Pecuniary Externality through Credit Constraints: Two Examples without Uncertainty

This paper is a contribution to the growing literature on constrained inefficiencies in economies with financial frictions. The purpose is to present two simple examples, inspired by the stochastic models in Gersbach-Rochet (2012) and Lorenzoni (2008), of deterministic environments in which such inefficiencies arise through credit constraints. Common to both examples is a pecuniary externality, which operates through an asset price. In the second example, a simple transfer between two groups of agents can bring about a Pareto improvement. In a first best economy, there are no pecuniary externalities because marginal productivities are equalised. But when agents face credit constraints, there is a wedge between their marginal productivities and those of the non-credit-constrained agents. The wedge is the source of the pecuniary externality: economies with these kinds of imperfections in credit markets are not second-best efficient. This is akin to the constrained inefficiency of an economy with incomplete markets, as in Geanakoplos and Polemarchakis (1986).

Unemployment Risk and Wage Differentials

Workers in less secure jobs are often paid less than identical-looking workers in more secure jobs. We show that this lack of compensating differentials for unemployment risk can arise in equilibrium when all workers are identical and firms differ only in job security (i.e. the probability that the worker is not sent into unemployment). In a setting where workers search for new positions both on and off the job, the worker's marginal willingness to pay for job security is endogenous: it depends on the behavior of all firms in the labor market and increases with the rent the employing firm leaves to the worker. We solve for the labor market equilibrium, finding that wages increase with job security for at least all firms in the risky tail of the distribution of firm-level unemployment risk. Meanwhile, unemployment becomes persistent for low-wage and unemployed workers, a seeming pattern of 'unemployment scarring' created entirely by firm heterogeneity. Higher in the wage distribution, workers can take wage cuts to move to more stable employment.

Tractable Consumer Choice

We derive a rational model of separable consumer choice which can also serve as a behavioral model. The central construct is [lambda] , the marginal utility of money, derived from the consumer's rest-of-life problem. We present a robust approximation of [lambda], and show how to incorporate liquidity constraints, indivisibilities and adaptation to a changing environment. We fi nd connections with numerous historical and recent constructs, both behavioral and neoclassical, and draw contrasts with standard partial equilibrium analysis. The result is a better grounded, more flexible and more intuitive description of consumer choice.

Overtime Working and Contract Efficiency

We present a wage-hours contract designed to minimize costly turnover given investments in specific training combined with firm and worker information asymmetries. It may be optimal for the parties to work ‘long hours’ remunerated at premium rates for guaranteed overtime hours. Based on British plant and machine operatives, we test three predictions. First, trained workers with longer tenure are more likely to work overtime. Second, hourly overtime pay exceeds the value of marginal product while the basic hourly wage is less than the value of marginal product. Third, the basic hourly wage is negatively related to the overtime premium.

Unemployment Risk and Wage Differentials

Workers in less-secure jobs are often paid less than identical-looking workers in more secure jobs. We show that this lack of compensating differentials for unemployment risk can arise in equilibrium when all workers are identical and firms differ only in job security (i.e. the probability that the worker is not sent into unemployment). In a setting where workers search for new positions both on and off the job, the worker’s marginal willingness to pay for job security is endogenous, increasing with the rent received by a worker in his job, and depending on the behavior of all firms in the labor market. We solve for the labor market equilibrium and find that wages increase with job security for at least all firms in the risky tail of the distribution of firm-level unemployment risk. Unemployment becomes persistent for low-wage and unemployed workers, a seeming pattern of ‘unemployment scarring’ created entirely by firm heterogeneity. Higher in the wage distribution, workers can take wage cuts to move to more stable employment.

Bertrand and the long run

We propose a new model of simultaneous price competition, based on firms offering personalized prices to consumers. In a market for a homogeneous good and decreasing returns, the unique equilibrium leads to a uniform price equal to the marginal cost of each firm, at their share of the market clearing quantity. Using this result for the short-run competition, we then investigate the long-run investment decisions of the firms. While there is underinvestment, the overall outcome is more competitive than the Cournot model competition. Moreover, as the number of firms grows we approach the competitive long-run outcome.

A General and Intuitive Envelope Theorem

We present an envelope theorem for establishing first-order conditions in decision problems involving continuous and discrete choices. Our theorem accommodates general dynamic programming problems, even with unbounded marginal utilities. And, unlike classical envelope theorems that focus only on differentiating value functions, we accommodate other endogenous functions such as default probabilities and interest rates. Our main technical ingredient is how we establish the differentiability of a function at a point: we sandwich the function between two differentiable functions from above and below. Our theory is widely applicable. In unsecured credit models, neither interest rates nor continuation values are globally differentiable. Nevertheless, we establish an Euler equation involving marginal prices and values. In adjustment cost models, we show that first-order conditions apply universally, even if optimal policies are not (S,s). Finally, we incorporate indivisible choices into a classic dynamic insurance analysis.

Inter-regional redistribution through infrastructure investment: tactical or programmatic?

In this paper we analyze the effects of both tactical and programmatic politics on the inter-regional allocation of infrastructure investment. We use a panel of data for the Spanish electoral districts during the period 1964-2004 to estimate an equation where investment depends both on economic and political variables. The results show that tactical politics do matter since, after controlling for economic traits, the districts with more ‘Political power’ still receive more investment. These districts are those where the incumbents’ Vote margin of victory/ defeat in the past election is low, where the Marginal seat price is low, where there is Partisan alignment between the executives at the central and regional layers of government, and where there are Pivotal regional parties which are influential in the formation of the central executive. However, the results also show that programmatic politics matter, since inter-regional redistribution (measured as the elasticity of investment to per capita income) is shown to increase with the arrival of the Democracy and EU Funds, with Left governments, and to decrease the higher is the correlation between a measure of ‘Political power’ and per capita income.

Development and Democratization

Current studies, mainly focused on the postwar period, are split on the impact of development on democracy. Examining panel data that runs from early nineteenth century (a time where hardly any democracy was in place) to the end of the twentieth century, I show income matters positively for democratization – both after controlling for country and time effects and instrumenting for income. Since the effect of time partly varies over time, with some historical periods that are more favorable to democracy than others, I investigate the domestic variables (a decreasing marginal effect of growth in already developed economies) and international factors (the strategies of great powers toward small countries) generating that result. I finally probe the underlying processes through which income shapes political institutions, showing that development produces key changes in the distribution and nature of wealth that, in turn, make democracy a stable political outcome.

Impact of Babesia bovis and Babesia bigemina on the production of beef cattle in Uruguay

Uruguay is situated in a marginal area for the development of Boophilus microplus (30- 35- South Lat.) with important areas of enzootic instability for Babesia bovis and B. bigemina. The livestock products represent 70% of our exports, for wich reason it is fundamental to evaluate the losses in the production that these haemoparasites cause as basic information to take future decisions. In the period 1988-1990, several works were carried out by our laboratory to know the incidence of babesiosis in the reduction of liveweight gains. The results are shown and discussed in the work. Experiment I: the weight increase of the control group (x = 0,248kg/day), was 23% higher than that of the infected group with Babesia spp (from Uruguay), but significant statistical differences were not found (P < 0,05). These animals were kept in boxes and the food was controlled for 76 days. Experiment II: the incidence of Babesis spp (same strain ) was studied for 140 on Hereford heifers (n = 14) on natural pastures. The control group obtained x = 25,29kg of liveweight gain and it was 45% higher than that of the infected group, significant statistical difference were found (P < 0,05). Experiments with attenuated strains III: four studies were carried out inoculating B. bovis and B. bigemina in bovines about one year old, in different growth systems, searching for the limit of application. Significant statistical differences between those groups were found during the experiment (about 180 days) (P < 0,05). Experiment combining and pathogenic strains IV: the liveweight gain, in immune and challanged group (n = 14) was the same than that of the unchallenged group and did not show significant statistical differences (P < 0,05). However the control challenged group had less weight gain and statistical differences were found (P < 0,05). Although this is a preliminary information, it shows that: (a) the incidence of babesiosis on the reduction of weight gains is important; (b) the decrease in weight gain was not observed when attenuated strains were used; when the challenge was done in immunized animals, losses in liveweight gain were not observed. These results are discussed in order to plan future studis in different real systems of production.

Protection of aouts monkeys after immunization with recombinant antigens of Plasmodium falciparum

The genus Aotus spp. (owl monkey) is one of the WHO recommended experimental models for Plasmodium falciparum blood stage infection, especially relevant for vaccination studies with asexual blood stage antigens of this parasite. For several immunization trials with purified recombinant merozoite/schizont antigens, the susceptible Aouts kenotypes II, III, IV and VI were immunized with Escherichia coli derived fusion proteins containg partial sequences of the proteins MSAI (merozoite surface antigen I), SERP (serine-strech protein) and HRPII (histidine alanine rich protein II) as well as with a group of recombinant antigens obtained by an antiserum raised against a protective 41 kD protein band. The subcutaneous application (3x) of the antigen preparations was carried out in intact animals followed by splenectomy prior to challange, in order to increase the susceptibility of the experimental hosts to the parasite. A partial sequence of HRPII, the combination of three different fusion proteins of the 41 kD group and mixture of two sequences of SERP in the presence of the modified Al(OH)3 adjuvant conferred significant protection against a challange infection with P. falciparum blood stages (2-5 x 10 (elevado a sexta potência) i. RBC). Monkey immunized with the MS2-fusion protein carrying the N-terminal part of the 195 kD precursor of the major merozoite surface antigens induced only marginal protection showing some correlation between antibody titer and degree of parasitaemia. Based on the protective capacity of these recombinant antigens we have expressed two hybrid proteins (MS2/SERP/HRPII and SERP/MSAI/HRPII) in E. coli containing selected partial sequences of SERP, HRPII and MSAI. Antibodies raised against both hybrid proteins in rabbits and Aotus monkeys recognize the corresponding schizont polypeptides. In two independent immunization trials using 13 animals (age 7 months to 3 years) we could show that immunization of Aotus monkeys with either of the two hybrid proteins administered in an oil-based well tolerated formulation protected the animals frm a severe experimental P. falciparum (strain Palo Alto) infection.

The political ecology of Jatropha plantations for biodiesel in Tamil Nadu, India

Jatropha curcas is promoted internationally for its presumed agronomic viability in marginal lands, economic returns for small farmers, and lack of competition with food crops. However, empirical results from a study in southern India revealed that Jatropha cultivation, even on agricultural lands, is neither profitable, nor pro-poor. We use a political ecology framework to analyze both the discourse promoting Jatropha cultivation and its empirical consequences. We deconstruct the shaky premises of the dominant discourse of Jatropha as a “pro-poor” and “pro-wasteland” development crop, a discourse that paints a win-win picture between poverty alleviation, natural resource regeneration, and energy security goals. We then draw from field-work on Jatropha plantations in the state of Tamil Nadu to show how Jatropha cultivation favors resource-rich farmers, while possibly reinforcing existing processes of marginalization of small and marginal farmers.

Milky spots reactions to schistosomal mansoni infection

Milky spots (MS), considered by the authors as a Coelomatic Lympho-myelopoietic Organ (CLMO), present a strong reactivity during experimental schistosomal mansoni infection, characterized by an increase of lymphocytes, macrophages, plasmocytes, mast cells, neutrophils and expression of eosinophil metaplasia. Intraperitoneal injection of purified Schistosoma mansoni (Sm) eggs provoked a rise in the number and size of MS, which developed the sessile marginal and pedunculated types. The authors conclude that egg antigens are, at least partially, responsible for MS reactivity during Sm infection.

Inflation dynamics and the New Keynesian Phillips curve in EU-4

The paper seeks to shed light on inflation dynamics of four new EU member states: the Czech Republic, Hungary, Poland and Slovakia. To this end, the New Keynesian Phillips curve augmented for open economies is estimated and additional statistical tests applied. We find the following. (1) The claim of New Keynesians that the real marginal cost is the main inflation-forcing variable is fragile. (2) Inflation seems to be driven by external factors. (3) Although inflation holds a forward-looking component, the backward-looking component is substantial. An intuitive explanation for higher inflation persistence may be rather adaptive than rational price setting of local firms.

Redistributive taxation, public expenditure, and size of governent

We introduce a model of redistributive income taxation and public expenditure. This joint treatment permits analyzing the interdependencies between the two policies: one cannot be chosen independently of the other. Empirical evidence reveals that partisan confrontation essentially falls on expenditure policies rather than on income taxation. We examine the case in which the expenditure policy (or the size of government) is chosen by majority voting and income taxation is consistently adjusted. This adjustment consists of designing the income tax schedule that, given the expenditure policy, achieves consensus among the population. The model determines the consensus in- come tax schedule, the composition of public expenditure and the size of government. The main results are that inequality is negatively related to the size of government and to the pro-rich bias in public expenditure, and positively or negatively related to the marginal income tax, depending on substitutability between government supplied and market goods. These implications are validated using OECD data.