Working papers 2004
(including abstracts)
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Explaining de facto judicial independence Bernd Hayo and Stefan Voigt De facto judicial Independence (JI) seems to be highly and robustly significant for economic growth. But JI as formally written down in legal texts is a imperfect predictor for de facto JI. This paper thus tries to identify the variables, which determine de facto JI.. A distinction between factors that can be influenced in the short run and those that are the result of historical development and that are exempt from short-term modification is made. Ascertaining the relative relevance of these two groups of variables promises to be policy-relevant because attempts to make judiciaries more independent within governance programs might be seriously constrained by factors beyond the control of national governments and international organizations. |
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Facets of Sovereignty. Institutions that Spur and Institutions that Retard Tribal Development. David D. Haddock and Robert J. Miller That so many of their assets continue to be held in governmental trusts under outdated policy rationales creates great difficulty for indigenous peoples. But restoring control of those assets to their rightful owners will impose daunting responsibilities on judiciaries. Exchanging assets for a residual share of returns from a joint venture exposes one to shirking by co-investors. Judiciaries known reliably to penalize those who renege on commitments help investors persuade others to sink complementary assets in promising projects. But a court is an arm of the sovereign. Across history and geography justifiable rulings adverse to sovereigns have so often been honored in the breach that private parties are especially leery of sovereigns as co-investors. To attract assets into its realm a sovereign may thus invest in a reputation for abiding by waivers of sovereign immunity, or rely on a still stronger sovereign to bond its waivers. Reputations arise from observed court successes by aggrieved co-investors when their suits against the sovereign are meritorious. But many tribal reservations are small and poor, have offered few investment opportunities, and hence possess thin legal histories. At the same time, investors are skeptical that courts of more powerful sovereigns such as Canada and the United States dependably bond tribal waivers. Thus tribes often must pay investors high risk-premiums, resort to costly tribal ownership, or even forego promising opportunities altogether. The Sovereign’s Paradox refers to the difficulty that an entity with power to compel involuntary outcomes has in negotiating voluntary ones. This chapter explores ways to ameliorate that Paradox and thus improve returns from reservation assets. |
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Liquidity and Issue Costs in the Eurobond Market: the Effects of Market Integration Arie Melnik and Doron Nissim We investigate and compare the issuance costs of Eurobonds before and after the completion of the Economic and Monetary Union (EMU) in 2002, and find that the introduction of the euro has significantly reduced the issue cost of euro-denominated bonds compared with bonds denominated in the legacy currencies. The reduction in issue cost was not due to a decrease in underwriter compensation, but rather to the elimination of underpricing (the difference between the market price after trading commences and the offering price). Underwriter fee has declined substantially after the EMU, but that decline was offset by an increase in the underwriter spread (the difference between the offering price and the guaranteed price to the issuer), leaving total underwriter compensation unchanged. The EMU is also associated with significant reductions in bond maturity and syndicate size, consistent with its expected effects on liquidity and issue costs in the Eurobond market. |
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Sulle dinamiche del ciclo misesiano Enrico Colombatto Di recente l’analisi
austriaca del ciclo economico è stata oggetto di rinnovato
interesse: contrariamente alla maggior parte delle analisi
tradizionali, infatti, la visione originaria di Mises non spiega il
ciclo richiamandosi a shock esogeni o a illusioni di cui sarebbero
vittime gruppi di agenti economici. Per contro, l’accento viene posto
sul fenomeno dell’inflazione sequenziale generato dal sistema bancario
e dalla variazione nei fondamentali a essa legata. |
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Variational representation of preferences under ambiguity Fabio Maccheroni, Massimo Marinacci and Aldo Rustichini In the classic Anscombe and Aumann decision setting, we give necessary and sufficient conditions that guarantee the existence of a utility function u on outcomes and an ambiguity index c on the set of all probabilities on the states of the world such that acts are ranked according to the criterion V(f)=min{E(u(f),p)+c(p)} where p ranges over all
probability distributions and c is a non-negative convex funcion on the
set of all probability distributions. The preferences we characterize
include as special cases the multiple priors preferences of Gilboa and
Schmeidler, the multiplier preferences of Hansen and Sargent, and the
mean-variance preferences of Markowitz and Tobin. In this way we are
able to provide a rigorous ambiguity perspective on the latter two
models, which have been widely used in macroeconomics and finance. |
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Der freie und der
unfreie Wille und der Ursprung des Bösen Peter Koslowski The origin of evil is one
of the great puzzles of philosophy and theology. Evil is no objective
of the world order since there can be no objective to fail to meet an
objective. To assume that evil is part of the world order would,
however, imply to assume that there is an objective to fail an
objective, namely to aim at evil as an objective to realize the failure
of an objective. |
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Schuldverhältnisse Peter Koslowski Debt relationships are
relationships of obligations. The paper analyses debt relationships in
civil law and economic ethics as well as in theology. It starts from
the German word for debt and guilt relationships
Schuldverhältnisse. The German term Schuld does not distinguish
between debt and guilt and comprises all relationships of being
indebted and being guilty. Guilt and indebtedness constitute
obligations which are derived from the law of reciprocity. The gift
relationship is usually not excluded from the expectation of
reciprocity. Relationships of indebtedness form the core of economic
and civil law relationships. |
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Das
Ausgleichsprinzip der Sozialen Marktwirtschaft zwischen
Solidarität und Korporatismus. Peter Koslowski The Social Market Economy has been seen as a third path between capitalism and socialism shaped by the principle of solidarity. The rhetoric of the third way can be mere mediation as indecisiveness or the consequence of a third conception of the economic order. Solidarism and personalism as the base of the economic system are opposed to individualism and collectivism. Different conceptions of the human per-son form the basis of different economic systems. Personalism is also a critique of the belief in systems. It claims that the economic order must be based on (multiple) principles, not on the idea of a closed system. A weakness of the Social Market Economy is its belief in personal and corporatist decision-making aiming at consen-sus between central interest groups. It does not give sufficient consideration to the role of the capital market as the market for corporate control. Paternalism and corpo-ratism of the dominant interest groups are failed developments originating from un-derrating the control by impersonal competition. |
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Public Interest
and Self-Interest in the Market and the Democratic Process Peter Koslowski The idea of public
interest has been criticized by economic theory as being naïve in
its believe that politicians could anticipate something like the public
interest. Public Choice theory has shown that politicians are as
self-interested as other acting persons. The pa-per examines this
criticism. It points to the fact that also what is in our self-interest
in the long run is difficult to know and to anticipate. The
relationship between public and private interest is therefore more
complicated than the pure theory of the invisible hand assumes. |
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Virtual Reality
as a Problem of the Electronic Economy Peter Koslowski Two concepts of virtual
reality are competing in the cyber world, virtual reality as total
adaptability and virtual reality as the simulation of possible worlds.
Virtuality as adaptability in industrial production leads to a closer
consideration of individual con-sumer demand and to de-massified
production. It implies a stronger reference of pro-duction to the
reality of consumer needs. The aesthetic concept of virtual reality as
pos-sible words and fictional realities can imply a loss of reality.
Both concepts of virtuality interact, however. Adaptive production
needs the experimentation of imagined and simulated possible worlds.
Virtual reality leads to a disembodiment of experience and to the
danger of the loss of the validation of perception by experience. The
concept of the virtual is originally a concept of theological origin,
signifying invisible but real potenti-ality or a reality that is real
only as potentiality. One of the most important innovations of the
virtual reality of the internet has taken place in financial markets in
online trading and online brokerage. The virtual reality of the
internet financial markets enables large strata of the population to
participate in stock market speculation, leading to a kind of people’s
capitalism. Problems caused by the virtual character of the
transactions in online trading are the churning of traders and the
over-trading of shares by investors. |
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Die
Europäische Union und das Ende der Einheit von Staatsvolk und Staat Peter Koslowski The European Union challenges the European national state and its idea of the unity of nation and state. It is a transnational union of nation states in which, like in any un-ion, the member states must give up parts of their sovereignty. Regardless of the fact whether the EU is already a federal state or still a confederation of states, it is the return to an older European model of the transnational commonwealth or empire: the EU is supranational and has only limited central power. Since the EU challenges the nation state it seems appropriate to ask what constitutes a nation. The paper discusses two his-torical answers, by Schelling and by Herder. For Schelling, the nations are forms of thought of the absolute spirit, for Herder nations are constituted by their language and the unity of nation and language. The unity of nation and state is derived from the idea that a nation or a people becomes conscious of itself in the state. State and nation are the identity of subject and object. The state is the subject of the nation which is in turn the object on which and on behalf of which the state acts. This identitarian constitution of the nation state is questioned by the EU and by the argument that the identity of the political will of the nation and of the state is usually a fiction. In contrast, the nation must be seen as a club into which one is born, and political representation as temporal delegation without claims to the identity of the citizens and of the political power. The EU is a club of nations, a club of clubs into which its citizens are born. That the EU does not realize popular sovereignty is no flaw. The model of the nations as clubs and of the EU as a club of clubs replaces the national model of the unity of nation and state. |
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Hierarchical mixture modelling with normalized inverse Gaussian priors Antonio Lijoi, Ramsés H. Mena, and Igor Prünster In recent years the
Dirichlet process prior has experienced a great success in the context
of Bayesian mixture modelling. The idea of overcoming discreteness of
its realizations by exploiting it in hierarchical models, combined with
the development of suitable sampling techniques, represent one of the
reasons of its popularity. In this paper we aim at proposing the
normalized inverse Gaussian process as an alternative to the Dirichlet
process to be used in Bayesian hierarchical models. The normalized
inverse Gaussian prior is constructed via its finite-dimensional
distributions. This prior, though sharing the discreteness property of
the Dirichlet prior, is characterized by a more elaborate and sensible
clustering which makes use of all the information contained in the
data. While in the Dirichlet case the mass assigned to each observation
depends solely on the number of times it occurred, for the normalized
inverse Gaussian prior the weight of a single observation heavily
depends on the whole number of ties in the sample. Moreover,
expressions corresponding to relevant statistical quantities, such as a
priori moments and the predictive distributions, are as tractable as
those arising from the Dirichlet process. This implies that
well-established sampling schemes can be easily extended to cover
hierarchical models based upon the normalized inverse Gaussian process.
The mixture of normalized inverse Gaussian process and the mixture of
Dirichlet process are compared by means of two examples involving
mixtures of normals. |
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Contributions to the understanding of Bayesian consistency Antonio Lijoi, Igor Prünster, and Stephen G. Walker Consistency of Bayesian nonparametric procedures has been the focus of a considerable amount of research. Here we deal with strong consistency for Bayesian density estimation. An awkward consequence of inconsistency is pointed out. We investigate reasons for inconsistency and precisely identify the notion of “data tracking”. Specific examples in which this phenomenon can not occur are discussed. When it can happen, we show how and where things can go wrong, in particular the type of sets where the posterior can put mass. |
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Growth with work
ethics Farshid Mojaver Economic development is the result of hard work, discipline and frugality – qualities, which can be learned through an education process. This is the gist of Max Weber's writings on the development of capitalism, which I have modeled in this paper. The model shows how an educational sector that produces a composite of work ethics and skills can lead to sustained growth. Human capital in this model reduces the disutility of effort exertion and thereby induces people to work harder. Along balanced growth path, effort exertion is constant in this mode. The model shows that growth is an increasing function of effort exertion which itself is a function of a number of efficiency parameters. Historical anecdotal evidence and a regression analysis looking at the effects of formal education on growth with a new interpretation are presented in support of the model. |
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Rational
extremism: the calculus of discontent Ronald Wintrobe The basic point of the
paper is that, under certain circumstances, groups which take extremist
positions on issues tend also to use extremist methods such as
terrorism and violence to pursue those goals. I assume that the leaders
of extremist groups are rational, therefore, given their goals, they
choose the best methods to achieve them. From this point of view, the
basic difference between extremist methods of political competition and
moderate methods is just that extremist methods are risky, implying the
possibility of bigger success or bigger failure compared to moderate
methods. |
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The “Tuberculous
Cattle Trust”: Disease Contagion Alan L. Olmstead and Paul W. Rhode By 1900 scientific
breakthroughs revealed that bovine tuberculosis was a serious and
growing threat to animal and human health. Early private and state
initiatives in the U.S. to address the problem were often
counterproductive because they increased the incentives for the
interstate trade of diseased stock. Our investigation shows that just
one unscrupulous dealer exposed thousands of dairy herds and families
to the disease. |
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Religion als Wettbewerb Michael Zoeller This paper starts with
the observation that the United States and Europe, both members of the
family of “western-type-modern societies”, should (according to the
still prevailing theories of modernization) follow the same pattern of
development including secularization. |
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Hayek and
Economic Policy Enrico Colombatto By examining Hayek’s
approach to economic policy, this paper tries to show that his
understanding of a free-market society was ambiguous, if not
contradictory. Hayek was indeed following the Austrian tradition by
rejecting technocratic views of policy-making. Nevertheless, he
advocated a constitutional approach ultimately based on the rule of law
created behind a veil of ignorance. Regulation and a fairly extensive
welfare state are not ruled out either, and are subject to evaluation
through a mix of rule of law (what that means), public opinion, common
sense. |
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On Semi-Industrialized Countries and the Acquisition of Technological Capabilities Simon Teitel The last decades have
witnessed a breaking down of the hitherto quasi-monopoly in industrial
and technological development by highly industrialized countries.
Man-made changes in comparative advantage due to rapid accumulation of
human capital, development of technical institutions, and public
policies in support of enterprise development and innovation, have led
to the emergence of advanced technical capabilities in a number of
semi-industrialized countries. Study of selected instances of their
technological achievement show that they cannot be adequately
interpreted as necessarily requiring the working of a well integrated
national innovation system. They seem to be instead, path, or process,
dependent, and determined by the circumstantial convergence of
requisite skills, appropriate institutions and supportive public
policies. |
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Legislatures and government spending: evidence from democratic countries Roberto Ricciuti In this paper we study
the relationship between legislature size with respect to general
government and welfare spending. According to the theory, legislature
size has an indefinite effect on government spending because logrolling
and transaction costs have canceling effects. Bicameralism is expected
to have a negative effect because of the increased transaction cost of
finding a viable majority in two houses with different constituencies.
We use a cross-section of 75 countries over the period 1990-1998
controlling for some institutional features that differ among
countries. We find that both legislature size and bicameralism do not
have a significant effect on the two types of spending. |
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Status Buying Responses in a Survey of Studentsand Variations in Informational Levels Kenneth V. Greene and Phillip J. Nelson This article reports on a survey of a large number of undergraduate students in the U.S. They were queried about whether they preferred living in a society where they had high relative income (status) but low purchasing power or a society where they have low status, but high purchasing power.While the overwhelming majority indicate a desire to buy status, the information given about intergenerational mobilty and amenities like health available in the different socities makes a big difference in the responses. The data indicate that that the majority desiring to buy status disappears with better information. |
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The employment impact of business investment incentives in declining areas: an evaluation of the EU “Objective 2 Area” programs Daniele Bondonio and Robert T. Greenbaum Beginning in 1989, the European Union started targeting its Structural Funds business incentives geographically to industrial areas that have been facing above average unemployment and industrial job loss. Although billions of euros have been invested in these Objective 2 areas, very little is known about the effectiveness of these public expenditures. This paper develops an estimation strategy utilizing parametric difference in difference specifications to estimate the impact of business incentives offered in the Objective 2 areas of central and northern Italy between 1995 and 1998. The paper finds the incentives to be most effective in the areas that faced the least pre-intervention employment loss. |
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On consistency of nonparametric normal mixtures for Bayesian density estimation Antonio Lijoi, Igor Prünster, and Stephen G. Walker The past decade has seen a remarkable development in the area of Bayesian nonparametric inference both from a theoretical and applied perspective. As for the latter, the celebrated Dirichlet process has been successfully exploited within Bayesian mixture models leading to many interesting applications. As for the former, some new discrete nonparametric priors have been recently proposed in the literature: their natural use is as alternatives to the Dirichlet process in a Bayesian hierarchical model for density estimation. When using such models for concrete applications, an investigation of their statistical properties is mandatory. Among them a prominent role is to be assigned to consistency. Indeed, strong consistency of Bayesian nonparametric procedures for density estimation has been the focus of a considerable amount of research and, in particular, much attention has been devoted to the normal mixture of Dirichlet process. In this paper we improve on previous contributions by establishing strong consistency of the mixture of Dirichlet process under fairly general conditions: besides the usual Kullback–Leibler support condition, consistency is achieved by finiteness of the mean of the base measure of the Dirichlet process and an exponential decay of the prior on the standard deviation. We show that the same conditions are sufficient for mixtures based on priors more general than the Dirichlet process as well. This leads to the easy establishment of consistency for many recently proposed mixture models. |
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On rates of convergence for posterior distributions in infinite–dimensional models Antonio Lijoi, Igor Prünster, and Stephen G. Walker This paper introduces a new approach to the study of rates of convergence for posterior distributions. It is a natural extension of a recent approach to the study of Bayesian consistency. Crucially, no sieve or entropy measures are required and so rates do not depend on the rate of convergence of the corresponding sieve maximum likelihood estimator. In particular, we improve on current rates for mixture models. |
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On the privatization of "Stolen Goods" in Central and Eastern Europe Svetozar (Steve) Pejovich Many scholars assert that the process of privatizing state-owned firms in Central and Eastern Europe has been a success because privatized firms are performing better than they did before. The assertion is an empty piece of poetry. To begin with, privately owned firms are more efficient than state owned firms. Hence, the evaluation of the process of privatization in Central and Eastern Europe does not depend on some measured efficiency of privatized firms. The evaluation of privatization should be based on the contribution of privatized firms to the attainment of two major initial objectives of institutional restructuring in post-communist Central and Eastern Europe: the acceptance of capitalism and the development of free-market, private-property institutions. The paper argues that the privatization of state-owned firms has failed to contribute to those two objectives. Analysis attributes this failure of privatization to the neoclassical model, the absence of de-communization in the region, and the unwillingness of new rules to assign the value of state-owned firms to their rightful owners. |
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Bringing Macroeconomics into the Lab Roberto Ricciuti This paper reviews experiments in macroeconomics, pointing out the theoretical justifications, the strengths and weaknesses of this approach. We identify two broad classes of experiments: general equilibrium and partial equilibrium experiments, and emphasize the idea of theory testing that is behind these. A large number of macroeconomic issues have been analyzed in the laboratory spanning from monetary economics to fiscal policy, from international trade and finance, to growth and macroeconomic imperfections. In a large number of cases results give support to the theories tested. We also highlight that experimental macroeconomics has increased the number of tools available to experimentalists. |
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Portfolio Selection with Monotone Mean-Variance Preferences Fabio Maccheroni, Massimo Marinacci, Aldo Rustichini and Marco Taboga We propose a portfolio selection model based on a class of preferences that coincide with mean-variance preferences on their domain of monotonicity, but differ where mean-variance preferences fail to be monotone. |
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A strong law of large numbers for capacities Fabio Maccheroni and Massimo Marinacci We consider a totally monotone capacity on a Polish space and a sequence of bounded p.i.i.d. random variables. We show that, on a full set, any cluster point of empirical averages lies between the lower and the upper Choquet integrals of the random variables, provided either the random variables or the capacity are continuous. |
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The Japanese Deflation: Has It Had Real Effects? Could It Have Been Avoided? Claudio Morana Has deflation contributed
to the long lasting stagnation of the Japanese economy? Could the Bank
of Japan have stopped deflation by implementing a more expansionary
monetary policy? Our tentative answers are probably not to the first
question, and probably yes to the second question. We find that the
total cost of deflation over the period 1995-2003 has been close to a
1.1% rate of lost GDP. Yet, on the basis of statistical significance
and robustness to specification choices, this evidence is not
compelling. On the other hand, the estimated positive linkage between
nominal base money growth and inflation is significant and robust, even
given current economic conditions. However, in order to be
inflationary, monetary policy should |
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Houthakker and Ville's contributions to demand theory: a new look at the debate on integrability conditions François Gardes and Pierre Garrouste Jean Ville gave, independently of Houthakker, and prior to him, a general one page proof of the integrability of demand functions in a revealed preference scheme. It happens that this essential contribution has been largely ignored in the literature. The comparison between Ville and Houthakker’s proofs makes room for discussing the assumptions necessary to encompass the discrete version of the acyclicity into a continuous version. |
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The connections between the Austrian tradition and some of the recent developments relating to the economic analysis of institutions Pierre Garrouste This paper has two aims. First, it studies the way the Austrian theory of institutions evolved from the main works of Menger. Second, and most significantly, it tries to justify the idea that the economic analysis of institutions was inspired more or less explicitly by Menger’s thesis but more generally by the Austrian intuitions and thesis. These intuitions and theses are however amended in order to make them more formalized as well as testable. |
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Alice is not missing
Wonderland. Miroslav Prokopijevic In this paper I will try
to show that the EU enlargement from 2004 is not a good economic move
for eight newcomers from Central and Eastern Europe (CEECs). It is
unlikely that newcomers will get larger FDI, speed up their economic
growth and catch up with richer EU countries, although this was broadly
advertised both academically and by the EU “propaganda for happiness.”
The EU subsidies, intended to offset accession costs, turn out to be
useless if not damaging for acceding economies, because they change the
structure of incentives. So, instead of being rewarded for accession,
accession countries are going to be punished twice. Firstly, by lower
FDI and a persisting GDP gap. Secondly, by getting subsidies which
worsen the situation. |
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