Past Seminars

23 July

Professor Kenneth F. Wallis

University of Warwick

Evaluating Density Forecasts: Forecast Combinations, Model Mixtures, Calibration and Sharpness

Abstract:

This paper reviews current density forecast evaluation procedures, and considers a recent proposal that such procedures be augmented by an assessment of ‘sharpness’. This proposal is motivated by an example in which some standard evaluation procedures based on probability integral transforms cannot distinguish between the ideal forecast and several competing forecasts. From the perspective of the time-series forecasting literature it is shown that this example has some unrealistic features and hence is an insecure foundation for the argument that existing calibration procedures are inadequate in practice. We present an alternative, more realistic example and show how relevant statistical methods, including information-based methods, provide the required discrimination between competing forecasts. We propose an extension to information-based procedures to test the efficiency of density forecasts.

30 July

Abstract:

It is often suggested that there is a psychological advantage to be leading in a competition. It is, however, hard to identify such an effect econometrically. Using a Regression Discontinuity Design over a large dataset of tennis matches (N=634,095) the present paper exploits the randomised variation in first set results that occurs when the first set is decided by a close tie break (N=72,294). I find that winning the first set has a significant and strong effect on the result of the second set. A player who wins a close first set tie break has a 60% probability to win the second set. I discuss the likely economic and psychological explanations of this phenomenon.

5 August

Abstract:

Differences in answers in Internet and traditional surveys can be due to selection, mode, or context effects. We exploit unique experimental data to analyze mode and context effects controlling for arbitrary selection. The Health and Retirement Study (HRS) surveys a random sample of the US 50+ population, with CAPI or CATI core interviews once every two years. In 2003 and 2005, random samples were drawn from HRS respondents in 2002 and 2004 willing and able to participate in an Internet interview. Comparing core and Internet survey answers of the same people, we analyze mode and context effects, controlling for selection. We focus on household assets, for which mode effects in Internet surveys have rarely been studied. We find some large differences between the first Internet survey and the other three surveys which we interpret as a context and question wording effect rather than a pure mode effect.

10 August

Abstract:

Empirical evidence from the psychology literature suggests that reactions towards health shocks depend strongly on the personality trait of locus of control, which is usually unobservable to the analyst. In this paper, the role of this discrete heterogeneity in shaping the effects of health shocks on labour supply is theoretically modelled by adopting the Grossman (1972) model. Using Australian longitudinal data (HILDA Release 7.0), the predictions of the theoretical model are tested with two different identification strategies: (1) On the one hand, I use a latent class binary choice model that identifies intercept and slope heterogeneity on the basis of unobservable factors; and (2) on the other hand I stratify the sample on the basis of observed personality data into two groups of internally and externally controlled individuals and estimate the labour supply behaviour separately for these two groups with a pooled binary choice model. A robust result across both identification strategies is that externally controlled individuals make up a smaller proportion of the overall sample and they are more than two times more likely to work less than 10 hours per week than internally controlled individuals after having experienced a health shock. These results are in line with a similar analysis using German longitudinal data (Schurer 2008).

13 August

Abstract:

Since removing a poison pill is more widespread in recent years, it is important to understand why boards do away with them. We find two distinct groups in our sample. In one group with entrenched managements, shareholders actively petitioned for removal. Management opposed pill removal, but with sufficient shareholder pressure boards eliminated them anyway. In the other group boards removed the pills when they were unnecessary to protect an entrenched management or to improve bargaining power. We show that management is not ensconced and that bargaining power was sufficient without poison pills. In an era of shareholder activism, it is apparently more expedient to eliminate the pill than to keep it. In addition, we show that even though shareholders did not formally request removal, they may have influenced removal with behind the scenes activity.

20 August

Abstract:

The aim of this paper is to find a closed-form approximate log-likelihood function for a multivariate timeinhomogeneous diffusion. There are many empirical evidences that the underlying data generating processes for many economic variables might change over time. One possible way to explain the timedependent behavior of state variables is to model the drift or volatility terms as functions of t as well as state variables. Closed-form likelihood expansions for multivariate time-homogeneous diffusions have been obtained by Aït-Sahalia (2007). This research is an extension of his results to time-inhomogeneous cases. Simulation study reveals that our irreducible method yields an approximate density function very close to the true density.

24 September

Abstract:

This paper tries to highlight the common structure underlying the mathematics used in various sub-fields of economics. Set theory provides the starting point for the bulk of modern mathematics and, thus, also for the formal modeling in economics. The essence of formal modeling in economics can be captured by a simple procedure. First, we start with some unstructured set. Second, we use certain tools to provide some additional structure to the elements of the unstructured set. We end up with different types of structured sets depending upon the nature and properties of the tools we use (weak
order, linear order, metric space, vector space, topological space, probability space { all these concepts are simply different types of structured
sets). Moreover, it is interesting to note that a significant portion of economics utilizes only two tools { binary relations and binary operations { to provide additional structure to an unstructured set. The paper will illustrate the usefulness of recognizing the above mentioned procedure with various examples.

25 September

Professor Joerg Oechssler

Mandatory Sick Pay Provision: A Labor Market

Abstract:

The question whether a minimum rate of sick pay should be mandated is much debated. We study the effects of this kind of intervention in an experimental labor market that is rich enough to allow for moral hazard, adverse selection, and crowding out of good intentions to occur. We find that higher sick pay is reciprocated by workers through higher effort but only if sick pay is not mandated. We also study adverse selection effects when workers have different probabilities of getting sick and can reject the hypothesis that this leads to market breakdown. Overall, we find that mandating sick pay actually leads to a higher voluntary provision of sick pay by firms.

1 October

Associate Professor Sven Feldmann

Relying on non-selfserving statements: Full information revelation in cheap-talk games with multiple senders

Abstract:

This paper analyzes a two sender-receiver cheap-talk game with multidimensional state space. I derive a truthful, fully revealing equilibrium in which the receiver believes off-equilibrium messages only if they are not in the interest of the sender. The resulting equilibrium has properties that make it a simple and plausible solution for full revelation in multi-dimensional cheap-talk games. The equilibrium is robust to unexpected perturbations in the information of the senders and holds for all sender biases, robust to collusion, and continuous. I characterize the conditions for full revelation when the state-space is bounded. The equilibrium is orthogonal to the construction proposed by Battaglini (2002).

22 October

Taxpayer Information Assistance Services and Tax Reporting Behavior

Abstract:

The traditional “enforcement” paradigm of tax administration views taxpayers as potential criminals, and emphasizes the repression of illegal behavior through frequent audits and stiff penalties. However, an important trend in tax administration policies in recent years is the recognition that this paradigm is incomplete. Instead, a revised “service” paradigm recognizes the role of enforcement, but also emphasizes the role of tax administration as a facilitator and a provider of services to taxpayer-citizens. While such “kinder, friendlier” provisions may improve the image of the tax authority, and indeed have been an essential part of many recent tax administration reforms around the world, their actual effect on tax compliance has never, to our knowledge, been quantified. This research utilizes laboratory experiments to test the effectiveness of taxpayer service programs in enhancing tax compliance. Our basic experimental setting mimics the naturally occurring environment: subjects earn income, they must choose whether to file a tax return, and they then must choose how much of their net income to report to a tax authority that may audit the subject. To investigate the effects of taxpayer services, we “complicate” these compliance decisions of subjects, and then provide “services” from the “tax administration” that allow subjects to compute more easily their tax liabilities. Our results indicate that tax agency provided information on an individual’s tax liability has little impact on the tendency of an individual to file a tax return, but that this information has a significant and positive effect on compliance for individuals who choose to file a return.

23 October

Professor Timo Teräsvirta

Conditional Correlations Models of Autoregressive Conditional Heteroskedasticity with Nonstationary GARCH Equations (joint work with Cristina Amado)

Abstract:

We investigate the effects of careful modelling the long-run dynamics of the volatilities of stock market returns on the conditional correlation structure. To this end we allow the individual unconditional variances in Conditional Correlation GARCH models to change smoothly over time by incorporating a nonstationary component in the variance equations. The modelling technique to determine the parametric structure of this time-varying component is based on a sequence of specification Lagrange multiplier-type tests derived in Amado and Teräsvirta (2009). The variance equations combine the long-run and the short-run dynamic behaviour of the volatilities. The structure of the conditional correlation matrix is assumed to be either time independent or to vary over time. We apply our model to seven pairs of daily returns of stocks belonging to the S&P 500 stock index and traded at the New York Stock Exchange. The results suggest that accounting for deterministic changes in the unconditional variances considerably improves the fit of the multivariate Conditional Correlation GARCH models to the data. The effect of careful specification of the variance equations on the estimated correlations is variable: in some cases rather small, in others more discernible.

Dr Maria A. Garcia-Valiñas

Does Length Matter? An application to residential water users in Seville

Abstract:

EU Water Framework Directive leads to manage water in an efficient way. Water scarcity originates frequently the need for rationing, and various methods, including supply interruptions, can be used. The aim of this paper is to evaluate the effectiveness and efficiency of those methods in reducing residential water consumption. We estimate a demand function segmented into two components in order to capture the proportion of water consumed by households under different supply cut schemes. We find that the reduction in consumption per hour of cut decreases with the length of the daily interruption. Thus, it is better to implement many short cuts than a few long cuts in order to achieve the targeted reduction in consumption, minimizing the total time of interruption. Additionally, we show the relative effectiveness of prices to control water demand.

Professor Steven Stillman

The Importance of Selectivity and Duration-Dependent Heterogeneity When Estimating the Impact of Emigration on Incomes and Poverty in Sending Areas: Evidence from the Samoan Quota Migration Lottery

Abstract:

The impacts of international emigration and remittances on incomes and poverty in sending areas are increasingly studied with household survey data. But comparing households with and without emigrants is complicated by a triple-selectivity problem: first, households self-select into emigration; second, in some emigrant households everyone moves while others leave members behind; and third, some emigrants choose to return to the origin country. Allowing for duration-dependent heterogeneity introduces a fourth form of selectivity – we must now worry not just about whether households migrate, but also when they do so. In this paper, we clearly set out these selectivity issues and their implications for existing migration studies, and then address them by using survey data designed specifically to take advantage of a randomized lottery that determines which applicants to the over-subscribed Samoan Quota (SQ) may immigrate to New Zealand. We compare incomes and poverty rates amongst left behind members in households in Samoa that sent SQ emigrants with those for members of similar households that were unsuccessful in the lottery. Policy rules control who can accompany the principal migrant, providing an instrument to address the second selectivity problem, while differences among migrants in which year their ballot was selected allow us to estimate duration effects. We find that migration, on average, increased household consumption and reduced poverty among former household members, but also find suggestive evidence that this effect may be short-lived as both remittances and income from own production are negatively related to the duration that the migrant has been abroad.

5 February

Professor Robert Haveman

University of Wisconsin-Madison

The Process of Social Mobility in the United States: A Glimpse Inside the Black Box

5 February

Professor Barbara Wolfe

University of Wisconsin-Madison

The Link Between Tribal Gaming and the Health Status and Behaviors of American Indians

9 February

Professor Winand Emons

University of Bern

Non-comparative versus Comparative Advertising as a Quality Signal

Abstract:

Two firms produce a product with a horizontal and a vertical characteristic. We call the vertical characteristic quality. The difference in the quality levels determines how the firms share the market. Firms know the quality levels, consumers do not. Under noncomparative advertising a firm may signal its own quality. Under comparative advertising firms may signal the quality differential. In both scenarios the firms may attempt to mislead at a cost. If firms advertise, in both scenarios equilibria are revealing. Under comparative advertising the firms never advertise together which they may do under non-comparative advertising.

5 March

Dr Schaltegger Christoph

University of St. Gallen

Tax Competition and Income Sorting: Evidence from the Zurich Metropolitan Area

Abstract:

In this paper, we provide empirical evidence for the influence of income taxes on the choice of residence of households on the local level. The fact that Swiss communities can individually set tax multipliers shifting the progressive tax scheme which is fixed on the cantonal (state) level enables to study the effect of differences in income taxation on the locational choice of households within a small and economically and culturally homogeneous region. Using panel IV regressions covering the years 1991-2003 and 171 communities in the Swiss canton of Zurich, we find substantial evidence for Tiebout sorting.

12 March

Dr Rasheda Khanam

University of Queensland

Child Health and the Income Gradient: Evidence from Australia

Abstract:

The positive relationship between household income and child health is well documented in the child health literature but the precise mechanisms via which income generates better health and whether the income gradient is increasing in child age are not well understood. This paper presents new Australian evidence on the child health-income gradient. We use data from the Longitudinal Study of Australian (LSAC), which involved two waves of data collection for children born between March 2003 and February 2004 (B-Cohort), and between March 1999 and February 2000 (K-Cohort). This data set allows us to test the robustness of some of the findings of the influential studies of Case et al. (2002) and J.Currie and Stabile (2003), and a recent study by A.Currie et al. (2007) using a sample of Australian children. The richness of the LSAC data set also allows us to conduct further exploration of the determinants of child health. Our results reveal an increasing income gradient by child age using similar covariates to Case et al. (2002). However, the income gradient disappears if we include a rich set of controls. Our results indicate that parental health and, in particular, the mother's health plays a significant role, reducing the income coefficient to zero.

19 March

Professor Ron Giammarino

University of British Columbia

Leaders, Followers and Risk Dynamics in Industry Equilibrium

Abstract:

We examine a model in which two firms strategically compete in a duopolistic product market. Firms produce a homogenous product and face stochastic industry demand. Each firm has a single option either to expand or contract capacity, and hence output. In this setup we analyse the risk characteristics of industries as well as single firms and look at corresponding asset price dynamics. We focus on sequential exercise of options. We find that strategic competition in the product market is risk reducing. Irrespective of expansion or contraction the presence of strategically interacting rivals causes firm’s risk to decline. This is the consequence of a simple hedging argument. Moreover, we find that own firm and industry characteristics have opposite risk implications in case of expansion and contraction. Empirical evidence, however, is that a strong negative relationship exists between firm and rival risk measures.

26 March

Dr Shams Pathan

Bond University

Endogenously Chosen Board Structure: Evidence from the US Bank Holding Companies

Abstract:

This paper examines the trends and endogenous formation of bank board structure (size, independence, CEO duality and gender diversity) for a sample of 212 bank holding companies from 1997 to 2004. Overall, the results show that the costs and benefits of boards monitoring and advising roles could explain bank board structure with caveats. For example, due to regulatory nature and comparatively intensive scrutiny of bank directors, I argue that bank managers may have less control over the directors’ selection process. Thus, bank board independence may not be the outcome of negotiation with CEOs. Consistent with this view, I find that bank CEOs do not effect bank board independence. The trend analysis also provides some important results. For example, in contrast to corporate firm evidence, I find that board size fell over the sample period for large and medium banks while board size was relatively flat for small banks. The results are robust to different estimation specifications. These results have important policy implications for bank regulators and investors.

16 April

Dr Patrick Verwijmeren

University of Melbourne

Convertible Security Design and Contract Innovation

Abstract:

This paper studies convertible security design for a sample of 814 issuers over the years 2000 through 2007. We examine the determinants of the choice of fixed income claim and the method of payment using a nested logit regression model. We find that firms select security designs that reduce corporate income taxes, minimize refinancing costs, and help mitigate managerial discretion costs. Convertible debt issuers frequently select payment methods that permit them to report higher diluted earnings per share. Some of these firms also adopt simultaneous financial strategies (share repurchase programs and call spread overlays) that inflate reported earnings. Firms that adopt these earnings management strategies are more likely to choose certain investment banks.

30 April

Dr Bryan Youngsur Lim

University of Melbourne

The Short-Sales Ban and the Options Market

Abstract:

We examine the effect of the Sep 2008 ban on short sales of specified U.S. financial stocks on the trading behavior in the options market. While theory suggests that long positions in put options are substitutes for short positions in the underlying stock, the ban appears to have substantially driven up the price of trading in options, to the extent that trading activity decreased for both puts and calls during the ban period. On average, the relative spread of an option increases and the daily traded volume decreases during the ban period. Additionally, a drop in the incidence of put-call parity violations coincides with the start of the ban and continues beyond the ban’s expiration.

30 April

Professor Simon P. Anderson

University of Virginia

Push-Me Pull-You: Comparative Advertising in
the OTC Analgesics Industry

Abstract:

We estimate the incentives to get ahead by hurting rivals in the context of comparative advertising. To do this, we watched all ads broadcast by the US OTC analgesics industry for a 5-year period and coded them according to which brands target which rival brands in comparisons. Data on how much was spent airing each ad then allows us to determine the dollar amounts spent in these attacks. We take these data to a structural model of targeting in which comparative advertising has a direct effect of pushing up own brand perception along with pulling down the brand images of targeted rivals. Brands’ optimal choices of advertising mix yield simple oligopoly equilibrium relations between advertising levels (for different types of advertising) and market shares. These we estimate by using as instruments the prices of equivalent generic drugs; and we use medical news shocks as further explanatory variables. We estimate that each dollar spent on comparative advertising has the same direct effect as 75 cents spent on non-comparative (purely direct) advertising: the remainder is attributable to pulling down rivals, and there is strong evidence of damage to targets

4 June

Professor Raja Junankar

University of Western Sydney

Do Migrants Aspire to the Australian Dream of a Quarter Acre Block?

Abstract:

It is commonly argued that the “Australian dream” is to own a quarter acre block of land with a house and a white picket fence. This paper investigates the extent to which migrants to Australia assimilate in terms of housing ownership and achieve the “Australian dream”. Much has been written about the assimilation of migrants into Australian society in terms of their employment, their wages and incomes, but little has been written about their assimilation in terms of the housing market. Assimilation in terms of home ownership is a better indication of assimilation since it shows how migrants acquire long term assets. This paper uses the Household Expenditure Surveys data to study the probability of owning a home for migrants from English speaking and non-English speaking backgrounds compared to the Australian born population.

6 July

Dr Philipp Engler

Free University of Berlin

Gains from Migration in a New-Keynesian Framework

Abstract:

This paper presents a simple New-Keynesian small open economy model allowing for labor to be supplied both domestically and abroad. From this small change in the otherwise standard setup follows an important implication for the Phillips-curve: The introduction of migration reduces the sensitivity of inflation to changes in the output gap, that is, the Phillips-curve becomes flatter. The theoretic intuition is simple: When the home economy booms due to high productivity or demand, workers migrate back from abroad because real wages improve relative to those in the rest of the world. This additional labor supply at home relieves the pressure on home wages such that marginal costs, and consequently prices, increase less. A welfare function is derived to show the welfare losses implied by a deviation from the optimal policy rule. These losses change when migration is allowed in that the weight of output gap volatility falls relative to inflation volatility. I show that demand shocks result in bigger output increases while the effects of productivity shocks depend on the choice of parameters. The flip side of the integration of labor markets is that shocks affecting labor markets abroad have spillover effects to the domestic economy.

9 July

Abstract:

The potential existence of buyer power in UK food retailing has attracted the scrutiny of the UK's anti-trust authorities, culminating in the second of two comprehensive regulatory inquiries in recent years. Such inquiries are authoritative but correspondingly timeconsuming and costly. Moreover, detection of buyer power has been dogged by the paucity of reliable evidence of its existence. In this paper, we present a simple theoretical model of oligopsony which delivers quasi-reduced form retailer-producer pricing equations with which the null of perfect competition can be tested using readily available market data. Using a cointegrated vector autoregression, we find empirical results that show the null of perfect competition can be rejected in seven of the nine food products investigated. Though not conclusive on the existence of buyer power, the proposed test offers a means via which the behaviour of the retail-producer price spread is consistent with it. At the very least, it can corroborate the concerns of the anti-trust authorities as to whether buyer power is potentially one source of concern.

16 July

Abstract:

Time-dependent pricing models such as the well-known Calvo (1983) model are deficient in two key respects: they fail to match disaggregated price data and they do not allow for state-dependency of pricing decisions. We propose a new model of pricing based on a new theory of expectations formation called inferential expectations. To overcome the costs associated with information acquisition and processing, firms adopt simple heuristics. In particular, under inferential expectations firms are assumed to perform hypothesis tests over the variance of real marginal costs. Depending on the size of the shocks and amount of available information, firms may remain inactive for an extended period of time and only review their pricing policy when sufficient evidence warrants it. This approach gives rise to an augmented, state-dependent Phillips curve and sheds light onto the dynamics of disaggregated prices.

24 July

Dr Nikos Nikiforakis

University of Melbourne

Feuds in the Laboratory?

Punishing free riders might promote cooperation, but it can also lead to feuds. We use a public good game with punishment opportunities to investigate whether the institution of feuds is efficiency enhancing. Treatments differ with respect to whether a punishment can trigger a feud. In the main treatment (Feud) the number of punishment stages is endogenously determined and avoiding revenge is impossible. Participants are generally found to employ strategies that avoid the break out of feuds. While the possibility of a feud affects punishment and contribution patterns, total earnings are not significantly different from treatments where punishment opportunities do not exist or where punishment opportunities exist, but there is no possibility of escalation.

7 August

Dr Shams T. Pathan

Monash University

Strong Boards, CEO Power and Bank Risk-Taking

This study examines the relevance of bank board of directors on bank risk-taking. Using a sample of 212 large bank holding companies over 1997-2004 (1,534 observations), this study finds that strong bank boards (boards reflecting more of bank shareholders interest by construction) positively affect bank risk-taking. In contrast, CEO power (CEO’s ability to control board decision) negatively affects bank risk-taking. These results are consistent with the bank contracting environment and robust to several proxies for bank risk-takings and different estimation techniques.

14 August

Abstract:

Due to contractual incompleteness, ownership plays a key role in the agents’ incentives to make relationship specific investments. However, there has been little progress in understanding how competition between the agents affects their investment decision within the incomplete contracts model. This article explores this interaction by introducing imperfect competition into the incomplete contracts paradigm, extending the Hart, Shleifer and Vishny (1997) model. We examine private and public market structures. We find that in markets exhibiting high product substitutability and elasticity of demand, introducing additional agents worsens the incomplete contracts distortions. In markets with low product substitutability, distortions are reduced with additional agents. This provides insight into important questions on the optimal market and firm structures, and public-private partnerships. An application to workers compensation is provided.

21 August

Abstract:

Commercial piracy, where a firm illegally reproduces and sells copies of legitimate products thereby competing with the original producer, has emerged as one of the leading global challenges faced by software businesses, entertainment industry, law enforcement agencies, and international trade partners. The threat is so real as to force the Bush Administration to launch an inter-agency initiative called the Strategy Targeting Organized Piracy (STOP) in October 2004. The existing literature, which addresses this issue at a theoretical level, is significantly lacking in empirical support of the theoretical propositions due to the unavailability of data. In this paper we use laboratory experiments to compare two forms of enforcement strategies to counter copyright infringement. Specifically, we compare the case of a regulator being responsible for identifying and penalizing the pirating firm (Treatment 1) to the case of the original producer investing in an anti-copying technology (Treatment 2). Our results suggest that there is under investment in monitoring by the regulators in the absence of any input from the original producer. Investment in anti-copying technology by the original producer is significantly more likely to restrict entry by the pirating firm interestingly through higher monitoring by the regulator. Social welfare is however significantly lower in Treatment 2. The results from this experiment will contribute to our knowledge of possible policies and strategies to counter copyright infringement.

28 August

Abstract:

I study a simple market microstructure model in a competitive setting where rational risk neutral investors anticipate becoming liquidity sellers at some future date. That is, being forced to sell with a certain probability. The IPO price must compensate buyers for expected transaction costs due to adverse selection. The insights of the model are as follows. First, investor’s distribution of liquidity selling needs affects adverse selection cost and hence the IPO price. Second, the marginal investor receives, in equilibrium, an excess return that covers his expected transaction costs. Third, anticipated dissemination of information to the public, just before secondary market trading takes place, lowers uniformly the adverse selection costs. Fourth, the model helps to explain the observed return differences for growth and value stocks in terms of transaction costs. Fifth, the IPO price depends on the issuer’s specific allocation of stocks to investors with different liquidity selling needs.

4 September

Abstract:

In customary international and public law, “takings” resulting from regulations designed to protect the public good are generally excluded from compensation rules; this exclusion is known as a police powers carve-out (PPCO). Increasingly, this PPCO is being challenged, particularly in international investment law. This paper analyzes the efficient properties of a PPCO in a model with endogenous regulation, investment and entry. We design a one-parameter family of carveout/ compensation schemes that induce efficient regulation and firm level investment even when the regulator suffers fiscal illusion and the social benefit from regulation is private information to the regulator. We show that offering a carve-out reduces the subsidy to risky industry implicit in compensation rules; thus, a carve-out can mitigate the entry problem.

Abstract:

The purpose of this study is to show that organizational efficiency depends on culture and in particular on trust. First, I define trust using economics tools. Then I discuss basic properties of trust and important determinants of the degree of trust. Next, I criticize neoclassical economics and show how it improperly claims that culture and trust are unnecessary for efficiency. I examine in detail the neoclassical assumptions of production functions and transaction costs to demonstrate that they are responsible for ignoring the importance of culture and trust for organizational efficiency. I claim that neoclassical economics does not consider true organizational efficiency but market efficiency only. Neoclassical economics is criticized for not having a full-fledged theory of organization or production. Finally, I demonstrate that trust and culture determine the type of Nash equilibrium that arises in game situations within organizations. This reveals that trust and culture affect efficiency. I emphasize that not only given societal and organizational cultures but also cultural efforts such as persuasion and communication promote efficiency.

18 September

Abstract:

This paper provides an analysis of a non-cooperative pairwise bargaining game between agents in a network. We establish that there exists an equilibrium that generates a coalitional bargaining division of the reduced surplus that arises as a result of externalities between agents. That is, we provide a non-cooperative justification for a cooperative division of a noncooperative surplus. The resulting division is akin to the Myerson-Shapley value with properties that are particularly useful and tractable in applications. We demonstrate this by examining firmworker negotiations and buyer-seller networks.

25 September

Abstract:

Empirical studies have found that cannabis commonly precedes consumption of drugs like amphetamine, ecstasy, cocaine or heroin, and as a result a causal linkage between cannabis and subsequent hard drug use has been hypothesized. Despite mixed empirical evidence and a limited understanding of possible transmission mechanisms, the causal gateway hypothesis has been influential in formulating a strict drug policy in many western countries. Individual differences in proneness and accessibility, however, provide alternative, non-causal explanations for the observed “staircase” pattern and yield potentially different policy implications. We propose a Bayesian estimation and predictive framework to analyze the effects and relative importance of previous cannabis use, proneness and accessibility factors on hard drug initiation and to explore potential policy implications, using data from a unique 2006 survey of young adults in Norway. We present a novel modeling approach that is motivated by the gateway transmission channels proposed in the literature and allows for a partially heterogeneous effect of previous cannabis use on hard drug uptake and a more flexible correlation pattern for the unobservables. We find that all three effects contribute to the observed higher drug use pattern among cannabis users, previous cannabis use being the most influential one. We also find that the latter is driven by various transmission channels (heterogeneous gateway effect).

29 September

Nonparametric regression techniques hold out the promise of more flexible modeling of data in many areas of physical, biological and social sciences. However, their use is hampered by the “curse of dimensionality” which imposes enormous data requirements as the number of explanatory variables increases. After summarizing two of the most commonly used methods for mitigating the “curse”, this paper outlines a new approach which exploits data on derivatives. In economics, such circumstances arise in the joint estimation of cost and factor demand functions, or when production function data are combined with data on factor prices. The ideas are illustrated using empirical examples from energy economics.

2 October

This seminar is sponsored by the NCER Seminar Series

Abstract:

This paper presents new methods for formally comparing the accuracy of estimators of the quadratic variation of a price process. I provide conditions under which the relative average accuracy of competing estimators can be consistently estimated (as T infinity) from available data, and show that existing tests from the forecast evaluation literature may be adapted to the problem of ranking these estimators. The proposed methods eliminate the need for specific assumptions about the properties of the microstructure noise, and the need to estimate quantities such as integrated quarticity or the noise variance, and facilitate comparisons of estimators that would be difficult using methods from the extant literature, such as those based on different sampling schemes (calendar-time vs. tick-time). In an application to high frequency IBM stock price data between 1996 and 2007, I find that tick-time sampling is generally preferable to calendar-time sampling, and that the optimal sampling frequency is between 15 seconds and 5 minutes, when using standard realised variance.

6 October

Abstract:

Children of affluent parents get more schooling than children of poorer parents, which seems to imply that reducing income inequality would reduce inequality in schooling. Similarly, one of the best predictors of an individual’s income is his educational attainment, which seems to imply that reducing inequality in schooling will reduce income inequality. In the United States income inequality increased over the last generation. Inequality in educational attainment increased after 1980s as did inequality across states in per pupil expenditures. Within states school spending became more equal, but probably the cost of higher spending. Economic theory unambiguously predicts that all else equal an increase in income inequality will lead to an increase in inequality of educational attainment. Empirical estimates suggest that this happened in the United States but that the magnitude of in effect was small primarily because government education policies reduced the benefit of inequality for children from affluent families and reduced the negative consequences of inequality for children from low-income families. Economic theory also unambiguously predicts that all else equal an increase in inequality of educational attainment will result in greater inequality of earnings. However, making the same amount of high quality schooling available to all children would do little to reduce the overall variation in economic success among adults in the United States and other rich countries. The relationship between income inequality and inequality of schooling could be much stronger in less developed countries.

16 October

Abstract:

What does it mean to 'think like an economist'? Almost 30 years ago the American Economic Association presented an outline of the skills they thought need to be exhibited by someone who was thinking 'like an economist'. Many of these skills, such as creativity, problem solving, looking for simple explanations to complex questions, and applying economic concepts to novel situations, are difficult to achieve. Nonetheless, individuals who are able to exhibit such skills could be considered to be thinking like an economist. One task of economics lecturers' is to teach individuals who are 'students' of economics. One aim is to assist some of these students to begin to 'think like an economist'. In some programs the ultimate aim is that students of economics 'become' economists.

Recently, developments in educational research have begun to explore the link between learning and identify transformation. It is argued that what is required for such transformations is that students must fundamentally shift the way in which they view the world. This may be done by acquiring certain threshold concepts that fundamentally change the way an individual identifies issues and attempts to solve problems. Economics has been one discipline area, among several, that appears to be well served by this approach to examining student learning. This presentation will outline the fundamental idea behind threshold concepts. It will also provide examples from economics that have been researched and discussed in the educational literature. Finally, some potential applications of threshold concepts for university lecturers and higher education policy will be discussed.

23 October

Principals vs. Principles: What Do Managers Do When Governance Is Slack?

Abstract:

The separation of ownership and control in corporations opens up the potential for moral hazard. Thus it is conventional wisdom that managers who are not closely monitored pursue personal goals rather than maximize shareholder wealth. Yet little is known about what these goals are, despite the importance of understanding manager behavior when designing corporate governance rules. This paper provides new insights into managers' personal preferences by studying the variations in corporate environmental and social performance associated with different corporate governance provisions. I employ a unique dataset on corporate governance and corporate social responsibility and exploit variations in takeover defenses to analyze differences in managers' behavior. I find that with weaker governance, more resources are allocated into environmentally and socially responsible objectives and away from core responsibilities. These findings support a theory that ethical principles are important for the subjective well-being of managers.

30 October

Analyzing US divestitures: The impact of corporate governance

Abstract:

We analyze the impact of corporate governance quality on divestiture decisions and the resulting market reaction. We extend the literature using an innovative control sample of firms displaying characteristics often associated with divestitures indicating that these firms may face the same incentives to divest but chose not to. Our results suggest that divesting firms have better quality internal corporate governance mechanisms and face more rigorous external pressures. In comparison, only internal mechanisms are significant determinants of the divestiture wealth effects. Finally, we discover significantly larger announcement returns for divestitures made after the introduction of the Sarbanes-Oxley Act (2002).

6 November

Why is there a spike in the job finding rate at benefit exhaustion?

Abstract:

Putting a limit on the duration of unemployment benefits tends to speed up the job search. The exhaustion of benefits creates a "spike" in the job finding rate. In our study we present a theoretical model in which these spikes are caused by delays in acceptance, which are more likely to occur for permanent jobs than for temporary jobs. We use a dataset on Slovenian unemployment spells in which clear spikes in job finding rates occur. We show that indeed spikes are more likely to occur in transitions from unemployment to permanent jobs.

24 January

Associate Professor Muhammad Imansyah

Lambung Mangkurat University

A comparison of the impact of 1997 financial crisis to the economic structure between Indonesia and Australia: an input-output analysis

The financial crises hit several Asian countries including Indonesia in 1997. The impact of the crisis severely damaged the Indonesian economy, but only slightly affected the neighbouring Australian economy. The paper examines the impact of the crisis on the economic structure of the Indonesian and Australian economies after mark of the currency crisis. Structural decomposition analysis is used to identify the impact of the currency crisis. This method can decompose the source changes from proportionate changes in technology and prices.

In Indonesia, prices rose markedly at the onset of the crisis. The total proportionate change index decreased reflecting decline in productivity during 1995-1998 in the Indonesian economy. The magnitude is quite significant. On the other hand, in the Australian economy the impact of the Asian crisis was minor in terms of economic structure. Observed structural changes arose more from price changes rather than from technological changes.

31 January

Dr David Matesanz Gómez

University of Oviedo

New (econophysics) tools in financial time series: the case of the exchange rate in the nineties

Abstract:

Using data from a sample of 28 representatives countries, we propose a classification of currency crises consequences based on the ultrametric analysis of the real exchange rate movements time series, without any further assumption. By using the matrix of synchronous linear correlation coefficients and the appropriate metric distance between pairs of countries, we were able to construct a hierarchical tree of countries. This economic taxonomy provides relevant information regarding liaisons between countries and a meaningful insight about the contagion phenomenon.

7 February

Dr Maria A. García-Valiñas

University of Oviedo

Water services and residential prices: public or private management

Abstract:

In this paper we try to explain differences in the average price of domestic water supply services in Spain, paying special attention to the effects of service privatisation on residential price levels. We base our empirical analysis on the application of a 'treatment effects' model on a sample of 53 major urban municipalities. This model accounts for the fact that municipalities do not randomly distribute themselves between a group using strictly public ownership and management and a group where all or part of the service has been delegated to a private firm. We find that, once this endogeneity is taken into account, there seems to be a positive and significant effect of privatisation on water price levels.

14 February

Professor Rudolf Winter-Ebmer

Linz University

Clash of Career and Family: Fertility Decisions after Job Displacement

This seminar is sponsored by the NCER Seminar Series.

Abstract:

In this paper we investigate how fertility decisions respond to unexpected career interruptions which occur as a consequence of job displacement. Using an event study approach we compare the birth rates of displaced women with those of women unaffected by job loss after establishing the pre-displacement comparability of these groups. Our results reveal that job displacement reduces average fertility by 5 to 10% in both the short and medium term (3 and 6 years) and that these effects are largely explained by the response of white collar women. Using an instrumental variable approach we provide evidence that the reduction in fertility is not due to the income loss generated by unemployment but arises because displaced workers undergo a career interruption. These results are interpreted in the light of a model in which the rate of human capital accumulation slows down after the birth of a child and all specific human capital is destroyed upon job loss.

21 February

Professor Janice How

Auckland University

Agency Conflicts and Corporate Payout Policies: A Global Study

Abstract:

We investigate the extent to which agency problems appear to be resolved, globally, by corporate dividend payout policies. In so doing, we assess the generalisability of conclusions reached by La Porta, Lopez-de-Silanes, Shleifer and Vishny (2000) with respect to other time periods and to the inclusion of an increasingly popular form of corporate distribution, namely share repurchases. We also investigate whether incorporating firm level proxies for agency costs improve our understanding beyond assuming all companies within a given country face the same costs. Based on a large sample of 31,233 firms in 48 countries over the period 2001-2006, our results mostly support the generalisability of the outcome model, as described by La Porta, Lopez-de-Silanes, Shleifer and Vishny, finding that it is robust over time and to the inclusion of share repurchases along with cash dividends in the payout ratio. However, when firm level proxies for agency costs are added to the structural equation, we find a more complex relationship between payouts to shareholders and agency problems. There is a form of "pecking order" in investors' ability to extract cash from firms. Although investors are able to use their legal powers to extract cash (whether as dividends or share repurchases) from firms in high protection countries, their ability is hindered when agency costs at the firm level are high. In poor protection countries, investors seem to take whatever cash they can get, even though the amount may be small, regardless of investment opportunities and firm level agency conflicts.

6 March

Dr Susan Thorp

University of Technology Sydney

Discounting and consumption over an uncertain horizon: draw-down plans for family trusts

Abstract:

Individuals, endowments and trusts face uncertain lifetimes. When the planning horizon of an entity is stochastic and Pareto distributed, hyperbolic discounting and time-varying consumption rates are optimal. We derive expressions for the optimal rate of consumption (draw-down) from wealth for family trusts facing positive probabilities of extinction at each generation. Using birth statistics for the UK, we compute family extinction probabilities and show that they are well-approximated by a Pareto distribution, hence family trusts will discount hyperbolically. Numerically optimised consumption paths for family trusts with CRRA preferences are decreasing but always higher than for infinitely-lived trusts.

13 March

Associate Professor Kalvinder Shields

University of Melbourne

Abstract:

A modelling framework is proposed in which the real time informational context of decision-making is properly reflected. Comparisons are drawn with ‘standard’ estimated models that incorrectly omit market-informed insights on future macroeconomic conditions and inappropriately incorporate information that was not available at the time. An analysis of quarterly US data 1968q4-2006q1 shows that neither diagnostic tests applied to the standard models nor typical impulse response analysis are able to expose the misspecification clearly. Estimated real time models considerably improve out-of sample forecasting performance, provide more accurate ‘nowcasts’ of the current state of the macroeconomy and provide more timely indicators of the business cycle. A case study highlights the use of information in recognising the US recessions of 1990q3 — 1991q2 and of 2001q1 — 2001q4.

17 March

Katrien Stevens

University College London

Abstract:

This study investigates how shocks in economic conditions at entry into the labour market affect low and medium-skilled workers' wages over the lifecycle. Wage and career determination models have varying predictions for this relationship: standard neo-classical models predict only temporary effects on wages while e.g. signalling, job search and human capital models predict at least some degree of persistence in the effect of an initial adverse shock on wages. We use detailed German employment data in which we follow a large sample of workers from entry up to 19 years in the labour market. Particularities of the education system provide support for an exogenous timing of labour market entry. Long-term effects of initial economic conditions on wages are identified using variation in unemployment rates over time and across regions. We find that wages are adversely affected in the first years in the labour market: entering the labour market in a recession (9% versus 4% unemployment) implies 3-6% lower wages in the first 4 years of the career, but these negative effects fade out over the next 3 years. The choice of timing and location of labour market entry, neither persistence in economic conditions is driving the findings. Higher unemployment rates at entry also have a negative impact on the probability of employment, again only in the early career. This suggests that labour market outcomes of less-skilled workers are not very vulnerable to adverse economic conditions at the start of the career.

20 March

Dr Stefan Trück

Macquarie University

Abstract:

This paper considers rating dynamics and duration times of credit migration behaviour. In particular we investigate the generally stated assumption that rating transitions follow a continuous, time homogeneous Markov chain. One of the essential properties of the model is that durations in states have an exponential distribution. By examining a large database of rating migrations, we show that the exponential distribution may not be an adequate assumption about the probability distribution for the duration. We then propose alternative parametric and nonparametric distributions for the rating dynamics. Further, by using a continuous time simulation study we show the effects of the choice of the probability distribution on the calibration of the PD term structure as well as Value-at-Risk figures of exemplary loan portfolios.

27 March

Professor Monika Bütler

University of St Gallen

Abstract:

This paper analyzes a vote in which two identical but differently framed popular initiatives, both demanding a decrease in the legal age of retirement in Switzerland, led to differences in approval rates of nearly seven percentage points. Based on this unique natural experiment, the existence of framing effects is tested for and their determinants are identified outside of the stylized settings in laboratories. Nonetheless, the analyzed setting allows for considerably more control than usually available in the field: All party, government and interest group recommendations were symmetric for both initiatives, and the simultaneous vote rules out potential variation of individual preferences and compositional changes of the electorate over time. Using community and individual level data it is shown that the difference in approval rates is largely due to the different emphases in the initiatives' titles.

10 April

Professor Roger Craine

UC Berkeley

This seminar is sponsored by the NCER Seminar Series.

Abstract:

Between 2004-2006 the US Federal Reserve relentlessly increased the Federal Funds Target rate by ¼% at seventeen consecutive Federal Open Market Committee meetings. The Target rose from 1% to 5 ¼%. Short maturity yields dutifully followed the target, but long maturity yields (10 years or more) actually fell until by June 2006 they were less than short maturity yields. Alan Greenspan, Chairman of the Federal Reserve at the time, labeled the unusual behavior of the yield curve a conundrum. We find that unusually strong demand by foreigners for US bonds led to yields 1 ½% lower than they would have been otherwise. Monetary and macroeconomic surprises had almost no effect on long maturity yields.

In the future if foreigners switch their holdings to non-dollar denominated assets US yields will have to rise above what they would have been otherwise.

17 April

Dr Peter Verhoeven

Auckland University

Lintner's Partial-Adjustment Model of Corporate Dividends: A Cross-Country Analysis

Abstract:

We examine the dividend behavior of a sample of 6,190 firms across 25 countries from 1965 to 2006, using the partial-adjustment model proposed by Lintner (1956).  We find the Lintner model, where dividend changes are a function of current earnings and lagged dividends, is widely applicable around the globe.  By all measures, firms in the United States and Canada have the most aggressive dividend policy, exhibiting highly persistent and pronounced asymmetry in dividend payments such that dividends are less likely to be cut subsequent to a decline in earnings than to be increased following an earnings increase.  In contrast, firms in Austria and Japan have predominantly constant dividend payments, with low asymmetry and low target payout ratios.  Firms in emerging countries such as Korea, Thailand and Malaysia sit in the middle, showing low persistence, low asymmetry and moderate target payout ratios.  The amount of faith that can be placed on forecasts obtained from Lintner’s model varies with dividend behavior ― the more aggressive the dividend payments, the more confidence practitioners can place on Lintner’s forecasts. 

24 April

Dr George Wong

Monash University

Abstract:

This study examines the separate impact and joint effect of financial constraints and financial market mispricing on the sensitivity of investment to internal cash flows. Using a large sample of US manufacturing firms over the period 1971-2004, we find that financially unconstrained firms are more flexible in adjusting their sources of financing for corporate investment in response to financial market mispricing. Specifically, financially unconstrained firms tend to have lower (higher) investment-cash flow sensitivities in situations of overvaluation (undervaluation). This provides an explanation of why unconstrained firms have higher valuations than constrained firms.

1 May

Professor Abdulnasser Hatemi-J

Deakin University

Abstract:

The issue of model selection in applied research is of vital importance. Since the true model is not known, which model should be used is an empirical question. There might exist several competitive models. The standard approach to dealing with this is classic hypothesis testing using an arbitrarily chosen significance level based on the underlying assumption that a true null hypothesis exists. In this paper we investigate how successful this approach is in determining the correct model for different data generating processes using time series data. An alternative approach based on more formal model selection techniques such as information criteria or cross-validation is suggested and evaluated in the time series environment via Monte Carlo experiments.

8 May

Professor Michael Lemmon

University of Utah

Abstract:

In this paper, we demonstrate the advantage of broad-based stock option plans over cash compensation when the firm needs to finance both current and future investment in an environment where external finance is costly. Intuitively, the company obtains funds for investment in the current period by cutting fixed wages through the issuance of stock options. The company receives additional funds in later periods when it collects the cash proceeds and tax savings from option exercises. Importantly, the cash inflow arising from option exercises is correlated with improvements in the firm’s investment opportunities, thus providing funds in precisely those states of the world where the demand for investment is high. Option grants in the current period therefore allow the firm to relax both its current and future financing constraints and to increase investment in positive NPV projects. Consistent with the predictions of the model, we estimate that firms increase investment by $0.38 for each dollar of proceeds received from the exercise of stock options, and that the sensitivity
of investment to proceeds from option exercises is higher in firms likely to
face financing constraints.

15 May

Mr David Johnston

University of Melbourne

Abstract:

This paper addresses the question of when and to what extent individuals are affected by major positive and negative life events, including changes in financial situation, marital status, death of child or spouse and being a victim of crime. The key advantage of our data is that we are able to identify these events on a quarterly basis rather than on the yearly basis used by previous studies. We find evidence that life events are not randomly distributed, that individuals to a large extent anticipate major events and that they quickly adapt. These effects have important implications for the calculation of monetary values needed to compensate individuals for life events such as crime or death of spouse. We find that taking dynamic factors into account leads to considerably smaller compensation valuations, with the average criminal event being off-set by a windfall income gain of about $14,000 US, and the loss of a partner, which is the most expensive shock, being off-set by a windfall income gain of about $200,000 US.

18 May

Professor Paul B. McGuinness

Macquarie University and Chinese University of Hong Kong

Synopsis:

This seminar will focus on the ever-changing market environment surrounding Chinese state owned enterprise (SOE) issuers. Both H- share (Hong Kong) and A- share issuers (Shanghai) will be considered, as well as the offshore registered affiliates of such entities (i.e., ‘Red- Chips). Particular attention will be directed to recent developments in the A- and H- markets as well as to likely imminent market reforms. Market developments, like the Qualified Foreign Institutional Investor (QFII) and Qualified Domestic Institutional Investor (QDII) schemes, will also be examined as well as the ongoing ‘redesignation’ of non-tradable stock into tradable stock form (in the case of Mainland-incorporated issuers). Many of the key issues will be assessed through the prism of Chinese SOE banks, with six of China’s top seven banks having established concurrent A- and H- share listings in recent years. The listing of such entities was unprecedented. In terms of capital proceeds raised, ICBC’s dual A- and H- share IPO of late 2006 constitutes the largest IPO ever assembled anywhere in the world.

22 May

Dr Tariq Haque

University of Adelaide

Abstract:

Barberis and Shleifer (2003) develop a theoretical asset pricing model in which some investors classify similar stocks into distinct categories. Investors move into a category by selling off stocks of an alternate category causing negative lagged cross-correlation between categories. They suggest that trend chasing or behavioural factors are likely to cause these switches into and out of categories. We use daily returns to Australian industry categories to demonstrate this trend chasing or behavioural effect. We then use weekly returns to suggest switching may be caused by a strategic asset allocation decision to alter exposure to industry portfolios.

5 June

Professor Joseph Fan

Chinese University of Hong Kong

Abstract:

This paper studies internal capital market in emerging market business groups using Chinese data. We focus on two aspects of the internal capital market that are less prominent in the developed markets: a cross-financing to get over severe financing constraints that are often prevalent in emerging market economies, and the rampant expropriation of minority shareholders under the weak corporate governance environment. We document the existence and interaction of both in China and discuss the implication of the efficiency of internal capital markets in emerging market. We found that the internal capital market is the least inefficient when weak corporate governance induce more tunnelling activities and there is no big need for mitigating financing constraints. On the other hand, when the corporate governance is relatively stronger and firms have a pressing need to use the internal capital market to mitigate financing constraints, the efficiency of the internal capital market is the highest.

Risk and Return in Stochastic Volatility Models: Volatility Feedback Matters!

Dr Thomas Krichel

What is the central matter of Economics? An investigation using JEL code centrality.

Abstract: The journal of economic literature classification scheme is a standard scheme to classify economics papers. This paper examines the usage of the scheme in a large set of economics papers. I document what subjects are central to the work of economics.

How to choose, your job, your oncologist, your fund manager and your real estate agent: improving information flows in markets.

Abstract: We have long known – and for commonsensical reasons – that good information is critical to economic efficiency. Friedrich Hayek argued this within the ‘Austrian tradition’ of economics in prosecuting his case in the ‘socialist calculation debates’ of the 1930s. ‘Asymmetric information’ arrived as a substantial issue within the neoclassical tradition around thirty five years later with the work of theorists such as Kenneth Arrow, George Stigler, George Akerlof and Joseph Stiglitz.
Yet remarkably little attention has been given to the question of how to improve information flows. Hayek was interested in information, within a debate, on the relative merits of markets and central planning. Arguing for the former, he did not address the shortcomings of information flows within markets. Within the economic mainstream, the market failures in information illustrated by Akelof and Stiglitz are frequently cited as a justification for interventions to mandate disclosure (for instance in consumer and investor markets). However such discussion rarely goes further and investigates the efficacy of alternative strategies.
Noting that

• information is often suppressed as commercial in confidence;
• reputation is a principle means by which a market economy deals with ignorance about complex matters; and
• regulation should focus as far as practicable on outcomes rather than inputs,

This paper argues for a new approach aimed at improving the rigour with which reputations are made.
The case for going beyond what we do now is strongest where asymmetric information is most rife as it is for instance in the provision of many professional services – from medical services through to real estate agency – and in the market for job satisfaction.

Right now most large firms regularly do survey work to gauge the satisfaction of their customers and their employees and identify opportunities to improve their performance. Such surveys could be standardised and the results published in a form which allowed ready comparison between firms.

Where outcomes of service provision can be objectively measured – for instance the price achieved for houses, or the success rate of medical procedures – a method is proposed by which service providers could tender for business by making predictions of the outcomes they could achieve, corrected for any systematic optimism or pessimism of past predictions. In addition to generating unbiased prognoses, the method could alleviate various perverse incentives generated by other attempts to measure the performance of service providers.

Central Bank Communication and Expectations Stabilization

Abstract: This paper analyses the value of communication in the implementation of monetary policy. The central bank is uncertain about the current state of the economy. Households and firms are uncertain about the statistical properties of aggregate variables, including nominal interest rates, and must learn about their dynamics using historical data. Given these uncertainties, when the central bank implements optimal policy, the Taylor principle is not sufficient for macroeconomic stability: for reasonable parameterisation's self-fulfilling expectations are possible. To mitigate this instability, three communication strategies are contemplated: i) communicating the precise details of the monetary policy - that is, the variables and coefficients; ii) communicating only the variables on which monetary policy decisions are conditioned; and iii) communicating the inflation target. The first two strategies restore the Taylor principle as a sufficient condition for stabilising expectations. In contrast, in economies with persistent shocks, communicating the inflation target fails to protect against expectations driven fluctuations. These results underscore the importance of communicating the systematic component of monetary policy strategy: announcing an inflation target is not enough to stabilise expectations - one must also announce how this target will be achieved.

Giving and Receiving Awards

A Comparative Analysis of the Nativity Wealth Gap

Firm Compliance with Social Insurance Obligations where there is a Weak Surveillance and Enforcement Mechanism: Empirical Evidence from Shanghai

Robustness of multiple hypothesis testing procedures against dependence

Leadership Giving in Charitable Fund-Raising: Matching Grants or Seed Money?

Follow the Leader

cancelled

Are real interest rates really mean-averting?

A Multi-Factor Approach for Systematic Default and Recovery Risk

Dr Nicolas Gruen

cancelled - moved to July 26

Abstract: We have long known – and for commonsensical reasons – that good information is critical to economic efficiency. Friedrich Hayek argued this within the ‘Austrian tradition’ of economics in prosecuting his case in the ‘socialist calculation debates’ of the 1930s. ‘Asymmetric information’ arrived as a substantial issue within the neoclassical tradition around thirty five years later with the work of theorists such as Kenneth Arrow, George Stigler, George Akerlof and Joseph Stiglitz.
Yet remarkably little attention has been given to the question of how to improve information flows. Hayek was interested in information, within a debate, on the relative merits of markets and central planning. Arguing for the former, he did not address the shortcomings of information flows within markets. Within the economic mainstream, the market failures in information illustrated by Akelof and Stiglitz are frequently cited as a justification for interventions to mandate disclosure (for instance in consumer and investor markets). However such discussion rarely goes further and investigates the efficacy of alternative strategies.
Noting that
• information is often suppressed as commercial in confidence;
• reputation is a principle means by which a market economy deals with ignorance about complex matters; and
• regulation should focus as far as practicable on outcomes rather than inputs,
This paper argues for a new approach aimed at improving the rigour with which reputations are made.
The case for going beyond what we do now is strongest where asymmetric information is most rife as it is for instance in the provision of many professional services – from medical services through to real estate agency – and in the market for job satisfaction.
Right now most large firms regularly do survey work to gauge the satisfaction of their customers and their employees and identify opportunities to improve their performance. Such surveys could be standardised and the results published in a form which allowed ready comparison between firms.
Where outcomes of service provision can be objectively measured – for instance the price achieved for houses, or the success rate of medical procedures – a method is proposed by which service providers could tender for business by making predictions of the outcomes they could achieve, corrected for any systematic optimism or pessimism of past predictions. In addition to generating unbiased prognoses, the method could alleviate various perverse incentives generated by other attempts to measure the performance of service providers.

Governance and Delivery of Anti-Poverty Program

The Relationship Between Franking Credits and the Market Risk Premium

Multiplicative Risk Prudence

New Approaches to Estimating Correlations

Professor Engle is an expert in time series analysis with a long-standing interest in the analysis of financial markets. His ARCH model and its generalizations have become indispensable tools not only for researchers, but also for analysts of financial markets, who use them in asset pricing and in evaluating portfolio risk. His research has also produced such innovative statistical methods as cointegration, common features, autoregressive conditional duration (ACD), CAViaR and now dynamic conditional correlation (DCC) models.

Global and Local stationary modeling in finance: Theory and empirical evidence

The Stationary Seasonal Hyperbolic Asymmetric Power ARCH model

The Long Run Health and Economic Consequences of Famine on Survivors: Evidence from China’s Great Famine

Do Dads matter? Or is it just their money that matters?
Unpicking the effects of separation on educational outcomes.

Shadow economy, tax morale, governance and institutional quality: a panel analysis

Handling Permanent Components in Some Macroeconometric Models

The Size and Composition of Corporate Boards in Hong Kong, Malaysia and Singapore, 1999 to 2002

Irreversibility, Sunk Costs, News and Evolutionary Economic Methodology

Abstract: An enlarged conceptual framework for redefining sunk costs as state dependent evaluations is proposed by highlighting how unforeseen contingencies impact systemic adjustment processes through the interplay between existing and prospective irreversibilities. Associated microeconomic mechanisms define market entry and exit, and thereby capture key channels by which history conditions the evolution of economic systems and the interrelation between market and non-market decisions. A crucial distinction is made between ex ante sunk costs, which are contingent on agents’ initial information spaces, and ex post or endogenous sunk cost evaluations, following agents’ internalisation of news and strategic interactions. Paradoxically, such redefined sunk costs can have quite divergent implications for the decisions of individual agents and for the evolution of economic systems, as a whole, through their critical role as building-blocks, which define strategic interactions and adjustment processes. An examination of the relation between the hold-up and lock-in problems highlights the role of information revelation in defining the endogeneity of sunk cost evaluations. A subsequent extension of Owen and Ulph (2002) focuses on the systemic impact of an unanticipated integration shock, hence “pure news”, on endogenous market entry and exit in a framework of international oligopoly. A central identification issue in economic modeling is suggested, which applies to scenarios with market imperfections and strategic interdependence between agents, as shown by a unique correspondence between alternative trade regimes and configurations of different sunk and fixed costs. Asymmetries between the choice sets and optimisation problems of agents are defined by existing and newly incurred endogenous sunk costs. A range of generic implications is suggested. These include a defining role for endogenous sunk costs in explaining theories of commitment, micro-foundations of learning processes and expectations formation, new branches in game-theoretic decision trees and the economics of time.

A Rationally Exuberant Theory of the Roaring Twenties

Death is Expensive, Why not live longer?

Do Students Want to Succeed?  Peer group choice, social influence, and undergraduate performance

Australia's Productivity Growth in the 1990s – A Micro Perspective

Test of Cross Section Dependence for a Linear Dynamic Panel Model with Regressors

International Monetary Policy Surprise Spillovers