Corrigendum to "On randomized matching mechanisms" [Economic Theory 8(1996)377-381]

Ma (1996) studied the random order mechanism, a matching mechanism suggested by Roth and Vande Vate (1990) for marriage markets. By means of an example he showed that the random order mechanism does not always reach all stable matchings. Although Ma's (1996) result is true, we show that the probability distribution he presented - and therefore the proof of his Claim 2 - is not correct. The mistake in the calculations by Ma (1996) is due to the fact that even though the example looks very symmetric, some of the calculations are not as ''symmetric.''

Convergence across countries and regions: theory and empirics

This paper surveys the recent literature on convergence across countries and regions. I discuss the main convergence and divergence mechanisms identified in the literature and develop a simple model that illustrates their implications for income dynamics. I then review the existing empirical evidence and discuss its theoretical implications. Early optimism concerning the ability of a human capital-augmented neoclassical model to explain productivity differences across economies has been questioned on the basis of more recent contributions that make use of panel data techniques and obtain theoretically implausible results. Some recent research in this area tries to reconcile these findings with sensible theoretical models by exploring the role of alternative convergence mechanisms and the possible shortcomings of panel data techniques for convergence analysis.

On the choice of an exchange rate regime: target zones revisited

From the classical gold standard up to the current ERM2 arrangement of the European Union, target zones have been a widely used exchange regime in contemporary history. This paper presents a benchmark model that rationalizes the choice of target zones over the rest of regimes: the fixed rate, the free float and the managed float. It is shown that the monetary authority may gain efficiency by reducing volatility of both the exchange rate and the interest rate at the same time. Furthermore, the model is consistent with some known stylized facts in the empirical literature that previous models were not able to produce, namely, the positive relation between the exchange rate and the interest rate differential, the degree of non-linearity of the function linking the exchage rate to fundamentals and the shape of the exchange rate stochastic distribution.

Venture capital meets contract theory: risky claims or formal control?

This paper develops a theory of the joint allocation of formal control and cash-flow rights in venture capital deals. We argue that when the need for investor support calls for very high-powered outside claims, entrepreneurs should optimally retain formal control in order to avoid excessive interference. Hence, we predict that risky claims should be be negatively correlated to control rights, both along the life of a start-up and across deals. This challenges the idea that risky claims should a ways be associated to more formal control, and is in line with contractual terms increasingly used in venture capital, in corporate venturing and in partnership deals between biotech start-ups and large drug companies. The paper provides a theoretical explanation to some puzzling evidence documented in Gompers (1997) and Kaplan and Stromberg (2000), namely the inclusion in venture capital contracts of contingencies that trigger both a reduction in VC control and the conversion! of her preferred stocks into common stocks.

Constrained school choice

Recently, several school districts in the US have adopted or consider adopting the Student-Optimal Stable Mechanism or the Top Trading Cycles Mechanism to assign children to public schools. There is clear evidence that for school districts that employ (variants of) the so-called Boston Mechanism the transition would lead to efficiency gains. The first two mechanisms are strategy-proof, but in practice student assignment procedures impede students to submit a preference list that contains all their acceptable schools. Therefore, any desirable property of the mechanisms is likely toget distorted. We study the non trivial preference revelation game where students can only declare up to a fixed number (quota) of schools to be acceptable. We focus on the stability of the Nash equilibrium outcomes. Our main results identify rather stringent necessary and sufficient conditions on the priorities to guaranteestability. This stands in sharp contrast with the Boston Mechanism which yields stable Nash equilibrium outcomes, independently of the quota. Hence, the transition to any of the two mechanisms is likely to come with a higher risk that students seek legal actionas lower priority students may occupy more preferred schools.

Environmental regulation: choice of instruments under imperfect compliance

Compliance is an important issue in environmental regulation. In this paper, we discuss some of the key elements of the problem and analyze a situation where emissions are not random and firms are risk-neutral. We study the firm's decision on emissions and compliance when the environmental regulation is based on standards and the enforcement agency audits the firm with a certain probability. We then compare total emissions when environmental regulation is based on different instruments: standards, taxes, and tradable permits. We show that when compliance is an issue, environmental taxes are superior to the other instruments. We also analyze the (static) efficiency of the solution.

Testing of stair climbing point-of-choice prompts in Barcelona at an outdoor set of stairs and scalators on the Montjuïc site

Regular stair climbing has well-documented health dividends, such as increased fitness and strength, weight loss and reduced body fat, improved lipid profiles and reduced risk of osteoporosis. The general absence of barriers to participation makes stair climbing an ideal physical activity (PA) for health promotion. Studies in the US and the UK have consistently shown that interventions to increase the accumulation of lifestyle PA by climbing stairs rather than using the escalators are effective. However, there are no previous in Catalonia. This project tested one message for their ability to prompt travelers on the Montjuïc site to choose the stairs rather than the escalator when climbing up the Monjuïc hill. One standard message, " Take the stairs! 7 minutes of stair climbing a day protects your heart" provided a comparison with previous research done in the UK. Translated into Catalan and Spanish, it was presented on a poster positioned at the point of choice between the stairs and the escalator. The study used a quasi-experimental, interrupted time series design. Travelers, during several and specific hours on two days of the week, were coded for stair or escalator use, gender, age, ethnic status, presence of accompanying children or bags by one observer. Overall, the intervention resulted in a 81% increase in stair climbing. In the follow-up period without messages, stair climbing dropped out to baseline levels. This preliminary study showed a significant effect on stair use. However, caution is needed since results are based on a small sample and, only a low percentage of the sample took the stairs at baseline or the intervention phase . Future research on stair use in Catalonia should focus on using bigger samples, different sites (metro stations, airports, shopping centers, etc) , different messages and techniques to promote stair climbing.

Political autonomy and independence: theory and experimental evidence

We study the process by which subordinated regions of a country can obtain a more favourable political status. In our theoretical model a dominant and a dominated region first interact through a voting process that can lead to different degrees of autonomy. If this process fails then both regions engage in a costly political conflict which can only lead to the maintenance of the initial subordination of the region in question or to its complete independence. In the subgame-perfect equilibrium the voting process always leads to an intermediate arrangement acceptable for both parts. Hence, the costly political struggle never occurs. In contrast, in our experiments we observe a large amount of fighting involving high material losses, even in a case in which the possibilities for an arrangement without conflict are very salient. In our experimental environment intermediate solutions are feasible and stable, but purely emotional elements prevent them from being reached.

Where Has the Old Debate Gone? Realism, Institutionalism, and IR Theory

This paper resorts to the contribution of the science philosopher Gerald Holton to map some of the IR arguments and debates in an unconventional and more insightful way. From this starting point, it is sustained that the formerly all-pervading neorealism-neoinstitutionalism debate has lost its appeal and is attracting less and less interest among scholars. It does not structure the approach of the theoretically-oriented authors any more; at least, not with the habitual intensity. More specifically, we defend that the neo-neo rapprochement, even if it could have demonstrated that international cooperation is possible and relevant in a Realist world, it has also impoverished theoretical debate by hiding some of the most significant issues that preoccupied classical transnationalists. Hence, some authors appear to be trying to rescue some of these arguments in an analytical and systematic fashion, opening up a theoretical querelle that may be the next one to pay attention to.

Freedom of choice as control over outcomes

As interactions between individuals are introduced into the freedom of choice literature by the mean of game forms, new issues appear. In particular, in this paper it is argued that individuals face uncertainty with respect to outcomes as they lose the control they implicitely exert over options in the opportunity set framework. A criterion is proposed as to compare alternative game forms in terms of the control they offer to individuals. The CardMin criterion suggests that any game form should be judged on the basis of the strategy offering the lowest number of pairwise different outcomes. An axiomatic characterization is provided in the case of two individuals.

Multi-Scale Integrated Analysis of Societal and Ecosystem Metabolism (MUSIASEM): an outline of rationale and theory

This paper presents an outline of rationale and theory of the MuSIASEM scheme (Multi-Scale Integrated Analysis of Societal and Ecosystem Metabolism). First, three points of the rationale behind our MuSIASEM scheme are discussed: (i) endosomatic and exosomatic metabolism in relation to Georgescu-Roegen’s flow-fund scheme; (2) the bioeconomic analogy of hypercycle and dissipative parts in ecosystems; (3) the dramatic reallocation of human time and land use patterns in various sectors of modern economy. Next, a flow-fund representation of the MUSIASEM scheme on three levels (the whole national level, the paid work sectors level, and the agricultural sector level) is illustrated to look at the structure of the human economy in relation to two primary factors: (i) human time - a fund; and (ii) exosomatic energy - a flow. The three levels representation uses extensive and intensive variables simultaneously. Key conceptual tools of the MuSIASEM scheme - mosaic effects and impredicative loop analysis - are explained using the three level flow-fund representation. Finally, we claim that the MuSIASEM scheme can be seen as a multi-purpose grammar useful to deal with sustainability issues.

Improving the risk concept: a revision of Arrow-Pratt theory in the context of controlled dynamic stochastic environments

In the literature on risk, one generally assume that uncertainty is uniformly distributed over the entire working horizon, when the absolute risk-aversion index is negative and constant. From this perspective, the risk is totally exogenous, and thus independent of endogenous risks. The classic procedure is "myopic" with regard to potential changes in the future behavior of the agent due to inherent random fluctuations of the system. The agent's attitude to risk is rigid. Although often criticized, the most widely used hypothesis for the analysis of economic behavior is risk-neutrality. This borderline case must be envisaged with prudence in a dynamic stochastic context. The traditional measures of risk-aversion are generally too weak for making comparisons between risky situations, given the dynamic �complexity of the environment. This can be highlighted in concrete problems in finance and insurance, context for which the Arrow-Pratt measures (in the small) give ambiguous.

In Search of a theory of debt management

A growing literature integrates theories of debt management into models of optimal fiscal policy. One promising theory argues that the composition of government debt should be chosen so that fluctuations in the market value of debt offset changes in expected future deficits. This complete market approach to debt management is valid even when the government only issues non-contingent bonds. A number of authors conclude from this approach that governments should issue long term debt and invest in short term assets. We argue that the conclusions of this approach are too fragile to serve as a basis for policy recommendations. This is because bonds at different maturities have highly correlated returns, causing the determination of the optimal portfolio to be ill-conditioned. To make this point concrete we examine the implications of this approach to debt management in various models, both analytically and using numerical methods calibrated to the US economy. We find the complete market approach recommends asset positions which are huge multiples of GDP. Introducing persistent shocks or capital accumulation only worsens this problem. Increasing the volatility of interest rates through habits partly reduces the size of these simulations we find no presumption that governments should issue long term debt ? policy recommendations can be easily reversed through small perturbations in the specification of shocks or small variations in the maturity of bonds issued. We further extend the literature by removing the assumption that governments every period costlessly repurchase all outstanding debt. This exacerbates the size of the required positions, worsens their volatility and in some cases produces instability in debt holdings. We conclude that it is very difficult to insulate fiscal policy from shocks by using the complete markets approach to debt management. Given the limited variability of the yield curve using maturities is a poor way to substitute for state contingent debt. The result is the positions recommended by this approach conflict with a number of features that we believe are important in making bond markets incomplete e.g allowing for transaction costs, liquidity effects, etc.. Until these features are all fully incorporated we remain in search of a theory of debt management capable of providing robust policy insights.