Working papers 2007
(including abstracts)
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A Comparative Study of Student Demand for Status in Ireland, Italy and the United States G. Boyle, K.Greene, P. Nelson and M. Pagliero This paper reports on results of
surveys of
hundreds of students in Italy, Ireland and the United States that show that if simply confronted with
questions about their preferences for high relative income at the
expense of
absolute income that a) a substantial
fraction give inconsistent answers and b) that the remainder are
overwhelmingly
status conscious. It also shows that where they are given more
information
about the benefits of higher real income that there is a significant
decrease in
this preference for status. The results are remarkably similar in all 3
countries and what differences exist are consistent with what we know
about
their differences in intergenerational income mobility. It also shows
that when
the price of status is changed American students response is highly
inconsistent with any fully formed preferences for status. This is
somewhat
less so in |
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University IPRs and Knowledge Transfer. Is the IPR Ownership Model more Efficient? G. A. Crespi, A. Geuna and B. Verspagen This paper
contributes to the current
debate on university patents and knowledge transfer at two levels.
First we
present the results of the comparison of European and |
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Supreme Audit Institutios: Supremely Superfluous? A Cross Country Assessment? L. Blume, S. Voigt This is the first study that assesses the economic
effects of supreme audit institutions ( |
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Hayek's Theory of Social Evolution in the Light of Darwin's Descent of Man A. Marciano Abstract This article proposes to reassess Hayek’s theory of cultural evolution in the light of Darwin’s Descent of Man. It is shown that Hayek and Darwin refers to the same theory of human nature which is borrowed from the founding fathers of political economy, Hume and Smith. Their respective conceptions of order, as well as the mechanisms and the product of evolution are then the consequence of this theory of human nature. |
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A note on stochastic survival probabilities and their calibration Elisa
Luciano and Luca Regis The paper illustrates the e fficiency features of the Italian banking system through a review of the most important empirical studies over the last fifteen years. Particular emphasis is given to DEA (dynamic envelopment analysis) studies and to their capability to investigate economies of scale and geographical di fferences. The role of mergers — which are, as a matter of fact, a crucial feature of several systems, including Italy — is stressed. The Italian experience is compared to the one of old EU member countries. The paper concludes that there seem to be economies of scale at the beginning of the period, while they do not seem to characterize more recent years. |
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Estimating,
Filtering and Forecasting Realized Betas Claudio Morana A strategy for
estimating, filtering and forecasting time-varying factor betas is
proposed. The approach is based on the multivariate realized regression
principle, an omnibus noise filter and an adaptive long memory
forecasting model. While the multivariate realized regression approach
allows for an accurate estimation of the betas also when more than a
(non-orthogonal) risk factor affects stock returns, the omnibus noise
filter and adaptive long memory forecasting model, by accounting for
the time series properties of factor betas, allow for accurate
estimation and forecasting.
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Comovements in
Volatility in the Euro Money Market N. Cassola, C. Morana This paper assesses the sources of volatility persistence in Euro Area money market interest rates and the existence of linkages relating volatility dynamics. The main findings of the study are as follows. Firstly, there is evidence of stationary long memory, of similar degree, in all series. Secondly, there is evidence of fractional cointegration relationships relating all series, except the overnight rate. Two common long memory factors are found to drive the temporal evolution of the volatility processes. The first factor shows how persistent volatility shocks are trasmitted along the term structure, while the second factor points to excess persistent volatility at the longer end of the yield curve, relative to the shortest end. Finally, impulse response analysis and forecast error variance decomposition point to forward transmission of shocks only, involving the closest maturities. |
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On the Macroeconomics
Causes of Exchange Rates Volatily C. Morana What are the causes of exchange rate volatility? When
second moments implications of theories of exchange rates determination
are considered, long-term fundamental linkages between macroeconomic
and exchange rate volatility can be envisaged. Moreover, as the
exchange rate is an important determinant of aggregate demand,
bidirectional causality should be expected. The results of the paper
support the above intuitions pointing to important linkages and
trade-offs relating exchange rate and macroeconomic volatility, with
causality direction stronger from macroeconomic volatility to exchange
rate volatility than the other way around. In particular, with a
long-term perspective, Friedman (1953) conclusions on the macroeconomic
sources of exchange rates instability and the impossibility of
eliminating systemic volatility find full support in the empirical
findings. |
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Factor Demand
Modelling: the Theory and the Practice C. Morana Since the work of Cobb and Douglas [18], two main
innovations have been introduced in applied factor demand analysis,
i.e. the use of flexible functional forms and the modelling of
dynamics, expectations, and the interrelatedness of the adjustment
process. Recently, cointegration theory has provided an additional
important contribution, yielding empirical content to the notion of
equilibrium employed in economic analysis, encompassing both the idea
of centre of gravity relationship, suggested by Classical economists,
and the notion of market-clearing position, employed by Neoclassical
economist. Also in the light of the most recent generalizations of the
concept of cointegration, allowing for economic attractors changing
over time, as the evolution of the structural features of the economy
proceeds, this paper critically assess the key theoretical and
empirical issues in factor demand analysis. |
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Economic Freedom: Theory First, Empiricism After J. Kapas, P. Czeglédi The aim of this paper is to argue in favor of
theoretically well- founded empirical examinations on how economic
freedom affects economic performance, which is not the case, as we
argue, in most of the huge empirical literature developed after the
construction of various indexes of economic freedom. In this spirit we
develop a concept of economic freedom based on Hayek (1960): absence of
coercion except for state coercion to enforce known general rules.
Trying to formulate Hayek’s ideas on a less abstract level, as a step
further we propose a categorization of government actions, which gives
us some guidance about which government actions hurt and which do not
hurt economic freedom. Our concept of economic freedom allows us to
conceptualize the measurement of economic freedom in a different way
from the indexes of economic freedom. |
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Modeling Long Memory and Structural Breaks in Conditional Variances: an Adaptive FIGARCH Approach R. T. Baillie, C. Morana This paper introduces a
new long memory volatility process, denoted by Adaptive FIGARCH, or
A-FIGARCH, which is designed to account for both long memory and
structural change in the conditional variance process. Structural
change is modeled by allowing the intercept to follow a slowly varying
function, speci–ed by Gallant (1984)™s ⁄exible functional form. A Monte
Carlo study finds that the A-FIGARCH model outperforms the standard
FIGARCH model when structural change is present, and performs at least
as well in the absence of structural instability. An empirical
application to stock market volatility is also included to illustrate
the usefulness of the technique.
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Venture Capitalism as
a Mechanism for Knowledge Governance: the Emergence of the Markets for
Knowledge Intensive Property Rights C. Antonelli, M. Teubal Venture capitalism is an outcome of the ICT Revolution,
which made its appearance first in the US during the late 1970s and
early 1980s and then in other countries including Israel during the
1990s. It explains the new pervasive role of small firms in the
introduction of technological innovations and the rise of research and
development expenditures in the US in the last decade of the XX
century. Venture capitalism is a major institutional innovation based
upon the identification of economies of scope in the transactions of
technological knowledge bundled with managerial competence, reputation,
screening procedures and equity. It has paved the way to the emergence
of new surrogate markets for knowledge, i.e. financial markets
specialized in the trade of knowledge intensive property rights with
important benefits in terms of economic of size in portfolio management
and hence profitability of investments in high-tech start-ups. The
emergence of venture capitalism has important |
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Bayesian Nonparametric Construction of the Fleming-Viot1 Process with Fertility Selection M. Ruggiero, S. G. Walker This paper provides the
construction in a Bayesian setting of the Fleming-Viot measure-valued
process with diploid fertility selection and highlights new connections
between Bayesian nonparametrics and population genetics. Via a
generalisation of the Blackwell-MacQueen Pólya-urn scheme, a Markov
particle process is defined such that the associated process of
empirical measures converges to the Fleming-Viot diffusion. The
stationary distribution, known from Ethier and Kurtz (1994), is then
derived through an application of the Dirichlet process mixture model
and shown to be the de Finetti measure of the particle process. The
Fleming-Viot process with haploid selection is derived as a special
case.
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Construction and Stationary Distribution of the Fleming-Viot Process with Viability Selection M. Ruggiero, S. G. Walker This paper provides an
explicit construction of the Fleming-Viot process with viability
selection in a Bayesian nonparametric framework, and derives its
stationary distribution. The measure-valued diffusion is obtained as
the infinite population limit of the empirical measures of a
semi-Markov process of exchangeable particles. In the limit the
stationary distribution is shown to be the two-parameter
Poisson-Dirichlet process, also known as the Pitman-Yor process.
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Bayesian Nonparametric Estimation and Consistency of Mixed Multinomial Logit Choice Models P.
De Blasi,
L. F. James, J. W. Lau This paper
develops nonparametric estimation for discrete choice models based on
the Mixed Multinomial Logit (MMNL) model. It has been shown that MMNL
models encompass all discrete choice models derived under the
assumption of random utility maximization, subject to the identifiation
of an unknown distribution G. Noting the mixture model description of
the MMNL, we employ a Bayesian nonparametric approach, using
nonparametric priors on the unknown mixing distribution G, to estimate
the unknown choice probabilities. Theoretical support for the use of
the proposed methodology is provided by establishing strong consistency
of a general nonparametric prior on G under simple sufficient
conditions. Consistency is defined according to a L1-type distance on
the space of choice probabilities and is achieved by extending to a
regression model framework a recent approach to strong consistency
based on the summability of square roots of prior probabilities. Moving
to estimation, slightly different techniques for non-panel and panel
data models are discussed. For practical implementation, we describe
efficient and relatively easy to use blocked Gibbs sampling
procedures. A simulation study is also performed to illustrate the
proposed methods and the exibility they achieve with respect to
parametric Gaussian MMNL models.
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A Bayesian Nonparametric Method for Prediction in EST Analysis A. Lijoi, R.
H. Mena, I. Prünster In this
work we propose a Bayesian nonparametric approach for tackling
statistical problems related to EST surveys. In particular, we provide
estimates for: a) the coverage, defined as the proportion of unique
genes in the library represented in the given sample of reads; b) the
number of new unique genes to be observed in a future sample; c) the
discovery
rate of new genes as a function of the future sample size. The Bayesian
nonparametric model we adopt conveys, in a statistically rigorous way,
the available information into prediction. Our proposal has appealing
properties over frequentist nonparametric methods, which become
unstable when prediction is required for large future samples. EST
libraries studied in Susko and Roger (2004), with frequentist methods,
are analyzed in detail..
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The Bernstein-Von Mises Theorem in Semiparametric Competing Risks Models P.
De Blasi,
N. L. Hjort Semiparametric Bayesian models are nowadays a popular tool
in survival analysis. An important area of research concerns the
investigation of frequentist properties of these models. In this paper,
a Bernstein-von Mises theorem is derived for semiparametric Bayesian
models of competing risks data. The cause-specific hazard is taken as
the product of the conditional probability of a failure type and the
overall hazard rate. We model the conditional probability as a smooth
function of time and leave the cumulative overall hazard unspecified. A
prior distribution is defined on the joint parameter space, which
includes a beta process prior for the cumulative overall hazard. We
show that the posterior distribution for any differentiable functional
of interest is asymptotically equivalent to the sampling distribution
derived from maximum likelihood estimation. A simulation study is
provided to illustrate the coverage properties of credible intervals on
cumulative incidence functions.
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The Neutral Population Model and Bayesian Nonparametrics S.
Favaro, M.
Ruggiero, D. Spanò, S. G. Walker In this paper a widely-studied model in Population Genetics,
the so-called Infinitely-Many-Alleles model with neutral mutation, is
reinterpreted in terms of a time-dependent Bayesian nonparametric
statistical model, where the prior of the model is described by the
Neutral Fleming-Viot process. A natural likelihood process is
introduced such that every collection of k observations, at each time
point, is essentially a vector of i.i.d. samples from the state of the
Fleming-Viot process at that time. The dynamic properties of the
particle process induced by such a likelihood are studied. The Moran
model is derived as the marginal distribution of a time-dependent
sample induced by such a choice of prior and likelihood. The derivation
of all results relies on the transition density of the Neutral
Fleming-Viot process and on a new representation for the Dirichlet
process.
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Exchangeable Claims Sizes in a Compound Poisson Type Proces R. H.Mena, L.E.
Nieto-Barajas When dealing with risk models the typical assumption of
independence among claim size distributions is not always satisfied.
Here we consider the case when the claim sizes are exchangeable and
study the implications when constructing aggregated claims through
compound Poisson type processes. In particular, exchangeability is
achieved through conditional independence and using parametric and
nonparametric measures for the conditioning distribution. A full
Bayesian analysis of the proposed model is carried out to illustrate.
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Dynamically Consistent Conditional Choquet Capacities R. Kast, A. Lapied Preferences of a Decision
Maker define a valuation function on future uncertain payoffs.
Consistency of this unconditional valuation function with valuation
conditional on information arrivals is justified by a no Money Pump
argument. A result on the updating of capacities is obtained in a
static framework. Then the arguments are developed in a model where the
future payoffs are contingents on two components: uncertain states and
future dates. We obtain results on updating capacities on the uncertain
states and “upstating” capacities (discount factors) on future dates in
a special case. These results are shown to
violate consequentialism. |
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Copula-Based Default Dependence Modelling: Where Do We Stand? E. Luciano Copula functions have
proven to be extremely useful in describing joint default and survival
probabilities in credit risk applications. We overview the state of the
art and point out some open modelling issues. We discuss rst joint
default modelling in diffusion based structural models, then in
intensity based ones, focusing on the possibility - and the dynamic
inconsistency - of re-mapping a model of the second type into one of
the first. For both types of models, we discuss calibration issues
under the risk neutral measure, using the factor copula device. The
survey leads us to focus on a non-diffusive structural model, which can
be re-mapped in a dynamic consistent intensity-based one, and which can
be calibrated under a risk neutral measure without assuming
equicorrelation.
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The Institutional Structure and the Cost of Bank Loans: an International Comparison A. L. Melnik, S. E. Plaut In recent years international comparisons emphasized the
importance of institutional and legal factors in capital market
development and the performance of private firms. Here that approach is
applied to the pricing of bank loans. Loan rates depend on contract
parameters such as risk, the existence of covenants and loan size.
Syndicate structure and the number of lenders also determine the cost
of borrowing. Loan prices are also negatively impacted if the lending
banks operate as part of larger conglomerates. Loan prices are also
shown to depend on a number of institutional factors, such as the
quality of protection of creditor rights and the quality of law
enforcement. Curiously, we find that contracts with customers in
"French tradition" countries were priced lower, as if having lower
risk, than others, other things held equal. This is not in line with
other segments of the literature on international capital market
differences and institutional factors. It suggests that differences
across legal traditions are more complicated than previously understood. |
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Determinants of Direct Democracy N. Fiorino, R. Ricciuti This paper investigates on the demographic, economic,
political and cultural determinants of direct democracy in 87 countries
using an index of direct democracy. The test is interesting since there
are important variations across these countries in the referendum and
initiative use. We apply a number of estimation techniques. We find
that per capita income, education and a larger share of Catholic
population are positive determinants, whereas ethnic fractionalization
is depending on the estimation technique. Political rights and
stability also work as prerequisites to direct democracy. Direct
democracy seems independent from the institutional structure. |
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Institutions, Trade, and Social Cohesion in Fragile States M. Baliamoune-Lutz This paper examines the contribution of institutions,
social cohesion, and trade to development (per-capita income) with
emphasis on fragile states in Africa. Results from GMM estimations
suggest that political institutions, openness to trade, and social
cohesion affect growth in fragile states via direct and indirect
mechanisms. The results indicate that, beyond a certain level, openness
to trade may actually be harmful to economic performance in fragile
states, particularly in countries with high export concentration.
Improvements in institutional quality, or more specifically in
democratization, also may be harmful in the short run. On the other
hand, social cohesion has a positive effect once a threshold level is
reached. The results associated with the effects of political
institutions and openness to trade seem to suggest the possibility of a
‘catch-22’, at least in the short run. If a fragile state tries to
improve its political institutions or its openness to trade it may wind
up with lower per-capita income. According to the formula used to
allocate World Bank-IDA funds get more money, such country would get
more aid. However, while obtaining more aid may be a good outcome lower
income implies more poverty (assuming no changes in income
distribution). Thus, aid may not lead to significant poverty reduction. |
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Gender Inequality and Growth in Sub-Saharan Africa and Arab Countries M. Baliamoune-Lutz This paper uses panel data from African and Arab
countries and Arellano-Bond estimations to empirically assess the
impact on growth of two primary indicators that are associated with MDG
3; namely the ratio of girls to boys in primary and secondary
enrolment, and the ratio of 15-24 year-old literate females to males.
Our findings indicate that gender inequalities in literacy have a
statistically significant negative effect that is robust to changes in
the specification. We show that higher gender inequality has an even
stronger effect on income growth in Arab countries. In addition, in
more open economies, gender inequality in literacy seems to have an
additional effect, but this effect is positive; suggesting that
trade-induced growth may be accompanied by greater inequalities. The
results associated with the effects of gender inequality in primary and
secondary enrolment are less robust. |
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Inequality and the Anglo-American Economic Model G. Irvin The rollback of the state and the redistribution
initiated during the Reagan-Thatcher period in the US and Britain has
resulted in the se countries being the least egalitarian in the OECD,
with wages increasingly de-coupled from productivity growth and gains
accruing to top CEOs. The view that inequality is attributable solely
to the new premium on human capital is challenged; it is argued that
inequality has resulted from mainly from personal tax breaks and the
corporate drive for ‘shareholder value’. The social costs are evident
from the sociological and epidemiological evidence. Equally, inequality
has helped fuel US consumer spending, facilitated by low interest
rates, holding gains and credit deregulation. The result is a ‘triple
deficit’. The risk is that by relying exclusively on market-led
devaluation, a crisis of confidence will result; righting financial
imbalances requires not merely a Plaza-type solution, but a major
reversal in the |
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Happiness and Pareto G. Irvin While the utilitarian notion of ‘happiness’ is
unsatisfactory, widespread interest in the subject suggests that
economists are recognising the importance of relative income status,
particularly in the US and the UK where income inequality has increased
greatly . If relative income matters, one must reconsider the notion of
a Pareto improvement, which is basic to public policy decisions. By the
same token, distributional issues are central to any discussion about
the costs and benefits of growth, an issue suggested not merely by the
‘happiness’ literature but by much recent writing on social capital,
co-operative surviv al strategies the like. Nor is there a simple
trade-off between efficiency and equity, since the two may be
complementary. The neo-classical theory of factor rewards cannot
justify current inequality since, upon closer examination, it is
tautological and incoherent. The conclusion is that economists would do
better to seek guidance on distributional matters from Rawlsian-type
political theory. |
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Regulation and Deregulation: Property Rights Allocation Issues in De Regulation of Common Pool Resources G. Libecap Rights-based institutions have been adopted for certain
natural resources in order to more effectively mitigate the losses of
the common pool. Past central government (command and control)
regulation has not proved satisfactory. In deregulation, a major issue
has been the assignment of those rights and controversy over it has
slowed the process. In this paper, I examine three different allocation
rules: first-possession, lottery or uniform allocation, and auction and
draw predic tions as to when they might be adopted and why they are
controversial. I analyze the assignment and nature of the rights
granted for common-pool resources where deregulation has occurred: oil
and gas unit shares, emission permits, and selected fishery ITQ’s in
six countries (Australia, Canada, Chile, Iceland, New Zealand, and the
U.S). I find that first-possession rules dominate where there are
incumbent users. Lotteries and auctions are rarely used. I discuss
criticisms of first-possession rules and argue that first-possession is
likely more efficient than previously recognized. Accordingly,
restrictions on such allocations as part of deregulation (rights
set-asides for particular groups and exchange limitations) may be
costly in the long run for addressing the problems of the common pool. |
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The Costs of the Public Trust Doctrine in Environmental Protection and Natural Resource Conservation J. Brewer, G. Libecap We examine the costs of the public trust doctrine in
environmental and natural resource protection and conservation. We
provide a model of litigation and settlement among disputing parties
where the doctrine is applied. The model suggests that use of the
public trust doctrine is likely to introduce more costs and be more
time consuming than would alternative approaches, such as the purchase
of private rights through market transactions or application of eminent
domain powers. Because the doctrine allows for uncompensated
redistribution it is resisted by current resource owners. Further, by
providing open standing to members of the “public” to challenge
existing uses, public trust disputes encourage excessive demands and
are more likely to go to trial than to be settled. This outcome is
exacerbated if the plaintiffs are “zealots” and provide litigation
services at below market cost, leading to greater investment in
litigation. We present a case study of Mono Lake, part of the
well-known 1983 litigation, National Audubon v. Superior Court to
illustrate our arguments. We suggest that the costs of the public trust
doctrine have limited its application. |
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Water Markets un the West: Prices, Trading, and Contractual Form J. Brewer, R. Glennon, A. Ker and G. Libecap Rising urban and environmental demand for water has
created growing pressure to re-allocate water from traditional
agricultural uses. The evolution of water markets has been more
complicated than those for other resources. In this paper, we first
explain these differences by examining water rights and regulatory
issues. Second, we place our research in the context of the economics
literature on water marketing. Third, we present new, comprehensive
data on prices and the extent, nature, and timing of water transfers
across 12 western states from 1987-2005. We find that prices are higher
for agriculture-to- urban trades versus within-agriculture trades, in
part, reflecting the differences in marginal values between the two
uses. Prices for urban use are also growing relative to agricultural
use. Markets are responding in that the number of agriculture-to-urban
transactions is rising, whereas the number of
agriculture-to-agriculture transfers is not. Further, there is a shift
from using short-term leases to using multi- year leases of water and
permanent sales of water rights. This pattern underscores the need to
consider the amounts of water obligated over time, rather than
examining only annual flows in assessing the quantities of water traded
as is the common practice in the literature. Considering water
obligated over time, termed committed water, we find significantly more
is transferred and the direction of trading is different than if the
focus is on annual flows. Finally, the data reveal considerable
variation in water trading across the states. |
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Copulas and
Dependence models in Credit Risk: Diffusions versus Jumps E. Luciano The
most
common approach for default dependence modelling is at present copula
functions. Within this framework, the paper examines factor copulas,
which are the industry standard, together with their latest
development, namely the incorporation of sudden jumps to default
instead of a pure di ffusive behavior. The impact of jumps on default
dependence - through factor copulas - has not been fully explored yet.
Our novel contribution consists in showing that modelling default
arrival through a pure jump
asset process does matter, even when the copula choice is thestandard,
factor one, and the correlation is calibrated so as to match the di
ffusive and non di ffusive case. An example from the credit derivative
market is discussed.
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Modelling Authoritarian Regimes M. Levinson, N. Schofield In the last few years, a body of ideas based on political
economy theory has been built up by North and Weingast, Olson,
Przeworski, and Acemoglu and Robinson. One theme that emerges from this
literature concerns the transition to democracy: why would dominant
elites give up oligarchic power? This paper addresses this question by
considering a formal model of an authoritarian regime, and then
examining three historical regimes: the Argentine Junta of 1976-1983;
Francoist Spain, 1938-1975; the Soviet System ,1924-1991. We argue that
these historical analyses suggest that party dictatorships are more |
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Modelling Politics N. Schofield Formal models of elections have emphasized the
convergence of party leaders towards the center of the electoral
distribution. This paper discusses various political episodes in
British and US history to suggest that political divergence is generic.
This leads to the inference that political choice involves electoral
judgment as well as preference. The stochastic electoral model is
extended to incorporate the basis of judgment, namely valence. The
model suggests that when the electoral system is based on proportional
electoral methods, then there will be numerous parties with very
di¤erent valences, adopting very divergent positions. Under plurality
rule, on the other hand, the role of activists appears to restrict the
number of parties to two, and to cause a slow political rotation in the
policy space. |
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Electoral Oscillations in Argentina G. Cataife, N. Schofield The mean voter theorem suggests that all parties should
rationally converge to the electoral center. Typically this leads to an
outcome which is unattractive to the rich. This paper develops a
general stochastic model of elections in which the electoral response
is a¤ected by the valence (or quality) of the candidates. Contributions
made by policy-motivated activists can in⁄uence valence, leading to the
failure of the mean voter theorem. The model is then applied to the
presidential elections in 1989 and 1995 in Argentina, to suggest why
Carlos Menem, who won in 1989 with a populist platform, was able to win
in 1995 with quite di¤erent policies that favored the upper middle
class. |
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Market or Markets? R. Arena, P. Garrouste The purpose of this contribution is related to our own
view of the Austrian market approach. We first point out how Menger,
Wieser, Hayek (to a more limited extent) and Lachmann successively made
various analytical achievements which contributed to the emergence of
an Austrian view of markets as institutions. We then characterize the
original features of this notion and sho w why and how it allows a
better understanding of the specificities of empirical markets and
their dynamics. |
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A Multi-Product Framework Generating Waves of Mergers and Divestitures J. Gaisford, S. Lutz Recent waves of corporate mergers followed by
divestitures have sparked new interest in economic analyses of these
issues. We take the merger paradox from the standard oligopoly
literature as a starting point and show that in the absence of any
cost-synergies of merger activities, firms do have an incentive to
divest further instead of joining mergers. We then analyze conditions
where mergers may emerge endogenously as a result of a market game. Due
to the nature of the interaction of market-share and
market-concentration effects in Cournot oligopolies, a stable internal
equilibrium where mergers arise endogenously and simultaneously
requires both cost synergies and cost dis-synergies. Endogenous merger
size is then a function of market parameters as well as cost synergy
parameters. Hence anticipated changes in market size or cost synergies
attainable through mergers lead to reconfigurations of merger sizes. If
ex-ante expectations about merger-promoting changes are not fully
realized ex-post, merger waves will be followed by divestiture waves.
Firm valuation - based on ex-ante expectation - may increase while
actual profits and efficiency of the merged entity - according to the
ex-post realization - may fall. |
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Rationality, Behavior, Institutional and Economic Change in Schumpeter A. Festré, P. Garrouste In 1940 Schumpeter wrote a paper entitled: “The Meaning
of Rationality in the Social Sciences”, which was intended to one of
the meetings of a seminar including Talcott Parsons, Wassilly Léontief,
Paul Sweezy and other Harvard scholars, that he took the initiative to
start. In this paper Schumpeter develops thoroughly his own conception
of rationality in economics. First, this paper is interesting in itself
because it is based on a sophisticated methodological analysis.
Schumpeter indeed interestingly anticipates some important debates
concerning the problem of rationality and behavior in economics and
presents arguments tha t make his ideas very topical. Second
Schumpeter’s conception of rationality is linked to his methodological
background (both individualistic and holistic), which is rooted in his
economic sociology and explains the relationships he stresses between |
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Entrepreneurship, Reforms, and Development: Empirical Evidence M. Baliamoune-Lutz We examine how entrepreneurship and institutional and
policy reforms affect development (proxied by the rate of growth in
per–capita income). We do so by performing Arellano-Bond GMM
estimations on annual data for a large group of developing and
developed countries, and covering the period 1990-2002. We focus in
particular on the interplay of trade and institutional reforms and
entrepreneurship. The empirical results indicate that the interplay of
entrepreneurship and institutions, and the interplay of
entrepreneurship and policy reforms, influence the growth effects of
entrepreneurship. However, the effects are strikingly different. The
impact of institutional reform is positive when the level of
entrepreneurship is low and negative when it is high. On the other
hand, the effect of policy reform is negative when entrepreneurial
activity is weak and positive when it is strong. These results are
robust to the inclusion of other |
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Carl Menger and Friedrich von Wieser on the Role of Knowledge and Beliefs in the Emergence and Evolution of Institutions A. Festré In this article we start from the well-known contribution
of the Austrian school with respect to the problem of knowledge and its
role in inter-individual coordination. Focusing on two authors of this
school - his founding father Carl Menger and Friedrich von Wieser, we
show that the y both appreciate the role of knowledge in the emergence
of economic and social institutions. However, their divergences
regarding methodological individualism and subjectivism lead them to
provide two different perspectives concerning the emergence and
dynamics of institutions. This is exemplified by Menger and Wieser’s
way of dealing with the emergence of money: on one hand, Menger takes
for granted the involuntary formation of shared knowledge about the
validity of social institutions such as money; on the other hand,
Wieser favours an explanation whereby collective beliefs are more than
shared knowledge since they do have some autonomy vis-à-vis individuals. |
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Exchange Control in Italy and Bulgaria in the Interwar Period: History and Perspectives K. Dimitrova, N. Nenovsky, G. Pavanelli This paper analyses exchange rate control measures
adopted in Italy and Bulgaria during the interwar period. The first two
sections provide a detailed account of the institutional and economic
framework in which these measures were enforced and interpret them
utilizing statistical data. In the third section it suggests a
theoretical interpretation of exchange control and clearing agreements
stressing that these policies were a serious interference in market
mechanisms. A further point is that exchange control introduced and
practiced in Italy and Bulgaria was an eloquent example of how serious
the balance of payments constraint was at that time and how difficult
it was to circumvent it. In the last section it derives some lessons
for today’s Italian and Bulgarian economies. |
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It was the Rule of Law. Will it be the Rule of Judges? E. Colombatto The Gregorian revolution introduced the rule of law in
the West and created necessary (but not sufficient) conditions for
growth to take off. This paper analyzes some of the consequences
provoked by the evolution in the notion of the rule of law – from being
based upon God-given natural law to relying on popular sovereignty. It
concludes that the importance of the rule of law, of the differences in
legal systems and of constitutions is probably overstated. It suggests
that the successor to the medieval notion of the rule of law is in fact
a mix of procedural political correctness, social preferences and
efficiency. As a result the main player becomes the judiciary, whose
behavioral patterns should become the object of further analysis. |
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Generalized Normal Mean Variance Mixture and Subordinated Brownian Motion E. Luciano, P. Semeraro Normal mean variance
mixtures are extensively applied in
finance. Under conditions for infinite divisibility they generate
subordinated Brownian motions, used to represent stocks returns. The
standard generalization to the multivariate setting of normal mean
variance mixture does not allow for independence and can incorporate
only limited dependence. In this paper we propose a multivariate
definition of normal mean variance mixture, named generalized normal
mean variance mixture, which includes both inde-pendence and high
dependence. We give conditions for infinite divisibility and prove that
the multivariate L'evy process defined from it is a subordinated
Brownian motion. We analyze both the distribution and the related
process. In the second part of the paper we use the construction to
introduce a multivariate generalized hyperbolic distribution (and
process) with generalized hyperbolic margins. We conclude with a
numerical example to show the case of calibration and the flexibility
of the model in describing dependence. |
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Understanding Firm Performance: the Case of Developing Countries's Firms that Compete Internationally in Technologically Advanced Industries S. Teitel Insights from industrial organization, Schumpeterian
innovation, and economic development theories are used to try to
explain firm behavior in cases of successful acquisition of advanced
technological assets and inte-national trade competitiveness by Asian
and Latin-american countries at an intermediate level of industrial and
technological development. The role of the state as innovador as well
as the importance of alternative forms of organization emerge as the
most salient findings. |
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The Moral Trial: Economists and the Socratic Problem A. Lanteri Most people believe economists are more selfish than
noneconomists.The reasons for such belief and for the related moral
condemnation of economists remain confused. Both charges and evidence
are insufficient to support substantial judgements. Further elaboration
would be welcome before drawing implications from the current charge
(i.e. economists are more selfish than noneconomists), further
investigations into the causes of this phenomenon (self- selection or
training) are required for blaming economists and suggesting
corrections, and further evidence needs be gathered to sustain the
charges. Alternative explanations (beyond selfselection and training)
are also suggested, which might lead to different implications,
charges, and corrections. |
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L'Analyse Economique des Normes Sociales: una Réévaluation de l'Héritage Hayékien A. Festré, P. Garrouste Cet
article est organisé de la façon suivante: dans un premier temps nous
montrons que la référence à la notion de sélection de groupe n’est pas
incohérente avec les autres éléments de la pensée hayékienne. Nous
développons ensuite l’idée que les travaux récents en matière
d’émergence et d’évolution des normes sociales valident en partie les
thèses hayékiennes en la matière. Enfin nous mettons en évidence les
lacunes de l’analyse de Hayek et proposerons des moyens d’y remédier |
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Kuznets and Pasinetti on the Study of Structural Transformation: Never the Twain Shall Meet? M. Syrquin The
main characteristics of the economic growth of nations are a sustained
increase in the growth of output and factor productivity and a
widespread process of structural transformation. In this paper I
contrast two of the few important authors that do not ignore structural
change: Kuznets and Pasinetti. Over several decades the two approaches
have developed in an almost orthogonal manner. I discuss the reasons
and evaluate the use of the approaches in the study of economic
development. |