Working Papers

Authors: David Meredith, Deborah Oxley

Sep 2013

In 2009, Horrell, Meredith and Oxley used trends in body mass to argue that poor London women in the later 19th century suffered declining access to household resources over their lifetimes.  The authors evaluated competing models of household behaviour, rejected the unitary model of equal distribution throughout the household, saw some support for a safety-first model, but on the whole concluded that resources were allocated in accordance with bargaining power linked to the economic worth of family members.  As (particularly married) women's labour-force participation fell, so too did their share of the food diminish, and with this they lost weight.  This unequal distribution was supported by a moral economy of the family: a set of shared values about obligations and entitlements which protected earners and prioritized the needs of children secured by maternal sacrifice.  The current paper explores further the role of power in the family.  The contention of a bargaining household is supported through a very different but contemporaneous case study: the modern industrial town of Paisley.  The paper juxtaposes a service economy (Wandsworth near London) with a modern manufacturing sector (Paisley near Glasgow) in order to contrast how economic form and opportunities in the market sector shaped relations and outcomes in the household sector.  Again, our measure is lifetime nutrition and our data are drawn from prisons.  We find that families bargained over the allocation of resources; that bargaining position was heavily influenced by economic value, mediated by maternal sacrifice; that this was an earner bias rather than a gender bias; and that new industrial work for women and children supported a more egalitarian distribution that improved everyone's health status via superior heights and heavier weights.  It is a tale of two cities, of blood and bone, of flesh and families.

Reference: 118

Individual View

Authors: Kevin Hjortshøj O'Rourke, Nicholas Crafts

Sep 2013

This paper surveys the experience of economic growth in the 20th century with a focus on technological change at the frontier together with issues related to success and failure in catch-up growth.  A detailed account of growth performance based on historical national accounts data is given and is accompanied by a review of growth accounting evidence on the sources of economic growth.  The key features of our analysis of divergence in growth outcomes are an emphasis on the importance of 'directed' technical change, of institutional quality, and of geography.  We provide brief case studies of the experience of individual countries to illustrate these points.

JEL Codes: N10. O33, O43, O47

Keywords: catch-up, divergence, growth accounting, technical change

Reference: 117

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Authors: Renaud Foucart

Jul 2013

Consumption in the time of Internet is characterized by extremely low search costs, leading to increased product diversity (the long tail) and large mainstream products (superstars).  In this paper, I show how the mainstream taste can be catered by a niche product, while minority tastes can be mainstream.  A competitive market with arbitrarily small search costs supplies a product design corresponding to the mainstream taste at a price that only mainstream buyers are willing to pay.  Products corresponding to the taste of the minority are offered at lower price, and bought by several types of buyers.

JEL Codes: C7, D8, L11

Keywords: Search, matching, horizontal product diversity

Reference: 670

Individual View

Authors: Debopam Bhattacharya

Jul 2013

Abstract: We consider empirical measurement of exact equivalent/compensating variation resulting from price-change of a discrete good, using individual-level data. We show that for binary and multinomial choice, the marginal distributions of EV/CV are nonparametrically point-identified solely from the conditional choice-probabilities, under extremely general preference-distributions. These results hold even when the distribution/dimension of unobserved heterogeneity are neither specified, nor identified and utilities are neither quasi-linear nor parametrically specified. Welfare-distributions can be expressed as closed-form functionals of observable individual choice-probabilities, thus enabling easy computation in applications. Average EV for price-rise equals the change in average consumer-surplus and is smaller than average CV for a normal good. Point-identification fails for ordered choice if the unit-price is identical for all alternatives, thereby providing a connection to Hausman-Newey's (2013) partial identification results for the limiting case of continuous choice.

JEL Codes: D12, D11, C14, C25

Keywords: Multinimial choice, Compensating and equivalent variation, unobserved heterogeneity, unrestricted heterogeneity, deadweight loss

Reference: 669

Individual View

Authors: Javier Fernandez-Macho

Jul 2013

This paper introduces a class of cointegration tests based on estimated low-pass and high-pass regression coefficients from the same wavelet transform of the original time series data.  The procedure can be applied to test the null of cointegration in a n + k multivariate system with n cointegrating relationships without the need of either detrending nor differencing.  The proposed non residual-based wavelet statistics are asymptotically distributed as standard chi-square with nk degrees of freedom regardless of deterministic terms or dynamic regressors, thus offering a simple way of testing for cointegration under the null without the need of special tables.  Small sample quantiles for these wavelet statistics are obtained using Monte Carlo simulation in different situations including I(1) and higher order cointegration cases and it is shown that these wavelet tests exhibit appropriate size and good power when compared to other tests of the null of cointegration.

JEL Codes: C22, C12

Keywords: Brownian motion, cointegration, econometric methods, integrated process, multivariate analysis, spectral analysis, time series models, unit roots, wavelet analysis

Reference: 668

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Authors: James Wolter

Jul 2013

Global frailty is an unobserved macroeconomic variable.  In event data contexts, this unobserved variable is assumed to impact the hazard rate of event arrivals.  Attempts to identify and estimate the path of frailty are complicated when observed macroeconomic variables also impact hazard rates.  It is possible that the impact of the observed macro variables and global frailty can be confused and identification can fail.  In this paper I show that, under appropriate assumptions, the path of global frailty and the impact of observed macro variables can both be recovered.  This approach differs from previous work in that I do not assume frailty follows a specific stochastic process form.  Previous studies identify global frailty by assuming a stochastic form and using a filtering approach.  However, chosen stochastic forms are arbitrary and can potentially lead to poor results.  The method in this paper shows how to recover frailty without these assumptions.  This can serve as a model check to filtering approaches.  The methods are applied to simulations and an application to corporate default.

JEL Codes: C13, C14, C41, C58

Reference: 667

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Authors: David Gill,Victoria Prowse, Michael Vlassopoulos

Jul 2013

We use an online real-effort experiment to investigate how bonus-based pay and worker productivity interact with workplace cheating.  Firms often use bonus-based compensation plans, such as group bonuses and firm-wide profit sharing, that induce considerable uncertainty in how much workers are paid.  Exposing workers to a compensation scheme based on random bonuses makes them cheat more but has no effect on their productivity.  We also find that more productive workers behave more dishonestly.  These results are consistent with workers' cheating behavior responding to the perceived fairness of their employer's compensation scheme.

JEL Codes: C91, J33

Keywords: Bonus, compensation, cheating dishonesty, lying, employee crime, productivity, slider task, real effort, experiment

Reference: 666

Individual View

Authors: Jerry Tsai

Jul 2013

This paper offers an explanation for the properties of the nominal term structure of interest rates and time-varying bond risk premia based on a model with rare consumption disaster risk.  In the model, expected inflation follows a mean reverting process but is also subject to possible large (positive) shocks when consumption disasters occur.  The possibility of jumps in inflation increases nominal yields and the yield spread, while time-variation in the inflation jump probability drives time-varying bond risk premia.  Predictability regressions offer independent evidence for the model's ability to generate realistic implications for both the stock and bond markets.

JEL Codes: G12

Keywords: Term structure of interest rates, rare disasters

Reference: 665

Individual View

Authors: Pierre-Louis Vezina, Lorenzo Rotunno

Jul 2013

We show that the US in-bond system of imports may be used by firms to illegally avoid trade barriers, a practice known as in-bond diversion.  Digging into official Chinese and Mexican trade statistics, we uncover traces of US quota-hopping in-bond diversion by Chinese exports of textiles and apparel.  This is because the illicit scheme involves declaring Chinese exports bound for Mexico but diverting them to the US market while in transit, thus creating a gap between Chinese and Mexican reports.  Using the phaseout and removal of US quotas at the end of the Multifibre Agreement as a policy experiment, as well as variation in quota bindingness across products, we show that quota-bound products were associated with larger trade gaps which shrunk following the quota removals.  We also find that quotas were associated with larger shares of US imports aimed for transit warehouses, confirming the use of the in-bond system for illegal quota hopping.

JEL Codes: F13, O17, O19

Keywords: Textile and apparel, illegal trade, trade barriers

Reference: 664

Individual View

Authors: John Thanassoulis

Jul 2013

This paper analyses the real economy effects of firms having some shareholders with a short investment horizon on their shareholder register.  Short-term shareholders cause management to be concerned with the path of the share price as well as its ultimate value.  Such shareholders in an economy lead to bubbles in the prices of key inputs, to the misallocation of firms to risky business models, and to increased costs of capital.  For individual firms short-term shareholders induce the Board to reduce deferred incentives in CEO pay prompting CEO myopia and reduced investments in the long-run capabilities of the firm.

JEL Codes: G12, G34, L21, L25

Keywords: Investor time-horrizons, bubbles, CEO compensation, cost of capital, short-termism, bonuses, shareholder register

Reference: 663

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Authors: Vitaliy Oryshchenko, Richard J. Smith

Jul 2013

If additional information about the distribution of a random variable is available in the form of moment conditions, a weighted kernel density estimate reflecting the extra information can be constructed by replacing the uniform weights with the generalised empirical likelihood probabilities.  It is shown that the resultant density estimator provides an improved approximation to the moment constraints.  Moreover, a reduction in variance is achieved due to the systematic use of the extra moment information.

JEL Codes: C14

Keywords: Weighted kernel density estimation, moment conditions, higher-order expansions, normal mixtures

Reference: 662

Individual View

Authors: Mark Armstrong, Jidong Zhou

Jun 2013

A seller wishes to prevent the discovery of rival offers by its prospective customers.  We study sales techniques which serve this purpose by making it harder for a customer to return to buy later after a search for alternatives.  These include making an exploding offer, offering a "buy-now" discount, or requiring payment of a deposit in order to buy later.  It is unilaterally profitable for a seller to deter search under mild conditions, but sellers can suffer when all do so.  In a monopoly setting where the buyer has an uncertain outside option, the optimal selling mechanism features both buy-now discounts and deposit contracts.  When a seller cannot commit to its policy, it exploits the inference that those consumers who try to buy later have no good alternative.  In many cases the outcome then involves exploding offers, so that no consumers return to buy after search.

JEL Codes: D18, D83, L13, L80

Keywords: Consumer search, sales techniques, price discrimination, sequential search

Reference: 661

Individual View

Authors: Christine Greenhalgh

Jun 2013

This paper begins by surveying recent economic studies of the relationships between technology transfer, intellectual property, innovation and diffusion in emerging countries.  It applies this literature to the Indian case.  India  is a potentially useful case study for several reasons.  India has recently been experiencing rapid growth and has several high technology sectors staffed by an absolutely large and highly educated middle class.  At the same time an even larger share of its very big population is still working in low productivity agriculture and many of these people are living in extreme poverty.

To reduce poverty and improve agricultural productivity India will need to create jobs in labour intensive production and distribution sectors to employ its vast army of unskillled workers.  The second part of the paper outlines how industry structure and innovative performance have been progressing in India following the economic reforms of the early 90s and the changes to intellectual property law occasioned by the TRIPS agreement and membership of the World Trade Organisation.

In the third section the focus turns to recent science, technology and innovation policy in India.  A study of the country's potential for innovation by the World Bank in 2007 argued that India must proceed on two fronts.  In addition to considering how India's growth prospects can be enhanced by world leading innovations, this volume placed great emphasis on inclusive innovation.  This may involve mainly the diffusion and absorption of existing knowledge, but is designed to improve the lot of the poor.  The World Bank report proposed a number of new policy directions aimed at speeding up innovation and technology diffusion in India.  We attempt to record what changes have been made to innovation policy, foreign direct investment policy and diffusion policy in India in recent years and assess whether these are likely to be effective.

JEL Codes: O2, O3

Keywords: Innovation, intellectual property, science policy, innovation policy, TRIPS

Reference: 660

Individual View

Authors: Christine Greenhalgh, Philipp Schautschick

Jun 2013

This paper surveys empirical studies employing trade mark data that exist in the economic literature to date.  Section 1) documents the use of trade marks by firms in several advanced countries including Australia, the United Kingdom and the United States, 2) reviews different attempts to gauge the function of a trade mark as indicator of innovation and product differentiation, and 3) provides an overview of the association of trade marks with dimensions of firm performance and productivity.  Sections 4) and 5) give accounts of studies that focus on the social costs and value of trade marks, namely their importance for firm survival, their impact on demand, and firms' incentives to innovate but also to raise rivals' costs.  Section 6) covers first endeavours to investigate the interplay between different types of intellectual property rights, while 7) briefly concludes.

JEL Codes: O33, O34

Keywords: Intellectual property, trade marks, empirical studies

Reference: 659

Individual View

Authors: Avner Offer

Jun 2013

Banking in the UK was stable for more than a century after 1866.  Financial institutions were differentiated according to function.  The core banks did not engage in maturity transformation, but in managing a payments system for business.  Real estate was a potential source of instability due to high credit elasticity of demand and to long maturities, but credit was successfully rationed by building societies, who relied on the funds that their savers had actually withdrawn from consumption.  After 1945, credit rationing came under pressure from consumers and housebuyers.  Incremental liberalisations after 1971 released a tide of credit which created a property windfall economy.  Borrowers and lenders both prospered until the system collapsed under its own weight in 2007.

Reference: 116

Individual View

Authors: Robert Allen

Jun 2013

This article responds to Professor Jane Humphries' critique of my assessment of the high wage economy of eighteenth century Britain and its importance for explaining the Industrial Revolution.  New Evidence is presented to show that women and children participated in the high wage economy.  It is also shown that the high wage economy provides a good explanation of why the Industrial Revolution happened in the eighteenth century by showing that increases of women's wages around 1700 greatly increased the profitability of using spinning machinery.  The relationship between the high wage economy of the eighteenth century and the inequality and poverty in Britain in the nineteenth century is explored.

Reference: 115

Individual View

Authors: David Hendry, Jurgen A. Doornik, Felix Pretis

Jun 2013

Using an extension of general-to-specific modelling, based on the recent developments of impulse-indicator saturation (IIS), we consider selecting significant step indicators from a saturating set to capture location shifts.  The approximate non-centrality of the test is derived for a variety of shifts using a 'split-half' analysis, the simplest specialization of a multiple-block search algorithm.  Monte Carlo simulations confirm the accuracy of the nominal significance levels under the null, and show rejections when location shifts occur, improving in non-null rejection frequency compared to the corresponding IIS-based and to Chow (1960) tests.

JEL Codes: C51, C22

Keywords: General-so-specific, step-indicator saturation, test power, location shifts, model section, Autometrics

Reference: 658

Individual View

Authors: Javier Fernandez-Macho

Jun 2013

This paper examines a test for the null of cointegration in a multivariate system based on the discrepancy between the OLS estimator of the full set of n cointegrating relationships in the n + k system and the OLS estimator of the corresponding relationships among first differences without making specific assumptions about the short-run dynamics of the multivariate data generating process.  It is shown that the proposed test statistics are asymptotically distributed as standard chi-square with n + k degrees of freedom and are not affected by the inclusion of deterministic terms or dynamic regressors, thus offering a simple way of testing for cointegration under the null without the need of special tables.  Small sample critical values for these statistics are tabulated using Monte Carlo simulation and it is shown that these non residual-based tests exhibit appropriate size and good power even for quite general error dynamics.  In fact, simulation results suggest that they perform quite reasonably when compared to other tests of the null of cointegration.

JEL Codes: C22, C12

Keywords: Brownian motion, cointegration, econometric methods, integrated process, multivariate analysis, time series models, unit root

Reference: 657

Individual View

Authors: Ferdinand Rauch

May 2013

This paper shows that Zipf's Law for cities can emerge as a property of a clustering process.  If initially uniformly distributed people chose their location based on a specific gravity equation as found in trade studies, they will form cities that follow Zipf's Law in expected value.  This view of cities as spatial agglomerations is supported empirically by the observation that larger cities are surrounded by larger hinterland areas and larger countryside populations.

JEL Codes: R12

Keywords: Zipf's Law for cities, distribution of city sizes

Reference: 656

Individual View

Authors: Margaret Meyer, Bruno Strulovici

May 2013

Abstract

Given two sets of random variables, how can one determine whether the former variables are more interdependent than the latter? This question is of major importance to economists, for example, in comparing how various policies affect systemic risk or income inequality. Moreover, correlation is ill-suited to this task as it is typically not justified by any economic objective.

Economists' interest in interdependence often stems from complementarities (or substitutabilities) in the environment they analyze. This paper studies interdependence using supermodular objective functions: these functions treat their variables as complements, and their expectation increases as the realizations of the variables become more aligned.

The supermodular ordering has a linear structure, which we exploit to obtain tractable characterizations and methods for comparing multivariate distributions, and extend when objective functions are also monotonic or symmetric. We also provide suffcient conditions for comparing random variables generated by common and idiosyncratic shocks or by heterogeneous lotteries, and illustrate our methods with several applications.

Revised August 2015

JEL Codes: D63, D81, G11, G22

Keywords: Interdependence, Supermodularity, Correlation, Copula, Mixture, Majorization, Tournament

Reference: 655

Individual View

Authors: Jennifer Castle,David Hendry

May 2013

We consider model selection for non-linear dynamic equations with more candidate variables than observations, based on a general class of non-linear-in-the-variables functions, addressing possible location shifts by impulse-indicator saturation.  After an automatic search delivers a simplified congruent terminal model, an encompassing test can be implemented against an investigator's preferred non-linear function.  When that is non-linear in the parameters, such as a threshold model, the overall approach can only be semi-automatic.  The method is applied to re-analyze an empirical model of real wages in the UK over 1860-2004, updated and extended to 2005-2011 for forecast evaluation.

JEL Codes: C51, C22

Keywords: Non-linear models, location shifts, model selection, autometrics, impulse-indicator saturation

Reference: 654

Individual View

Authors: James Fenske, Vellore Arthi

May 2013

We examine the determinants of time allocation and child labour in a year-long panel of time-use data from colonial Nigeria.  Using quantitative and ethnographic approaches, we show that health shocks imposed time costs on individuals.  Whether individuals could recruit substitutes depended on social standing, urgency of work, and type of illness.  Child labour did not systematically respond to temporary parental illness, but could replace a permanently disabled adult.  Child labour was coordinated with parental work, aided childcare, and allowed children to build skills and resources.  These decisions can be understood within an endogenous bargaining power framework with labour complementarities.

Reference: 114

Individual View

Authors: H Peyton Young, H.H. Nax, M.N. Burton-Chellew, S.A. Westor

Apr 2013

Many interactive environments can be represented as games, but they are so large and complex that individual players are in the dark about others' actions and the payoff structure.  This paper analyzes learning behavior in such 'black box' environments, where players' only source of information is their own history of actions taken and payoffs received.  Specifically we study voluntary contributions games.  We identify two robust features of the players' learning dynamics: search volatility and trend-following.  These features are clearly present when players have no information about the game; but also when players have full informaiton.  Convergence to Nash equilibrium occurs at about the same rate in both situations.

JEL Codes: C70, C73, C91, D83, H41

Keywords: learning, information, public goods games

Reference: 653

Individual View

Authors: Simon GB Cowan

Apr 2013

The welfare and output effects of monopoly third-degree price discrimination are analyzed when inverse demand functions are parallel.  Welfare is higher with discrimination than with a uniform price when demand functions are derived from the logistic distribution, and from a more general class of distributions.  The sufficient condition in Varian (1985) for a welfare increase holds for these demand functions.  Total output is higher with discrimination for a large set of demand functions including those derived from strictly log-concave distributions with increasing cost pass-through, such as the normal, logistic and extreme value, and standard log-convex demands.

JEL Codes: D42, L12, L13

Keywords: Third-degree price discrimination, monopoly, social welfare, output

Reference: 652

Individual View

Authors: C. Knick Harley

Apr 2013

Modern economic growth first emerged in Britain about the time of the Industrial Revolution, with its cotton textile factories, urban industrialization and export orientated industrialization.  A period of economic growth, industrial diversification and export orientation preceded the Industrial Revolution.  This export orientation revolved around an Americanization of British trade for which the slave colonies of the Caribbean were central.  The Eric Williams' explored the extent to which this export economy based on West Indian slavery contributed to the coming of the Industrial Revolution.  His claim that profits from the slave trade were crucial to the Industrial Revolution has not stood up to criticial evaluation.  Nonetheless, modern speculations regarding endogenous growth plausibly postulate that manufacturing, urbanization, and a powerful merchant class all have a favourable impact for growth.  These hypotheses need careful consideration.

What set the British colonial empire aside from its rivals was not the quality of its sugar colonies but the involvement of the temperate colonies on the North American mainland.  Unlike the slave colonies created to exploit staple exports, English emigrants to the northern mainland sought to establish independent settlement.  These colonies lacked staple products and residents financed imports by exploited opportunities the empire provided providing for shipping and merchanising and compensating for the lack of European market for the timber or temperate agricultural products by exporting to the sugar colonies which, in turn, concentrated on the export staple.  The British Empire was unique and its development provided an important and growing diversified and relatively wealthy market for British manufactured goods that all other empires lacked.  Although the mainland colonies financed their imports of British manufactured goods by intergrading into the slave-based British Atlantic, it seems likely that in the absence of opportunities in the slave colonies the mainland colonies would have imported similar amounts of British manufactured goods.

Reference: 113

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