Economics Commons^™

Default Penalty As A Selection Mechanism Among Multiple Equilibria, Juergen Huber, Martin Shubik, Shyam Sunder

Cowles Foundation Discussion Papers

The possibility of the presence of multiple equilibria in closed exchange and production-and-exchange economies is usually ignored in macroeconomic models even though they are important in real economies. We argue that default and bankruptcy laws serve to provide the conditions for uniqueness of an equilibrium. In this paper, we report experimental evidence on the effectiveness of this approach to resolving multiplicity: a society can assign default penalties on fiat money so that the economy selects one of the equilibria. The laboratory data show that the choice of default penalty takes the economy near the chosen equilibrium. The theory and evidence …

Semiparametric Efficiency Bound For Models Of Sequential Moment Restrictions Containing Unknown Functions, Chunrong Ai, Xiaohong Chen

Cowles Foundation Discussion Papers

This paper computes the semiparametric efficiency bound for finite dimensional parameters identified by models of sequential moment restrictions containing unknown functions. Our results extend those of Chamberlain (1992b) and Ai and Chen (2003) for semiparametric conditional moment restriction models with identical information sets to the case of nested information sets, and those of Chamberlain (1992a) and Brown and Newey (1998) for models of sequential moment restrictions without unknown functions to cases with unknown functions of possibly endogenous variables. Our bound results are applicable to semiparametric panel data models and semiparametric two stage plug-in problems. As an example, we compute the …

Identification Of A Heterogeneous Generalized Regression Model With Group Effects, Steven T. Berry, Philip A. Haile

Cowles Foundation Discussion Papers

We consider identification in a “generalized regression model” (Han, 1987) for panel settings in which each observation can be associated with a “group” whose members are subject to a common unobserved shock. Common examples of groups include markets, schools or cities. The model is fully nonparametric and allows for the endogeneity of group-specific observables, which might include prices, policies, and/or treatments. The model features heterogeneous responses to observables and unobservables, and arbitrary heteroskedasticity. We provide sufficient conditions for full identification of the model, as well as weaker conditions sufficient for identification of the latent group effects and the distribution of …

Breach, Remedies And Dispute Settlement In Trade Agreements, Giovanni Maggi, Robert W. Staiger

Cowles Foundation Discussion Papers

We provide a simple but novel model of trade agreements that highlights the role of transaction costs, renegotiation and dispute settlement. The model allows us to characterize the appropriate remedy for breach and whether the agreement should be structured as a system of “property rights” or “liability rules.” We then study how the optimal rules depend on the underlying economic and contracting environment. Our model also delivers predictions about the outcome of trade disputes, and in particular about the propensity of countries to settle early versus “fighting it out.”

An African-American Resources And Needs Assessment Of The West Bloomington Area, Phase 1, Karishma Amatya, Nicholas Beaty, Jamie Boban, Joanna Bossi, Tyler Curtis, Casandra Fritzsche, Andrew Griffin, David Johnson, Sasha Miranda, Dana Overman, Emily Putnam, Jared Ulschmid, Tessa Zevallos

Community Project Design and Management Reports - Sociology

Over the course of the Fall 2009 semester, students in the Community Project Design and Management class worked with members of West Bloomington to recognize the growing needs within the community. Along with the African-American Focus Workgroup (AAFW) and the West Bloomington Revitalization Partnership (WBRP), the students completed Phase 1 of an African-American resources and needs assessment resulting in this report. This document reflects needs, wants, and hopes of the West Bloomington community and the AAFW. Comprehensively, this document is meant to serve as a bridge between community members and AAFW members.

As Bloomington as a whole continues to grow …

Rationality And Humanity: A View From Feminist Economics, Julie A. Nelson

Economics Faculty Publication Series

DOES RATIONAL CHOICE THEORY (RCT) HAVE SOMETHING IMPORTANT to contribute to the humanities? Usually the arguments for answering “yes” to this question go something like the following: The application of RCT has proved to be a powerful tool in economics and the social sciences, leading to clear and rigorous insights unattainable from less precise methods. Therefore, by also harnessing this power, the disciplines in the humanities could advance toward becoming more elegant, rational, and forceful in their explorations of human behavior. As an economist, I’d like to address this argument on its home ground. Has the use of RCT advanced …

An Experimental Study Of The Holdout Problem In A Multilateral Bargaining Game, John J. Cadigan, Pamela Schmitt, Robert Shupp, Kurtis Swope

Economics Faculty Publications

When an economic exchange requires agreement by multiple independent parties, the potential exists for an individual to strategically delay agreement in an attempt to capture a greater share of the surplus created by the exchange. This "holdout problem" is a common feature of the land-assembly literature because development frequently requires the assembly of multiple parcels of land. We use experimental methods to examine holdout behavior in a laboratory bargaining game that involves multi-person groups, complementary exchanges, and holdout externalities. The results of six treatments that vary the bargaining institution, number of bargaining periods, and cost of delay demonstrate that holdout …

Anomalies In Tournament Design: The Madness Of March Madness, Robert Baumann, Victor Matheson, Cara Howe

Economics Department Working Papers

Tournament design is of crucial importance in competitive sports. The primary goal of effective tournament design is to provide incentives for the participants to maximize their performance both during the tournament and in the time period leading up to the tournament. In spectator sports, a secondary goal of tournament design is to also promote interesting match ups that generate fan interest. Seeded tournaments, in general, promote both goals. Teams or individuals with strong performances leading up to a tournament receive higher seeds which increase their chances of progressing further in the tournament. Furthermore, seeding ensures that the strongest teams or …

Order And Creativity In Virtual Worlds, Evan W. Osborne, Shu Z. Schiller

Economics Faculty Publications

Economies are driven by dynamic creativity, but some sorts of creativity, especially if predatory, can destroy an economy. This tradeoff has been known for centuries to political philosophers who have analyzed physical space, but has not been addressed in virtual space. Like physical economies, virtual economies face the tradeoff of encouraging freedom to experiment, while discouraging experiments that damage society. Physical societies solve this problem both through encouraging competition and giving government the unique power to punish destructive activities. In virtual societies, this tradeoff has yet to be adequately assessed. Guided by the economic modeling of order and creativity, in …

Using Video Clips To Teach Creative Destruction, Arthur M. Diamond Jr.

Economics Faculty Publications

Stories are memorable and convincing. One way to efficiently tell stories is through movie and video clips. I summarize several video clips that may be useful in teaching aspects of Schumpeter’s important theory of creative destruction. Among the clips discussed are: Hugh Laurie’s Protest Song, electric light segment from a documentary on the 1898 Trans-Mississippi Exposition, eBay Toy Boat Ad, Miss Princess Fun Brick Ad, Moscow toilet paper queue scene, the New York coffee aisle scene from Moscow on the Hudson, and Peck and DeVito’s speeches from Other People’s Money.

JEL Codes: A2, O31, O43

The Health-Care Debate And Nebraska's Latino And Immigrant Populations - Ollas Policy Brief No. 2, Lourdes Gouveia, Yuriko Doku

Latino/Latin American Studies Policy Briefs

No abstract provided.

Origins And Resolution Of Financial Crises: Lessons From The Current And Northern European Crises, Finn Ostrup, Lars Oxelheim, Clas Wihlborg

Business Faculty Articles and Research

Since July 2007, the world economy has experienced a severe financial crisis that originated in the U.S. housing market. Subsequently, the crisis has spread to financial sectors in European and Asian economies and led to a severe worldwide recession. The existing literature on financial crises rarely distinguishes between factors that create the original strain on the financial sector and factors that explain why these strains lead to system-wide contagion and a possible credit crunch. Most of the literature on financial crises refers to factors that cause an original disruption in the financial system. We argue that a financial crisis with …

Is Capitalism Dead? : The Global Economic Recession Has Enhanced The Risk Of Protectionism In The Developed World., Ishrat Husain Dr.

Faculty Research - Newspaper and Magazine Articles

September 16, 2009 marked one year from the day American financial firm Lehman Brothers collapsed. The subsequent onslaught on the global financial system set in a recession of the magnitude not experienced since 1930

Analyzing And Forecasting Business Cycles In A Small Open Economy: A Dynamic Factor Model For Singapore, Hwee Kwan Chow, Keen Meng Choy

Research Collection School Of Economics

A dynamic factor model is applied to a large panel dataset of Singapore’s macroeconomic variables and global economic indicators with the initial objective of analysing business cycles in a small open economy. The empirical results suggest that four common factors – which can broadly be interpreted as world, regional, electronics and domestic economic cycles – capture a large proportion of the co-variation in the quarterly time series. The estimated factor model also explains well the observed fluctuations in real economic activity and price inflation, leading us to use it in forecasting Singapore’s business cycles. We find that the forecasts generated …

The State Of The Region: Hampton Roads 2009, James V. Koch, Vinod Agarwal, John R. Broderick, Grace Chen, Chris Colburn, Vicky Curtis, Steve Daniel, Larry "Chip" Filer, Adrian Gheorghe, Susan Hughes, Elizabeth Janik, Yingxue Li, Feng Lian, Sharon Lomax, Linda Mcgreevy, Janet Molinaro, Jason Phenicie, Ken Plum, Gilbert Yochum

Economics Faculty Books

This is Old Dominion University's 10th annual State of the Region report. While it represents the work of many people connected in various ways to the university, the report does not constitute an official viewpoint of Old Dominion or it's president, John R. Broderick. The report maintains the goal of stimulating thought and discussion that ultimately will make Hampton Roads an even better place to live. We are proud of our region's many successes, but realize that it is possible to improve our performance. In order to do so, we must have accurate information about "where we are" and a …

The Emerging Global Financial Architecture: Tracing And Evaluating New Patterns Of The Trilemma Configuration, Joshua Aizenman, Menzie David Chinn, Hiro Ito

Economics Faculty Publications and Presentations

This paper investigates how the trilemma policy mix affects economic performance in developing countries. We find that greater monetary independence can dampen output volatility, while greater exchange rate stability is associated with greater output volatility, which can be mitigated by reserve accumulation; greater monetary autonomy is associated with higher inflation, while greater exchange rate stability and greater financial openness is linked with lower inflation; pursuit of exchange rate stability can increase output volatility when financial development is at an intermediate stage. Greater financial openness, when accompanied by a high level of financial development, reduces output volatility.

Mexico Consensus Economic Forecast, Alejandro Díaz-Bautista

Border Region Modeling Project

No abstract provided.

The Economics Of Municipal Solid Waste Management, Thomas C. Kinnaman

Faculty Journal Articles

No abstract provided.

Co-Development In Mali: A Case Study Of A Development Phenomenon Exploited By Immigration Policy, Diane Galatowitsch

Independent Study Project (ISP) Collection

This case study establishes a historical basis for migration from Kayes, contextualizes co-development in immigration and development literature, and provides insight into how organizations implementing migrant financed projects in Mali define and perceive the concept of co-development. In my research, I pulled together scholarly articles, organizational documents, reports, and conducted semi-structured personal interviews that were scattered across the fields of history, migration, and development and pulled together an analysis of co-development in Mali. Challenging the concept of co-development as an effective immigration policy and a development strategy, this paper reflects the concept’s true benefits to Malian society. Finally, the conclusion …

A Few Drops Of Oil Will Not Be Enough, Stephen James

Human Rights & Human Welfare

Nicholas Kristof and Sheryl WuDunn provide a rich description of the various kinds of violence, deprivation, depredation and exploitation that women experience on a vast scale in the developing world. They write of sex trafficking, acid attacks, “bride burning,” enslavement, spousal beatings, unequal healthcare (something the USA still struggles with), insufficient food, gendered abortions and infant and maternal mortality. They are right to identify the education of women and girls as part of the solution to the widespread “gendercide.” However, their approach focuses too much on the capacity, indeed the virtue or heroism, of individual women. It does not take …

From Outrage To Action, Henry Krisch

Human Rights & Human Welfare

Kristof and WuDunn provide a vivid panoramic view of problems faced by women (primarily in the “developing” world), what has been done and what more could be done to help them achieve dignity and autonomy in their lives, and how vindication of their rights could contribute to the broader social development of their societies. In this they provide us with important insights into how human rights might be effectively proclaimed and successfully implemented. In reviewing their considerable contributions, I shall also suggest some limitations on both their analysis and their policy recommendations.

Interview With Dr. Ishrat Husain, South Asia

Faculty Research - Newspaper and Magazine Articles

The World Bank has been providing assistance to developing countries since it was established in 1945. The Bank is the largest provider of both intellectual and financial aid to developing countries. What makes it more distinguishable is that, unlike episodic involvement of the IMF, which comes in on for a period of a year or two to help the ailing economies, World Bank is a long-term development partner of the developing countries.

Where Have All The Michigan Auto Jobs Gone?, Randall W. Eberts, George A. Erickcek

Employment Research Newsletter

No abstract provided.

A Semi-Parametric Two-Stage Projection Type Estimator Of Multivalued Treatment Effects, Aurobindo Ghosh

Research Collection School Of Economics

One of the most well documented regularities in evaluation literature like returns to schooling(or funding for programs) is that several factors come together to confound the measurement of its effect. First, in observational studies the true return is often individual specific, and so it is almost impossible to use a traditional treatment effect models with randomly assigned treatment and control groups. This endogeneity in the model further exacerbates our inability to conduct such trials. Second, the problem is not a classical treatment effect measurement problem where we have discrete or more often binary treatments. Hence, techniques like measuring the Local …

A Nonparametric Goodness-Of-Fit-Based Test For Conditional Heteroskedasticity, Liangjun Su, Aman Ullah

Research Collection School Of Economics

In this paper we propose a nonparametric test for conditional heteroskedasticity based on a new measure of nonparametric goodness-of-fit (R2). In analogy with the ANOVA tools for classical linear regression models, the nonparametric R2 is obtained for the local polynomial regression of the residuals from a parametric regression on some covariates. It is close to 0 under the null hypothesis of conditional homoskedasticity and stays away from 0 otherwise. Unlike most popular parametric tests in the literature, the new test does not require the correct specification of parametric conditional heteroskedasticity form and thus is able to detect all kinds of …

Monetary Policy And Asset Prices In A Small Open Economy: A Factor-Augmented Var Analysis For Singapore, Hwee Kwan Chow, Keen Meng Choy

Research Collection School Of Economics

The ongoing global financial turmoil has revived the question of whether central bankers ought to tighten monetary policy preemptively in order to head off asset price misalignments before a sudden crash triggers financial instability. This study explores the issue of the appropriate monetary policy response to asset price swings in the small open economy of Singapore. Empirical analysis of monetary policy based on standard VAR models, unfortunately, is often hindered by the use of sparse information sets. To better reflect the extensive information monitored by Singapore’s central bank, including global economic indicators, we augment a monetary VAR model with common …

Foreign Direct Investment And Foreign Portfolio Investment Under Asymmetric Information, Ruanjai Suwantaradon

Research Collection School Of Economics

This paper develops a model of international capital flows when there is asymmetric information between foreign investors and domestic managers. Direct investors have a direct influence on the management, thus overcoming agency and information problems. This information advantage, however, comes at the cost of having to acquire management expertise. The tradeoff between management costs and the costs of asymmetric information consequently determines the level and composition of a country’s international capital flows. Analyzing how this tradeoff changes with economic conditions in a country, the model can qualitatively capture the experiences of many crisis countries during the 1990s. Specifically, the model …

The International Law Of Economic Migration: Toward The Fourth Freedom, Joel P. Trachtman

Upjohn Press

This volume examines the welfare economics, political economy, and legal experience in international economic migration, and on the basis of its analysis, suggests the structure of a multilateral framework agreement on international economic migration.

Sustainable Prosperity In The New Economy?: Business Organization And High-Tech Employment In The United States, William Lazonick

Upjohn Press

Lazonick explores the origins of the new era of employment insecurity and income inequality, and considers what governments, businesses, and individuals can do about it. He also asks whether the United States can refashion its high-tech business model to generate stable and equitable economic growth.

Lessons From Financial Crisis, Ishrat Husain Dr.

Faculty Research - Newspaper and Magazine Articles

SEPTEMBER 15, 2009 marked one year from the day American financial firm Lehman Brothers collapsed. The subsequent onslaught on the global financial system set in a recession of the magnitude not experienced since 1930.

Financial institutions considered rock solid such as AIG and Citibank came almost on the verge of collapse. The world economy contracted for the first time in decades. But a year later the ‘green shoots’ have started appearing and the consensus view is that the global economy is coming out of the storm.

Economic historians will take many years to fully analyse the causes of the crisis …