Fiscal Policy and Learning

Using the standard real business cycle model with lump-sum taxes, we analyze the impact of fiscal policy when agents form expectations using adaptive learning rather than rational expectations (RE). The output multipliers for government purchases are significantly higher under learning, and fall within empirical bounds reported in the literature (in sharp contrast to the implausibly low values under RE). Effectiveness of fiscal policy is demonstrated during times of economic stress like the recent Great Recession. Finally it is shown how learning can lead to dynamics empirically documented during episodes of 'fiscal consolidations.'

Baysian Model Averaging, Learning and Model Selection

Agents have two forecasting models, one consistent with the unique rational expectations equilibrium, another that assumes a time-varying parameter structure. When agents use Bayesian updating to choose between models in a self-referential system, we find that learning dynamics lead to selection of one of the two models. However, there are parameter regions for which the non-rational forecasting model is selected in the long-run. A key structural parameter governing outcomes measures the degree of expectations feedback in Muth's model of price determination.

Finite Horizon Learning

Incorporating adaptive learning into macroeconomics requires assumptions about how agents incorporate their forecasts into their decision-making. We develop a theory of bounded rationality that we call finite-horizon learning. This approach generalizes the two existing benchmarks in the literature: Eulerequation learning, which assumes that consumption decisions are made to satisfy the one-step-ahead perceived Euler equation; and infinite-horizon learning, in which consumption today is determined optimally from an infinite-horizon optimization problem with given beliefs. In our approach, agents hold a finite forecasting/planning horizon. We find for the Ramsey model that the unique rational expectations equilibrium is E-stable at all horizons. However, transitional dynamics can differ significantly depending upon the horizon.

Firm size and trade secret intensity: evidence from the Economic Espionage Act

This paper considers trade secrecy as an appropriation mechanism in the context ofb the US Economic Espionage Act (EEA) 1996. We examine the relation between trade secret intensity and firm size, using a cross section of 95 court cases. The paper builds on extant work in three respects. First, we create a unique body of evidence, using EEA prosecutions from 1996 to 2008. Second, we use an econometric approach to measurement, estimation and hypothesis testing. This allows us comprehensively to test the robustness of findings. Third, we focus on objectively measured valuations, instead of the subjective, self-reported values used elsewhere. We find a stable, robust value for the elasticity of trade secret intensity with respect to firm size, which indicates that a 10% reduction in firm size leads to a 7% increase in trade secret intensity. We find that this result is not sensitive to industrial sector, sample trimming, or functional form.

Horizontal Agreements and R&D Complementarities: Merger versus RJV

We study the decision of two rms within an oligopoly concerning whether to enter into a horizontal agreement to exploit complementarities between their R&D activities and, if so, whether to merge or form a research joint venture (RJV). In contrast to horizontal merger, there is a probability that an RJV contract will fail to enforce R&D sharing. We nd that a horizontal agreement always arises. The insiders' merger/RJV choice involves a trade-o : While merger o ers certainty that R&D complementarities will be exploited, it leads to a pro t-reducing reaction by outsiders on the product market, where competition is Cournot. Greater brand similarity and contract enforceability (\quality") both favour RJV, while greater R&D complementarity favours merger. Interestingly, the insiders may choose to merge even when RJV contracts are always enforceable, and they may opt to form an RJV even when the likelihood of enforceability is negligible.

Comparació dels sistemes "ribosome skipping" i "splicing acceptor" per a l'expressió de transgenes en adenovirus oncolítics

Report for the scientific sojourn carried out at the University of St. Andrews, United Kingdom, from November 2007 until January 2008. Therapeutic transgene expression is a valuable strategy to counteract the limitations associated with oncolytic adenoviruses. Late phase expression is desirable to avoid early cell death for proper virus production. In this 3 months-collaboration, we have constructed a late expression system based on ribosome skipping downstream fiber protein and compared it with a splicing-based method of late gene expression. Despite expressing high amounts of the transgene when utilizing the ribosome skipping-system, flow cytomety assays indicate a delayed transgene-expression kinetics compared with the splicing-based one. Furthermore, when using the ribosome skipping system not only fiber protein expression is more altered but also viral production. These results suggest splicing-based expression strategy as a more suitable system for expression of transgenes late in the viral life cycle of an oncolytic adenovirus.

Stochastic Choice and Consideration Sets

We model a boundedly rational agent who suffers from limited attention. The agent considers each feasible alternative with a given (unobservable) probability, the attention parameter, and then chooses the alternative that maximises a preference relation within the set of considered alternatives. We show that this random choice rule is the only one for which the impact of removing an alternative on the choice probability of any other alternative is asymmetric and menu independent. Both the preference relation and the attention parameters are identi fied uniquely by stochastic choice data.

Testing the Tunnel Effect: Comparison, Age and Happiness in UK and German Panels

In contrast to previous results combining all ages we find positive effects of comparison income on happiness for the under 45s, and negative effects for those over 45. In the BHPS these coefficients are several times the magnitude of own income effects. In GSOEP they cancel to give no effect of effect of comparison income on life satisfaction in the whole sample, when controlling for fixed effects, and time-in-panel, and with flexible, age-group dummies. The residual age-happiness relationship is hump-shaped in all three countries. Results are consistent with a simple life cycle model of relative income under uncertainty.

Obesity and smoking: can we catch two birds with one tax?

The debate on tobacco and fat taxes often treats smoking and eating as independent behaviors. However, the available evidence shows that they are interdependent, which implies that policies against smoking or obesity may have larger scope than expected. To address this issue, we propose a dynamic rational model where eating and smoking are simultaneous choices that jointly affect body weight and addiction to smoking. Focusing on direct and cross-price effects, we compare tobacco taxes and food taxes and we show that a single policy tool can reduce both smoking and body weight. In particular, food taxes can be more effective than tobacco taxes at simultaneously fighting obesity and smoking.

The Market for "Rough Diamonds": Information, Finance and Wage Inequality

During the past four decades both between and within group wage inequality increased significantly in the US. I provide a microfounded justification for this pattern, by introducing private employer learning in a model of signaling with credit constraints. In particular, I show that when financial constraints relax, talented individuals can acquire education and leave the uneducated pool, this decreases unskilled inexperienced wages and boosts wage inequality. This explanation is consistent with US data from 1970 to 1997, indicating that the rise of the skill and the experience premium coincides with a fall in unskilled-inexperienced wages, while at the same time skilled or experienced wages do not change much. The model accounts for: (i) the increase in the skill premium despite the growing supply of skills; (ii) the understudied aspect of rising inequality related to the increase in the experience premium; (iii) the sharp growth of the skill premium for inexperienced workers and its moderate expansion for the experienced ones; (iv) the puzzling coexistence of increasing experience premium within the group of unskilled workers and its stable pattern among the skilled ones. The results hold under various robustness checks and provide some interesting policy implications about the potential conflict between inequality of opportunity and substantial economic inequality, as well as the role of minimum wage policy in determining the equilibrium wage inequality.

My Group Beats Your Group: Evaluating Non-Income Inequalities

This paper proposes a new methodology, the Domination Index, to evaluate non-income inequalities between social groups such as inequalities of educational attainment, occupational status, health or subjective well-being. The Domination Index does not require specific cardinalisation assumptions, but only uses the ordinal structure of these non-income variables. We approach from an axiomatic perspective and show that a set of desirable properties for a group inequality measure when the variable of interest is ordinal, characterizes the Domination Index up to a positive scalar transformation. Moreover we make use of the Domination Index to explore the relation between inequality and segregation and show how these two concepts are related theoretically.

Age, Life-satisfaction, and Relative Income – Insights from the UK and Germany

We first confirm previous results with the German Socio-Economic Panel by Layard et al. (2010), and obtain strong negative effects of comparison income. However, when we split the sample by age, we find quite different results for reference income. The effects on lifesatisfaction are positive and significant for those under 45, consistent with Hirschman’s (1973) ‘tunnel effect’, and only negative (and larger than in the full sample) for those over 45, when relative deprivation dominates. Thus for young respondents, reference income’s signalling role, indicating potential future prospects, can outweigh relative deprivation effects. Own-income effects are also larger for the older sample, and of greater magnitude than the comparison income effect. In East Germany the reference income effects are insignificant for all. With data from the British Household Panel Survey, we confirm standard results when encompassing all ages, but reference income loses significance in both age groups, and most surprisingly, even own income becomes insignificant for those over 45, while education has significant negative effects.

Sharp Bounds on Heterogeneous Individual Treatment Responses

This paper discusses how to identify individual-specific causal effects of an ordered discrete endogenous variable. The counterfactual heterogeneous causal information is recovered by identifying the partial differences of a structural relation. The proposed refutable nonparametric local restrictions exploit the fact that the pattern of endogeneity may vary across the level of the unobserved variable. The restrictions adopted in this paper impose a sense of order to an unordered binary endogeneous variable. This allows for a uni.ed structural approach to studying various treatment effects when self-selection on unobservables is present. The usefulness of the identi.cation results is illustrated using the data on the Vietnam-era veterans. The empirical findings reveal that when other observable characteristics are identical, military service had positive impacts for individuals with low (unobservable) earnings potential, while it had negative impacts for those with high earnings potential. This heterogeneity would not be detected by average effects which would underestimate the actual effects because different signs would be cancelled out. This partial identification result can be used to test homogeneity in response. When homogeneity is rejected, many parameters based on averages may deliver misleading information.

Nominal Stability and Financial Globalization

Over the past four decades, advanced economies experienced a large growth in gross external portfolio positions. This phenomenon has been described as Financial Globalization. Over roughly the same time frame, most of these countries also saw a substantial fall in the level and variability of inflation. Many economists have conjectured that financial globalization contributed to the improved performance in the level and predictability of inflation. In this paper, we explore the causal link running in the opposite direction. We show that a monetary policy rule which reduces inflation variability leads to an increase in the size of gross external positions, both in equity and bond portfolios. This appears to be a robust prediction of open economy macro models with endogenous portfolio choice. It holds across different modeling specifications and parameterizations. We also present preliminary empirical evidence which shows a negative relationship between inflation volatility and the size of gross external positions.

Efficient Nash Equilibrium under Adverse Selection

This paper revisits the problem of adverse selection in the insurance market of Rothschild and Stiglitz [28]. We propose a simple extension of the game-theoretic structure in Hellwig [14] under which Nash-type strategic interaction between the informed customers and the uninformed firms results always in a particular separating equilibrium. The equilibrium allocation is unique and Pareto-efficient in the interim sense subject to incentive-compatibility and individual rationality. In fact, it is the unique neutral optimum in the sense of Myerson [22].