Working papers
2002 (including abstracts) |
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Federal fiscal relations in Australia - 2001 Bob Searle This Paper provides
a detailed description of fiscal federal relations in Australian. |
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The Australian
fiscal equalisation system and capital transaction Bob Searle This Paper examines
how best to integrate the assessment of recipient governments' relative
needs for the funding of capital into an overall assessment of needs
for grant distribution aimed at the equalisation of fiscal capacities.
It is based on the assessment processes of the Commonwealth Grants Commission
in Australia and discusses how those processes might best be extended
to include the States' capital funding requirements. |
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"Rain Follows
the Plow" and Dryfarming Doctrine: Gary D. Libecap and Zeynep Kocabiyik Hansen In the late 19th and early
20th centuries, the North American agricultural frontier moved into
semi-arid regions of the Great Plains where farming was vulnerable to
drought. Farmers who migrated to the region had to adapt their crops,
techniques, and farm sizes to better fit the environment. But there
was very incomplete information for making these adjustments, and ultimately
they were insufficient: too many small, dry-land wheat farms were founded,
only to be abandoned in the midst of drought. Two episodes of homestead
settlement and collapse in western Kansas in 1893-94 and in eastern
Montana in 1917-21 are examined. We go beyond the existing literature
by explicitly detailing the weather information problem facing settlers
and showing precisely why widespread homestead failure occurred. We
present a Bayesian learning model to indicate how new climate information
was incrementally incorporated to revise views of agricultural prospects.
Primary data are used to show the lagged response of homesteaders to
new drought information and to illustrate the differential impact of
drought on small farms. Dryfarming doctrine arose as a solution to the
problems faced by farmers in the region. Despite its optimistic claims,
it was an imperfect response to drought. Indeed, some dryfarming practices
increased the likelihood of homestead failure. |
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Transactions Costs and Coalition Stability under Majority Rule. Ronald N. Johnson and Gary D. Libecap In this paper we examine the discrepancy between theoretical predictions of unstable majorities and observed stability. Minimum winning coalitions divide program benefits among their members, creating incentives for those left out to entice defection by offering rewards to those who leave and form a different coalition. New coalitions emerge, leading to cyclical majorities, short-term programs, and highly skewed distributions of program benefits. Empirical evidence, however, reveals much more program continuity and equal allocations than the theory suggests. We offer additional evidence of broad, stable sharing in many programs enacted by Congress by describing interstate distributions from the Federal Highway Trust Fund (HTF). The allocation formula for the HTF was initiated in 1916, but despite wide divergence across the states in growth of various economic factors over the rest of the twentieth century there were comparatively limited HTF allocation adjustments. We also examine overall federal expenditure and tax shares among the states from 1975 to 1997 and show that there has been a similar continuity in the interstate distribution of federal funds and taxes. To understand this observed stability and use of relatively egalitarian sharing rules, we emphasize the desire of politicians to minimize the high transactions costs of negotiating and enforcing political coalitions. Politicians have incentive to prevent unraveling of political agreements in order to avoid the costs of searching for new coalition partners, reaching agreement on the nature and distribution of program benefits and costs, and verifying compliance. Moreover, legislators seek to protect constituent benefits accruing from long-term programs that would be lost if coalitions unraveled. Accordingly, we argue that politicians assemble greater than minimum-sized coalitions to build broad political support for their legislative programs, offering benefits to a larger constituency in exchange for additional votes. Considerable negotiation over the distribution of program benefits and costs may be required, so that once agreements are reached, politicians will be loath to consider a major reallocation that could undermine the coalition. |
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Multivariate Option Pricing with Copulas Umberto Cherubini and Elisa Luciano In this paper we suggest the adoption of copula functions in order to price multivariate contingent claims. Copulas enable us to imbed the marginal distributions extracted from vertical spreads in the options markets in a multivariate pricing kernel. We prove that such kernel is a copula function, and that its super -replication strategy is represented by the Fréchet bounds. As applications, we provide prices for binary digital options, options on the minimum and options to exchange one asset for another. For each of these products, we provide no-arbitrage pricing bounds, as well as the values consistent with independence of the underlying assets. As a final reference value, we use a copula function calibrated on historical data. |
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Pricing Vulnerable Options with Copulas Umberto Cherubini and Elisa Luciano In this paper we apply a copula function pricing technique to the evaluation of vulnerable options, i.e. options with counterpart risk. Using copulas enables to separate the specification of marginal distributions and the dependence structure of the events of exercise of the option and default of the counterpart. Our proof that counterpart risk is evaluated as a copula function is based on no-arbitrage arguments only. This makes our results directly applicable to incomplete market models. Also, the no-arbitrage arguments provide easy-to-implement super-replication strategies. We study digital, call and put options with counterpart risk. Furtehr, we price a credit derivative contract, namely a default put option. We calibrate the models on real market data, using a mixing copula, which provides closed form pricing formulas. |
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Globalization and its disconnects Simon Teitel Globalization, defined in economic terms as the phenomenon of increased integration of the world economy, generates strong reactions due to some negative effects of the growth of international trade, the internationalization of industrial production, and unrestricted cross-border capital flows, while the overall mobility of labor remains quite limited. Evidence on the growth of international trade and factor mobility is reviewed and analyzed, and problems affecting developed and developing countries are detected. Policy measures to alleviate some of the dislocations from increased globalization are discussed, and some measures recommended to avoid social and political disruptions. |
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International benchmarking of electricity distribution utilities Dag Fjeld Edvardsen and Finn R. Førsund Benchmarking by means of applying the DEA model is appearing as an interesting alternative for regulators under the new regimes for electricity distributors. A sample of large electricity distribution utilities from Denmark, Finland, Norway, Sweden and the Netherlands for the year 1997 is studied by assuming a common production frontier for all countries. The peers supporting the benchmark frontier are from all countries. New indexes describing cross country connections between peers and their inefficient units are developed, as well as productivity measurements between units from different countries. |
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Optimal investment strategies and risk measures
in defined contribution pension Steven Haberman and Elena Vigna In this paper, we analyse the investment allocation and the downside risk faced by the retiring member of a defined contribution pension scheme, where optimal investment strategies (derived from a dynamic programming approach) have been adopted. The behaviour of the optimal investment strategy is analysed when changing the disutility function and the correlation between the assets. Three different risk measures are considered in analysing the final net replacement ratios achieved by the member: the probability of failing the target, the mean shortfall and a Value at Risk type measure. The replacement ratios encompass the financial and annuitization risks faced by the retiree. We consider the relationship between the risk aversion of the member and these different risk measures in order to understand better the choices confronting different categories of scheme member. We consider the case of a 2 assets portfolio, where the asset returns are correlated and consider the sensitivity of the results to the level of the correlation coefficient. |
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Coherence without Additivity Enrico Diecidue and Fabio Maccheroni The Dutch book argument is a coherence condition for the existence of subjective probabilities. This note gives a general framework of analysis for this argument in a nonadditive probability setting. Particular cases are given by comonotonic and affinely related Dutch books that lead to Choquet expectations and Min expectations. |
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Large deviations of non-degenerate two-sample von Mises functionals Yakov Nikitin and Evgueni Ponikarov The asymptotics of large deviation probabilities for two-sample non degenerate von Mises functionals and U- statistics of arbitrary degree is investigated. We find explicitly the main term of this asymptotics. Some examples motivated by nonparametric statistics are given. The result may be applied to calculate the Bahadur ARE of corresponding tests. |
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Asympotic efficiency of signed - rank symmetry tests under skew alternatives Alessandra Durio and Yakov Nikitin The efficiency of some known tests for symmetry such as the sign test, the Wilcoxon signed-rank test or more general linear signed rank tests was studied mainly under the classical alternatives of location. However it is interesting to compare the efficiencies of these tests under asymmetric alternatives like the so-called skew alternative proposed in Azzalini (1985). We find and compare local Bahadur efficiencies of linear signed-rank statistics for skew alternatives and discuss also the conditions of their local optimality. We calculate also such efficiencies for the family of distribution-free Maesono statistics proposed in Maesono (1987). |
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The Compensation mechanism in the rains model: the Norwegian targets for acidification Finn R. Førsund and Ove Wolfgang The RAINS model is used to calculate cost minimising abatement policies subject to European-wide spatial restrictions on pollution. The principle for choosing environmental targets for the 1994 Oslo Protocol was closing a gap between benchmark- and critical loads for each grid with a uniform percentage. During the negotiations for the 1999 Gothenburg Protocol accumulated ecosystems exceedances was adapted as basis for gap closure, and overshooting of the constraints allowed as an option, provided compensation could be found within the same country. A theoretical discussion of this compensation mechanism is provided. A simulation study, using the full RAINS model, of the impact of different levels of targets for troublesome Norwegian grids is presented, and results in the form of changes in accumulated acidity excesses and costs for the participating countries are reported. |
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Are all scales optimal in Dea? Theory and empirical evidence Lennart Hjalmarsson and Finn R. Førsund Policy recommendations concerning optimal scale of production units often have serious implications for the restructuring of a sector, while tests of natural monopoly have important implications for regulatory structure. The piecewise linear frontier production function framework is becoming the most popular one for assessing not only technical efficiency of operations, but also for scale efficiency and calculation of optimal scale sizes. The main purpose of the present study is to check if neoclassical production theory gives any guidance as to the nature of scale properties in the DEA model, and to empirically investigate such properties. The empirical results indicate that optimal scale may be found over almost the entire size variations in outputs and inputs, thus making policy recommendations about scale efficiency dubious. It is necessary to establish the nature of optimal scale before any practical use can be made. Proposals for such indexes that should be calculated are provided. |
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Analyzing labor supply behavior with latent job opportunity sets and institutional choice constraints John K. Dagsvik, Steinar Strøm In this paper
we discuss a general framework for analyzing labor supply behavior in
the presence of complicated budget- and quantity constraints of which
some may be unobservable. The point of departure is that an individual's
labor supply decision can be considered as a choice from a set of discrete
alternatives (jobs). These jobs are characterized by attributes such
as hours of work, sector specific wages and other sector specific aspects
of the jobs. We focus in particular on theoretical justification of
functional form assumptions and properties of the random components
of the model. |
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Does growth further improve economic freedom? Miroslav Prokopijevic Countries without natural resources or foreign aid can grow just if they do serious economic liberalization. Liberal reforms are first followed by a post-reform recession, and afterwards with growth, provided they create a well business environment, compared to alternatives. Economies growing because of liberalization just exceptionally undertake further reforms in order to enlarge gains - is the main finding of this study. On the one side, reforms are costly, and after having paid once, people prefer to extract gains, instead to invest again. On the other side, reforms create seeds of their own destruction, by crating environment for a new wave of rent seeking. Other reasons for why countries do not liberalize again, after doing one move, are country-groups specific. After a brief introduction (I), the data indicating degree of liberalization and growth rates throughout the world in the period 1970-2002 are presented (II). The scope of analysis is restricted to some four groups of countries (developed, recently developed from the Far East, transition and Latin American countries), and it is found that - beyond general reason - reform processes merely depend on just a few factors, like previous development, democracy, the rule of law, the conditions in tradable and non-tradable sectors, and the ruling team.(III) Final chapter is about concluding remarks (IV). |
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Ambiguity from the Differential Viewpoint Paolo Ghirardato and Fabio Maccheroni and Massimo Marinacci The
objective of this paper is to show how ambiguity, and a decision
maker
(DM)'s response to it, can be modelled formally in the context of a
very general decision model. In the first part of the paper we introduce
an "unambiguous preference" relation derived from the DM's
preferences, and show that it can be represented by a set of probability
measures. We provide such set with a simple differential interpretation
and argue that it represents the DM's perception of the "ambiguity" present
in the decision problem. Given the notion of ambiguity, we show that
preferences can be represented so as to provide an intuitive representation
of ambiguity attitudes. |
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A Characterization of the Core of Convex Games through Gateaux Derivatives Massimo Marinacci and Luigi Montrucchio We establish a calculus characterization of the core of supermodular games, which reduces the description of the core to the computation of suitable Gateaux derivatives of the Choquet integrals associated with the game. Our result generalizes to infinite games a classic result of Shapley (1971). As a secondary contribution, we provide a fairly complete analysis of the Gateaux and Frechet differentiability of the Choquet integrals of supermodular measure games. |
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A Duration-Sensitive Measure of the Unemployment Rate: Theory and Application Vani K. Borooah The measurement of unemployment, like that of poverty, involves two distict steps: identification and aggregation. In this two-step process, the issue of identifying the unemployed has received considerable attention but, once the unemployed have been identiified, the aggregation issue has been addressed by simply "counting heads": the unemployment rate is conventionally defined as the proportion of the labour force that, on a given date, is unemployed. This, in particular, leads to differences between individuals, in their unemployment experiences being ignored when the unemployment rate is being computed. This paper - predicated on the proposition that what matters to a person is not just the fact of unemployment but also its duration - proposes a methodology, derived from the measurement of income inequality, for adjusting unemployment rates so as to make them "duration-sensitive". In consequence, different values of the "duration-sensitive" rate will, depending upon the degree of inequality in the distribution of unemployment duration, and upon the extent to which society is averse to such inequality, be associated with the same value of the conventionally defined unemployment rate. A numerical example, based on published data for seven major OECD countries, illustrates the methodology. |
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Rational Actor Models in Political Science Vani K. Borooah There can be little doubt that Rational Choice Theory (RCT) - with its emphasis on the 'instrumentally rational' individual as the foundation of the political process - has significantly enhanced the scope of political science. This paper details many of the areas of political science in which our understanding of events has been significantly enhanced by the application of RCT. But, in the end, RCT in political science raises the same questions that it does in economics. These essentially stem from the fact that for RCT, whether in economics or in political science, choice and preference are regarded as synonymous. In consequence, as Amartya Sen has pointed out, no attention is paid to the motivation underlying an action. As Leif Johansen - one of the giants of public sector economics - expressed it: "economic theory in this, as well as in some other fields, tends to suggest that people are honest only to the extent they have economic incentives for being so. This is a homo economicus assumption which is far from being obviously true". In RCT models, a person is given one preference ordering and, when all is said and done, this preference ordering represents his Weltanschauung. Can one preference ordering do all this? The argument of this paper is that no society can be viable without some norms and rules of conduct. Such norms and rules are necessary for viability in fields where strict economic incentives are absent and cannot be created. |
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A General Measure of the "Effective" Number of Parties in a Political System Vani K. Borooah This paper proposes a general measure of the effective number of parties, based on the family of generalized entropy inequality indices. This measure encompasses existing measures in the sense that these can be derived, through an appropriate configuration of parameter values, from this general measure. The proposed measure has attractive properties both in terms of interpretation and in terms of aggregation. In terms of interpretation, this measure always yields a value between 1 and N (N=the number of parties contesting) and takes one, or the other, extreme value depending on whether vote (or seats) are monopolized by a party or shared equally between the contesting parties. In terms of aggregation, it is always the case that the effective numbers of parties at sub-national levels can be aggregated to yield a national figure. The aggregation is effected through weights which, themselves, have an appealing interpretation in terms of the different sub-national contributions to overall inequality in the distribution of votes (or seats). The use of this general measure is illustrated by applying it to the results of the 1997 and 2001 Parliamentary (Westminster) elections in Northern Ireland. The central message of the paper is that the construction of indices or measures which purport to give scalar representation to vectors of distributive outcomes cannot be wholly based on "objective" considerations. This observation applies in full to the measurement of the effective number of parties in a political system. |
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Empirical Rules of Thumb for Choice under Uncertainty Rolf Aaberge A substantial body of empirical evidence shows that individuals overweight extreme events and act in conflict with the expected utility theory. These findings were the primary motivation behind the development of the rank-dependent utility theory. The purpose of this paper is to demonstrate that some plausible empirical rules of thumb for choice under uncertainty can be rationalized by the rank-dependent utility theory. |
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How to cut a pizza fairly: fair division with descreasing marginal evaluations Fabio Maccheroni and Massimo Marinacci Existential and constructive solutions to the classic problems of fair division are known for individuals with constant marginal evaluations. By considering nonatomic concave capacities instead of nonatomic probability measures, we extend some of these results to the case of individuals with decreasing marginal evaluations. |
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Insurance Premia Consistent with the Market Erio Castagnoli and Fabio Maccheroni and Massimo Marinacci We consider insurance prices in presence of an incomplete and competitive market. We show that if the insurance price system is internal, sublinear, and consistent with the market, then insurance prices are the maxima of their expected payments with respect to a family of risk neutral probabilities. We also show that under a simple additional assumption it is possible to decompose the obtained price in net premium plus safety loading. |
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The economic evolution of petroleum property rights in the United States Gary D. Libecap and James L. Smith We examine Harold Demsetz's (1967) prediction that property rights emerge and are refined as the benefits of doing so exceed the costs in the context of oil and gas resources in the U.S. Familiar influences on the development of petroleum property rights, technology, market demand, and politics, provide support for the hypothesis, and those issues are examined. Our primary contribution is to demonstrate the important role of a less familiar factor, the presence in the reservoir of both oil and gas with differentially volatile prices. This factor has affected the nature of the property rights assigned with unitization, an institutional arrangement to internalize the common pool externality. Information asymmetries and conflicting price expectations have resulted in unit agreements that would not have been predicted in a strict neo-classical sense. Our analysis provides new insights regarding the nature of voluntary unitization contracts, inherent limits to producers' ability to internalize externalities, and the welfare implications of compulsory unitization. |
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Towards a quasi-Lamarckian theory of institutional change Enrico Colombatto The paper emphasises
two flaws in mainstream economics: the failure to understand human behaviour
and the belittling of transaction costs. By stressing the role of knowledge,
institutions and path dependence, new institutional economics has provided
a powerful answer to these shortcomings. Nevertheless, a number of questions
remain open. In particular, path dependence is far from being a continuous
process. Its dynamics and its irregularities are by and large unexplained.
Hence, a strong need for a convincing evolutionary theory of environmental
change. |
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The Rule of Law, Freedom, and Prosperity Todd J. Zywicki After decades of neglect, the rule of law is much on the minds of legal scholars today. In the United States, the Supreme Court's controversial decision in Bush v. Gore has triggered renewed interest in understanding the concept of the rule of law and its value to society. Transition and developing economies have increasingly come to recognize the importance of the rule of law in establishing a framework for economic growth and individual liberty. This essay provides an overview of these debates over the concept and consequences of the rule of law. Although American scholars have criticized the Supreme Court's decision in Bush v. Gore as violative of the rule of law, this criticism rests on an erroneous understanding of the rule of law. The tradition of the rule of law, as expressed by Dicey, Oakeshott, Hayek, and others, is consistent with the Supreme Court's decision in Bush v. Gore. Moreover, this tradition of the rule of law is a cornerstone of a free and prosperous society, in America and abroad. |
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Calculating the scale elasticity in DEA models Finn R. Førsund and Lennart Hjalmarsson In economics scale properties of a production function is charcterised by the value of the scale elasticity. In the field of efficiency studies this is also a valid approach for the frontier production function. It has no good meaning to talk about scale properties of inefficient observations. In the DEA literature a qualitative characterisation is most common. The contribution of the paper is to apply the concept of scale elasticity from multi output production theory in economics to the piecewise linear frontier production function, and to develop formulas for calculating values of the scale elasticity for radial projections of inefficient observations. Illustrations also on real data are provided, showing the differences between scale elasticity values for the input- and output oriented projections and the range of values for efficient observations. |
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On
the circularity of the Malmquist productivity index Finn R. Førsund Circularity is a desirable property of a productivity index seldom satisfied in available bilateral indices, such as the Malmquist index. Within a setting of micro units belonging to groups with group-specific frontier technology, the bilateral Malmquist productivity index is investigated. Our setting can be interpreted as representing cross section data, but also cross section, time series by identifying groups as time periods. A general proposition giving the condition for the Malmquist index to be circular is presented. When the condition is not met, ways of making the index transitive are explored. Four strategies adopted from the literature is followed; using one group as base, taking an average over possible bases, developing a multilateral index, and chain-linking. An expression of the Malmquist multilateral index is developed giving the difference between the Malmquist bilateral- and multilateral indexes. |
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The performance of auction houses selling Picasso Prints Finn R. Førsund and Roberto Zanola It has been observed that similar prints can obtain quite different prices at different auctions within the same auction period. Previous works applying hedonic price technique to determine the formation of auction prices of objects of art have found no conclusive result about the impact of auction houses on final prices. In these studies the object of art has been the unit, and influence of auction houses is analysed by testing whether auction house impact on price is significant or not within a framework of central tendencies. In order to focus on auction houses as a unit we have applied a benchmarking technique, DEA, developed for efficiency studies. Performance indexes are defined and calculated giving an insight into auction house differences difficult to obtain using hedonic price approach. |
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The Role of Maternal Literacy in Reducing the Risk of Child Malnutrition in India Vani K. Borooah This study uses unit-record data on over 50,000 rural children, from the sixteen major states of India, to analyse the determinants of the risks of severe stunting and of being severely underweight. The importance of this study derives from the fact that the prevalence of under-nourishment in India is, even relative to other poor countries, shockingly high. The study focuses on the role of maternal literacy in reducing the risk of child malnourishment. It concludes that when the mother is literate, real benefits flow to children in terms of reduced risk; the same benefits, however, do not flow when the father, but not the mother, is literate. Literate mothers make more effective use of health-care institutions, like anganwadis and hospitals. Consequently, the benefits to children from expanding the supply of such institutions are greater when these institutions interact with mothers who are literate. |
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Vidya,
Veda, and Varna: The Influence of Religion and Caste on Education in
Rural India Vani K. Borooah and Sriya Iyer This paper argues that Vidya (education), Veda (religion) and Varna (caste) are inter-linked in India. It examines whether, and to what extent, the enrolment of children at school in India is influenced by community norms such those of religion (Hindu or Muslim) or caste (Scheduled or non-Scheduled). The econometric estimates are based on unit record data from a survey of 33,000 rural households, in 1,765 villages, from 16 states of India. The equation for the likelihood of being enrolled at school is estimated separately for boys and for girls and, in each of the equations, all of the slope coefficients are allowed to differ according as to whether the children are Hindu, Muslim or Scheduled Caste. The main findings are that the size of the religion or caste effect depends on the non-community circumstances in which the children are placed. Under favourable circumstances (for example, when parents are literate), the size of the community effect is negligible. Under less favourable circumstances, the size of the community effect is considerable. |
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NGOs, Networking, and Problems of Representation Hans Holmén Networking is currently
recommended as particularly suitable for NGOs to improve performance
and enhance impact. Since many NGOs are small and dispersed, networking
is commonly seen as a coat-effective means to share information and
spread knowledge about grassroots' needs, solutions and best practices.
Also, networking is believed to strengthen NGO's ability to speak with
one voice and to significantly increase their impact as policy negotiators
and advocating agencies. |
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Preliminary Remarks on Mises in Interwar Vienna Kurt R. Leube The professional class of
which Ludwig von Mises (and to some extent also his friend Kelsen) was
a member was not only fond of thinking of itself as the defender of
their highly cultured environment. This large group of intellectuals,
administrators, aristocrats, and politicians had also been raised to
belief that they are the intellectual safeguard of a large multinational
empire of well over 50 million people. The incredibly diverse ethnic
composition of the Habsburg Empire gave it the appearance of an unique
international and cosmopolitan order. The unexpected situation in which
the fatefully reduced little Austria found itself as a result of the
catastrophic war raised a new set of unprecedented problems which |
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On Menger, Austrian Economics, and the Use of General Equilibrium Kurt R. Leube Nowadays
mainstream economic textbooks maintain that economic laws can be
established solely
on the foundations of the exact sciences, such as mathematics or physics.
The implication is that the historical date collected with the aid
of
statistics and other technical means can be used to scientifically
unveil, explain, and predict mankind’s behavior. Although economics today embodies
individual tastes in the form of elegant charts that are depicted in
text books as ‘indifference curves’, it has not gone further in characterizing
the all important motivations, influences, or feelings of the acting
individuals. If the sole purpose of economic research is to analyze
the properties of general equilibrium in the conditions of perfect
knowledge
and perfect competition, this may well suffice. It seems as if all
approaches to economic phenomena which do not follow this doctrine
are quickly
branded unscientific and repudiated. Rather than constructing a system
of timeless general equilibrium prices, as is the goal of the mathematically
oriented schools of thought, in our world of scarcity, lack or dispersion
of knowledge, and ever changing degrees of expectations, the Austrians
attempt to |
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The Free Trade of Ideas: Spreading the Classical Liberal Gospel of Richard Cobden and the Anti-Corn Law League Frederic J. Fransen One of the central concepts of classical liberal economic thought is the superiority of free trade over protectionism. The key historical event leading to the dissemination of this idea was the activity of Richard Cobden and the Anti-Corn Law League in Britain in the 1840s. This paper explores the ways in which Cobden and the Anti-Corn Law League were received on the Continent, and the relative reception of free trade ideas in France, through Frédéric Bastiat and later the Anglo-French Treaty of Commerce in 1861; in Italy, through Francesco Ferrara and Camillo Cavour; and in Germany through John Prince Smith. A preliminary conclusion about the role of general levels of economic knowledge in the receptivity of free trade ideas precedes suggestions for further research. |
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Hog Round Marketing, Seed Quality, and Government Policy: Institutional Change in U.S. Cotton Production, 1920-60 Alan L. Olmstead and Paul W. Rhode Between 1928 and 1960 U.S. cotton production witnessed a revolution with average yields increasing roughly threefold. In addition, the average staple length of the U.S. crop increased significantly, reversing a long-run downward trend in cotton quality. Underlying these accomplishments were major innovations in cotton marketing, wholesale changes in the varieties grown, and the emergence of a vibrant commercial seed industry. This paper analyzes the key institutional and scientific developments underlying this revolution in biological technologies, pointing to the importance of two government programs—the one-variety community crusade and the Smith-Doxey Act— as catalysts for change. |
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Securing
Constitutional Government: The Perpetual Challenge The paper discusses four conditions required for the maintenance of constitutional government, identifying them as the dominance of a particular conception of constitutional government, its official recognition and implementation by a written or traditional constitution, the existence of an institutional matrix that translates the constitution into the experience of the people and the achievement of economic conditions that sustain the institutional foundations of constitutionalism. The author attributes the decline in the classical understanding of constitutionalism to both public choice dynamics as well as to intellectual reconstructions of key concepts such as law, justice, and freedom that were designed to facilitate the welfare state without formally forsaking the rule of law ideal. The paper proceeds to focus on the social disruption of the late 20th century that weakened the institutional foundations of constitutionalism and the legal and economic causes of this development. It cautions against over-reliance on the self-correcting potential of social systems and concludes with thoughts on strategies appropriate to the perpetual struggle to maintain constitutional government. |
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Wealth
Polarization and Pulverization in Fractal Societies In
this paper we study the geometrical properties of the support of
the limit distributions of income/wealth in economies with uninsurable
individual risk, and how they are affected by technology and preference
parameters and by policy variables. We work out two simple successive
generation models with stochastic human capital accumulation and
with
R&D and we prove that intense technological progress makes the support
of the wealth distribution converge to a fractal Cantor-like set. Such
limit distribution implies the disappearance of the middle class, with
a “gap” between two polarized wealth |
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Certainty Independence and the Separation of Utility and Beliefs Economists
often operate under an implicit assumption that the tastes of a decision
maker are constant, while his beliefs change with the availability
of
new information. It is therefore customary to seek representations
of preferences which cleanly separate the taste component, called ‘utility,’
from the beliefs component. We show that a complete separation of utility
from the other components of the representation is possible only if
the decision maker’s preferences satisfy a mild but not completely innocuous
condition, called ‘certainty independence.’ We prove that the preferences |
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Moral
capital and commercial society This paper examines the
idea of moral capital in relation to commerce. Moral capital is found
in the form of justice, beneficence and temperance. These concepts are
explained and distinguished from related ideas of social capital and
human capital. Following Hume, Smith and Hayek, the author treats justice
and commerce as aspects of the same evolutionary process and challenges
the traditional mistrust of commerce on moral grounds. The paper discusses
the ways in which commerce strengthens morality and explains why the
state can enforce justice but cannot practice or enforce beneficence
without harm to justice. The discussion is concluded with some thoughts
about the depletion of moral capital in industrialised democracies. |