Start-up costs and pecuniary externalities as barriers to economic development

We use a dynamic monopolistic competition model to show that an economythat inherits a small range of specialized inputs can be trapped into alower stage of development. The limited availability of specialized inputsforces the final goods producers to use a labor intensive technology, whichin turn implies a small inducement to introduce new intermediate inputs. Thestart--up costs, which make the intermediate inputs producers subject todynamic increasing returns, and pecuniary externalities that result from thefactor substitution in the final goods sector, play essential roles in themodel.

Variable Kernel estimates: On the impossibility of tuning the parameters

For the standard kernel density estimate, it is known that one can tune the bandwidth such that the expected L1 error is within a constant factor of the optimal L1 error (obtained when one is allowed to choose the bandwidth with knowledge of the density). In this paper, we pose the same problem for variable bandwidth kernel estimates where the bandwidths are allowed to depend upon the location. We show in particular that for positive kernels on the real line, for any data-based bandwidth, there exists a densityfor which the ratio of expected L1 error over optimal L1 error tends to infinity. Thus, the problem of tuning the variable bandwidth in an optimal manner is ``too hard''. Moreover, from the class of counterexamples exhibited in the paper, it appears thatplacing conditions on the densities (monotonicity, convexity, smoothness) does not help.

Does direct democracy reduce the size of government? New evidence from historical data, 1890-2000

Using historical data for all Swiss cantons from 1890 to 2000, we estimate the causal effect of direct democracy on government spending. The main innovation in this paper is that we use fixed effects to control for unobserved heterogeneity and instrumental variables to address the potential endogeneity of institutions. We find that the budget referendum and lower costs to launch a voter initiative are effective tools in reducing canton level spending. However, we find no evidence that the budget referendum results in more decentralized government or a larger local government. Our instrumental variable estimates suggest that a mandatory budget referendum reduces the size of canton spending between 13 and 19 percent. A 1 percent lower signature requirement for the initiative reduces canton spending by up to 2 percent.

Relative price riddles in international business cycle theory: Are transport costs the explanation?

We study relative price behavior in an international business cyclemodel with specialization in production, in which a goods marketfriction is introduced through transport costs. The transporttechnology allows for flexible transport costs. We analyze whetherthis extension can account for the striking differences betweentheory and data as far as the moments of terms of trade and realexchange rates are concerned. We find that transport costs increaseboth the volatility of the terms of trade and the volatility of thereal exchange rate. However, unless the transport technology isspecified by a Leontief technology, transport costs do not resolvethe quantitative discrepancies between theory and data. Asurprising result is that transport costs may actually lower thepersistence of the real exchange rate, a finding that is in contrastto much of the emphasis of the empirical literature.

Asymmetric effects of monetary policy in the US: Positive vs. negative or big vs. small?

This paper reconsiders the empirical evidence on the asymmetricoutput effects of monetary policy. Asymmetric effects is a common feature ofmany theoretical models, and there are many different versions of suchasymmetries. We concentrate on the distinctions between positive andnegative money-supply changes, big and small changes in money-supply, andpossible combinations of the two asymmetries. Earlier research has foundempirical evidence in favor of the former of these in US data. Using M1 asthe monetary variable we find evidence in favor of neutrality of big shocksand non-neutrality of small shocks. The results may, however, be affected bystructual instability of M1 demand. Thus, we substitute M1 with the federalfunds rate. In these data we find that only small negative shocks affectreal aggregate activity. The results are interpreted in terms of menu-costmodels.

Análisis del comportamiento de los resultados en 'full' y 'direct costing'

In this paper we perform a mathematical analyse of profits and losses indirect and full costing. They are compared in different situations, mainlythe utilisation of productive capacity and the existence of beginninginventories. Direct costing was conceived as a system of cost accountingwhich would show profits as a function of sales. In full costing profitsdepend on available combinations of sales, production, costs of beginninginventories, etc., and information displayed in financial statements displayappears incongruent. Differences in profits with full and direct costingincrease when full costing allocates fixed costs according to normalproduction, in some cases differences, and financial statements would showmore incongruent performance. It is concluded about the importance thatprofit and loss statement expresses profits in both costing systems.

Hiring and firing costs, adverse selection and long-term unemployment

In this paper, we present a matching model with adverse selection that explains why flows into and out of unemployment are much lower in Europe compared to North America, while employment-to-employment flows are similar in the two continents. In the model,firms use discretion in terms of whom to fire and, thus, low quality workers are more likely to be dismissed than high quality workers. Moreover, as hiring and firing costs increase, firms find it more costly to hire a bad worker and, thus, they prefer to hire out of the pool of employed job seekers rather than out of the pool of the unemployed, who are more likely to turn out to be 'lemons'. We use microdata for Spain and the U.S. and find that the ratio of the job finding probability of the unemployed to the job finding probability of employed job seekers was smaller in Spain than in the U.S. Furthermore, using U.S. data, we find that the discrimination of the unemployed increased over the 1980's in those states that raised firing costs by introducing exceptions to the employment-at-will doctrine.

Price regulation of plastic money: A critical assessment of Spanish rules

Recent decisions by the Spanish national competition authority (TDC) mandate paymentsystems to include only two costs when setting their domestic multilateral interchange fees(MIF): a fixed processing cost and a variable cost for the risk of fraud. This artificiallowering of MIFs will not lower consumer prices, because of uncompetitive retailing; but itwill however lead to higher cardholders fees and, likely, new prices for point of saleterminals, delaying the development of the immature Spanish card market. Also, to the extent that increased cardholders fees do not offset the fall in MIFs revenue, the task of issuing new cards will be underpaid relatively to the task of acquiring new merchants, causing an imbalance between the two sides of the networks. Moreover, the pricing scheme arising from the decisions will cause unbundling and underprovision of those services whose costs are excluded. Indeed, the payment guarantee and the free funding period will tend to be removed from the package of services currently provided, to be either provided by third parties, by issuers for a separate fee, or not provided at all, especially to smaller and medium-sized merchants. Transaction services will also suffer the consequences that the TDC precludes pricing them in variable terms.

Finance versus costs for teaching hospitals in Spain

In this paper we analyse the observed systematic differences incosts for teaching hospitals (THhenceforth) in Spain. Concernhas been voiced regarding the existence of a bias in thefinancing of TH s has been raised once prospective budgets arein the arena for hospital finance, and claims for adjusting totake into account the legitimate extra costs of teaching onhospital expenditure are well grounded. We focus on theestimation of the impact of teaching status on average cost. Weused a version of a multiproduct hospital cost function takinginto account some relevant factors from which to derive theobserved differences. We assume that the relationship betweenthe explanatory and the dependent variables follows a flexibleform for each of the explanatory variables. We also model theunderlying covariance structure of the data. We assumed twoqualitatively different sources of variation: random effects andserial correlation. Random variation refers to both general levelvariation (through the random intercept) and the variationspecifically related to teaching status. We postulate that theimpact of the random effects is predominant over the impact ofthe serial correlation effects. The model is estimated byrestricted maximum likelihood. Our results show that costs are 9%higher (15% in the case of median costs) in teaching than innon-teaching hospitals. That is, teaching status legitimatelyexplains no more than half of the observed difference in actualcosts. The impact on costs of the teaching factor depends on thenumber of residents, with an increase of 51.11% per resident forhospitals with fewer than 204 residents (third quartile of thenumber of residents) and 41.84% for hospitals with more than 204residents. In addition, the estimated dispersion is higher amongteaching hospitals. As a result, due to the considerable observedheterogeneity, results should be interpreted with caution. From apolicy making point of view, we conclude that since a higherrelative burden for medical training is under public hospitalcommand, an explicit adjustment to the extra costs that theteaching factor imposes on hospital finance is needed, beforehospital competition for inpatient services takes place.

The impact of firing costs on turnover and unemployment: Evidence from the Colombian labour market reform

Reductions in firing costs are often advocated as a way of increasingthe dynamism of labour markets in both developed and less developed countries. Evidence from Europe and the U.S. on the impact of firing costs has, however, been mixed. Moreover, legislative changes both in Europe and the U.S. have been limited. This paper, instead, examines the impact of the Colombian Labour Market Reform of 1990, which substantially reduced dismissal costs. I estimate the incidence of a reduction in firing costs on worker turnover by exploiting the temporal change in the Colombian labour legislation as well as the variability in coverage between formal and informal sector workers. Using a grouping estimator to control for common aggregate shocks and selection, I find that the exit hazard rates into and out of unemployment increased after the reform by over 1% for formal workers (covered by the legislation) relative to informal workers (uncovered). The increase of the hazards implies a net decrease in unemployment of a third of a percentage point, which accounts for about one quarter of the fall in unemployment during the period of study.