Regional productivity variation and the impact of public capital stock: an analysis with spatial interaction, with reference to Spain

In this paper we examine whether variations in the level of public capital across Spain‟s Provinces affected productivity levels over the period 1996-2005. The analysis is motivated by contemporary urban economics theory, involving a production function for the competitive sector of the economy („industry‟) which includes the level of composite services derived from „service‟ firms under monopolistic competition. The outcome is potentially increasing returns to scale resulting from pecuniary externalities deriving from internal increasing returns in the monopolistic competition sector. We extend the production function by also making (log) labour efficiency a function of (log) total public capital stock and (log) human capital stock, leading to a simple and empirically tractable reduced form linking productivity level to density of employment, human capital and public capital stock. The model is further extended to include technological externalities or spillovers across provinces. Using panel data methodology, we find significant elasticities for total capital stock and for human capital stock, and a significant impact for employment density. The finding that the effect of public capital is significantly different from zero, indicating that it has a direct effect even after controlling for employment density, is contrary to some of the earlier research findings which leave the question of the impact of public capital unresolved.

A computable general equilibrium analysis of the relative price sensitivity required to induce rebound effects in response to an improvement in energy efficiency in the UK economy

In recent years there has been extensive debate in the energy economics and policy literature on the likely impacts of improvements in energy efficiency. This debate has focussed on the notion of rebound effects. Rebound effects occur when improvements in energy efficiency actually stimulate the direct and indirect demand for energy in production and/or consumption. This phenomenon occurs through the impact of the increased efficiency on the effective, or implicit, price of energy. If demand is stimulated in this way, the anticipated reduction in energy use, and the consequent environmental benefits, will be partially or possibly even more than wholly (in the case of ‘backfire’ effects) offset. A recent report published by the UK House of Lords identifies rebound effects as a plausible explanation as to why recent improvements in energy efficiency in the UK have not translated to reductions in energy demand at the macroeconomic level, but calls for empirical investigation of the factors that govern the extent of such effects. Undoubtedly the single most important conclusion of recent analysis in the UK, led by the UK Energy Research Centre (UKERC) is that the extent of rebound and backfire effects is always and everywhere an empirical issue. It is simply not possible to determine the degree of rebound and backfire from theoretical considerations alone, notwithstanding the claims of some contributors to the debate. In particular, theoretical analysis cannot rule out backfire. Nor, strictly, can theoretical considerations alone rule out the other limiting case, of zero rebound, that a narrow engineering approach would imply. In this paper we use a computable general equilibrium (CGE) framework to investigate the conditions under which rebound effects may occur in the Scottish regional and UK national economies. Previous work has suggested that rebound effects will occur even where key elasticities of substitution in production are set close to zero. Here, we carry out a systematic sensitivity analysis, where we gradually introduce relative price sensitivity into the system, focusing in particular on elasticities of substitution in production and trade parameters, in order to determine conditions under which rebound effects become a likely outcome. We find that, while there is positive pressure for rebound effects even where (direct and indirect) demand for energy is very price inelastic, this may be partially or wholly offset by negative income and disinvestment effects, which also occur in response to falling energy prices.

Testing the TASP: An Experimental Investigation of Learning in Games with Unstable Equilibria

We report experiments designed to test between Nash equilibria that are stable and unstable under learning. The “TASP” (Time Average of the Shapley Polygon) gives a precise prediction about what happens when there is divergence from equilibrium under fictitious play like learning processes. We use two 4 x 4 games each with a unique mixed Nash equilibrium; one is stable and one is unstable under learning. Both games are versions of Rock-Paper-Scissors with the addition of a fourth strategy, Dumb. Nash equilibrium places a weight of 1/2 on Dumb in both games, but the TASP places no weight on Dumb when the equilibrium is unstable. We also vary the level of monetary payoffs with higher payoffs predicted to increase instability. We find that the high payoff unstable treatment differs from the others. Frequency of Dumb is lower and play is further from Nash than in the other treatments. That is, we find support for the comparative statics prediction of learning theory, although the frequency of Dumb is substantially greater than zero in the unstable treatments.

What Belongs Where? Variable Selection for Zero-Inflated Count Models with an Application to the Demand for Health Care

This paper develops stochastic search variable selection (SSVS) for zero-inflated count models which are commonly used in health economics. This allows for either model averaging or model selection in situations with many potential regressors. The proposed techniques are applied to a data set from Germany considering the demand for health care. A package for the free statistical software environment R is provided.

The Export Base Model with a Supply-Side Stimulus to the Export Sector

Paper delivered at the Western Regional Science Association Annual Conference, Sedona, Arizona, February, 2010.

The Impact of Higher Education Institution-Firm Knowledge Links on Firm-level Productivity in Britain

This paper estimates whether both sourcing knowledge from and/or cooperating on innovation with HEIs (Higher Education Institutions)1 impacts on establishment-level total factor productivity (TFP) using a dataset created by merging the UK government’s Community Innovation Survey (CIS) with the Annual Respondents Database (ARD). It also considers whether higher graduate employment (as a measure of human capital) also impacts positively on TFP at the establishment-level. Many studies have investigated the relationship between university-firm knowledge links and innovation (see, for example, Mansfield, 1991; Becker, 2003; Thorn et al, 2007). Most of these studies find a positive impact. Fewer studies have investigated the impact of university-firm knowledge links on productivity. Belderbos et al. (2004), using the Dutch CIS, find that cooperation with universities has no statistically significant impact on the growth of labour productivity. Medda et al. (2005) find no statistically significant effect of collaborative research undertaken by Italian manufacturing firms and universities on the growth of TFP. Arvanitis et al. (2008), using Swiss data, show that university-firm knowledge and technology transfer has both a direct impact on labour productivity and an indirect impact through its positive impact on innovation. In sum, there is as yet no clear consensus as to the impact of university-firm knowledge links on productivity.

Reference distorted prices

I show that when consumers (mis)perceive prices relative to reference prices, budgets turn out to be soft, prices tend to be lower and the average quality of goods sold decreases. These observations provide explanations for decentralized purchase decisions, for people being happy with a purchase even when they have paid their evaluation, and for why trade might affect high quality local firms 'unfairly'.

The effects of agglomeration on wages: evidence from the micro-level

This paper estimates individual wage equations in order to test two rival non-nested theories of economic agglomeration, namely New Economic Geography (NEG), as represented by the NEG wage equation and urban economic (UE) theory , in which wages relate to employment density. The paper makes an original contribution by evidently being the first empirical paper to examine the issue of agglomeration processes associated with contemporary theory working with micro-level data, highlighting the role of gender and other individual-level characteristics. For male respondents, there is no significant evidence that wage levels are an outcome of the mechanisms suggested by NEG or UE theory, but this is not the case for female respondents. We speculate on the reasons for the gender difference.

Inequalities in Child Mortality in India: A District-Level Analysis

This paper measures the degree of inequality in child mortality rates across districts in India, using data from the 1981, 1991 and 2001 Indian population censuses. The results show that child mortality is more concentrated in less developed districts in all three census years. Further, between 1981 and 2001, the inequality in child mortality seems to have increased to the advantage of the more developed districts (i.e., there was an increasing concentration of child mortality in less developed districts). However, the inequality in female child mortality rates seems to have declined between 1991 and 2001, even as it increased – albeit at a slower rate than before – for male child mortality rates. In the decomposition analysis, it is found that while a more equitable distribution of medical facilities and safe drinking water across districts did contribute towards reducing inequality in child mortality between 1981 and 1991, different levels of structural change among districts were responsible for a very large part of the inequality in child mortality to the advantage of the more developed districts in all three census years. Other variables which played important roles in increasing inequality included a measure of infrastructure development, female literacy, and a social group status variable. The paper concludes with some brief comments on the policy implications of the findings.

Domestic Violence and Football in Glasgow: Are Reference Points Relevant?

Much research suggests that sporting events can trigger domestic violence with recent evidence suggesting that pre-match expectations (which can be interpreted as reference points) play an especially important role in this relationship. In particular, unexpectedly disappointing results have been associated with large increases in domestic violence. This paper contributes to this literature using a new data set containing every domestic violence incident in Glasgow over a period of more than eight years. We find that Old Firm matches, where Glasgow rivals Celtic and Rangers play, are associated with large increases in domestic violence (regardless of the timing or the outcome of the match). Non-Old Firm matches tend to have little impact on domestic violence. Furthermore, we fi nd little evidence for the importance of reference points. Matches with disappointing outcomes, relative to pre-match expectations, are found to be associated with unusual increases in domestic violence only in a very limited set of matches.

Aggregate and welfare effects of long run inflation risk under inflation and price-level targeting

This paper presents a DSGE model in which long run inflation risk matters for social welfare. Aggregate and welfare effects of long run inflation risk are assessed under two monetary regimes: inflation targeting (IT) and price-level targeting (PT). These effects differ because IT implies base-level drift in the price level, while PT makes the price level stationary around a target price path. Under IT, the welfare cost of long run inflation risk is equal to 0.35 percent of aggregate consumption. Under PT, where long run inflation risk is largely eliminated, it is lowered to only 0.01 per cent. There are welfare gains from PT because it raises average consumption for the young and lowers consumption risk substantially for the old. These results are strongly robust to changes in the PT target horizon and fairly robust to imperfect credibility, fiscal policy, and model calibration. While the distributional effects of an unexpected transition to PT are sizeable, they are short-lived and not welfare-reducing.

Domestic Violence and Football in Glasgow: Are Reference Points Relevant?

Much research suggests that sporting events can trigger domestic violence with recent evidence suggesting that pre-match expectations (which can be interpreted as reference points) play an especially important role in this relationship. In particular, unexpectedly disappointing results have been associated with large increases in domestic violence. This paper contributes to this literature using a new data set containing every domestic violence incident in Glasgow over a period of more than eight years. We find that Old Firm matches, where Glasgow rivals Celtic and Rangers play, are associated with large increases in domestic violence (regardless of the timing or the outcome of the match). Non-Old Firm matches tend to have little impact on domestic violence. Furthermore, we find little evidence for the importance of reference points. Matches with disappointing outcomes, relative to pre-match expectations, are found to be associated with unusual increases in domestic violence only in a very limited set of matches.

Indexed versus nominal government debt under inflation and price-level targeting

This paper presents a DSGE model in which long run inflation risk matters for social welfare. Optimal indexation of long-term government debt is studied under two monetary policy regimes: inflation targeting (IT) and price-level targeting (PT). Under IT, full indexation is optimal because long run inflation risk is substantial due to base-level drift, making indexed bonds a much better store of value than nominal bonds. Under PT, where long run inflation risk is largely eliminated, optimal indexation is substantially lower because nominal bonds become a better store of value relative to indexed bonds. These results are robust to the PT target horizon, imperfect credibility of PT and model calibration, but the assumption that indexation is lagged is crucial. From a policy perspective, a key finding is that accounting for optimal indexation has important welfare implications for comparisons of IT and PT.

On the real effects of financial pressure: Evidence from euro area firm-level employment during the recent financial crisis.

Using a large panel of unquoted euro-area firms over the period 2003-11, this paper examines the impact of financial pressure on firms’ employment. The analysis finds evidence that financial pressure negatively affects firms’ employment decisions. This effect is stronger during the 2007-2009 financial crisis, especially for firms in the periphery area compared to their counterparts in the core European economies. We also find that impact of financial pressure on employment is more potent for firms classified as financially constrained and operating in periphery economies during the financial crisis.

An Empirical Assessment of Optimal Monetary Policy Delegation in the Euro Area

We estimate a New Keynesian DSGE model for the Euro area under alternative descriptions of monetary policy (discretion, commitment or a simple rule) after allowing for Markov switching in policy maker preferences and shock volatilities. This reveals that there have been several changes in Euro area policy making, with a strengthening of the anti-inflation stance in the early years of the ERM, which was then lost around the time of German reunification and only recovered following the turnoil in the ERM in 1992. The ECB does not appear to have been as conservative as aggregate Euro-area policy was under Bundesbank leadership, and its response to the financial crisis has been muted. The estimates also suggest that the most appropriate description of policy is that of discretion, with no evidence of commitment in the Euro-area. As a result although both ‘good luck’ and ‘good policy’ played a role in the moderation of inflation and output volatility in the Euro-area, the welfare gains would have been substantially higher had policy makers been able to commit. We consider a range of delegation schemes as devices to improve upon the discretionary outcome, and conclude that price level targeting would have achieved welfare levels close to those attained under commitment, even after accounting for the existence of the Zero Lower Bound on nominal interest rates.