Working papers
2003 (including abstracts) |
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The convexity-cone approach to comparative risk and downside risk Salvatore Modica and Marco Scarsini Based on Jewitt (1986) we try to find a characterization of comparative downside risk aversion and love. The desired characterizations involve the decomposition of the dual of the intersection of two convexity cones. The decomposition holds in the case of downside risk love, but not in the case of downside risk aversion. A counterexample is provided. |
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Existence of solutions and asset pricing bubbles in general equilibrium models Claudio Mattalia This paper analyses the problem represented by
the presence of speculative bubbles on asset prices in general equilibrium
models. The main results concerning the existence of solutions in intertemporal
general equilibrium models are summarized, then the specific problem
of asset pricing is discussed. In particular, the theoretical results
concerning the existence of speculative bubbles on asset prices are
presented, together with the results that can be obtained through a
new approach, based on Euler equations. In the last part a series of
examples in which speculative bubbles on asset prices do appear are
illustrated, and the corresponding conditions that allow to exclude
the presence of such bubbles are derived. Finally, some considerations
are |
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A comparative evaluation of spacially targeted economic revitalization programs in the European Union and the United States Daniele Bondonio and Robert T. Greenbaum This paper compares and contrasts the United States federal Empowerment Zone and European Union Objective 2 programs that geographically target economic revitalization incentives. Since 1989, both programs have designated predominately industrial or urban areas as being distressed and worthy of government incentives in three separate rounds. The paper uses a probit econometric model to comparatively evaluate the characteristics of the areas that were targeted. The paper finds that while the programs were fashioned for different reasons and thus had different goals, the programs on both continents initially targeted very distressed areas. However, consistent with the fears of critics of spatial targeting, subsequent rounds of designation greatly expanded the programs, and in most cases, lead to less precise targeting. |
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A green revolution for Africa - Does it need to be so controversial ? Hans Holmén Due
to sub-Saharan Africa’s recurrent food-crises and enhanced difficulties to feed
its growing population, calls for a Green Revolution – a substantially
raised agricultural productivity by means of scientific modernization
and supportive institutional reforms – are often aired. However,
in other camps the Green Revolution is seen as undesireable generally
and as particularly unsuitable for Africa. |
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Optimal
Taxation According to Equality of Opportunity: Rolf Aaberge, Ugo Colombino and John E. Roemer The
purpose of this paper is to introduce and adopt a generalised version
of Roemer's
(1998) Equality of Opportunity (EOp) framework for analysing optimal
income taxation. EOp optimal tax rules seek to equalise income differentials
arising from factors beyond the control of the individual. Unlike
the
pure EOp criterion of Roemer (1998) the generalised EOp criterion allows
for alternative weighting profiles in the treatment of income differentials
between and within types when types are defined by circumstances
that
are beyond people's control. An empirical microeconometric model of
labour supply in Italy is used to simulate and identify optimal tax
rules within classes of two- and three-parameter tax rules. A rather
striking result of the analysis is that the optimal tax rule turns
out
to be the pure lump-sum tax, under Roemer's pure EOp criterion as well
as under the generalised EOp criterion with moderate degrees of aversion
to within-type inequality. A high degree of within-type inequality
aversion
instead produces EOp-optimal rules with positive marginal tax rates.
When the EOp-version of the Gini welfare function is adopted as Eop
criterion, the optimal tax rule turns out to be close to the actual
1993 Italian tax system, if not for the important difference of prescribing
a universal lump-sum positive transfer of 3,500,000 ITL, which has
no
comparable counterpart in the actual system. On the other hand, when
using the conventional equality of outcome (EO) criterion, the pure
lump-sum tax always turns out to be optimal, at least with respect
to
the classes of two- and three-parameter rules. We also compute second-best
solutions, namely we exclude lump-sum taxes. Overall, the results
do
not conform to the perhaps common expectation that the EO criterion
is more supportive of “interventionist” (redistributive)
policies than an EOp approach. |
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Telecom
Italia: Italy's high tech old-style telecoms incumbent Martin Fransman The Telecoms
Boom and Bust 1996 to 2002 has had a significant impact on the structure
of the Telecommunications Industry. During the boom it seemed as if
new entrant telecoms operators, entering on the back of new technologies,
might even replace the incumbent operators such as Telecom Italia, Deutsche
Telekom and France Telecom. But the bust has decisively reversed this
tendency. The aim of this paper is to examine in detail some of the
major recent changes that have taken place in Telecom Italia and the
forces that have driven these changes. |
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Cores and stable sets of finite dimensional games Massimo Marinacci and Luigi Montrucchio In this paper we study exact TU games having finite dimensional non-atomic cores, a class of games that includes relevant economic games. We first characterize them by showing that they are a particular type of market games. Using this characterization, we then show that in such a class the cores are their unique von Neumann- Morgenstern stable sets. |
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Austrian economics and value judgements: a critical comparison with neoclassical economics Sandye Gloria-Palermo and Giulio Palermo The
article points out the limits of Austrian economics in so far as
the passage
from positive to normative economics is concerned. We propose a comparison
with neoclassical economics and discuss the different theoretical
solutions
adopted by these two schools of thought in their legitimization of
the normative discourse. The bridge from positive to normative economics
is analyzed as resting upon two interdependent pillars, one of a
technical
nature, the other of an ethical one. In the case of neoclassical theory,
these two pillars are, respectively, the “Pareto principle”
and the so-called “minimal benevolence principle”. In the
case of Austrian economics, they are the “coordination principle”
and the set of “quasi-universal” value judgements. A first
problem for Austrian economics is that the coordination principle turns
out to be incompatible with process analysis, the latter being a central
theoretical tenet of the Austrian school. A second problem, which overwhelms
both the schools of thought, has to do with distribution. Our thesis
is that whereas the neoclassical solution of the distributive problem
is formally consistent (although deeply unrealistic), the Austrian
solution
is theoretically untenable and based on strong, although implicit,
value judgements. |
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Debt issue costs and issue characteristics in the Eurobond market Arie Melnik and Doron Nissim This
paper analyzes the issue costs and initial pricing of bonds in the
international
market. In particular, we investigate the determinants of three components
of issue costs: underwriter fee, underwriter spread (the difference
between the offering price and the guaranteed price to the issuer),
and underpricing (the difference between the market price and the
offering
price). Total underwriter compensation increases with the bonds’ credit
risk and maturity, but it is insignificantly related to issue size.
Interestingly, underwriters appear to price some issue characteristics
directly (by adjusting the fee) and other characteristics indirectly
(by setting the guaranteed price). The two compensation components
(fee
and spread) are negatively related to each other. We provide evidence
that this trade-off is consistent with income tax considerations, as
well as with two-tier pricing by underwriters. We find no evidence
of
underpricing. |
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A folk theorem for minority games Jerome Renault, Sergio Scarlatti and Marco Scarsini We study a particular case of repeated games with public signals. In the stage game an odd number of players have to choose simultaneously one of two rooms. The players who choose the less crowded room receive a reward of one euro (whence the name “minority game”). Between the stages, only the current majority room is publicly announced. We show that in the infinitely repeated game any feasible payo can be achieved as a uniform equilibrium payo , and as an almost sure equilibrium payo . In particular we construct an inefficient equilibrium where, with probability one, all players choose the same room at almost all stages. This equilibrium is sustained by punishment phases which use, in a unusual way, the pure actions that were played before start of the punishment. |
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A smooth model of decision making under ambiguity Peter Klibanoff, Massimo Marinacci and Sujoy Mukerji We propose and axiomatize a new model of preferences that achieves a separation between ambiguity, identified as a characteristic of the decision maker's subjective information, and ambiguity attitude, a characteristic of the decision maker's tastes. |
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An inquiry into the sources of growth and stagnation in Iranian economy Farshid Mojaverhosseini Iran was a textbook example of economic success in the two decades prior to the advent of the Islamic Revolution in 1979. But she has turned into an example of economic failure ever since. This study finds that nearly half of the 11 percent difference in economic growth in the two periods can be attributed to productivity. The study confirms the presents of significant productivity differentials in the two periods in the manufacturing sub-sectors and tries to explain it. To explain manufacturing productivity differentials in the two periods a Tonrquist measure of TFP, corrected for market imperfection and non-constant returns to scale technology, is constructed. On the issue of market imperfection it is found that Iranian manufacturing sectors suffers from a decreasing return to scale technology and mark-up pricing since 1979. In the cross section of 23 manufacturing sectors it is found the degree of market participation of the private sector versus public sector has the highest explanatory power in explaining sectoral productivity differentials. |
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Ultramodular functions Massimo Marinacci and Luigi Montrucchio We study the properties of ultramodular functions, a class of functions that generalizes scalar convexity and that naturally arises in some economic and statistical applications. |
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Choquet insurance pricing: a caveat Erio Castagnoli, Fabio Maccheroni and Massimo Marinacci We consider Choquet pricing functionals for insurance and financial markets. We show that when they depend on the distribution of the asset under a given probability measure, they reduce to standard expectations once are available on the market assets without bid-ask spreads |
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Unequal uncertainties and uncertain inequalities: an axiomatic approach Thibault Gajdos, Eric Maurin In this paper, we provide an axiomatic characterization of social welfare functions for uncertain incomes. Our most general result is that a small number of reasonable assumptions regarding welfare orderings under uncertainty rule out pure ex ante as well as pure ex post evaluations. Any social welfare function that satisfies these axioms should lie strictly between the ex ante and the ex post evaluations of income distributions. We also provide an axiomatic characterization of the weighted average of the minimum and the maximum of ex post and the ex ante evaluations. |
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Multidimensional generalized Gini indices Thibault Gajdos, John A. Weymark The
axioms used to characterize the generalized Gini social evaluation orderings
for one-dimensional distributions are extended to the multidimensional |
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International Governance of the Internet: An Economic Analysis Gordon L. Brady ICANN currently determines which top level domains are available on the A-root server and so restricts the choices facing Internet users. Thus ICANN redistributes wealth and has become the focus of rent-seeking activities. Yet, despite my belief that the Internet will become substantially more regulated in the future, I am convinced that technology will trump the best efforts of regulators to “promote the public interest.” |
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Decision Making with Imprecise Probabilistic Information Thibault Gajdos, Jean-Marc Tallon, and Jean-Christophe Vergnaud We
develop an axiomatic approach to decision under uncertainty that explicitly
takes into account the information available to the decision maker.
The information is described by a set of priors and a reference prior.
We define a notion of imprecision for this informational setting and
show that a decision maker who is averse to information imprecision
maximizes the minimum expected utility computed with respect to a subset
of the set of initially given priors. The extent to which this set is
reduced can be seen as a measure of imprecision aversion. This approach
thus allows a lot of flexibility in modelling the decision maker attitude
towards imprecision. In contrast, applying Gilboa and Schmeidler (1989)
maxmin criterion to the initial set of priors |
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State Regulation of Open-Access, Common-Pool Resources Gary D. Libecap Open-access, common-pool resources, such as many fisheries, aquifers, oil pools, and the atmosphere, often require some type of regulation of private access and use to avoid wasteful exploitation. This paper summarizes the arguments and literature associated with this problem. The historical and contemporary record of open-access resources is not a happy one, and many of the problems persist, despite large aggregate gains from resolving them. The discussion here suggests why that is the case. The paper focuses on government responses to the common pool, the private and political negotiations underlying them, and the information and transaction costs that influence the design of property rights and regulatory policies. Understanding the type of institution that emerges and its effects on the commons depends upon identifying the key parties involved, their objectives, and their political influence. Further, it requires detailed analysis of the bargaining that occurs within and across groups. The paper summarizes the open-access problem and provides case analyses of regulation of common-pool fisheries, oil reservoirs, and the atmosphere. The final section summarizes the general themes and the advantages of the New Institutional Economics (NIE) approach to analyzing the common pool. |
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Corruption and Reform? The Emergence of the 1906 Pure Food and Drug Act and the 1906 Meat Inspection Act Marc T. Law and Gary D. Libecap This paper explores the origins of federal regulation of food, drugs and meat. We argue that developments in these industries during the late 19th century—technological changes that gave rise to new and cheaper products, the creation of a national market for food and drugs, as well as scientific advance that made it possible for producers to cheapen their food and drugs in ways consumers could not easily perceive—profoundly affected producers, consumers, and bureaucratic officials. In such an environment, regulation of the industry was desired in order to pivot the competitive playing field, but also because of its potential to improve consumer information about product quality. Nevertheless, we find that Congress did not enact a federal law until 1906 because competing producer, bureaucratic, and consumer interests, with different assessments of the benefits of federal regulation, prevented the formation of an effective coalition in favor of federal regulation. We argue that muckraking journalism about the quality of food and drugs played an important role in building a political constituency in favor of federal regulation and in determining the timing of regulatory reform. Corruption in the courts or in the administration of state regulation does not appear to have been a major factor behind the emergence of federal food and drug regulation. |
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Germline Engineering: Whose Right? Lloyd Cohen Professor Cohen presents and analyzes a taxonomy of the potential harms of human genetic “germline engineering.” Germline engineering is the process of “artificially” and purposefully changing the genes of an organism such that when it procreates the changes replicate themselves in the next generation and--subject to the laws of genetics—in all future generations. His ultimate argument flows from the outcome of the analysis of the various potential harms alleged to flow from germline engineering. While he finds that there may be minor categories that are problematic, these are no more than quirky--almost bizarre--exceptions to the central case, that is, that germline intervention will yield an enormous improvement in the human lot. Those exceptional instances in which one could imagine germline intervention resulting in harm to the human condition or prospect neither require nor justify any significant restraint or prohibition of germline intervention in general. |
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La questione del monopolio tra Stato e mercato: un’indagine su Bruno Leoni Carlo Lottieri Il paper prende in esame i principali scritti di Bruno Leoni sul monopolio e sullo Stato, con l’obiettivo di evidenziare come le sue riflessioni sul rapporto tra monopolio ed economia di mercato siano del tutto convergenti con le sue analisi politologiche sul carattere coercitivo dell’apparato statale. Per lo stesso motivo, la difesa che Leoni fa dei monopoli di mercato (quali emergono dalle scelte di imprenditori e consumatori) apre la strada – sul piano della filosofia politica – ad un’ipotesi di società libertaria, nella quale anche l’ordine pubblico e la giustizia siano offerti in forma concorrenziale, senza ricorrere alla violenza. |
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Are Property Rights Relevant for Development Economics? On the Dangers of Western Constructivism Enrico Colombatto Although
the importance of property rights as the engine of growth remains beyond
dispute, this article tries to show that the crucial issue is not so
much the definition of the allegedly ‘optimal’ property right system,
as the understanding of the ideological elements that justify property
rights in the first place – entrepreneurship and self-responsibility.
Unless one clearly perceives the nature of the ideological structure
that legitimises the rules of the game in a given society, it is virtually
impossible to understand why growth-conducive property-right systems
fail to emerge and be accepted. |
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Understanding the transaction costs of transition: It's the culture, stupid Svetozar (Steve) Pejovich In
the early 1990s, Central and Eastern Europe countires (C&EE) began transition
into free-market, private-property economies. Thirteen years later,
the Index of Economic Freedom published annually by the Heritage Foundation
and the Wall Street Journal lists only one country in the region as
a free market country, seven countries are listed as mostly free, nine
as mostly unfree, and two as repressive. The same initial objectives
of transition have clearly produced different results in C&EE. The
paper argues that observed differences in the results of institutional
restructuring in C&EE are not accidental. It attributes those differences
to the interaction between the formal institutions of capitalism and
the prevailing cultures in dormer socialist states. The “interaction
thesis” is summarized as follows: When changes in formal rules are in
harmony with the prevailing informal rules, he incentives they create
will tend to reduce transaction costs and free some resources for the
production of wealth. When new formal rules conflict with the prevailing
informal rules, the incentives they create will raise transaction costs
and reduce the production of wealth in the community. The Interaction
thesis suggests that better understanding of the results of transition
in C&EE requires analysis of the following three issues: What are
the most important formal institutions of capitalism? What kind of culture
is in harmony with formal institutions of capitalism? What is the difference
between that culture and informal rules in C&EE countries? The
paper analyzes those three issues in some detail. The findings are
that the
transaction costs of transition are higher the farther east and southeast
one travels. Finally, the paper provides several empirical examples
in support of the interaction thesis. |
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Archimedean Copulae and Positive Dependence Alfred Müller and Marco Scarsini In the first part of the paper we consider positive dependence properties of Archimedean copulae. Especially we characterize the Archimedean copulae that are multivariate totally positive of order 2 (MTP2) and conditionally increasing in sequence. In the second part we investigate conditions for binary sequences to admit an Archimedean copula. |
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Positive value of information in games Bruno Bassan, Olivier Gossner, Marco Scarsini, and Shmuel Zamir We
exhibit a general class of interactive decision situations in which
all the agents benefit from more information. This class includes as
a special case the classical comparison of statistical experiments a
la Blackwell. |
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Zonoids, Linear Dependence, and Size-Biased Distributions on the Simplex Marco Dall'Aglio and Marco Scarsini The zonoid of a d-dimensional random vector is
used as a tool for measuring linear dependence among its components.
A preorder of linear dependence is defined through inclusion of the
zonoids. |
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Some Counterexamples in Positive Dependence Taizhong Hu, Alfred Müller and Marco Scarsini We provide some counterexamples showing that some concepts of positive dependence are strictly stronger than others. In particular we will settle two questions posed by Pemantle (2000) and Pellerey (2002) concerning respectively association versus weak association, weak association versus supermodular dependence, and supermodular dependence versus positive orthant dependence. |
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Property rights systems and the rule of law Ronald A. Cass Property
rights - rights to control, use, or transfer things (broadly conceived)
- though not readily distinguished from
other rights, comprise a category of rights that both strongly benefit
from clear and well-designed legal rules and often are subject to "chiseling" from
failures to follow legal rules or from ex post alterations of the
rules. Governance systems that limit official discretion to impair
property rights, that have institutions and rules that provide clear
definition to property rights and that provide predictable and consistent
applications of those rights, will accord with the rule of law and
generally will also advance social welfare. Some systems will depart
quite evidently from this pattern, to the detriment of those societies,
allowing too ready changes in law at the discretion of too few officials,
too unconstrained by law, as the example of Zimbabwe illustrates.
But differences between the good and the bad will not be drawn along
simple, discrete lines, a point made by comparing the Zimbabwe example
with the United States. The systems most consistent with the rule
of law will not be able effectively to bar all changes in the law
or to eliminate official discretion. Instead, those systems will
limit the avenues for change and the ambit of discretion in ways
that make property more secure and impositions on it more predictable
without reference to the identity of the individual official enforcing
the law or the individual property owners subject to it. |
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Monotone Continuous Multiple Priors Massimo Marinacci, Fabio Maccheroni, Alain Chateauneuf, and Jean-Marc Tallon We show that the monotone continuity condition introduced by Villegas (1964) and Arrow (1970) is the behavioral counterpart of countable additivity (and relative weak compactness) in a multiple priors model. This generalizes their original result, in which the special case of a singleton set of priors is considered. Further extending their results, we provide a behavioral counterpart for the convex rangedness of the priors (both considered singularly and as a vector measure). |
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Irrelevant externality angst David D. Haddock Due to
the high transaction cost that would be necessary for large numbers
of people to negotiate with each other, even those who are usually
sanguine about private markets become reserved when externalities
affect large populations. The distinction between private and societal
interest is well understood for pecuniary externalities, but neglect
of Buchanan and Stubblebine’s article Externality has left the
same distinction widely unrecognized for non-pecuniary ones. If
only a few parties on either side experience a relevant externality
private interactions can appropriately internalize costs and benefits
across the entire population. Regardless of the perceptiveness
of legal and cultural institutions in placing entitlements, and
regardless of the level of transaction cost among the universe
of the affected, a surprising number of externalities will readily
fix themselves. The desirability of corrective intervention is
much too easily conceded. |
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The Prosecution
of Public Figures and the Separation of Powers: Confusion within
the Executive Branch. Anne van Aaken, Eli Salzberger and Stefan Voigt Criminal
investigation and prosecution of politicians, top civil servants
and other public figures are topics frequently discussed in the media.
The nature of the investigating or prosecuting authority varies between
countries – from the general public prosecutor, through magistrates
to independent counsels or parliamentary investigation commissions.
This paper analyzes the role and status of public prosecutors within
the separation of powers-concept. Prosecutors are usually part of
the executive and not the judicial branch, which implies that they
do not enjoy the same degree of independence as judges, and are ultimately
subordinated to the directives of the minister of justice or the
government. Conflicts of interest may hence arise if members of government
can use the criminal process for their own or partisan interests.
The incentives of public prosecutors in different jurisdictions are
compared. |
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Mean-Spread-Preserving
Transformations The
purpose of this paper is to define various mean-spread-preserving
transformations,
which can be considered as generalized versions of the
mean-Gini-preserving transformation. The mean-Gini-preserving
transformation, which was introduced independently by Zoli (1997,
2002) and Aaberge
(2000), is a combination of progressive and regressive
transfers that leaves the Gini coefficient unchanged. It will be
demonstrated that the various mean-spread-preserving transformations
form a
useful basis for judging the normative significance
of two alternative sequences of nested Lorenz dominance criteria
that can be used to rank Lorenz curves in situations
where the Lorenz curves intersect. The two alternative sequences
of Lorenz dominance criteria suggest two alternative
strategies for increasing the number of Lorenz curves that can
be strictly ordered; one that places more emphasis on
changes that occur in the lower part of the income distribution
and the other that places more emphasis on changes that occur in
the upper part of the income distribution. Furthermore,
it is demonstrated that the sequences of dominance criteria characterize
two separate systems of nested subfamilies of inequality
measures and thus provide a method for identifying the
least restrictive social preferences required to reach an unambiguous
ranking of a given set of Lorenz curves. Scaling up the
introduced Lorenz dominance relations of this paper by the mean income µ and replacing
the rank-dependent measures of inequality JP with the rank-dependent
social welfare functions WP = µ (1- JP), it can
be demonstrated that the present results also apply to the generalized
Lorenz curve and moreover provide convenient characterizations of
the corresponding
social welfare orderings. |
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Introduction to the Mathematics of Ambiguity Massimo Marinacci and Luigi Montrucchio We provide an introduction to non-additive set functions and Choquet integrals, which have recently played an important role in mathematical economics. |