Negative rebound and disinvestment effects in response to an improvement in energy efficiency in the UK economy

This paper uses a computable general equilibrium (CGE) framework to investigate the conditions under which rebound effects may occur in response to increases in energy efficiency in the UK national economy. Previous work for the UK has suggested that rebound effects will occur even where key elasticities of substitution in production are set close to zero. The research reported in this paper involves carrying out a systematic sensitivity analysis, where relative price sensitivity is gradually introduced into the system, focusing specifically on elasticities of substitution in production and trade parameters, in order to determine conditions under which rebound effects become a likely outcome. The main result is that, while there is positive pressure for rebound effects even where (direct and indirect) demands for energy are very price inelastic, this may be partially or wholly offset by negative income, competitiveness and disinvestment effects, which also occur in response to falling energy prices. The occurrence of disinvestment effects is of particular interest. These occur where falling energy prices reduce profitability in domestic energy supply sectors, leading to a contraction in capital stock in these sectors, which may in turn lead to rebound effects that are smaller in the long run than in the short run, a result that runs contrary to the predictions of previous theoretical work in this area.

The Taylor Principle and (In-) Determinacy in a New Keynesian Model with hiring Frictions and Skill Loss

We introduce duration dependent skill decay among the unemployed into a New-Keynesian model with hiring frictions developed by Blanchard/Gali (2008). If the central bank responds only to (current, lagged or expected future) inflation and quarterly skill decay is above a threshold level, determinacy requires a coefficient on inflation smaller than one. The threshold level is plausible with little steady-state hiring and firing ("Continental European Calibration") but implausibly high in the opposite case ("American calibration"). Neither interest rate smoothing nor responding to the output gap helps to restore determinacy if skill decay exceeds the threshold level. However, a modest response to unemployment guarantees determinacy. Moreover, under indeterminacy, both an adverse sunspot shock and an adverse technology shock increase unemployment extremely persistently.

(Don’t) Make My Vote Count

Proponents of proportional electoral rules often argue that majority rule depresses turnout and may lower welfare due to the 'tyranny of the majority' problem. The present paper studies the impact of electoral rules on turnout and social welfare. We analyze a model of instrumental voting where citizens have private information over their individual cost of voting and over the alternative they prefer. The electoral rule used to select the winning alternative is a combination of majority rule and proportional rule. Results show that the above arguments against majority rule do not hold in this set up. Social welfare and turnout increase with the weight that the electoral rule gives to majority rule when the electorate is expected to be split, and they are independent of the electoral rule employed when the expected size of the minority group tends to zero. However, more proportional rules can increase turnout within the minority group. This effect is stronger the smaller the minority group. We then conclude that majority rule fosters overall turnout and increases social welfare, whereas proportional rule fosters the participation of minorities.

Evaluating the usefulness of forecasts of relative growth

Forecasts of differences in growth between countries serve an important role in the justification of governments’ fiscal policy stances, but are not tested for their accuracy as part of the current range of forecast evaluation methods. This paper examines forecasted and outturn growth differentials between countries to identify if there is usefulness in forecasts of “relative” growth. Using OECD forecasts and outturn values for GDP growth for (combinations of) the G7 countries between 1984 and 2010, the paper finds that the OECD’s success in predicting the relative growth of G7 countries during this period is good. For each two-country combination results indicate that relative growth forecasts are less useful for countries which have smaller outturn growth differentials.

On the cost of rent-seeking by government bureaucrats in a Real-Business-Cycle framework

This paper studies the wasteful e ffect of bureaucracy on the economy by addressing the link between rent-seeking behavior of government bureaucrats and the public sector wage bill, which is taken to represent the rent component. In particular, public o fficials are modeled as individuals competing for a larger share of those public funds. The rent-seeking extraction technology in the government administration is modeled as in Murphy et al. (1991) and incorporated in an otherwise standard Real-Business-Cycle (RBC) framework with public sector. The model is calibrated to German data for the period 1970-2007. The main fi ndings are: (i) Due to the existence of a signi ficant public sector wage premium and the high public sector employment, a substantial amount of working time is spent rent-seeking, which in turn leads to signifi cant losses in terms of output; (ii) The measures for the rent-seeking cost obtained from the model for the major EU countries are highly-correlated to indices of bureaucratic ineffi ciency; (iii) Under the optimal scal policy regime,steady-state rent-seeking is smaller relative to the exogenous policy case, as the government chooses a higher public wage premium, but sets a much lower public employment, thus achieving a decrease in rent-seeking.

The Extent and Cyclicality of Career Changes: Evidence for the UK

Using quarterly data for the U.K. from 1993 through 2012, we document that in economic downturns a smaller fraction of unemployed workers change their career when starting a new job. Moreover, the proportion of total hires that involves a career change for the worker also drops in recessions. Together with a simultaneous drop in overall turnover, this implies that the number of career changes declines during recessions. These results indicate that recessions are times of subdued reallocation rather than of accelerated and involuntary structural transformation. We back this interpretation up with evidence on who changes careers, which industries and occupations they come from and go to, and at which wage gains.

An axiomatization of difference-form contest success functions

This paper presents an axiomatic characterization of difference-form group contests, that is, contests fought among groups and where their probability of victory depends on the difference of their effective efforts. This axiomatization rests on the property of Equalizing Consistency, stating that the difference between winning probabilities in the grand contest and in the smaller contest should be identical across all participants in the smaller contest. This property overcomes some of the drawbacks of the widely-used ratio-form contest success functions. Our characterization shows that the criticisms commonly-held against difference-form contests success functions, such as lack of scale invariance and zero elasticity of augmentation, are unfounded.By clarifying the properties of this family of contest success functions, this axiomatization can help researchers to find the functional form better suited to their application of interest.

Tracking cost savings from competitive tendering in the short and long run

A major initiative of the Thatcher and Major Conservative administrations was that public sector ancillary and professional services provided by incumbent direct service organisations [DSOs] be put out to tender. Analyses of this initiative, in the UK and elsewhere, found costs were often reduced in the short run. However, few if any studies went beyond the first round of tendering. We analyze data collected over successive rounds of tendering for cleaning and catering services of Scottish hospitals in order to assess the long term consequences of this initiative. The experience of the two services was very different. Cost savings for cleaning services tended to increase with each additional round of tendering and became increasingly stable. In accordance with previous results in the literature, DSOs produced smaller cost reductions than private contractors: probably an inevitable consequence of the tendering process at the time. Cost savings from DSOs tended to disappear during the first round of tendering, but they appear to have been more permanent in successive rounds. Cost savings for catering, on the other hand, tended to be much smaller, and these were not sustained.