Working papers 2008
(including abstracts)
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An Assessment of Subjectivism. Its Meaning and its Limits M. Eabrasu This working-paper deals with the meaning of the subjective theory of value. It is argued that in spite of its wide utilization in economic theory, subjectivism is an equivocal concept generating incompatible interpretations. The affluence of various and incompatible interpretations is the consequence of a conception that is either too complex or too elastic. This is the case since the subjective theory of value cannot accommodate most of the features that are traditionally associated with it: utility, marginalism, ordinal evaluation, knowledge, expectations. Actually, this working-paper defends a specific view of subjectivism which is much simpler than most of its current interpretations. |
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Preempting versus Postponing: the Stealing Game A. Gallice We present an endogenous timing
game of action commitment in which players can steal from each other
parts of a homogeneous and perfectly divisible pie (market). We show
how the incentives to preempt or to follow the rivals radically change
with the number of players involved in the game. In the course of the
analysis we also introduce, discuss and apply the concept of
pu-dominance, a generalization of the risk-dominance criterion to games
with more than two |
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Preempting versus Postponing: the Stealing Game A. Gallice According to traditional IO models, the characteristics of market demand (intercept, slope, elasticity) and of technology (level of symmetric marginal costs) do not play any role in defining the sustainability of collusive behaviors in Bertrand oligopolies. The paper modifies this counterintuitive result by showing that all the above mentioned factors do a¤ect the sustainability of collusion when prices are assumed to be discrete rather than continuous. The sign of these effects is unambiguous. Their magnitude varies greatly: in some cases it is totally negligible, in others it becomes extremely relevant. |
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Updating Choquet Integrals , Consequentialism and Dynamic Consistency R. Kast, A. Lapied, P.
Toquebeuf Choquet capacities have been used to represent decision makers’ beliefs in order to generalise the expected utility approach. Conditional capacities have to be defined for dynamic choice situations where information may modify the decision maker future beliefs. Several updating rules have been proposed in the literature. We derive them from a general approach based on conditional Choquet expectations. Conversely, depending on the updating rule adopted, the conditional Choquet integral can take different values. Conditional Choquet Expected Utility are derived from axioms on preferences. However, it is now well-known in decision theory that if preferences satisfy simultaneously dynamic consistency and consequentialism axioms their representation is restricted to classical Expected Utility. We show that the rule proposed by Chateauneuf, Kast and Lapied (2001) is the only one to satisfy dynamic consistency with a nonnecessarily additive capacity. |
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Posterior Analysis for some Classes of Nonparametric Models A. Lijoi, A. Pruenster, S. G. Walker Recently, James (2005, 2006) has derived important results for various models in Bayesian nonparametric inference. In particular, he defined a spatial version of neutral to the right processes and derived their posterior distribution. Moreover, he obtained the posterior distribution for an intensity or hazard rate modeled as a mixture under a general multiplicative intensity model. His proofs rely on the so--called Bayesian Poisson partition calculus. Here we provide new proofs based on an alternative technique. |
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Bayesian Non parametric Estimators Derived From Conditional Gibbs Structures A. Lijoi, A. Pruenster, S. G. Walker We consider discrete nonparametric priors which induce Gibbs-type exchangeable random partitions and investigate their posterior behavior in detail. In particular, we deduce conditional distributions and the corresponding Bayesian nonparametric estimators, which can be readily exploited for predicting various features of additional samples. The results provide useful tools for genomic applications where prediction of future outcomes is required. |
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Backward Stochastic
PDEs Related to the Utility Maximization Problem M. Mania, R. Tevzadze We
study the utility maximization problem for general utility functions
using the dynamic programming approach. We consider an incomplete
financial market model, where the dynamics of asset prices are
described by an R^d-valued continuous semimartingale. Under some
regularity assumptions we derive backward stochastic partial
differential equation (BSPDE) related directly to the primal problem
and show that the strategy is optimal if and only if the
corresponding wealth process satisfies a certain forward-SDE. As
examples the cases of power, exponential and logarithmic
utilities are considered.
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The Capital Structure of Young Firms and the Working Experience of New Entrepreneurs A. Melnik, E. Colombatto We use a simple model to analyze the funding stage of new firms and characterize the directional causality between their capital structure and the length of prior working experience that entrepreneurs possess. In this light, we test a set of predictions by considering a sample of firms founded by Italian entrepreneurs in the period 1992-2004. We obtain three main results. First, we confirm the evidence presented in the literature, whereby the size of the firm has a significant effect on capital structure. Second, we find that previous working experiences of entrepreneurs in full-time employment (before founding a new firm) have a positive impact on the debt-to-asset ratio of newly founded firms. Third, we show that firms with access to subsidized government debt are able to increase the ir share of debt in total liabilities, even when the size of the subsidy is small. |
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Posner, Economics and the Law: from Law and Economics to an Economic Analysis of Law S. Harnay, A. Marciano The purpose of this article is to discuss Posner's economic analysis of law and to analyse the differences between his economic analysis of law and law and economics. We propose and demonstrate a twofold original argument. First, we show that Posner does not only propose an economic analysis of the working of the legal system but also that his approach has changed in the early 1970s, shifting from a law and economics perspective in which the focus is put on the working of the economic system to an economic analysis of law in which the emphasis is put on the functioning of the legal system. He appears then no longer influenced by Aaron Director and Ronald Coase but rather by Gary Becker. Therefore, and this is the second part of our demonstration, we show that the evolution in Posner's works essentially derives from the influence of Becker and the adoption by the former of the methodological views of the latter. More precisely, we claim that Posner no longer retains a -- restrictive -- definition of economics by subject matter but that he aligns himself on Becker and his broader definition of economics placing nonmarket decisions and method at the core of the discipline. In other words, we argue that Posner is the first who transposes Becker’s definition of economics in law and economics and that this is precisely what makes Posner's economic analysis of law possible and specific, and also of particular importance. |
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Realized Portfolio Selection in the Euro Area C. Morana A
new approach to mean-variance efficient portfolio selection is
introduced. The method is based on realized regression theory and the
regression based portfolio selection approach of Britten-Jones (1999),
yielding a conditional version of the Britten-Jones (1999) method.
Application to euro area stock markets diversification, differently
from
other standard approaches, actually yields a balanced and stable
allocation of wealth, free from the problem of corner solutions,
suggesting that diversification among euro area stock markets is still
be feasible and desirable. Evidence that the monetary union may have
had a much less important impact on the integration of euro area equity
markets, as well as that the latter is still in progress, is provided.
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Power Distribution in the Electoral Body with an Application to the Russian Parliament F. Aleskerov This
paper presents several new approaches to evaluate power distribution in
an electoral body. We define the index of consistency of two groups’
positions (briefly, the consistency index) which is used to separate
possible coalitions in the Parliament. This allows to analyze power
distribution within restricted coalition formations. Then we provide
several new power indices for the case in which the intensity of
factions to coalesce is taken into account. Our analysis of the power
distribution model extends the one proposed by Shapley-Owen. A new
consistency index is given allowing to construct such an extension. We
illustrate these approaches via the analysis of power distribution
among factions in the Russian
Parliament (Duma) from 1993 to 2005. |
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Dynamic Analysis of the Behavioural Patterns of the Largest Commercial Banks in the Russian Federation F. Aleskerov, V.
Belousova, M. Serdyuk, V. Solodkov This
paper presents a pattern behavioral analysis of 100 largest Russian
commercial banks by total assets during an eight- year period: from the
first quarter of 1999 to the second quarter of 2007. Bank performance
indicators are analyzed. Structural similarities in the development of
the banks are examined. A cluster analysis is applied to determine
banks with a similar structure of operations. This analysis allows to
estimate how the structure of the Russian banking system has been
changing over time. In particular, it allows to identify prevailing
patterns in the behavior of Russian commercial banks and to analyze the
stability of their position in a particular pattern.
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Entrepreneurship and Reforms in Developig Countries M. Baliamoune-Lutz We examines how institutional and policy reforms affect the relationship between entrepreneurship and growth. We perform Arellano -Bond GMM estimations on annual data (over the period 1990-2002) from a large group of developing countries and focus in particular on the interplay between policy and institutional reforms and entrepreneurship. We find that the joint effect of trade reform and entrepreneurship on growth is negative, suggesting that trade reform diminishes the positive effects of entrepreneurial ability on growth, while the joint effect of financial sector reform and entrepreneurship has a non- linear impact on growth. Financial sector reforms enhance the growth effects of entrepreneurship at initial levels and diminish it a high levels of reform. In addition, we find that the interplay of institutional reform and entrepreneurship does not seem to matter for the growth effects of entrepreneurship. |
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International Shocks and National House Prices A. Beltratti, C. Morana The
paper investigates linkages between general macroeconomic conditions
and the housing market for the G-7 area. Among the key results of the
paper, it is found that the US are an important source of global
uctuations not only for real activity, nominal variables and stock
prices, but also for housing prices. Yet, also regional factors may be
relevant to account for house prices dynamics. Secondly, albeit
distinct driving forces for real activity and financial factors can be
pointed out, sizeable global interactions can be found. In particular,
global supply-side shocks are found to be important determinant of G-7
house prices fluctuations. The linkage between housing prices and
macroeconomic developments is however bidirectional, since evidence of
significant wealth e¤ects can be found, with investment showing in
general a stronger reaction than consumption and output.
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Realized Betas and the Cross-Section of Expected Returns C. Morana What
explains the cross section of expected returns for the 25 size/value
Fama-French portfolios? It is found that modelling time-varying betas
is important to explain the cross-section of expected returns, as well
as to comply with the time series restriction on Jensen-alpha. Support
for a modified version of the conditional Jagannathan and Wang (1996)
CAPM model is found, where implementation is carried out in the
realized beta framework proposed in the paper. About 63% of the
cross-sectional variability of the expected returns for the 25
Fama-French size and value sorted portfolios is then found to be
explained by this parsimonious two-variable model.
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The "Addiction" with FDI and Current Account Balance J. Mencinger The EU new member states (NMS) have been recipients of substantial net capital inflows in the form of FDI. Economic policy makers and development strategists often regard them as the pillar of the development and neglect their potential long run consequences: inevitable deficit in the investment balance. FDI however affects current account balance also indirectly by improving or deteriorating trade balance which might overweigh negative direct effects, moderate them, or add to the deterioration of the current account balance. Capital outflows through the investment account in NMS have been increasing rapidly . Namely, the rates of return on FDI are twice the rates of return on portfolio investments and three times the rates of return on loans. Indirect effects have moderated strong direct effects but could not overweigh structural current account deficit caused by transition. A major problem might arise as a consequence of the “addiction” with FDI. First, the outflows of capital speeded up by the opportunities of multinationals to reallocate production to the countries with even cheaper labor might become larger than new inflows. Second, sudden interruption of FDI inflows could result in an exchange rate crisis. |
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The Emergence and Evolution of Inistitutions: the Complementary Approaches of Carl Menger and Thorstein Veblen P. Garrouste This paper is an attempt to compare Carl Menger and Thorstein Veblen,’s conceptions of institutions. It is shown that although Menger stresses on the emergence of institutions, Veblen is much aware of analyzing their evolution. On this basis the idea of a dialogue between the two authors is propose and its characteristics are presented. |
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Sur le Revenu de Solidarité Active P. Mongin La France devrait instaurer en 2009 un "revenu de solidarité active" (RSA) qui remplacerait plusieurs minima sociaux, allocations ou prestations, en se cumulant avec les revenus du travail suivant un barème dégressif qui évoque les projets d'impôt négatif ou d'allocation universelle. L'article tente de répondre synthétiquement aux interrogations multiples que soulève cette réforme considérable du système de solidarité national. Après en avoir résumé les antécédents théoriques et la genèse, il développe la triple motivation du RSA – rationalisatrice, incitative et redistributive – et conclut par des propositions concrètes sur ses modalités de réalisation. |
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Designing Optimal Taxes with a Microeconometric Model of Household Labour Supply R. Aaberge, U. Colombino The purpose of this paper is to present an exercise where we identify optimal income tax rules according to various social welfare criteria, keeping fixed the total net tax revenue. Empirical applications of optimal taxation theory have typically adopted analytical expressions for the optimal taxes and then imputed numerical values to their parameters by using “calibration” procedures or previous econometric estimates. Besides the restrictiveness of the assumptions needed to obtain analytical solutions to the optimal taxation problem, a shortcoming of that procedure is the possible inconsistency between the theoretical assumptions and the assumptions implicit in the empirical evidence. In this paper we follow a different procedure, based on a computational approach to the optimal taxation problem. To this end, we estimate a microeconomic model with 78 parameters that capture heterogeneity in consumption-leisure preferences for singles and couples as well as in job opportunities across individuals based on detailed Norwegian household data for 1994. For any given tax rule, the estimated model can be used to simulate the labour supply choices made by single individuals and couples. Those choices are therefore generated by preferences and opportunities that vary across the decision units. We then identify optimal tax rules – within a class of 9-parameter piece-wise linear rules - by iteratively running the model until a given social welfare function attains its maximum under the constraint of keeping constant the total net tax revenue. The parameters to be determined are an exemption level, four marginal tax rates, three “kink points” and a lump sum transfer that can be positive (benefit) or negative (tax). We explore a variety of social welfare functions with differing degree of inequality aversion. All the social welfare functions imply monotonically increasing marginal tax rates. When compared with the current (1994) tax systems, the optimal rules imply a lower average tax rate. Moreover, all the optimal rules imply – with respect to the current rule – lower marginal rates on low and/or average income levels and higher marginal rates on relatively high income levels. These results are partially at odds with the tax reforms that took place in many countries during the last decades. While those reforms embodied the idea of lowering average tax rates, the way to implement it has typically consisted in reducing the top marginal rates. Our results instead suggest to lower average tax rates by reducing marginal rates on low and average income levels and increasing marginal rates on very high income levels. |
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Beauty Contested. How Much of Keynes' Remains in Behavioural Economics Beauty Contests? A. Lanteri, A. Carabelli In one of the most famous passages of economic literature, John Maynard Keynes (1936, p.156) likens the stock market to a beauty contest in which the winners are those who anticipate the average opinion. Recently there have been attempts at investigating the BC experimentally (Nagel 1995, Duffy & Nagel 1997, Ho et al. 1998, Bosch-Domenech et al. 2002, Güth et al. 2002). In Experimental Beauty Contests, participants choose a real number from a closed interval, e.g. I [0,100]. Whoever picks the number closest to p times the average (usually with p = 2/3) is the winner of a monetary reward. An experiment like this is dominance solvable: the process of iterated elimination of dominated strategies leads to the unique and stable equilibrium at which every player chooses zero, and every player wins. Keynes’ metaphor, on the other hand, referred to a situation in which not all participants can win, so that the goal of individual investors and speculators must be “to outwit the crowd” (p. 152). Despite the differences, the Keynesian theory of decision under uncertainty tallies with the behaviour observed in Experimental Beauty Contests. |
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Towards the Framing of Venture Capital Policies: a Systems-Evolutionary Perspective with Particular Reference to the UK/Scotland and Israeli Experiences A. Rosiello, M. Teubal, G. Avnimelech We compare some of the policies that have been attempted in Europe (UK/Scotland) and Israel over the past fifteen years to elaborate a new Systems Evolutionary (SE) framework for rethinking VC policy and related ITP. We argue that this perspective is useful for both real world (‘positive’) analysis and policy (‘normative’) analys is. Our SE framework is shaped by (i) a multidimensional view of VC; (ii) strong between VC, VC policy and the development of EHTCs; and (iii) a strategic approach to policy. In contrast, many VC policies in Europe up to and including the 1990s took a ‘static’ financial view of VC that focused on ‘bridging existng early phase finance gaps of innovative companies’ rather than creating of a new mechanism to assure the timely growth of EHTCs. We aim to present the new framework rather than to provide specific recommendations. The main conclusion is that the success of VC policies depend on factors such as the phase of evolution of (i) VC or related innovation finance organizations; (ii) the underlying segment of start up companies and of high tech industries; (iii) the specific country/region institutional setting. While in some contexts it may be worth considering the targeting of a new VC industry/market (and associated EHTC) in others the focus of policy should center in improving pre-emergence conditions. More specifically it may be, given that VC searches for ‘investment ready opportunities’, that ITP should, in many contexts, precede VC policies. Another key conclusion is that implementing this perspective necessitates the creation of a strategic level of policy, with a view of specifying a set of strategic priorities for Scie nce, Technology, and Innovation, priorities that should precede rather than follow policy design and implementation. A major challenge is to extend the present framework that was initially based on VCs oriented towards ICT to LS. |
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Efficiency of the Bulgarian Banking System: Traditional Approach and Data Envelopment Analysis N. Nenovsky, P. Chobanov, G. Mihaylova, D. Koleva The present paper traces the trends in the development of the Bulgarian banking system focusing on the dynamics of bank efficiency. Although the financial crisis in 1996-1997 and the following shift in monetary regime (introduction of Currency Board Arrangement) exerted significant influence on the development of the banking sector characteristics, the study covers only the period of 1999-2006 because of the lack of consistent available data prior to 1999. During the period analysed, the impact on bank efficiency of the following factors is studied: change in property, penetration of foreign commercial banks on the local banking market, competition, structure of bank assets and liabilities, central bank policy in regard to credit activity, etc. The limits of traditional accounting approaches to bank efficiency evaluation are discussed, as well as the implementation of non-parametric methods, in particular Data Envelopment Analysis (DEA). Different specifications of DEA like the intermediation and operating approaches were applied to separate groups and sub-groups. The results show that: firstly, foreign banks perform better than domestic and state-owned banks because of the technological and managerial improvements; and secondly, large banks are more efficient than small banks due to decreasing operating costs and scale economies. |
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Innovation Promotion and Learning in International Trade: the Case of Colombian Manufacturing Exports S. Teitel Colombian manufacturing exporting firms survey results are analyzed highlighting innovation, promotion, and learning, as well as the influence of factors such as: size, ownership, output objectives, destination of exports, competition and pricing, export incentives, and firm configuration, in their export performance. |
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Exponential Utility Maximization under Partial Information M. Mania, M. Santacroce We
consider the exponential utility maximization problem under partial
information. The underlying asset price process follows a continuous
semimartingale and strategies have to be constructed when only part of
the information in the market is available. We show that this problem
is equivalent to a new exponential optimization problem, which is
formulated in terms of observable processes. We prove that the value
process of the reduced problem is the unique solution of a backward
stochastic differential equation (BSDE), which characterizes the
optimal strategy. We examine two particular cases of diffusion market
models, for which an explicit solution has been provided. Finally, we
study the issue of sufficiency of partial information.
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Political Economy of Agricultural Policies and Environmental Weights C.Atici In this paper, a theoretical model was constructed to endogenously determine environmental weights in the agricultural sector. The conventional Political Preference Function was extended to include environmental weights. The model was applied to the wheat sector in the EU for the years 1990 and 2006. The results imply that designing protection levels that have small disparities between domestic and world prices and avoiding excess production cause a positive environmental surplus which leads to higher environmental weights. |
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Agricultural Policies and Environmental Interaction in OECD Countries C.Atici Agriculture
is heavily subsidized in most of the OECD countries. On the other
hand,environmental externalities occur because of protection related
pollution. In this study the structure of agricultural protection in
the OECD countries was examined in a chronological and comparative
perspective. In addition, the policy-environment interaction was
scrutinized in order to better understand environmental implications of
agricultural policies in the era of globalization. Evidence was found
for international trade and environmental interaction in some of the
OECD countries such that production and technological impact appear to
be a prominent factor in environmental pollution. |