The Conservativeness of the Central Bank when Institutional Quality is Poor

We propose an extension of Alesina and Tabellini 's model (1987) to include corruption, which is understood as the presence of weak institutions collecting revenue through formal tax channels. This paper analyses how conservative should an independent central bank be when the institutional quality is poor. When there are no political distortions, we show that the central bank has to be more conservative than the government, except with complete corruption. In this particular case, the central bank should be as conservative as the government. Further, we obtain that the relationship between the optimal relative degree of conservativeness of the central bank and the degree of corruption is affected by supply shocks. Concretely, when these shocks are not important, the central bank should be less conservative if the degree of corruption increases. However, this result may not hold when the shocks are relevant. JEL classi fication: D6, D73, E52, E58, E62, E63. Keywords: Central Bank Conservativeness; Corruption; Fiscal Policy; Monetary Policy; Seigniorage.

A Carrot and Stick Approach to Agenda-Setting

This paper models a legislature in which the same agenda setter serves for two periods, showing how he can exploit a legislature (completely) in the first period by promising future benefits to legislators who support him. In equilibrium, a large majority of legislators vote for the first-period proposal because they thereby maintain the chance of belonging to the minimum winning coalition in the future. Legislators may therefore approve policies by large majorities, or even unanimously, that benefit few, or even none, of them. The results are robust; but institutional arrangements (such as entitlements) can reduce the agenda setter's power by reducing his discretion to reward and punish legislators, and rules (such as sequential voting) can increase a legislator's ability to resist exploitation. Keywords: Legislative bargaining, distributive politics, agenda-setting, proposal power. JEL C72, D72, D78.

Young innovative firms and R&D strategies: is the Spanish case different?

This paper analyzes the profile of Spanish young innovative companies (YICs) and the determinants of innovation and imitation strategies. The results for an extensive sample of 2,221 Spanish firms studied during the period 2004–2010 show that YICs are found in all sectors, although they are more concentrated in high-tech sectors and, in particular, in knowledge-intensive services (KIS). Three of every four YICs are involved in KIS. Our results highlight that financial and knowledge barriers have much impact on the capacity of young, small firms to innovate and to become YICs, whereas market barriers are not obstacles to becoming a YIC. Public funding, in particular from the European Union, makes it easier for a new firm to become a YIC. In addition, YICs are more likely to innovate than mature firms, although they are more susceptible to sectoral and territorial factors. YICs make more dynamic use of innovation and imitation strategies when they operate in high-tech industries and are based in science parks located close to universities. Keywords: innovation strategies, public innovation policies, barriers to innovation, multinomial probit model. JEL Codes: D01, D22 , L60, L80, O31

An application of capital allocation principles to operational risk

The cost of operational risk refers to the capital needed to a fford the loss generated by ordinary activities of a firm. In this work we demonstrate how allocation principles can be used to the subdivision of the aggregate capital so that the firm can distribute this cost across its various constituents that generate operational risk. Several capital allocation principles are revised. Proportional allocation allows to calculate a relative risk premium to be charged to each unit. An example of fraud risk in the banking sector is presented and some correlation scenarios between business lines are compared. Keywords: solvency, quantile, value at risk, copulas

Why not all young firms invest in R&D

This article aims to analyze the different impact that some factors may exert on the probability that a small young firm invests intensively in R&D. Recently, an increasing amount of the literature makes reference to the vital role played by a small number of young firms in generating jobs and increasing efficiency levels. However, not all new firms invest in R&D. Departing from the definition of YICs (firms younger than 6 years old, fewer than 250 employees and with more than 15% of their revenues invested in R&D activities), and with an extensive sample of the Spanish Community Innovation Survey between 2004- 2010, we try to determine: i) those factors that cause firms to become YICs (innovative young small firms) or YNICs (moderately innovative young small firms); ii) what is the difference in the impact of those factors between YICs and YNICs. Our results show that factors such as initial innovation capacity and cooperation in R&D projects enhance the probability of becoming a YIC. Nevertheless, factors such as export potential and market uncertainty may influence the decision to invest moderately and become a YNIC. Keywords: Innovation, Policy, YICs. JEL Classifications: O31, D21

European Integration: Partisan Motives or Economic Benefits?

In this paper we examine the influence of economic factors to explain partisan support for European integration over the last three decades. We find that partisan support is larger in `poorer' countries with direct economic bene fits from EU membership. On the contrary, parties in countries aff ected by the Maastricht criteria are more Euro-sceptical. Moreover, we find weak evidence for larger partisan support in countries with more developed welfare states, and that the support for European integration fluctuates in parallel with the business cycle. Finally, our results indicate that the importance of economic factors in determining partisan support for European integration has grown in recent periods. JEL classi fication: F15, F42, F53, F55, H60. Key words: European Integration; Partisan Ideology; Maastricht Criteria; European Budget; Benefi ts from Trade.

Disentangling water usage in the European Union: A decomposition analysis

The Water Framework Directive (WFD) defines common objectives for water resources throughout the European Union (EU). Given this general approach to water preservation and water policy, the objective of this paper is to analyse whether common patterns of water consumption exist within Europe. In particular, our study uses two methods to reveal the reasons behind sectoral water use in all EU countries. The first method is based on an accounting indicator that calculates the water intensity of an economy as the sum of sectoral water intensities. The second method is a subsystem input‐output model that divides total water use into different income channels within the production system. The application uses data for the years 2005 and 2009 on water consumption in the production system of the 27 countries of the EU. From our analysis it emerges that EU countries are characterized by very different patterns of water consumption. In particular water consumption by the agriculture sector is extremely high in Central/Eastern Europe, relative to the rest of Europe. In most countries, the water used by the fuel, power and water sector is consumed to satisfy domestic final demand. However, our analysis shows that for some countries exports from this sector are an important driver of water consumption. Focusing on the agricultural sector, the decomposition analysis suggests that water usage in Mediterranean countries is mainly driven by final demand for, and exports of, agricultural products. In Central/Eastern Europe domestic final demand is the main driver of water consumption, but in this region the proportion of water use driven by demand for exports is increasing over time. Given these heterogeneous water consumption patterns, our analysis suggests that Mediterranean and Central/Eastern European countries should adopt specific water policies in order to achieve efficient levels of water consumption in the European Union. JEL codes: N5; C67 Keywords: Water use, Subsystem input–output model; Water intensity, European Union.

The Determinants of Exit in Argentina: Core and Peripheral Regions

This paper analyses the regional determinants of exit in Argentina. We find evidence of a dynamic revolving door by which past entrants increase current exits, particularly in the peripheral regions. In the central regions, current and past incumbents cause an analogous displacement effect. Also, exit shows a U-shaped relationship with respect to the informal economy, although the positive effect is weaker in the central regions. These findings point to the existence of a core-periphery structure in the spatial distribution of exits. Key words: firm exit, count data models, Argentina JEL: R12; R30; C33

High-growth firms and innovation: an empirical analysis for Spanish firms

This paper analyses the effect of R&D investment on firm growth. We use an extensive sample of Spanish manufacturing and service firms. The database comprises diverse waves of Spanish Community Innovation Survey and covers the period 2004–2008. First, a probit model corrected for sample selection analyses the role of innovation on the probability of being a high-growth firm (HGF). Second, a quantile regression technique is applied to explore the determinants of firm growth. Our database shows that a small number of firms experience fast growth rates in terms of sales or employees. Our results reveal that R&D investments positively affect the probability of becoming a HGF. However, differences appear between manufacturing and service firms. Finally, when we study the impact of R&D investment on firm growth, quantile estimations show that internal R&D presents a significant positive impact for the upper quantiles, while external R&D shows a significant positive impact up to the median. Keywords : High-growth firms, Firm growth, Innovation activity. JEL Classifications : L11, L25, L26, O30

A note on the Lorenz-maximal allocations in the imputation set

In this note we introduce the Lorenz stable set and provide an axiomatic characterization in terms of constrained egalitarianism and projection consistency. On the domain of all coalitional games, we find that this solution connects the weak constrained egalitarian solution (Dutta and Ray, 1989) with their strong counterpart (Dutta and Ray, 1991)

Spatial polarization of the ecological footprint distribution

The international allocation of natural resources is determined, not by any ethical or ecological criteria, but by the dominance of market mechanisms. From a core-periphery perspective, this allocation may even be driven by historically determined structural patterns, with a core group of countries whose consumption appropriates most available natural resources, and another group, having low natural resource consumption, which plays a peripheral role. This article consists of an empirical distributional analysis of natural resource consumption (as measured by Ecological Footprints) whose purpose is to assess the extent to which the distribution of consumption responds to polarization (as opposed to mere inequality). To assess this, we estimate and decompose different polarization indices for a balanced sample of 119 countries over the period 1961 to 2007. Our results points toward a polarized distribution which is consistent with a core-periphery framework. Keywords: Polarization, Core-Periphery, Ecological Footprint

On reduced games and the lexmax solution

For a family of reduced games satisfying a monotonicity property, we introduced the reduced equal split-off set, an extension of the equal split-off set (Branzei et. al, 2006), and study its relation with the core. Regardless of the reduction operation we consider, the intersection between both sets is either empty or a singleton containing the lexmax solution (Arin et al., 2008). We also provide a procedure for computing the lexmax solution for a class of games that includes games with large core (Sharkey, 1982). [JEL Classification: C71]

Compromise solutions for bankruptcy situations: a note

Although classic bankruptcy problems take into account a single claims vector, Pulido et al. (2008) show that there are real bankruptcy situations where agents face more than one reference vector. In particular, they consider the claims and an additional reference vector. To analyze these situations, they propose the extreme and the diagonal approaches. Nonetheless, the former approach depends on the order of the vectors: if we interchange the claims and the reference vectors, the result changes. Moreover their study is limited to the case in which the reference vector is lower than the claims vector. In the present note, we propose an extension that solves these short- comings by introducing the idea of impartiality. Keywords: bankruptcy problems; reference point; compromise solution; impartiality.

Moral Hazard in Repeated Procurement of Services

This paper analyzes repeated procurement of services as a four-stage game divided into two periods. In each period there is (1) a contest stage à la Tullock in which the principal selects an agent and (2) a service stage in which the selected agent provides a service. Since this service effort is non-verifiable, the principal faces a moral hazard problem at the service stages. This work considers how the principal should design the period-two contest to mitigate the moral hazard problem in the period-one service stage and to maximize total service and contest efforts. It is shown that the principal must take account of the agent's past service effort in the period-two contest success function. The results indicate that the optimal way to introduce this `bias' is to choose a certain degree of complementarity between past service and current contest efforts. This result shows that contests with `additive bias' (`multiplicative bias') are optimal in incentive problems when effort cost is low (high). Furthermore, it is shown that the severity of the moral hazard problem increases with the cost of service effort (compared to the cost of contest effort) and the number of agents. Finally, the results are extended to more general contest success functions. JEL classification: C72; D82 Key words: Biased contests; Moral Hazard; Repeated Game; Incentives.

Why do we ignore risk in schooling decisions?

While uncertainty abounds in almost any decision on investment in schooling, it is mostly ignored in research and virtually absent in labour economics tekst books. This paper documents the scope for risk, discusses the tough disentanglement of heterogeneity and risk, surveys the analytical models, laments the absence of a good workhorse model and points out the challenges worth tackling: document ex ante risk that investors face, develop a tractable and malleable analytical model and integrate the option of consumption smoothing in analytical and empirical work. Hedging labour market risk in the stock market can be safely ignored.