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2010 Working Papers

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Title/Author(s) Abstract Number

Communication Equilibria and Bounded Rationality (updated October 2012)

Nikhil Vellodi

In this paper, we generalize the notion of a communication equilibrium (Forges 1986, Myerson 1986) of a game with incomplete information by introducing two new types of correlation device, namely extended and Bayesian devices. [read more] 955

Why are survey forecasts superior to model forecasts?

Michael P. Clements

We investigate two characteristics of survey forecasts that are shown to contribute to their superiority over purely model-based forecasts. These are that the consensus forecasts incorporate the effects of perceived changes in the long-run outlook, as well as embodying departures from the path toward the long-run expectation. [read more] 954

Real-time Forecasting of Inflation and Output Growth in the Presence of Data Revisions

Michael P. Clements and Ana Beatriz Galvão

We show how to improve the accuracy of real-time forecasts from models that include autoregressive terms by estimating the models on ‘lightly-revised’data instead of using data from the latest-available vintage. [read more] 953

P-Stable Equilibrium : Definition and Some Properties

Gabriel Desgranges and Sayantan Ghosal

We define a continuous index of strategic stability, p-stability, which requires equilibrium to be the unique outcome compatible with common knowledge of rationality and common knowledge of p-beliefs (beliefs that put probability at least p on the equilibrium profile). [read more] 952

Is charity a homogeneous good?

Peter Backus

In this paper I estimate income and price elasticities of donations to six different charitable causes to test the assumption that charity is a homogeneous good. In the US, charitable donations can be deducted from taxable income. [read more] 951

Emotional Prosperity and the Stiglitz Commission

Andrew J Oswald

This paper argues -- in line with the proposals of the recent Stiglitz Commission on the Measurement of Economic Performance and Social Progress -- that we should now be measuring a nation’s emotional prosperity rather than its economic prosperity (that is, we ought to focus on the level of mental well-being not the number of pounds in people’s bank accounts). [read more] 950

Your call : ebay and demand for the iPhone 4

Michael Waterson and Chris Doyle

The iPhone 4 was introduced into the UK market on 24th June 2010 to significant consumer interest. This clearly exceeded supply through conventional channels, since there was very extensive activity in terms of bidding on eBay auctions for the product. We monitored all eBay transactions on the iPhone 4 for six weeks from introduction, with total transactions amounting to around £1.5m. [read more] 949

How Should Financial Intermediation Services be Taxed?

Ben Lockwood

This paper considers the optimal taxation of savings intermediation and payment services in a dynamic general equilibrium setting, when the government can also use consumption and income taxes. [read more] 948

Monetary Policy and Oil Prices

Jan Hošek, Luboš Komárek and Martin Motl

This article discusses the relationship between monetary policy and oil prices and, in a broader sense, commodity prices. Firstly, it focuses on describing the relationship between key macroeconomic variables, gas prices and other commodity prices relative to oil prices. [read more] 947

What Do Outside Experts Bring To A Committee? Evidence From The Bank of England

Stephen Hansen and Michael McMahon

We test whether outside experts have information not available to insiders by using the voting record of the Bank of England's Monetary Policy Committee. Members with more private information should vote more often against conventional wisdom, which we measure as the average belief of market economists about future interest rates. [read more] 946

The Great Recession in the UK Labour Market : A Translantic Perspective

Michael W.L. Elsby and Jennifer C Smith

The increase in unemployment in the United Kingdom that accompanied the Great Recession has been conspicuous by its moderation. The rise in joblessness is dwarfed by the recent experience of the United States, by past recessionary episodes in the U.K. and by the contraction in GDP in the U.K. Increased rates of job loss have played a dominant role in shaping the rise in British unemployment. [read more] 945

The Ins and Outs of UK Unemployment

Jennifer Smith

This paper shows that in the UK, increases in unemployment in a recession are driven by rises in the separation rate. A new decomposition of unemployment dynamics is devised that does not require unemployment to be in steady state at all times. [read more] 944

Bias in the Relative Assessment of Happiness,Political Stance, Height and Weight

Eugenio Proto and Daniel Sgroi

Cognitive biases have been a recognised feature of research into human behaviour since at least Kahneman and Tversky’s ground-breaking work of the 1970s. We find that such biases extend into the realm of perceptions about relative happiness and we compare and contrast this phenomenon across three other characteristics. [read more] 943

Power Indices in Large Voting Bodies (updated)

Dennis Leech

There is no consensus on the properties of voting power indices when there are a large number of voters in a weighted voting body. On the one hand, in some real-world cases that have been studied the power indices have been found to be nearly proportional to the weights (eg the EUCM, US Electoral College). [read more] 942

Word of Mouth Advertising, Credibility and Learning in Networks

Kalyan Chatterjee and Bhaskar Dutta

Social networks representing the pattern of social interactions - who talks to or who observes whom- play a crucial role as a medium for the spread of information, ideas, diseases, products. [read more] 941

Estimation of Search Frictions in the British Electricity Market

Monica Giulietti Michael Waterson and Matthijs R. Wildenbeest

This paper studies consumer search and pricing behaviour in the British domestic electricity market following its opening to competition in 1999. We develop a sequential search model in which an incumbent and an entrant group compete for consumers who nd it costly to obtain information on prices other than from their current supplier. [read more] 940

Imperfect Competition and Efficiency in Lemons Markets

Abhinay Muthoo and Suresh Mutuswami

This paper studies the impact of competition on the degree of inefficiency in lemons markets. More precisely, we characterize the second-best mechanism (i.e., the optimal mechanism with private information) in a stylized lemons market with finite numbers of buyers and sellers. [read more] 939

Testing for spatial heterogeneity in functional MRI using the multivariate general linear model (updated)

Robert Leech and Dennis Leech

Much current research in functional MRI employs multivariate machine learning approaches (e.g., support vector machines) to detect fine-scale spatial patterns from the temporal fluctuations of the neural signal. [read more] 938

Are Happiness and Productivity Lower among University Students with Newly-Divorced Parents? An Experimental Approach

Eugenio Proto, Daniel Sgroi and Andrew J. Oswald

We live in a high-divorce age. Parents worry about the possibility of negative effects upon their children. This paper tests whether recent parental-divorce has deleterious consequences for grown children. Under controlled conditions, it measures students’ happiness with life, and their productivity in a standardized laboratory task. [read more] 937

Bundling without Price Discrimination

Andrés Carvajal, Marzena Rostek and Marek Weretka

This paper examines the optimal bundling strategies of a multiproduct monopoly in markets in which a seller cannot monitor and thereby restrict the purchases of buyers to a single bundle, while buyers have resale opportunities. [read more] 936

Priming and the Reliability of Subjective Well-being Measures

Daniel Sgroi, Eugenio Proto, Andrew J. Oswald and Alexander Dobson

Economists and behavioural scientists are beginning to make extensive use of measures of subjective well-being, and such data are potentially of value to policy-makers. [read more] 935

On the theory of a firm : The case of by-production of emissions.

Sushama Murty

Five attributes of emission generating technologies are identified and a concept of byproduction is introduced, which implies these five attributes. Murty and Russell [2010] characterization of technologies, which requires distinguishing between intended production of firms and nature's laws of emission generation, is shown to be both necessary and sufficient for by-production. [read more] 934

Control Rights in Complex Partnerships (updated)

Marco Francesconi and Abhinay Muthoo

This paper develops a theory of the allocation of authority between two players who are in a “complex” partnership, that is, a partnership which produces impure public goods. [read more] 933

Money, Mentoring and Making Friends : The Impact of a Multidimensional Access Program on Student Performance

Kevin Denny, Orla Doyle, Patricia O’Reilly and Vincent O’Sullivan

There is a well established socioeconomic gradient in educational attainment, despite much effort in recent decades to address this inequality. This study evaluates a university access program that provides financial, academic and social support to low socioeconomic status (SES) students using a natural experiment which exploits the time variation in the expansion of the program across schools. [read more] 932

On modeling pollution-generating technologies

Sushama Murty and R. Robert Russell

We distinguish between intended production and residual generation and introduce the concept of by-production. We show that by-production provides the fundamental explanation for the positive correlation that is observed between intended production and residual generation. [read more] 931

Beer - the ties that bind

Michael Waterson

It started with the Beer Orders (1989). A watershed decision was made by the Law Lords in July 2006. For one man, Bernie Crehan, this was the culmination of a 15 year episode in the pub trade, in which he has made legal history as the first UK case of damages for breach of competition law being awarded by a court. [read more] 930

International Trade without CES: Estimating Translog Gravity

Dennis Novy

This paper derives a micro-founded gravity equation in general equilibrium based on a translog demand system that allows for endogenous markups and rich substitution patterns across goods. [read more] 929

Out of Equilibrium Dynamics with Decentralized Exchange Cautious Trading and Convergence to Efficiency

Sayantan Ghosal and James Porter

Is the result that equilibrium trading outcomes are efficient in markets without frictions robust to a scenario where agents' beliefs and plans aren't already aligned at their equilibrium values? [read more] 928

Opting for Opting In? An Evaluation of the European Commission’s Proposals for Reforming VAT on Financial Services

Rita de la Feria and Ben Lockwood

This paper provides a legal and economic analysis of the European Commission’s recent proposals for reforming the application of VAT to financial services, with particular focus on their “third pillar”, under which firms would be allowed to opt-into taxation on exempt insurance and financial services. [read more] 927

Pessimistic Foreign Investors and Turmoil in Emerging Markets : The Case of Brazil in 2002

Sandro C. Andrade and Emanuel Kohlscheen

Using survey data, we document that foreign-owned institutions became more pessimistic than locally owned institutions about the strength of the Brazilian currency around the 2002 presidential elections. [read more] 926

Do reductions of standard hours affect employment transitions? : Evidence from Chile

Rafael Sánchez

This study exploits the reduction of weekly working hours from 48 to 45 occured in Chile in January 2005. We use this pure and exogenous policy change to identify the employment effects of such a policy. [read more] 925

The Interaction between Antitrust and Intellectual Property : the Interoperability Issue in the Microsoft Europe Case

Alessandro Diego Scopelliti

The present work analyzes the interaction between antitrust policy and intellectual property protection, with particular reference to the cases of refusal to supply, when it concerns ideas or inventions protected by an IP right. [read more] 924