Working Papers

Authors: Robin Winkler

Sep 2013

It is commonly thought that the rapid increase in household saving during the early years of National Socialism was partly driven by ideological factors.  On this view, the popularity of the regime allowed it to exert 'moral suasion' on households to save more than they might have done in the absence of such indoctrination.  This paper employs the previously unpublished raw data from a household budget survey conducted in 1937 to identify ideological heterogeneity at the household level.  Assuming that households' responsiveness to the regime's saving propaganda was a function of their exogenous ideological commitment to National Socialism, the paper tests the hypothesis that Nazi households saved more than others.  The new evidence presented here does not confirm this hypothesis.

JEL Codes: N14, D12

Keywords: German economic history, National Socialism, household saving

Reference: 119

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Authors: Tim Willems, Shaun Larcom, Mare Sarr

Sep 2013

Recently, the international community has increased its commitment to prosecute malicious dictators - for example by establishing the International Criminal Court.  This has raised the international community's loss associated with being time-inconsistent (i.e.: granting amnesties ex post), the idea being that a reduced prospect of amnesty deters dictators from committing atrocities ex ante.  Simultaneously, however, this elects dictators of a worse type.  Moreover, when the costs of being time-inconsistent are lower than those associated with keeping the dictator in place, the international community will still grant amnesty - thereby making the effective punishment function non-monotonic.  Consequently, increased commitment to ex post punishment may actually induce dictators to worsen their behaviour, purely to "unlock" the amnesty option by forcing the international community into time-inconsistency.

JEL Codes: F55, K14, O12

Keywords: dictatorship, time-inconsistency, International Criminal Court, amnesty, institutions

Reference: 671

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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

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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: Samuel Wills

Aug 2013

How should monetary policy respond to an oil discovery? Oil discoveries provide news that the natural level of output will rise in the future, which lowers the natural real rate of interest. Optimal monetary policy must accommodate these changes in natural output, and is well-approximated by a Taylor rule that responds to the natural real rate. Failure to accommodate these changes, as in a currency peg or naive Taylor rule, can cause forward-looking inflation and a recession. To prove this I incorporate oil and news shocks into a standard DSGE model of a small open economy that permits an analytical solution for optimal policy. I then use the model to present a novel explanation for the UK’s recessions of the 1970s and 80s, based on the discovery of North Sea oil.

JEL Codes: E52, E62,F41,O13,Q30,Q33

Keywords: News shock,oil, optimal monetary policy,small open economy

Reference: 121

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Authors: Rabah Arezki, Klaus Deininger, Harris Selod

Aug 2013

We review evidence regarding the size and evolution of the "land rush" in the wake of the 2007-2008 boom in agricultural commodity prices and study determinants of foreign land acquisition for large-scale agricultural investment. Using data on bilateral investment relationships to estimate gravity models of transnational land-intensive investments confirms the central role of agro-ecological potential as a pull factor but contrasts with standard literature insofar as quality of the destination country’s business climate is insignificant and weak tenure security is associated with increased interest for investors to acquire land in that country. Policy implications are discussed.

JEL Codes: F21, O13, Q15, Q34

Keywords: Land Acquisition, Large-Scale Agriculture, Foreign Investments, Agro-Ecological Potential, Land Availability, Land Governance, Property Rights

Reference: 120

Individual View

A classroom model of global warming, fossil fuel depletion and the optimal carbon tax is formulated and calibrated. It features iso-elastic fossil fuel demand, stock-dependent fossil fuel extraction costs, an exogenous interest rate and no decay of the atmospheric stock of carbon. The optimal carbon tax reduces emissions from burning fossil fuel, both in the short and medium run. Furthermore, it brings forward the date that renewables take over from fossil fuel and encourages the market to keep more fossil fuel locked up. A renewables subsidy induces faster fossil fuel extraction and thus accelerates global warming during the fossil fuel phase, but brings forward the carbon-free era, locks up more fossil fuel reserves and thus ultimately curbs cumulative carbon emissions and global warming. For relatively large subsidies social welfare is more likely to fall as the economic costs rises more than proportionally with the size of the subsidy. Our calibration suggests that such subsidies are not a good second-best climate policy.

JEL Codes: D81, H20, Q31, Q38

Keywords: global warming, social cost of carbon, optimal carbon tax, renewables

Reference: 119

Individual View

This article examines the possible adverse effects of well-intended climate policies. A weak Green Paradox arises if the announcement of a future carbon tax or a sufficiently fast rising carbon tax encourages fossil fuel owners to extract reserves more aggressively, thus exacerbating global warming. We argue that such policies may also encourage more fossil fuel to be locked in the crust of the earth, which can offset the adverse effects of the weak Green Paradox. We show that a subsidy on clean renewables has similar weak Green Paradox effects. Green welfare (the complement of environmental damages) drops (i.e., the strong Green Paradox) if the beneficial climate effects of locking up more fossil fuel do not outweigh the short-run weak Green Paradox effects. Neither the weak nor the strong Green Paradox occurs for the first-best Pigouvian carbon tax. We also pay attention to dirty backstops, spatial carbon leakage and green innovation.

JEL Codes: D81, H20, Q31, Q38

Keywords: fossil fuel, renewables, coal, economic growth, global warming, carbon tax, Green Paradox

Reference: 116

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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

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Authors: Sambit Bhattacharyya, Jeffrey G Williamson

Jul 2013

This paper studies the distributional impact of commodity price shocks over the both the short and very long run. Using a GARCH model, we find that Australia experienced more volatility than many commodity exporting developing countries over the periods 1865-1940 and 1960-2007. A single equation error correction model suggests that commodity price shocks increase the income share of the top 1, 0.05, and 0.01 percents in the short run. The very top end of the income distribution benefits from commodity booms disproportionately more than the rest of the society. The short run effect is mainly driven by wool and mining and not agricultural commodities. A sustained increase in the price of renewables (wool) reduces inequality whreas the same for non-renewable resources (minerals) increases inequality. We expect that the initial distribution of land and mineral resources explains the asymmetric result.

JEL Codes: F14, F43, N17, O13

Keywords: commodity price shocks; commodity exporters; top incomes; inequality

Reference: 117

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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

Individual View

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

Individual View

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

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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: 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: 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

The optimal reaction to a climate tipping point which becomes more imminent with global warming is to be precautionary in accumulating additional capital to curb the adverse effects of the calamity and to price carbon to make catastrophic change less imminent. However, if the mean lag for impact of the catastrophe is long enough, the additional saving response will be smaller and can turn negative. We also decompose the optimal carbon price into its catastrophe components and a conventional marginal damages component, and show the separate effects of relative intergenerational inequality aversion and relative risk aversion using Duffie-Epstein preferences. Focusing on a productivity catastrophe, we calibrate our model and show how sensitive the policy responses are to the degrees of intergenerational inequality aversion and risk aversion, the trend rate of economic growth, the hazard rates, and how long it takes for the catastrophe to have its full impact.

JEL Codes: D81, H20, O40, Q31, Q38

Keywords: gradual climate tipping point, precautionary saving, optimal social cost of carbon, trend growth, Duffie-Epstein preferences, speed of impact, hazard functions

Reference: 118

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: Jacobus Cilliers

Jun 2013

In this paper, I develop a general equilibrium model of violence to explain observed variation in coercive practices in conict zones. Armed groups own land in the resource sector and allocate military resources between conflict and coercion, which assigns defacto ownership over land and labour respectively. If find that coercion is higher if labour is scare relative to land, if production is labour-intensive, or if one group is dominant relative to others. Furthermore, the impact of the price of the commodity depends on the distribution of military strength: coercion increases with price if one group is dominant, but this effect is potentially reversed if military power is highly decentralised. These results are consistent with historic cases of the rise in serfdom in 16th century Russia, different coercive regimes in the rubber plantations in Amazonia and the Congo Free State 19th century, and also variation in coercion during the Sierra Leonean Civil War and in the eastern provinces of the Democratic Republic of Congo. Results of the model have implications for both trade and military policy. Trade policy aimed at reducing domestic commodity prices could actually lead to an increase in coercion. Similarly, a cease-fire agreement between armed groups can be interpreted as a form of collusion, as military resources are redirected from conflict to coercion.

JEL Codes: D21, D23, D24, D41, D74, N37, N47, N57, Q34

Keywords: conflict, coercion, slavery, natural resources

Reference: 113

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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

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Authors: Andreas Kotsadam, Anja Tolonen

Jun 2013

We use the rapid expansion of mining in Sub-Saharan Africa to analyse local structural shifts and the role of gender. We match 109 openings and 84 closings of industrial mines to survey data for 800,000 individuals and exploit the spatial-temporal variation. With mine opening, women living within 20 km of a mine switch from self-employment in agriculture to working in services or they leave the work force. Men switch from agriculture to skilled manual labor. Effects are stronger in years of high world prices. Mining creates local boom-bust economies in Africa, with permanent effects on women’s labor market participation.

JEL Codes: J16, J21, O13, O18

Reference: 114

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