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1035 - Collective Rationality and Monostone Path Division Rules

John Stovall

We impose the axiom Independence of Irrelevant Alternatives on division rules for the conflicting claims problem. With the addition of Consistency and Resource Monotonicity, this characterizes a family of rules which can be described in three different but intuitive ways. First, a rule is identified with a fixed monotone path in the space of awards, and for a given claims vector, the path of awards for that claims vector is simply the monotone path truncated by the claims vector. Second, a rule is identified with a set of parametric functions indexed by the claimants, and for a given claims problem, each claimant receives the value of his parametric function at a common parameter value, but truncated by his claim. Third, a rule is identified with an additively separable, strictly concave social welfare function, and for a given claims problem, the mount awarded is the maximizer of the social welfare function subject to the constraint of choosing a feasible award. This third way of describing the family of rule is similar to Lensberg's (1987) solution for bargaining problems applied to conflicting claims problems.

Date
Friday, 23 October 2015
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1034 - Globalized Market for Talents and Inequality: What Can Be Learnt from European Football?

Chrysovalantis Vasilakis

Complex interactions between high-skilled migration and aggregate performance govern the dynamics of growth and inequality across nations. Due to lack of data, these interdependencies have not been extensively studied in the economics literature. This paper takes advantage of the availability of rich panel data on the mobility of talented football players, and the performances of national leagues and teams to quantify the effect of a "globalization" shock, the 1995 Bosman rule, on global efficiency and cross-country inequality in football. I built a micro-founded model endogenizing migration decisions, inequality and training; I estimated its structural parameters; and I used numerical simulations to compare actual data with a counterfactual no-Bosman trajectory. My analysis reveals that the Bosman shock (i) increased global efficiency in football, (ii) increased inequality across leagues, and (iii) decreased inequality across national teams. I quantify the effect of the Bosman rule on the football hierarchy f UEFA and FIFA. Countries from Africa, South (except Argentina and Brazil) and Central America have produced more talents and benefitted from brain-gain type effects. My results also show that this brain-gain mechanism is the major source of efficiency gains. However, it plays only a minor role in explaining the rising inequality  

Date
Thursday, 22 October 2015
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1033 - Rationality and Dynamic Consistency under Risk and Uncertainty

Peter J. Hammond and Horst Zank

For choice with deterministic consequences, the standard rationality hypothesis is ordinality|i.e., maximization of a weak preference ordering. For choice under risk (resp. uncertainty), preferences are assumed to be represented by the objectively (resp. subjectively) expected value of a von Neumann{ Morgenstern utility function. For choice under risk, this implies a key independence axiom; under uncertainty, it implies some version of Savage's sure thing principle. This chapter investigates the extent to which ordinality, independence, and the sure thing principle can be derived from more fundamental axioms concerning behaviour in decision trees. Following Cubitt (1996), these principles include dynamic consistency, separability, and reduction of sequential choice, which can be derived in turn from one consequentialist hypothesis applied to continuation subtrees as well as entire decision trees. Examples of behavior violating these principles are also reviewed, as are possible explanations of why such violat ons are often observed in experiments.

Date
Wednesday, 21 October 2015
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1032 - The Value of Relationships: Evidence from a Supply Shock to Kenyan Rose Exports

Rocco Macchiavello and Ameet Morjaria

This paper provides evidence on the importance of reputation, intended as beliefs buyers hold about seller’s reliability, in the context of the Kenyan rose export sector. A model of reputation and relational contracting is developed and tested. We show that 1) the value of the relationship increases with the age of the relationship; 2) during an exogenous negative supply shock sellers prioritize relationships consistently with the predictions of the model; and 3) reliability at the time of the shock positively correlates with future survival and relationship value. Models exclusively focussing on enforcement or insurance considerations cannot account for the evidence.

Date
Tuesday, 20 October 2015
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1031 - Too Good to Be True: Asset Pricing Implications of Pessimism

Pablo F. Beker and Emilio Espino

We evaluate whether the introduction of pessimistic homogeneous beliefs in the frictionless Lucas-Mehra-Prescott model and the Kehoe-Levine-Alvarez-Jermann model with endogenous borrowing constraints, helps explain the equity premium, the risk-free rate and the equity volatility puzzles as well as the short-term momentum and long-term reversal of excess returns. We calibrate the model to U.S. data as in Alvarez and Jermann [4] and we find that the data does not contradict the qualitative predictions of the models. When the preferences parameters are disciplined to match both the average annual risk-free rate and equity premium, the Lucas-Mehra- Prescott model gives a more quantitatively accurate explanation for short-term momentum than the Kehoe-Levine-Alvarez-Jermann model but the latter gives a more quantitatively accurate explanation for the equity volatility puzzle. Long-term reversal remains quantitatively unexplained in both models.

Date
Monday, 19 October 2015
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1030 - Do Research Joint Ventures Serve a Collusive Function?

Michelle Sovinsky and Eric Helland

Every year thousands of firms are engaged in research joint ventures (RJV), where all knowledge gained through R&D is shared among members. Most of the empirical literature assumes members are non-cooperative in the product market. But many RJV members are rivals leaving open the possibility that firms may form RJVs to facilitate collusion. We examine this by exploiting variation in RJV formation generated by a policy change that affects the collusive benefits but not the research synergies associated with a RJV. We use data on RJVs formed between 1986 and 2001 together with firm-level information from Compustat to estimate a RJV participation equation. After correcting for the endogeneity of R&D and controlling for RJV characteristics and firm attributes, we find the decision to join is impacted by the policy change. We also find the magnitude is significant: the policy change resulted in an average drop in the probability of joining a RJV of 34% among telecommu- nications firms, 33% among computer and semiconductor manufacturers, and 27% among petroleum refining firms. Our results are consistent with research joint ventures serving a collusive function.

Date
Sunday, 18 October 2015
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1029 - Reviews, Prices and Endogenous Information Transmission

Luciana A Nicollier

Empirical evidence suggests that online reviews are an important source of consumers information and a relevant determinant of the firms revenues. Little is known, however, about how prices and reviews affect each other. This paper proposes a dynamic game to investigate this relationship. A long-lived monopoly faces a sequence of short-lived consumers whose only information about the value of an experience good is the one contained in the reviews completed by previous buyers. Neither the monopoly nor the consumers have private information about the value of the good. After buying the good, the consumers observe a quality realisation that is correlated with the actual value of the good and decide whether to complete reviews. The consumers complete reviews according to a social rule that maximises the present value of current and future consumers utility. It is shown that a necessary condition for the existence of reviews is that the rm cannot fully appropriate the surplus generated by this increased information Furthermore, the reviews induce a mean preserving spread on the posterior beliefs about the value of the good which, combined with the convexity with respect to the prior of the indirect utility and prot functions, implies that reviews are valuable for both the consumers and the firm. Hence, both parties are willing to face some cost in order to increase the information available in the market. The main result of the paper is that, from the firm's perspective, this cost takes the form of a discount in the price oered to current consumers.

Date
Saturday, 17 October 2015
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1028 - On the Origin of the Family

Marco Francesconi, Christian Ghiglino and Motty Perry

We present a game theoretic model to explain why people form life long monogamous families. Three components are essential in our framework, paternal investment, fatherhood uncertainty, and, perhaps the most distinctive feature of all, the overlap of children of dif- ferent ages. When all three conditions are present, monogamy is the most ecient form of sexual organization in the sense that it yields greater survivorship than serial monogamy, group marriage, and polygyny. Monogamy is also the only configuration that fosters altruistic ties among siblings. Finally, our result sheds light to the understanding of why most religions center around the monogamous delity family.

Date
Friday, 16 October 2015
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1027 - Productivity and the Welfare of Nations

Susanto Basu, Luigi Pascali and Fabio Schiantarelli

We show that the welfare of a country’s infinitely-lived representative consumer is summarized, to a first order, by total factor productivity (TFP) and by the capital stock per capita. These variables suffice to calculate welfare changes within a country, as well as welfare di¤erences across countries. The result holds regardless of the type of production technology and the degree of product market competition. It applies to open economies as well, if TFP is constructed using domestic absorption, instead of gross domestic product, as the measure of output. Welfare relevant TFP needs to be constructed with prices and quantities as perceived by consumers, not firms. Thus, factor shares need to be calculated using after-tax wages and rental rates, and will typically sum to less than one. These results are used to calculate welfare gaps and growth rates in a sample of advanced countries with high-quality data on output, hours worked, and capital. We also present evidence for a broader sample that includes both advaned and developing countries.

Date
Thursday, 15 October 2015
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1026 - Banks and Development: Jewish Communities in the Italian Renaissance and Current Economic Performance

Luigi Pascali

Are differences in local banking development long-lasting? Do they a¤ect long-term economic performance? I answer these questions by relying on an historical development that occurred in Italian cities during the 15th century. A sudden change in the Catholic doctrine had driven the Jews toward money lending. Cities that were hosting Jewish communities developed complex banking institutions for two reasons: first, the Jews were the only people in Italy who were allowed to lend for a profit and, second, the Franciscan reaction to Jewish usury led to the creation of charity lending institutions, the Monti di Pietà, that have survived until today and have become the basis of the Italian banking system. Using Jewish demography in 1500 as an instrument, I provide evidence of (1) an extraordinary persistence in the level of banking development across Italian cities (2) large effects of current local banking development on per-capita income. Additional firm-level analyses suggest that well-functioning local banks exert large effects on aggregate productivity by reallocating resources toward more efficient firms. I exploit the expulsion of the Jews from the Spanish territories in Italy in 1541 to argue that my results are not driven by omitted institutional, cultural and geographical characteristics. In particular, I show that, in Central Italy, the difference in current income between cities that hosted Jewish communities and cities that did not exists only in those regions that were not Spanish territories in the 16th century.

Date
Wednesday, 14 October 2015
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1025 - Financing Experimentation

Rocco Macchiavello

Entrepreneurs must experiment to learn how good they are at a new activity. What happens when the experimentation is financed by a lender? Under common scenarios, i.e., when there is the opportunity to learn by "starting small" or when "no-compete" clauses cannot be enforced ex-post, we show that financing experimentation can become harder precisely when it is more profitable, i.e., for lower values of the known-arm and for more optimistic priors. Endogenous collateral requirements (like those frequently observed in micro-credit schemes) are shown to be part of the optimal contract.

Date
Tuesday, 13 October 2015
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1024 - Implementing the "Wisdom of the Crowd"

Ilan Kremer, Yishay Mansour and Motty Perry

We study a novel mechanism design model in which agents each arrive sequentially and choose one action from a set of actions with unknown rewards. The information revealed by the principal affects the incentives of the agents to explore and generate new information. We characterize the optimal disclosure policy of a planner whose goal is to maximize social welfare. One interpretation of our result is the implementation of what is known as the "wisdom of the crowd". This topic has become increasingly relevant with the rapid spread of the Internet over the past decade.

Date
Monday, 12 October 2015
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1023 - Parliamentary Questions and the Probability of Re-election in the UK House of Commons

Luc Tucker

Members of worldwide parliaments partake in debates, where they have the opportunity to hold governments to account by asking pre-submitted questions. The UK House of Commons uses a ballot system to determine which members are selected to ask a question from those who expressed an interest in doing so. This paper is the first in the literature to exploit this randomization to show that the asking of such questions increases a member’s chances of being reelected by their constituents. It is shown that while the ordering of parliamentary questions is determined at random, the practicalities of conducting debates introduce a potentially endogenous element to the determination of which questions receive oral answers (particularly the speed at which questions are answered). This paper uses a matched sampling approach to cope with such non-random cases, but also includes alternative results, to show that the findings are not reliant on the use of this technique.

Date
Sunday, 11 October 2015
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1022 - Why Blame?

Mehmet Gurdal, Joshua B. Miller & Aldo Rustichini

We provide experimental evidence that subjects blame others based on events they are not responsible for. In our experiment an agent chooses between a lottery and a safe asset; payment from the chosen option goes to a principal who then decides how much to allocate between the agent and a third party. We observe widespread blame: regardless of their choice, agents are blamed by principals for the outcome of the lottery, an event they are not responsible for. We provide an explanation of this apparently irrational behavior with a delegated-expertise principal-agent model, the subjects’ salient perturbation of the environment.

Date
Saturday, 10 October 2015
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1021 - A Political Economy of the Separation of Electoral Origin

In democratic politics, voters delegate competing policy-making responsibilities to multiple elected agents: one agent is frequently tasked with initiating policies (the proposer) whilst the other is charged with scrutinizing and either passing or rejecting these policies (the veto player ). A fundamental distinction lies in whether both oces are subject to direct and separate election, or whether the voter instead may directly elect only one oce. Why should the voter benefit from a relatively coarse electoral instrument? When politicians' abilities are private information, actions taken by one agent provide information about both agents' types. A system in which their electoral fates are institutionally fused reduces the incentives of the veto player to build reputation through the specious rejection of the proposer's policy initiatives. This can improve the voter's welfare, relative to a system in which the survival of the veto player is institutionally separated from that of the proposer.

Date
Friday, 09 October 2015
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1020 - Defying the LATE? Identification of local treatment effects when the instrument violates monotonicity

Clement de Chaisemartin

The instrumental variable method relies on a strong no-defiers condition, which requires that the instrument affect every subject's treatment decision in the same direction. This paper shows that no-defiers can be replaced by a weaker compliers- defiers condition, which requires that a subgroup of compliers have the same size and the same distribution of potential outcomes as defiers. This condition is necessary and sucient for IV to capture causal effects for the remaining part of compliers. In many applications, compliers-defiers is a very weak condition. For instance, in Angrist & Evans (1998), 94% of DGPs compatible with the data satisfy compliers-defiers, while 0% satisfy no-defiers.

Date
Thursday, 08 October 2015
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1019 - Discrimination or Social Networks? Industrial Investment in Colonial India

Bishnupriya Gupta

Industrial investment in Colonial India was segregated by the export oriented industries, such as tea and jute that relied on British firms and the import substituting cotton textile industry that was dominated by Indian firms. The literature emphasizes discrimination against Indian capital. Instead informational factors played an important role. British entrepreneurs knew the export markets and the Indian entrepreneurs were familiar with the local markets. The divergent flows of entrepreneurship can be explained by the comparative advantage enjoyed by social groups in information and the role of social networks in determining entry and creating separate spheres of industrial investment.

Date
Wednesday, 07 October 2015
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1018 - Rearmament to the Rescue? New Estimates of the Impact of ‘Keynesian’ Policies in 1930s’ Britain

Nicholas Crafts and Terence Mills

We report estimates of the fiscal multiplier for interwar Britain based on quarterly data, time-series econometrics, and ‘defense news’. We find that the government expenditure multiplier was in the range 0.3 to 0.8, much lower than previous estimates. The scope for a Keynesian solution to recession was less than is generally supposed. We find that rearmament gave a smaller boost to real GDP than previously claimed. Rearmament may, however, have had a larger impact than a temporary public works program of similar magnitude if private investment anticipated the need to add capacity to cope with future defense spending.

Date
Tuesday, 06 October 2015
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1017 - Bidding Markets with Financial Constraints

Pablo Beker and Angel Hernando-Veciana

We develop a model of bidding markets with financial constraints a la Che and Gale (1998b) in which two firms optimally choose their budgets. First, we provide an alternative explanation for the dispersion of markups and “money left on the table” across procurement auctions. Interestingly, this explanation does not hinge on significant private information but on differences, both endogenous and exogenous, in the availability of financial resources. Second, we explain why the empirical analysis of the size of markups may be biased downwards or upwards with a bias positively correlated with the availability of financial resources when the researcher assumes that the data are generated by the standard auction model. Third, we show that large concentration and persistent asymmetries in market shares together with occasional leadership reversals can arise as a consequence of the firms internal financial decisions even in the absence of exogenous shocks.

Date
Monday, 05 October 2015
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1016 - How Beneficial Was the Great Moderation After All?

Roberto Pancrazi

In this paper I compute the welfare e¤ect of the Great Moderation, using a consumption based asset pricing model. The Great Moderation is modelled according to the data properties of consumption and dividend growth, which display a reduction of their innovation-volatility and increased persistence. The theoretical model (a long-run risk model), calibrated to match average asset pricing variables in the data, is able to capture the two features of the Great Moderation, and it predicts a welfare loss caused by the Great Moderation (-0.9 percent), due mainly to the utility cost of a late uncertainty resolution.

Date
Sunday, 04 October 2015
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1015 - Accounting for Secrets

Mark Harrison

The Soviet dictatorship used secrecy to shield its processes from external scrutiny. A system of accounting for classified documentation assured the protection of secrets. The associated procedures resemble a turnover tax applied to government transactions. There is evidence of both compliance and evasion. The burden of secrecy was multiplied because the system was also secret and so had to account for itself. Unique documentation of a small regional bureaucracy, the Lithuania KGB, is exploited to yield an estimate of the burden. Measured against available benchmarks, the burden looks surprisingly heavy.

Date
Saturday, 03 October 2015
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1014 - Fiscal Rules and Discretion under Persistent Shocks

Marina Halac and Pierre Yared

This paper studies the optimal level of discretion in policymaking. We consider a scal policy model where the government has time-inconsistent preferences with a present-bias towards public spending. The government chooses a scal rule to trade o its desire to commit to not overspend against its desire to have exibility to react to privately observed shocks to the value of spending. We analyze the optimal scal rule when the shocks are persistent. Unlike under i.i.d: shocks, we show that the ex-ante optimal rule is not sequentially optimal, as it provides dynamic incentives. The ex-ante optimal rule exhibits history dependence, with high shocks leading to an erosion of future fiscal discipline compared to low shocks, which lead to the reinstatement of discipline. The implied policy distortions oscillate over time given a sequence of high shocks, and can force the government to accumulate maximal debt and become immiserated in the long run.

Date
Friday, 02 October 2015
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1013 - Technology Persistence and Monetary Policy

Roberto Pancrazi and Marija Vukotic

In this paper, by using several statistical tools, we provide evidence of increased persistence of the U.S. total factor productivity. In a forward-looking model, agents’ optimal behavior depends on the autocorrelation structure of the exogenous shocks. Since many monetary models are driven by exogenous technology shocks, we study the implications of a change in technology persistence on monetary policy using a New Keynesian framework. First, we analytically derive the interaction between the TFP persistence, monetary policy parameters, and output gap and in‡ation. Second, we show that change in the TFP persistence a¤ects the optimal behavior of monetary policy.

Date
Thursday, 01 October 2015
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1012 - Asymmetric Parametric Division Rules

John Stovall

We describe and characterize the family of asymmetric parametric division rules for the adjudication of conflicting claims on a divisible homogeneous good. As part of the characterization, we present two novel axioms which restrict how a division rule indirectly allocates between different versions of the same claimant. We also show that such division rules can alternately be represented as the maximization of an additively separable social welfare function.

Date
Wednesday, 30 September 2015
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1011 - Constructing Social Division to Support Cooperation: Theory and Evidence from Nepal

James Choy

Many societies are divided into multiple smaller groups. The defining feature of these groups is that certain kinds of interaction are more likely to take place within a group than across groups. I build a model in which group divisions are enforced through a reputational penalty for interacting with members of different groups. Agents who interact with members of different groups find that they can support lower levels of cooperation in the future. The model explains why agents may be punished by the other members of their group for interacting with members of different groups and why agents are punished for interacting with members of some groups but not others. I test the empirical implication that there should be less cooperation among members of groups that make up a larger percentage of their communities. I discuss the origin and possible future of social division.

Date
Tuesday, 29 September 2015
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1010 - Optimal Resource Allocation in General Cournot-competitive Equilibrium

Inger Sommerfelt Ervik and Christian Soegaard

Conventional economic theory stipulates that output in Cournot competition is too low relative to that which is attained in perfect competition. We revisit this result in a General Cournot-competitive Equilibrium model with two industries that differ only in terms of productivity. We show that in general equilibrium, the more efficient industry produces too little and the less efficient industry produces too much compared to an optimal scenario with perfect competition.

Date
Monday, 28 September 2015
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1009 - Growth, Fairness and Job Satisfaction: Implications for Nominal and Real Wage Rigidity

Jennifer C Smith

Theories of wage rigidity often rely on a positive relationship between pay changes and utility, arising from concern for fairness or gift exchange. Supportive evidence has emerged from laboratory experiments, but the link has not yet been established with field data. This paper contributes a first step, using representative British data. Workers care about the level and the growth of earnings. Below-median wage increases lead to an insult effect except when similar workers have real wage reductions or firm production is falling. Nominal pay cuts appear insulting even when the firm is doing badly.

Date
Sunday, 27 September 2015
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1008 - Extending the Original Position: Revisiting the Pattanaik Critique of Vickrey/Harsanyi Utilitarianism

Peter J. Hammond

Harsanyi's original position treats personal identity, upon which each individual's utility depends, as risky. Pattanaik's critique is related to the problem of scaling \state-dependent" von Neumann{Morgenstern utility when determining subjective probabilities. But a unique social welfare functional, incorporating both level and unit interpersonal comparisons, emerges from contemplating an \extended" original position allowing the probability of becoming each person to be chosen. Moreover, the paper suggests the relevance of a \Harsanyi ethical type space", with types as both causes and objects of preference.

Date
Saturday, 26 September 2015
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1007 - An Oligopolistic Theory of Regional Trade Agreements

Christian Soegaard

Why are trade agreements regional? I address this question in a model of oligopoly featuring product variety. Tariffs have the effect of manipulating a country's terms of trade and shifting profits towards the domestic market at the expense of foreign trade partners. Countries endogenously form into regional trade agreements or global free trade in a framework where any agreement must be sustained by repeated interaction. A crucial parameter determining the degree of regionalism is product variety. I demonstrate that for a given trade cost and discount factor, increases in product variety leads to greater scope for global free trade relative to regional trade agreements.

Date
Friday, 25 September 2015
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1006 - Efficient Upgrading in Network Goods : Is Commitment Always Good?

Thanos Athanasopoulos

In this article I explore an incumbent monopolist’s incentives to upgrade in the future his durable network product in the presence of overlapping generations of customers and a potential entrant who may also sell a version of the same quality. When the incumbent has commitment power and entry cannot be deterred, he decides to withhold the upgrade when network effects are weak, as strategic complementarity between the competitors’ intertemporal pricing decisions allows him to charge sufficiently patient forward-looking consumers more in the present market. On the other hand, he commits to upgrade when network effects are strong, as there is strategic substitutability between firms ’prices. Regarding welfare, the frequency of new products is not socially optimal when the quality improvement is negligible and smaller than their adoption cost. I find that both potential or actual competition and the incumbent’s commitment power are sources of inefficiency.

Date
Thursday, 24 September 2015
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1004 - Cable Regulation in the Internet Era

Gregory S. Crawford

The market for multi-channel video programming has undergone considerable change in the last 15 years. Direct-Broadcast Satellite service, spurred by 1999 legislation that leveled the playing field with cable television systems, has grown from 3% to 33% of the U.S. MVPD (cable, satellite, and telco video) market. Telephone operators have entered in some parts of the US and online video distributors are a growing source of television viewing. This chapter considers the merits of cable television regulation in light of these developments. It surveys the dismal empirical record on the effects of price regulation in cable and the more encouraging but incomplete evidence on the benefits of satellite and telco competition. It concludes with a consideration of four open issues in cable markets: horizontal concentration and vertical integration in the programming market, bundling by both cable systems and programmers, online video distribution, and temporary programming blackouts from failed carriage negotiatio s for both broadcast and cable programming. While the distribution market is clearly now more competitive, concerns in each of these areas remain.

Date
Tuesday, 22 September 2015
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1003 - Not the Opium of the People : Income and Secularization in a Panel of Prussian Counties

Sascha O. Becker and Ludger Woessmann

The interplay between religion and the economy has occupied social scientists for long. We construct a unique panel of income and Protestant church attendance for six waves of up to 175 Prussian counties spanning 1886-1911. The data reveal a marked decline in church attendance coinciding with increasing income. The cross-section also shows a negative association between income and church attendance. But the association disappears in panel analyses, including firstdifferenced models of the 1886-1911 change, panel models with county and time fixed effects, and panel Granger-causality tests. The results cast doubt on causal interpretations of the religioneconomy nexus in Prussian secularization.

Date
Monday, 21 September 2015
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1002 - Do entrepreneurs matter?

Sascha O. Becker and Hans K.Hvide

In the large literature on firm performance, economists have given little attention to entrepreneurs. We use deaths of more than 500 entrepreneurs as a source of exogenous variation, and ask whether this variation can explain shifts in firm performance. Using longitudinal data, we find large and sustained effects of entrepreneurs at all levels of the performance distribution. Entrepreneurs strongly affect firm growth patterns of both very young firms and for firms that have begun to mature. We do not find significant differences between small and larger firms, family and non-family firms, nor between firms located in urban and rural areas,but we do find stronger effects for founders with high human capital. Overall, the results suggest that an often overlooked factor individual entrepreneurs plays a large role in affecting firm performance.

Date
Sunday, 20 September 2015
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1001 - A New Analysis of A Priori Voting Power in the IMF : Recent Quota Reforms Give Little Cause for Celebration

Dennis Leech & Robert Leech

The weighted voting system used by the International Monetary Fund creates problems of democratic legitimacy since each member's influence or voting power is not in general equal to its voting weight. Using voting power analysis to analyse both the Board of Governors and the Executive Board, we show that it tends to enhance the power of the United States at the expense of all other members. We investigate the constituency system as a form of representative democracy, idealizing it as a compound voting body, and find that it gives disproportionately large power to some smaller European countries, particularly Belgium and Netherlands. We also find that many countries are effectively disenfranchised. Separate analyses are done for 2006 and 2012, before and after recent reforms, which have been billed as being radical, enhancing the voice of the poor and emerging markets, but the effects are disappointingly small.

Date
Saturday, 19 September 2015
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1000 - EX-ANTE PRICE COMMITMENT WITH RENEGOTIATION IN A DYNAMIC MARKET

Adrian Masters and Abhinay Muthoo

This paper studies a dynamic model of a market such as a labour market in which firms post wages and search for workers but trade may occur at a negotiated wage procedure in markets characterized by match-specific heterogeneity. We study a model of a market in which, in each time period, agents on one side (e.g., sellers) choose whether or not to post a price before they encounter agents of the opposite type. After a pair of agents have encountered each other, their match-specific values from trading with each other are realized. If a price was not posted, then the terms of trade (and whether or not it occurs) are determined by bargaining. Otherwise, depending upon the agents’ match-specific trading values, trade occurs (if it does) either on the posted price or at a renegotiated price. We analyze the symmetric Markov subgame perfect equilibria of this market game, and address a variety of issues such as the impact of market frictions on the equilibrium proportion of trades that occur at a posted price rather than at a negotiated price.

Date
Friday, 18 September 2015
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999 - How Should Peer-Review Panels Behave?

Daniel Sgroi and Andrew J. Oswald

Many governments wish to assess the quality of their universities. A prominent example is the UK’s new Research Excellence Framework (REF) 2014. In the REF, peer-review panels will be provided with information on publications and citations. This paper suggests a way in which panels could choose the weights to attach to these two indicators. The analysis draws in an intuitive way on the concept of Bayesian updating (where citations gradually reveal information about the initially imperfectly-observed importance of the research). Our study should not be interpreted as the argument that only mechanistic measures ought to be used in a REF.

Date
Thursday, 17 September 2015
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998 - Public Disclosure by ‘Small’ Traders

Luca Gelsomini

We model strategic trading by a rent-seeking insider, who exchanges without being spotted, and propose a comprehensive theory of market non-anonymity. Several novel results are established. They depend on asset value proprieties, beliefs, inter-temporal choices, and investors characteristics. In equilibrium, under a regulation mandating public trade revelation, disclosures may shift prices. If they do, uninformed manipulations arise only in some instances. Specifically, insiders constrained on asset holdings earn more than they would without such a disclosure rule. Consequently, mandating disclosures is unnecessary, as informative trades will be revealed voluntarily. This result reveals a previously unexplored link to the literature on (uncertified/non-factual) announcements.

Date
Wednesday, 16 September 2015
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997 - The Value to the Environmental Movement of the New Literature on the Economics of Happiness

Andrew J. Oswald

Many environmentalists have not yet discovered and understood the value to them of a new research literature. That literature is the economics of happiness. It offers a potentially important tool for future policy debate. In particular, this literature offers a defensible way to calculate the costs and benefits of the true happiness value of ‘green’ variables – and to weigh those against the happiness value to people of extra income and consumption. Some of the latest research findings turn out to accord well with environmentalists’ intuitions: green variables seem to have large direct effects on human well-being; society would arguably be better to concentrate more on environmental aims and less on monetary or materialistic ones; greater consumption of things in Western society cannot be expected to make us much happier.

Date
Tuesday, 15 September 2015
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996 - Is Psychological Well-being Linked to the Consumption of Fruit and Vegetables?

David G. Blanchflower, Andrew J. Oswald & Sarah Stewart-Brown

Humans run on a fuel called food. Yet economists and other social scientists rarely study what people eat. We provide simple evidence consistent with the existence of a link between the consumption of fruit and vegetables and high well-being. In cross-sectional data, happiness and mental health rise in an approximately dose-response way with the number of daily portions of fruit and vegetables. The pattern is remarkably robust to adjustment for a large number of other demographic, social and economic variables. Well-being peaks at approximately 7 portions per day. We document this relationship in three data sets, covering approximately 80,000 randomly selected British individuals, and for seven measures of well-being (life satisfaction, WEMWBS mental well-being, GHQ mental disorders, self-reported health, happiness, nervousness, and feeling low). Reverse causality and problems of confounding remain possible. We discuss the strengths and weaknesses of our analysis, how government policy-makers might wish to react to it, and what kinds of further research -- especially randomized trials -- would be valuable.

Date
Monday, 14 September 2015
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995 - Subjective and Ex Post Forecast Uncertainty : US Inflation and Output Growth

Michael P. Clements

Survey respondents who make point predictions and histogram forecasts of macro-variables reveal both how uncertain they believe the future to be, ex ante, as well as their ex post performance. Macroeconomic forecasters tend to be overconfident at horizons of a year or more, but over-estimate the uncertainty surrounding their predictions at short horizons.

Date
Sunday, 13 September 2015
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994 - Noncooperative Oligopoly in Markets with a Continuum of Traders: A Limit Theorem

Francesca Busetto, Giulio Codognato and Sayantan Ghosal

In this paper, in an exchange economy with atoms and an atomless part, we analyze the Walras equilibrium allocations of the exchange economy with which relationship between the set of the Cournot-Nash equilibrium allocations of a strategic market game and the set of the it is associated. In an example, we show that, even when atoms are countably infinite, Cournot-Nash equilibria yield different allocations from the Walras equilibrium allocations of the underlying exchange economy. We partially replicate the exchange economy by increasing the number of atoms without affecting the atomless part while ensuring that the measure space of agents remains finite. We show that any sequence of Cournot-Nash equilibrium allocations of the strategic market game associated with the partially replicated exchange economies approximates a Walras equilibrium allocation of the original exchange economy.

Date
Saturday, 12 September 2015
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993 - Price flexibility in British supermarkets

Jonathan S Seaton and Michael Waterson

This paper delivers a significantly different empirical perspective on micro pricing behaviour and its impact on macroeconomic processes than previous studies. We examine a seven year period of pricing behaviour by the major British supermarkets encompassing the recession year 2008 and the partial recovery of 2009. Several of our findings run strongly counter to established empirical regularities, in particular the high overall frequency of regular or reference price changes we uncover, the greater intensity of change in more turbulent times and the numerical dominance of price falls over rises. The pricing behaviour revealed also significantly challenges the implicit assumption that prices are tracking cost changes.

Date
Friday, 11 September 2015
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992 - Measuring the administrative water allocation mechanism and agricultural amenities

Erez Yerushalmi

Many arid countries use an administrative water allocation mechanism. Quotas, price discrimination, and increasing block taris are set and enforced by prohibiting the resale of water. Critics of this mechanism argue that allocation is politicized, subjective and slow to respond, and therefore misallocates water compared to a market mechanism. However, an administrative mechanism also promotes social goals thatare not valued economically. In this paper, both positive and negative impacts of the administrative allocation are explored, using a general equilibrium model and with Israel as a case study. The model concludes that from 1995 to 2006, potable water misallocation in Israel was relatively small, on average of 5.5 percent of the potable water supply. The value of agricultural amenities is imputed at approximately 2.3 times agricultural output. At the margin, introducing a water market in Israel is not recommended, i.e., net-social welfare would fall.

Date
Thursday, 10 September 2015
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991 - Do Reservation Wages Decline Monotonically? A Novel Statistical Test

Daniel Gutknecht

This paper develops a test for monotonicity of the regression function under endogeneity. The novel testing framework is applied to study monotonicity of the reservation wage as a function of elapsed unemployment duration. Hence, the objective of the paper is twofold: from a theoretical perspective, it proposes a test that formally assesses monotonicity of the regression function in the case of a continuous, endogenous regressor. This is accomplished by combining diff erent nonparametric conditional mean estimators using either control functions or unobservable exogenous variation to address endogeneity with a test statistic based on a functional of a second order U-process. The modied statistic is shown to have a non-standard asymptotic distribution (similar to related tests) from which asymptotic critical values can directly be derived rather than approximated by bootstrap resampling methods. The test is shown to be consistent against general alternatives. From an empirical perspective, the paper provides a detailed investigation of the effect of elapsed unemployment duration on reservation wages in a nonparametric setup. This effect is difficult to measure due to the simultaneity of both variables. Despite some evidence in the literature for a declining reservation wage function over the course of unemployment, no information about the actual form of this decline has yet been provided. Using a standard job search model, it is shown that monotonicity of the reservation wage function, a restriction imposed by several empirical studies, only holds under certain (rather restrictive) conditions on the variables in the model. The test from above is applied to formally evaluate this shape restriction and it is found that reservation wage functions (conditional on different characteristics) do not decline monotonically.

Date
Wednesday, 09 September 2015
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990 - Customers' Complaints and Quality Regulation

Luciana A.Nicollier

By studying a monopoly investment decision, this paper considers the informativeness of customers complaints in contexts characterised by the absence of direct benefits and free riding incentives. Neither the consumer nor the regulator observe the firm's investment, they only observe a realisation of quality that is related to investment in a first order stochastically dominance sense. After observing quality, consumers decide whether to complain based on the difference between the realised quality and a reference point defined by their rational expectations. If a high proportion of consumers complain, the regulator punishes the firm. The paper shows that the absence of a reference point results either in no complaints in equilibrium or in the proportion of complaints being independent of the realised level of quality. The main result is that complaints are not always informative about the level of quality being delivered by the firm. Indeed, a firm might be punished despite of investment levels being high if consumers expected high quality or, on the contrary, not being punished when investing is low if consumers expected low quality. Furthermore, this lack of informativeness can be worsened by a repeated interaction between the firm and the consumers.

Date
Tuesday, 08 September 2015
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989 - Everyone Wants a Chance : Initial Positions and Fairness in Ultimatum Games

Gianluca Grimalda , Anirban Kar and Eugenio Proto

Fairness emerges as a relevant factor in redistributive preferences in surveys and experiments. We study experimentally the impact of varying the probability with which players are assigned to initial positions in Ultimatum Games (UGs). In the baseline case players have equal opportunities of being assigned the proposer position .arguably the more advantaged one in UGs. Chances become increasingly unequal across three treatments. We also manipulate the inter-temporal allocation of opportunities over rounds. We find that: (1) The more initial chances are distributed unequally, the lower the acceptance rates of a given offer; consequently, offers increase; (2) Being assigned a mere 1% chance of occupying the proposer role ompared to none, significantly increases acceptance rates and decreases offers; (3) Players accept even extreme amounts of unequal chances within each round in exchange for overall equality of opportunities across rounds. Procedural fairness both static and dynamic - has clear relevance for individuals.

Date
Monday, 07 September 2015
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988 - Life Satisfaction, Household Income and Personality Traits

Eugenio Proto and Aldo Rustichini

We show that personality traits mediate the effect of income on Life Satisfaction. The effect is strong in the case of Neuroticism, which measures the sensitivity to threat and punishment, in both the British Household Panel Survey and the German Socioeconomic Panel. Neuroticism increases the usually observed concavity of the relationship: Individuals with higher Neuroticism score enjoy income more than those with lower score if they are poorer and enjoy income less if they are richer. When the interaction between income and neuroticism is introduced, income does not have significant effect on his own. To interpret the results, we present a simple model where we assume that (i) Life Satisfaction is dependent from the gap between aspired and realized income, and this is modulated by Neuroticism and (ii) income increases in aspirations with a slope less than unity, so that the gap between aspired and realized income increase with aspirations. From the estimation of this model we argue that poorer tend to over-shoot in their aspiration, while rich tend to under-shoot. The estimation of the model also shows substantial effect of traits on income.

Date
Sunday, 06 September 2015
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987 - Identifying and characterising price leadership in British supermarkets

Jonathan S. Seaton and Michael Waterson

Price leadership is a concept that lacks precision. We propose a deliberately narrow, falsifiable, definition and illustrate its feasibility using the two leading British supermarket chains. We find both firms engaging in leadership behaviour over a range of products, with the larger being somewhat more dominant but the smaller increasing leadership activity over time. Surprisingly, more price leadership events are price reductions than price increases, but the increases are of larger monetary amounts (so average price increases over time) and the events appear not necessarily related to cost changes. Price leadership appears to play some role in price increases.

Date
Saturday, 05 September 2015
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986 - US inflation expectations and heterogeneous loss functions, 1968–2010

Michael P Clements

The recent literature has suggested that macroeconomic forecasters may have asymmetric loss functions, and that there may be heterogeneity across forecasters in the degree to which they weigh under and over-predictions. Using an individual-level analysis that exploits the SPF respondents. histogram forecasts, we find little evidence of asymmetric loss for the inflation forecasters.

Date
Friday, 04 September 2015
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985 - Testing for optimal monetary policy via moment inequalities

Laura Coroneo, Valentina Corradi and Paulo Santos Monteiro

Selecting a policy regime, commonly commitment or discretion. In this paper we propose a new procedure for testing optimal monetary policy, relying on moment inequalities that nest commitment and discretion as two special cases. The approach is based on the derivation of bounds for ination that are consistent with optimal policy under either policy regime. We derive testable implications that allow for specication tests and discrimination between the two alternative regimes. The proposed procedure is implemented to examine the conduct of monetary policy in the United States economy

Date
Thursday, 03 September 2015
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984 - Expectations and Fluctuations : The Role of Monetary Policy

Michael Rousakis

How does the economy respond to shocks to expectations? This paper addresses this question within a cashless, monetary economy. A competitive economy features producers and consumers/workers with asymmetric information. Only workers observe current productivity and hence they perfectly anticipate prices, whereas all agents observe a noisy signal about long-run productivity. Information asymmetries imply that monetary policy and consumers' expectations have real effects. Non-fundamental, purely expectational shocks are conventionally thought of as demand shocks. While this remains a possibility, expectational shocks can also have the characteristics of supply shocks: if positive, they increase output and employment, and lower ination. Whether expectational shocks manifest themselves as demand or supply shocks depends on the monetary policy pursued. Forward-looking policies generate multiple equilibria in which the role of consumers' expectations is arbitrary. Optimal policies restore the complete information equilibrium. They do so by manipulating prices so that producers correctly anticipate their revenue despite their uncertainty about current productivity. I design targets for forward-looking interest-rate rules which restore the complete information equilibrium for any policy parameters. Ination stabilization per se is typically suboptimal as it can at best eliminate uncertainty arising through prices. This offers a motivation for the Dual Mandate of central banks.

Date
Wednesday, 02 September 2015
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983 - Implementation Cycles : Investment-Specific Technological Change and the Length of Patents

Michael Rousakis

This paper shows that implementation cycles, introduced in Shleifer (1986) , are possible in the presence of capital and the absence of borrowing constraints. In a two-sector economy, patents on cost-saving ideas which take the form of investment-specic technological change arrive exogenously at a sequential, perfectly smooth rate: in odd-numbered periods, they reach a firm producing capital of type 1 and, in the even-numbered ones, a firm producing capital of type 2 . Firms can make profits out of these once. While the immediate appropriation (henceforth, \implementation") of patents is always a possibility, for accordingly formed expectations, firms can alternatively implement their patents simultaneously. This is because investment-specific technological change naturally introduces a one-period discrepancy between the time firms implement their patents and the time they receive revenue out of them. The implementation of a patent implies a sharp fall in investment which, in turn, causes a boom in current consumption. As a result, the consumption boom takes place before the wealth boom. This not only eliminates the need to smooth consumption away from the wealth boom to the period before it as conjectured, but, further, it implies that the interest rate paid when revenue is realized and wealth expands falls. Consequently, present discounted profits rise and implementation cycles can become a possibility. In a policy extension, I show that prolonging patent rights to two periods rules out \implementation cycles" and may lead to a welfare improvement.

Date
Tuesday, 01 September 2015
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982 - Markov Switching Monetary Policy in a two-country DSGE Model

Konstantinos Mavromatis

In this paper I show, using both empirical and theoretical analysis, that changes in monetary policy in one country can have important effects on other economies. My new empirical evidence shows that changes in the monetary policy behaviour of the Fed since the start of the Euro, well captured by a Markov-switching Taylor rule, have had significant effects on the behaviour of inflation and output in the Eurozone even though ECB’s monetary policy is found to be fairly stable. Using a two-country DSGE model, I examine this case theoretically; monetary policy in one of the countries (labelled foreign) switches regimes according to a Markov-switching process and this has nonnegligible effects in the other (home) country. Switching by the foreign central bank renders commitment to a time invariant interest rate rule suboptimal for the home central bank. This is because home agents expectations change as foreign monetary policy changes which affects the dynamics of home inflation and output. Optimal policy in the home country instead reacts to the regime of the foreign monetary policy and so implies a time-varying reaction of the home Central Bank. Following this time-varying optimal policy at home eliminates the effects in the home country of foreign regime shifts, and also reduces dramatically the effects in the foreign country. Therefore, changes in foreign monetary regimes should not be neglected in considering monetary policy at home.

Date
Monday, 31 August 2015
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981 - Smithian Growth Through Creative Organization

Patrick Legros, Andrew F. Newman & Eugenio Proto

We consider a model in which appropriate organization fosters innovation, but because of contractibility problems, this benet cannot be internalized. The organizational design element we focus on is the division of labor, which as Adam Smith argued, facilitates invention by observers of the production process. However, entrepreneurs choose its level only to facilitate monitoring their workers. Whether there is innovation depends on the interaction of the markets for labor and for inventions. A high level of specialization is chosen when the wage share is low. But low wage shares arise only when there are few entrepreneurs, which limits the market for innovations therefore and discourages inventive activity. When there are many entrepreneurs, the innovation market is large, but the rate of invention is low because there is little specialization.Rapid technological progress therefore requires a balance between these opposing effects, which occurs with a moderate relative scarcity of entrepreneurs and workers. In a dynamic version of the model in which a credit constraint limits entry into entrepreneurship, this relative scarcity depends on the wealth distribution, which evolves endogenously. There is an inverted-U relation between growth rates driven by innovation and the level of inequality. Institutional improvements have ambiguous effects on growth. In light of the model, we offer a reassessment of the mechanism by which organizational innovations such as the factory may have spawned the industrial revolution.

Date
Sunday, 30 August 2015
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980 - The Impact of “Rollover” Contracts on Switching Costs in the UK Voice Market: Evidence from Disaggregate Customer Billing Data

Gregory S. Crawford, Nicola Tosini, and Keith Waehrer

In February 2008, British Telecommunications (BT) introduced automatically renewing, or "rollover", contracts into the UK market for fixed-voice telephone service. These contracts included a 12-month Minimum Contract Period (MCP) with associated Early Termination Charges (ETCs). Unless customers opted out, at the end of the 12 months they would automatically be rolled over into a new MCP and face new ETCs if they later wished to leave BT. Using a unique, disaggregate, customer billing dataset, we measure the impact of rollover contracts on BT customers’ decision to switch to another provider. We find that, controlling for the effects of tenure, broadband purchase, price discounts, and self-selection, rollover households switch after their first MCP 34.8% (54.8%) less than comparable customers on standard plans (fixed-term contracts). These imply rollover contracts induce switching costs on the order of 33.0% of the monthly price of the average BT fixed-voice telephone service. This raises significant concerns about the competitive effects of such contracts in media and telecommunications markets.

Date
Saturday, 29 August 2015
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979 - Endogenous Product Choice: A Progress Report

Gregory S. Crawford

Empirical models of differentiated product demand are widely used by both aca- demics and practitioners. While these methods treat carefully the potential endogene- ity of price, until recently they have assumed the number and characteristics of the products offered by firms are exogenous. This paper presents a progress report on an ongoing research agenda to address this issue. First, it summarizes how the appropriate choice of "orthogonal" instruments can yield consistent estimates of own and cross-price elasticities in the presence of endogenous product characteristics. Second, it summarizes how to measure "quality markups" and the welfare consequences of endogenous prod- uct quality in U.S. cable television markets. Related papers and extensions to consider multiple product characteristics and dynamics are also discussed.

Date
Friday, 28 August 2015
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978 - Self-Centered Beliefs : An Empirical Approach

Eugenio Proto and Daniel Sgroi

We perform an experiment designed to assess the accuracy of beliefs about distributions. The beliefs relate to behavior (mobile phone purchasing decisions, hypothetical restaurant choices), attitudes (happiness, politics) and observable characteristics (height, weight) and are typically formed through real world experiences. We find a powerful and ubiquitous bias in perceptions that is \self-centered" in the sense that an individual's beliefs about the population distribution changes with their own position in the distribution. In particular, those at extremes tend to perceive themselves as closer to the middle of the distribution than is the case. We discuss possible explanations for this bias.

Date
Thursday, 27 August 2015
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977 - The Household Effects of Government Spending

Francesco Giavazzi and Michael McMahon

This paper provides new evidence on the effects of fiscal policy by studying, using household-level data, how households respond to shifts in government spending. Our identification strategy allows us to control for time-specific aggregate effects, such as the stance of monetary policy or the U.S.-wide business cycle. However, it potentially prevents us from estimating the wealth effects associated with a shift in spending. We find significant heterogeneity in households' response to a spending shock; the effects appear vary over time depending, among other factors, on the state of business cycle and, at a lower frequency, on the composition of employment (such as the share of workers in part-time jobs). Shifts in spending could also have important distributional effects that are lost when estimating an aggregate multiplier. Heads of households working relatively few (weekly) hours, for instance, suffer from a spending shock of the type we analyzed: their consumption falls, their hours increase and their real wages fall.

Date
Wednesday, 26 August 2015
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976 - Probability Distributions or Point Predictions? Survey Forecasts of US Output Growth and Inflation

Michael P Clements

We consider whether survey respondents.probability distributions, reported as histograms, provide reliable and coherent point predictions, when viewed through the lens of a Bayesian learning model, and whether they are well calibrated more generally. We argue that a role remains for eliciting directly-reported point predictions in surveys of professional forecasters.

Date
Tuesday, 25 August 2015
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975 - Pricing in inflationary times- the penny drops

Ratula Chakraborty, Paul Dobson, Jonathan S. Seaton and Michael Waterson

We investigate micro pricing behaviour in groceries (the UK’s most important consumer market) over eight years including the inflationary period of early 2008. We find behaviour sharply distinguished from most previous work, namely that overall basket prices rise but more individual prices fall than rise! This is consistent with retailers obscuring the fact of rising basket prices. We employ a significant new source of data that captures cross-competitor interplay in prices at a very detailed level. Unusually but importantly, our work takes into account that consumers buy baskets of goods, rather than individual products, when shopping at supermarkets

Date
Monday, 24 August 2015
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973 - Context and Decision: Utility on a Union of Mixture Spaces

Patrick O’Callaghan

Suppose a decision-maker is willing to make statements of the form: “I prefer to choose alternative a when in context p, than to choose alternative b when in context q”. Contexts p and q may refer to given probability distributions over a set of states, and b and c to alternatives such as: “turn left” or “turn right” at a junction. In such decision problems, the set of alternatives is discrete and there is a continuum of possible contexts. I assume there is a is a mixture operation on the space of contexts (eg. convex combinations of lotteries), and propose a model that defines preferences over a collection of mixture spaces indexed by a discrete set. The model yields a spectrum of possibilities: some decision-makers are well represented by a standard von Neumann–Morgenstern type of utility function; whilst for others, utility across some or all the mixture spaces is only ordinally comparable.An application to the decision problem of Karni and Safra (2000) leads to a generalization, and shows that state-dependence and comparability are distinct concepts. A final application provides a novel way of modeling incomplete preferences and explaining the Allais paradox.

Date
Saturday, 22 August 2015
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972 - Credibility and Strategic Learning in Networks

Kalyan Chatterjee and Bhaskar Dutta

This paper studies a model of diffusion in a fixed, finite connected network. There is an interested party that knows the quality of the product or idea being propagated and chooses an implant in the network to influence other agents to buy or adopt. Agents are either innovators, who adopt immediately, or rational. Rational consumers buy if buying rather than waiting maximizes expected utility. We consider the conditions on the network under which efficient diffusion of the good product with probability one is a perfect Bayes equilibrium. Centrality measures and the structure of the entire network are both important. We also discuss various inefficient equilibria

Date
Friday, 21 August 2015
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971 - Which Impulse Response Function?

David Ronayne

This paper compares standard and local projection techniques in the production of impulse response functions both theoretically and empirically. Through careful selection of a structural decomposition, the comparison continues to an application of US data to the textbook ISLM model. It is argued that local projection techniques offer a remedy to the bias of the conventional method especially at horizons longer than the vector autoregression‘s lag length. The application highlights that the techniques can have different answers to important questions.

Date
Thursday, 20 August 2015
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970 - Maternal Autonomy and the Education of the Subsequent Generation : Evidence from three contrasting states in India

Marco Alfano, Wiji Arulampalam and Uma Kambhampati

This paper makes a significant contribution on both conceptual and methodological fronts, in the analysis of the effect of maternal autonomy on school enrolment age of children in India. The school entry age is modelled using a discrete time duration model where maternal autonomy is entered as a latent characteristic, and allowed to be associated with various parental and household characteristics which also conditionally affect school entry age. The model identification is achieved by using proxy measures collected in the third round of the National Family Health Survey of India, on information relating to the economic, decision-making, physical and emotional autonomy of a woman. We concentrate on three very different states in India – Andhra Pradesh, Kerala and Uttar Pradesh. Our results indicate that female autonomy is not associated with socio-economic characteristics of the woman or her family in Kerala (except maternal education), while it is strongly correlated to these characteristics in both Andhra Pradesh and Uttar Pradesh. Secondly, while female autonomy is significant in influencing the school starting age in UP, it is less important in AP and not significant at all in Kerala.

Date
Wednesday, 19 August 2015
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969 - Laboratory Games and Quantum Behaviour: The Normal Form with a Separable State Space

Peter J Hammond

The subjective expected utility (SEU) criterion is formulated for a particular four-person “laboratory game” that a Bayesian rational decision maker plays with Nature, Chance, and an Experimenter who influences what quantum behaviour is observable by choosing an orthonormal basis in a separable complex Hilbert space of latent variables. Nature chooses a state in this basis, along with an observed data series governing Chance’s random choice of consequence. When Gleason’s theorem holds, imposing quantum equivalence implies that the expected likelihood of
any data series w.r.t. prior beliefs equals the trace of the product of appropriate subjective density and likelihood operators.

Date
Tuesday, 18 August 2015
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968 - False Consensus in Economic Agents

Eugenio Proto and Daniel Sgroi

In an incentivized experiment we identify a powerful and ubiquitous bias: individuals regard their own characteristics and choices as more common than is the case. We establish this \false consensus" bias in terms of happiness, political
stance, mobile phone brand and on the attitude to deference in a hypothetical restaurant choice, and show that it is not limited to the distribution of hard to observe characteristics and choices but also to weight and height. We also show that the bias is not driven by the fact that the tallest, happiest, most left/right-wing, etc. are more salient.

Date
Monday, 17 August 2015
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967 - A Rough Examination of the value of gas storage

Monica Giulietti, Luigi Grossi and Michael Waterson

This paper studies the impact of a re in 2006 which removed the possibility of access to the Rough gas storage facilities covering over 80% of total UK storage, at a time when major withdrawals from storage would have likely taken place. Implicitly, it shows the value of such gas storage facilities, in a country with relatively little storage, where we might therefore see a considerable impact. We find that the major effect on activity was through an increased sensitivity of supply to prices and an increased variance in this sensitivity, not through physical shortages of gas.

Date
Sunday, 16 August 2015
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966 - Knocking on Heaven’s Door? Protestantism and Suicide

Sascha O. Becker and Ludger Woessmann

We model the effect of Protestant vs. Catholic denomination in an economic theory of suicide, accounting for differences in religious-community integration, views about man’s impact on God’s grace, and the possibility of confessing sins. We test the theory using a unique micro-regional dataset of 452 counties in 19th century Prussia, when religiousness was still pervasive. Our instrumental-variable model exploits the concentric dispersion of Protestantism around Wittenberg to circumvent selectivity bias. Protestantism had a substantial positive effect on suicide in 1816-21 and 1869-71. We address issues of bias from mental illness, misreporting, weather conditions, within-county heterogeneity, religious concentration, and gender composition.

Date
Saturday, 15 August 2015
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965 - Wage Inequality, Minimum Wage Effects and Spillovers

Mark B. Stewart

This paper investigates possible spillover effects of the UK minimum wage. The halt in the growth in inequality in the lower half of the wage distribution (as measured by the 50:10 percentile ratio) since the mid 1990s, in contrast to the continued inequality growth in the upper half of the distribution, suggests the possibility of a minimum wage effect and spillover effects on wages above the minimum. This paper analyses individual wage changes, using both a difference-in-differences estimator and a specification involving cross-uprating comparisons, and concludes that there have not been minimum wage spillovers. Since the UK minimum wage has always been below the 10th percentile, this lack of spillovers implies that minimum wage changes have not had an effect on the 50:10 percentile ratio measure of inequality in the lower half of the wage distribution.

Date
Friday, 14 August 2015
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963 - How Experts Decide : Identifying Preferences versus Signals from Policy Decisions

Stephen Hansen and Michael McMahon

Consider an expert who must take one of two decisions whose consequences are uncertain. Two individual characteristics can potentially guide her decision. First, there are her preferences over the outcomes associated with each decision. Second, in an idea going back to Condorcet (1785), she might receive private signals that allow her to update her beliefs about the probabilities of the dierent outcomes being realized. Many papers in the theory literature, especially in the area of committees,1 explicitly model both dimensions and allow each to in uence decision making.

Date
Wednesday, 12 August 2015
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962 - The role of worker flows in the dynamics and distribution of UK unemployment

Michael W. L. Elsby, Jennifer C. Smith and Jonathan Wadsworth

Unemployment varies substantially over time and across subgroups of the labour market. Worker flows among labour market states act as key determinants of this variation. We examine how the structure of unemployment across groups and its cyclical movements across time are shaped by changes in labour market flows. Using novel estimates of flow transition rates for the UK over the last 35 years, we decompose unemployment variation into parts accounted for by changes in rates of job loss, job finding and flows via non-participation. Close to two-thirds of the volatility of unemployment in the UK over this period can be traced to rises in rates of job loss that accompany recessions. The share of this inflow contribution has been broadly the same in each of the past three recessions. Decreased job-finding rates account for around one-quarter of unemployment cyclicality and the remaining variation can be attributed to flows via non-participation. Digging deeper into the structure of unemployment by gender, age and education, the flow-approach is shown to provide a richer understanding of the unemployment experiences across population subgroups.

Date
Tuesday, 11 August 2015
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961 - Nonclassical Measurement Error in a Nonlinear (Duration) Model

Daniel Gutknecht

In this paper, we study nonclassical measurement error in the continuous dependent variable of a semiparametric transformation model. The latter is a popular choice in practice nesting various nonlinear duration and censored regression models. The main complication arises because we allow the (additive) measurement error to be correlated with a (continuous) component of the regressors as well as with the true, unobserved dependent variable itself. This problem has not yet been studied in the literature, but we argue that it is relevant for various empirical setups with mismeasured, continuous survey data like earnings or durations. We develop a framework to identify and consistently estimate (up to scale) the parameter vector of the transformation model. Our estimator links a two-step control function approach of Imbens and Newey (2009) with a rank estimator similar to Khan (2001) and is shown to have desirable asymptotic properties. We prove that `m out of n' bootstrap can be used to obtain a consistent approximation of the asymptotic variance and study the estimator's nite sample performance in a Monte Carlo Simulation. To illustrate the empirical usefulness of our procedure, we estimate an earnings equation model using annual data from the Health and Retirement Study (HRS). We find some evidence for a bias in the coecients of years of education and age, emphasizing once again the importance to adjust for potential measurement error bias in empirical work.

Date
Monday, 10 August 2015
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960 - Incentive Schemes for Local Government : Theory and Evidence from Comprehensive Performance Assessment in England (updated)

Ben Lockwood and Francesco Porcelli

This paper studies Comprehensive Performance Assessment, an explicit incentive scheme for local government in England. Motivated by a simple theoretical political agency model, we predict that CPA should increase service quality and local taxation, but have an ambiguous effect on the efficiency of service provision. We test these predictions using a difference in difference approach, using Welsh local authorities as a control group, exploiting the fact that local authorities in Wales were not subject to the same CPA regime. To do this, we construct original indices of service quality and efficiency, using Best Value Performance Indicators. We estimate that CPA increased the e¤ective band D council tax rate in England relative to Wales by 4%, and increased our index of service quality output also by about 4%, but had no signi…cant effect on our efficiency indices. There is evidence of heterogenous e¤ects of CPA on efficiency, with some evidence that CPA impacted more on less efficient councils, and the "harder test" from 2005-8 having a much bigger effect.

Date
Sunday, 09 August 2015
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959 - Understanding the macroeconomic effects of working capital in the United Kingdom

Emilio Fernandez-Corugedo, Michael McMahon, Stephen Millard and Lukasz Rachel

In this paper we rst document the behaviour of working capital over the business cycle stressing the large negative effect of the recent credit contraction on UK firms working capital positions. In order to understand the effects of working capital on macroeconomic variables, we solve and calibrate an otherwise standard exibleprice DSGE model that introduces an explicit role for the components of working capital as well as a banking sector which intermediates credit. We find that financial intermediation shocks, similar to those experienced post-2007, have persistent negative effcts on economic activity; these effects are reinforced by reductions in trade credit. Our model admits a crucial role for monetary policy to oset such shocks.

Date
Saturday, 08 August 2015
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958 - Quantile estimates of counterfactual distribution shifts and the impact of minimum wage increases on the wage distribution

Mark B. Stewart

This paper presents a method for estimating the effects of a policy change on an outcome distribution that uses a comparator quantile rather than a control group and provides methods for estimating the variances of the estimators. The empirical analysis presents estimates of “spillover” effects of increases in the UK minimum wage, i.e. effects on the wages of those already above the minimum, under different counterfactual distribution shift assumptions. Evidence is presented against a simple scaled counterfactual. On the basis of the proposed counterfactual estimated spillover effects are small and in most cases do not reach above the 5th. percentile.

Date
Friday, 07 August 2015
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957 - Individual Welfare and Subjective Well-Being : Commentary Inspired by Sacks, Stevenson and Wolfers

Peter J. Hammond, Federica Liberini and Eugenio Proto

Sacks, Stevenson and Wolfers (2010) question earlier results like Easterlin's showing that long-run economic growth often fails to improve individuals' average reports of their own subjective well-being (SWB). We use World Values Survey data to establish that the proportion of individuals reporting happiness level h, and whose income falls below any fixed threshold, always diminishes as h increases. The implied positive association between income and reported happiness suggests that it is possible in principle to construct multi-dimensional summary statistics based on reported SWB that could be used to evaluate economic policy.

Date
Thursday, 06 August 2015
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956 - Do Professional Forecasters Pay Attention to Data Releases?

Michael P. Clements

We present a novel approach to assessing the attentiveness of professional forecasters to news about the macroeconomy. We fi…nd evidence that professional forecasters, taken as a group, do not always update their estimates of the current state of the economy to refl‡ect the latest releases of revised estimates of key data.

Date
Wednesday, 05 August 2015
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955 - 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. These new devices explicitly model the `thinking process' of the device, i.e. the manner in which it generates outputs conditional on inputs. We proceed to endow these devices with both information processing errors, in the form of non-partitional information, and multiple transition and prior distributions, and prove that these two properties are equivalent in this context, thereby generalizing the result of Brandenburger, Dekel and Geanakoplos (1988).
We proceed to discuss the Revelation Principle for each device, and conclude by nesting a certain class of `cheap-talk' equilibria of the underlying game within Bayesian communication equilibria.

Date
Tuesday, 04 August 2015
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954 - 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. Both characteristics on average tend to enhance forecast accuracy. At the level of the individual forecasts, there is scant evidence that the second characteristic enhances forecast accuracy, and the average accuracy of the individual forecasts can be improved by applying a mechanical correction.

Date
Monday, 03 August 2015
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953 - 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. Forecast accuracy is improved by reorganizing the data vintages employed in the estimation of the model in such a way that the vintages used in estimation are of a similar maturity to the data in the forecast loss function. The size of the expected reductions in mean squared error depend on the characteristics of the data revision process. Empirically, we find RMSFE gains of 2-4% when forecasting output growth and inflation with AR models, and gains of the order of 8% with ADL models.

Date
Sunday, 02 August 2015
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952 - 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). We show that every equilibrium (within a large class) is p-stable for some p < 1 and justify, in smooth settings, the intuition that the slope of the best response map is related to the stability of equilibrium. We show that adding incomplete information on fundamentals could decrease the degree of strategic stability. In two applications to large markets we (i) show that a unique equilibrium globally unstable (under tâtonnement dynamics) has, nevertheless, a measure of strategic stability, (ii) characterize the conditions under which enhanced equilibrium effi ciency results in decreased strategic stability.

Date
Saturday, 01 August 2015
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951 - 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. This has long been recognized as producing a price, or taxprice, of giving equal to one minus the marginal tax rate faced by the donor. A substantial portion of the economic literature on giving has focused on estimating price and income elasticities of giving as the received wisdom suggests that a price elasticity greater than unity is indicative of the ‘treasury efficiency’ of the tax deductibility of charitable contributions, as the loss to tax revenue is less than the increase in giving. However, a major limitation of nearly all the previous attempts to identify such effects has been the implicit assumption that charity is a homogeneous good, meaning giving to one type of charity is a perfect substitute for any other and that the causespecific responsiveness of giving to changes in price and income is equal across those causes. If this assumption is violated, then estimates may be biased and policies designed to increase charitable contributions may be sub-optimal. Results suggest that the tax-price of giving only affects giving to religious organisations and that the income effect is invariant over charitable causes.

Date
Friday, 31 July 2015
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950 - 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). The paper reviews recent ideas in this field. It also describes seven recent studies that, worryingly, suggest that emotional prosperity may be declining through time. For labour-market specialists, a key question for future research is how much this downward trend can be traced back to increased pressures in working life. That question currently remains open.

Date
Thursday, 30 July 2015
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949 - 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. We analyse determinants of the winning bid in terms of characteristics of the phone, the seller and the buyer. Our most notable and novel finding relative to previous studies is a very significant premium over list price being paid in almost all cases, with positive uplift factors including whether the phone was unlocked and whether it could be sold overseas. Demand fell over time, as evidenced by lower achieved prices, but the fall in price was relatively modest. A significant premium of 32GB over 16GB versions is revealed.

Date
Wednesday, 29 July 2015
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948 - 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. When payment services are used in strict proportion to final consumption, and the cost of intermediation services is fixed and the same across firms, the optimal taxes are generally indeterminate. But, when firms differ exogenously in the cost of intermediation services, the tax on savings intermediation should be zero. Also, when household time and payment services are substitutes in transactions, the optimal tax rate on payment services is determined by the returns to scale in the conditional demand for payment services, and is generally different to the optimal rate on consumption goods. In particular, with constant returns to scale, payment services should be untaxed. These results can be understood as applications of the Diamond-Mirrlees production effciency theorem. Finally, as an extension, we endogenize intermediation, in the form of monitoring, and show that it may be oversupplied in equilibrium when banks have monopoly power, justifying a Pigouvian tax in this case.

Date
Tuesday, 28 July 2015
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947 - 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. Subsequently, it discusses the existence of “transmission channels” through which monetary policy can be propagated to oil prices (or prices of commodities). It then provides an insight into the CNB’s forecasting process, both by looking retrospectively at the oil price outlook in the past and by analysing a transitory and a permanent shock (a rise in the oil price of USD 30/b). The simulated oil price shock is calculated from the average level of Brent oil prices in the first quarter of 2010, i.e. USD 77.50/b.

Date
Monday, 27 July 2015
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946 - 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. We find evidence that external members indeed have information not available to internals, but also use a quasi-natural experiment to show they may exaggerate their expertise to obtain reappointment. This implies that an optimal
committee, even outside monetary policy, should potentially include outsiders, but needs to manage career concerns.

Date
Sunday, 26 July 2015
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945 - 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. Unemployment duration has not increased to the levels seen in previous recessions, in contrast to the U.S. where duration substantially exceeds previous peaks. Looking forward, the U.K. labour market appears to have adjusted fully to the shocks that prompted the recession. Signs of reductions in match efficiency witnessed recently in the U.S. are not mirrored in the U.K. In contrast, while long-term unemployment currently remains well below historical levels, recent estimates of job finding rates suggest that it has the potential to rise much further. Thus, a timely recovery in aggregate demand will play an important role in averting persistently high unemployment in the future.

Date
Saturday, 25 July 2015
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944 - 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. This is important because low UK transition rates –one quarter the size of the US –imply substantial deviation of unemployment from steady state near cyclical turning points. In periods of moderation, the job finding rate is shown to have most influence on UK unemployment dynamics. Evidence comes from the first study of monthly data derived from individuals’ labour market spells recorded in the British Household Panel Survey from 1988 to 2008.

Date
Friday, 24 July 2015
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943 - 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: height, weight and political stance. Our findings indicate a powerful and consistent bias in the way individuals perceive their place in the population distribution. In particular, those at extremes perceive a population distribution that is incorrectly and heavily biased towards themselves, irrespective of whether the characteristic is objective and easily observed or not.

Date
Thursday, 23 July 2015
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942 - 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). This is true for both the Penrose-Banzhaf and the Shapley-Shubik indices. It has been suggested that this is a manifestation of a conjecture by Penrose (known subsequently as the Penrose limit theorem, that has been shown to hold under certain conditions). On the other hand, we have the older literature from cooperative game theory, due to Shapley and his collaborators, showing that, where there are a finite number of voters whose weights remain constant in relative terms, and where the quota remains constant in relative terms, while the total number of voters increases without limit - so called oceanic games - the powers of the voters with finite weight tend to limiting values that are, in general, not proportional to the weights. These results, too, are supported by empirical studies of large voting bodies (eg. the IMF/WB boards, corporate shareholder control). This paper proposes a restatement of the Penrose Limit theorem and shows that, for both the power indices, convergence occurs in general, in the limit as the Laakso-Taagepera index of political fragmentation increases. This new version reconciles the dierent theoretical and empirical results that have been found for large voting bodies.

Date
Wednesday, 22 July 2015
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941 - 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. Someone in the population may be struck with an infection or may adopt a new technology, and it can then either die out quickly or spread throughout the population, depending possibly on the location of the initial appearance, the structure of the network - for instance, how dense it is. The dynamics of adoption -the extent to which individuals are influenced by their neighbours, the impact of "word-of- mouth" communication- also plays a role in determining the speed of diusion. Given the large range of contexts in which social learning is important, it is not surprising that researchers from various disciplines have studied processes of diffusion from a variety of perspectives.

Date
Tuesday, 21 July 2015
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940 - 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 find it costly to obtain information on prices other than from their current supplier. We use a large data set on prices and input costs to structurally estimate the model. Our estimates indicate that consumer search costs must be relatively high in order to rationalize observed pricing patterns. We confront our estimates with observed switching behaviour and find they match well.

Date
Monday, 20 July 2015
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939 - 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. We then study the relationship between the degree of efficiency of the second-best mechanism and market competitiveness. The relationship between the first-best and second-best mechanisms is also explored.

Date
Sunday, 19 July 2015
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938 - Testing for spatial heterogeneity in functional MRI using the multivariate general linear model (updated)

Robert Leech and Dennis Leech

Much current research in functional magnetic resonance imaging (fMRI) employs multivariate machine learning approaches (e.g., support vector machines) to detect distributed spatial patterns from the temporal fluctuations of the neural signal. The aim of many studies is not classification, however, but investigation of multivariate spatial patterns, which pattern classifiers detect only indirectly. Here we propose a direct statistical measure for the existence of distributed spatial patterns (or spatial heterogeneity) applicable to fMRI datasets. We extend the univariate general linear model (GLM), typically used in fMRI analysis, to a multivariate case. We demonstrate that contrasting maximum likelihood estimations of different restrictions on this multivariate model can be used to estimate the extent of spatial heterogeneity in fMRI data. Under asymptotic assumptions inference can be made with reference to the 2 distribution. The test statistic is then assessed using simulated timecourses derived from real fMRI data followed by analyzing data from a real fMRI experiment. These analyses demonstrate the utility of the proposed measure of heterogeneity as well as considerations in its application. Measuring spatial heterogeneity in fMRI has important theoretical implications in its own right and may have potential uses for better characterising neurological conditions such as stroke and Alzheimer’s disease

Date
Saturday, 18 July 2015
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937 - 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. No negative effects from divorce can be detected. If anything, happiness and productivity are greater, particularly among males, if they have experienced parental divorce. Using longitudinal BHPS data -- to control for fixed effects -- we crosscheck this result on happiness. Again, the evidence suggests that young people’s mental well-being improves after parental divorce.

Date
Friday, 17 July 2015
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936 - 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. In such markets, the standard mechanism through which bundling increases seller profits, based on price discrimination, is not feasible. The profit-maximizing bundling strategy is characterized, given the restrictions on pricing policies resulting from resale and a lack of monitoring. The welfare implications of optimal bundling are analyzed.

Date
Thursday, 16 July 2015
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