogeneous panel following the work of Im, Pesaran, and Shin (2003), which we refer to as the F-IPS tests. [read more] 865

Sequential Innovations and Intellectual Property Rights

Frederic Payot and Dezsö Szalay

We analyze a two-stage patent race. In the first phase firms seek to develop a research tool, an innovation that has no commercial value but is necessary to enter the second phase of the race. [read more] 864

Monopoly, Non-linear Pricing, and Imperfect Information : A Reconsideration of the Insurance Market

Dezsö Szalay

I reconsider Stiglitz's (1977) problem of monopolistic insurance with a continuum of types. Using a suitable transformation of control variables I obtain an analytical characterization of the optimal insurance policies. [read more] 863

Debt Bailouts and Constitutions

Emanuel Kohlscheen

A demand based theory of sub-national debt bailouts is presented. It is shown that revenue sharing (RS) arrangements alter the demand for bailouts among politicians with regional constituencies as a bailout usually implies a shift of taxation to the federal tier. [read more] 862

Gravity Redux: Measuring International Trade Costs with Panel Data (updated 2011)

Dennis Novy

Barriers to international trade are known to be large. But have they become smaller over time? Building on the gravity framework by Anderson and van Wincoop (2003), I derive an analytical solution for time-varying multilateral resistance variables that can be related to observable trade data. [read more] 861

The duration of economic expansions and recessions: More than duration dependence

Vítor Castro

One widespread idea in the business cycles literature is that the older is an expansion or contraction, the more likely it is to end. [read more] 860

How Good was the Profitability of British Railways, 1870-1912? (revised August 2009)

Brian Mitchell, David Chambers and Nicholas Crafts

This paper provides new estimates of the return on capital employed (ROCE) for major British railway companies. It shows that ROCE was generally below the cost of capital after the mid-1870s and fell till the turn of the century. [read more] 859

Regulating a Monopolist with unknown costs and unknown quality capacity

Charles Blackorby and Dezsö Szalay

We study the regulation of a firm with unknown demand and cost information. In contrast to previous studies, we assume demand is influenced by a quality choice, and the firm has private information about its quality capacity in addition to its cost. [read more] 858

Aversion to Price Risk and the Afternoon Effect

Claudio Mezzetti

Many empirical studies of auctions show that prices of identical goods sold sequentially follow a declining path. [read more] 857

Financial Systems, Micro-Systemic Risks and Central Bank Policy : An Analytical Taxonomy of the Literature

Ashwin Moheeput

This paper reviews and categorises the literature on micro-systemic risks and on optimal policies designed to mitigate these risks. [read more] 856

Issues on the choice of Exchange Rate Regimes and Currency Boards –An Analytical Survey

Ashwin Moheeput

Currency boards have often been at the heart of monetary reforms proposed by the International Monetary Fund (IMF): they have been instrumental either as a short term crisis management strategy that successfully restores financial order for many countries seeking stabilization in the aftermath of prolonged economic crisis or as a way of importing monetary credibility as part of a medium/long term strategy for conducting monetary policy. [read more] 855

When Herding and Contrarianism Foster Market Efficiency: A Financial Trading Experiment

Andreas Park and Daniel Sgroi

While herding has long been suspected to play a role in financial market booms and busts, theoretical analyses have struggled to identify conclusive causes for the effect. [read more] 854

Financial Fragility, Systemic Risks and Informational Spillovers: Modelling Banking Contagion as State-Contingent Change in Cross-Bank Correlation

Ashwin Moheeput

We consider banking panic transmission in a two-bank setting, in which the main propagator of a shock across banks is the informational spillover channel. Banks are perceived to be positively connected to some unobserved macroeconomic fundamental. [read more] 853

Commercialisation, Factor Prices and Technological Progress in the Transition to Modern Economic Growth

Stephen Broadberry, Sayantan Ghosal and Eugenio Proto

We provide a model of the links between commercialisation and technological progress, which is consistent with the historical evidence and places market relations at the heart of the industrial revolution. [read more] 852

Fertility Response to Financial Incentives - Evidence from the Working Families Tax Credit in the UK

Asako Ohinata

The introduction of the 1999 Working Families Tax Credit (WFTC) in the UK encouraged low income families with children to enter the labor market. The tax credit, however, may have had the unintended side effect of increasing the childbearing of these households. [read more] 851

The Debt-Adjusted Exchange Rate for China

Jan Frait and Luboš Komárek

The paper aims to enrich the debate on the overvaluation/undervaluation of China yuan Renminbi (CNY) against USD and JPY by applying the concept of the Debt-Adjusted Real Exchange Rate (DARER). [read more] 850

Financial Integration of Stock Markets among New EU Member States and the Euro Area

Jan Babecký, Luboš Komárek and Zlatuše Komárková

The paper considers the empirical dimension of financial integration among stock markets in four new European Union member states (the Czech Republic, Hungary, Poland and Slovakia) in comparison with the euro area. [read more] 849

Resolving the Anglo-German Industrial Productivity Puzzle, 1895-1935: A Response to Professor Ritschl

Stephen Broadberry and Carsten Burhop

This paper offers a critical appraisal of the claim of Ritschl (2008) to have found a “possible resolution” to what he calls the “Anglo-German industrial productivity puzzle”. [read more] 848

Did the Single Market Cause Competition in Excise Taxes? Evidence from EU Countries

Ben Lockwood and Giuseppe Migali

The introduction of the Single Market resulted in a switch from destination to origin-based taxation of cross-border transactions by individuals. [read more] 847

The Effect of the Exchange Rates on Investment in Mexican Manufacturing Industry

Mustafa Caglayan and Rebeca Muñoz Torres

This paper, considering revenue and cost exposure channels, investigates the effects of exchange rate behaviour on fixed capital investment in Mexican manufacturing sector over 1994-2002. [read more] 846

Auctions in which Losers Set the Price

Claudio Mezzetti and Ilia Tsetlin

We study auctions of a single asset among symmetric bidders with affiliated values. We show that the second-price auction minimizes revenue among all efficient auction mechanisms in which only the winner pays, and the price only depends on the losers' bids. [read more] 845

Democracy, Collective Action and Intra-elite Conflict

Sayantan Ghosal and Eugenio Proto

This paper studies the conditions under which intra-elite conflict leads to a democracy. There are two risk averse elites competing for the appropriation of a unit of social surplus, with an ex-ante uncertainty about their future relative bargaining power, and a large non-elite class unable to act collectively. [read more] 844

The Impact of (In)Equality of Opportunities on Wealth Distribution: Evidence from Ultimatum Games

Gianluca Grimalda, Anirban Kar and Eugenio Proto

We study the impact on payoff distribution of varying the probability (opportunity) that a player has of becoming the proposer in an ultimatum game (UG). Subjects' assignment to roles within the UG was randomised before the interactions. [read more] 843

Isolation, Assurance and Rules: Can Rational Folly Supplant Foolish Rationality? (updated)

Peter J. Hammond

Consider an “isolation paradox” game with many identical players. By definition, conforming to a rule which maximizes average utility is individually a strictly dominated strategy. [read more] 842

Some Evidence on the Future of Economics

Andrew J Oswald and Hilda Ralsmark

This short paper collects and studies the CVs of 112 assistant professors in the top-ten American departments of economics. The paper treats these as a glimpse of the future. We find evidence of a strong brain drain. We find also a predominance of empirical work. [read more] 841

Chain-Store Competition: Customized vs. Uniform Pricing

Paul W. Dobson and Michael Waterson

Retail chains essentially practice one of two broad strategies in setting prices across their stores. The more straightforward is to set a chain- or country- wide price. [read more] 840

On the Curvature of the Reporting Function from Objective Reality to Subjective Feelings?

Andrew J Oswald

I suggest the idea of a reporting function, r(.), from reality to feelings. The ‘happiness’ literature claims we have demonstrated diminishing marginal utility of income. I show not, and that knowing r(.)’s curvature is crucial. A quasi-experiment on heights is studied. [read more] 839

Are immigrants so stuck to the floor that the ceiling is irrelevant?

Priscillia Hunt

In this paper, the immigrant-native wage differential is explained through quantile regression estimations. Using repeated cross-sections of the British Labour Force Survey from 1993-2005, we analyse the returns to covariates across the conditional earnings distribution. [read more] 838

Cournot-Walras Equilibrium as a Subgame Perfect Equilibrium

Francesca Busetto, Giulio Codognato, and Sayantan Ghosal

In this paper, we investigate the problem of the strategic foundation of the Cournot-Walras equilibrium approach. To this end, we respecify a'la Cournot-Walras the mixed version of a model of simultaneous, noncooperative exchange, originally proposed by Lloyd S.Shapley. [read more] 837

Moral hazard, bank runs and contagion

Shurojit Chatterji and Sayantan Ghosal

We study banking with ex ante moral hazard. Resolving the misalignment of the incentives between banks and depositors requires early liquidation with positive probability : efficient risk-sharing between depositors is no longer implementable. [read more] 836

Beyond Normal Form Invariance: First Mover Advantage in Two-Stage Games with or without Predictable Cheap Talk

Peter Hammond

Von Neumann (1928) not only introduced a fairly general version of the extensive form game concept. He also hypothesized that only the normal form was relevant to rational play. [read more] 835

Behavioural Decisions and Welfare

Patricio Dalton and Sayantan Ghosal

We study decision problems where (a) preference parameters are de.ned to include psychological/moral considerations and (b) there is a feedback effect from chosen actions to preference parameters. [read more] 834