Discussion Papers

Papers from 1998 onwards are available on-line as .PDF files.

If you would like to submit your paper to Repec, please email econplone@le.ac.uk

10 Most Recent Papers

16/20 Sanjit Shami & Ali al-Nowaihi 

Adobe Acrobat (PDF) 16/20 Social responsibility, human morality and public policy

The evidence shows that in many important economic domains, many people are either predisposed to engage in ‘socially responsible actions ’and/or required by regulations to do so. Examples include pollution abatement activity, behavior in a commons, and contributions to charity. We propose a general framework of analysis for modelling such actions and the role of public policy in encouraging these actions in an equilibrium setting. Multiple equilibria are endemic in these situations. We show that it is possible to conduct interesting and meaningful analysis in the presence of multiple equilibria. We examine the role of optimal public policy such as subsidies, taxes and direct government grants in engineering moves from less tomore desirable equilibria. We highlight a new role for leadership contributions in facilitating moves between multiple equilibria. We also conduct a welfare analysis of the optimal mix between private and public actions.

16/19 Heather D. Gibson & Stephen G. Hall & George S. Tavlas

Adobe Acrobat (PDF) 16/19 Measuring Systemic Stress in European Banking Systems*

We construct a measure of systemic risk in selected EU banking systems using an indirect measure of the system covariance which is also time-varying. We proceed to examine to what extent the resulting measures of systemic stress provide a convincing narrative of events during the period January 2000 to March 2016. The results provide evidence of: (i) rising stress prior to the outbreak of the international financial crisis in 2007/08 in countries with banks exposed to toxic assets; (ii) stress associated with the euro area sovereign debt crisis from 2009/10; and (iii) continued concerns from 2013 out the need for euro area banks to clean up their balance sheets and raise new capital at a time of sluggish profitability.

Adobe Acrobat (PDF) 16/18 Self-fulfilling dynamics: The interactions of sovereign spreads, sovereign ratings and bank ratings during the euro financial crisis*

During the euro-area financial crisis, interactions among sovereign spreads, sovereign credit ratings, and bank credit ratings appeared to have been characterized by self-generating feedback loops. To investigate the existence of feedback loops, we consider a panel of five euro-area stressed countries within a three-equation simultaneous system in which sovereign spreads, sovereign ratings and bank ratings are endogenous. We estimate the system using two approaches. First we apply GMM estimation, which allows us to calculate persistence and multiplier effects. Second, we apply a new, system time-varying-parameter technique that provides bias-free estimates. Our results show that sovereign ratings, sovereign spreads, and bank ratings strongly interacted with each other during the euro crisis, confirming strong doom-loop effects.

16/17 Sanjit Dhami & Mengxing Wei & Ali al-Nowaihi

Adobe Acrobat (PDF) 16/17 Public goods games and psychological utility: Theory and evidence.

We consider a public goods game which incorporates guilt-aversion/surprise- seeking and the attribution of intentions behind these emotions (Battigalli and Dufwenberg, 2007; Khalmetski et al., 2015). We implement the induced beliefs method (Ellingsen et al., 2010) and a within-subjects design using the strategy method. Previous studies mainly use dictator games - whose results may not be robust to adding strategic components. We fi…nd that guilt-aversion is far more important than surprise-seeking; and that the attribution of intentions behind guilt- aversion/surprise-seeking is important. Our between-subjects analysis confi…rms the results of the within-subjects design.

16/16 Aristotelis Boukouras 

Adobe Acrobat (PDF) 16/16 Capitalist Spirit and the Markets: Why Income Inequality Matters

I develop a simple static general equilibrium model with capitalist-spirit preferences and prices set by firm owners (entrepreneurs). The model’s pure symmetric Nash equilibria differ markedly from the canonical model: (i) A positive output gap and unemployment may emerge in equilibrium, despite the absence of price rigidities or information asymmetries. (ii) Income and wealth inequality affect equilibrium prices and employment. (iii) The model generates ambiguous comparative statics. Specifically, an increase in inequality of either type may reduce employment and increase the output gap of the economy, while productivity reductions may have the opposite effect. As a result, minimum wage policies may increase employment. These results provide some justification for a number of arguments used in public debates.

16/15 Martin Foureaux Koppensteiner and Jesse Matheson

Adobe Acrobat (PDF) 16/15 Access to education and teenage childbearing

We look at the effect of expanding secondary school access on teenage childbearing in Brazil. For this purpose we combine information from the Brazilian school census with vital statistics data. Variation in the introduction of schools across municipalities over time is used to estimate the effect of education access on teenage births. Our results show a 4.56% reduction in municipal teenage childbearing following a school introduction. These results suggest that Brazil’s secondary school expansion between 1997 and 2010 can account for 25% of a substantial decline in teenage childbearing observed over the same period.

16/14 Olukorede Abiona and Martin Foureaux Koppensteiner

Adobe Acrobat (PDF) 16/14 The Impact of Household Shocks on Domestic Violence: Evidence from Tanzania

In this paper, we study the effects of household shocks on the incidence of domestic violence (DV) using a unique set of microdata from the World Bank’s Living Standard Measurement Survey for Tanzania. We use idiosyncratic variation in rainfall as an exogenous shock to Tanzanian households and control for a large set of potential confounding variables on the individual, household and community levels, while exploiting intra-and inter-community rainfall variation for identification. We find that rainfall shocks substantially increase the likelihood of the DV incidence in the household. A one standard deviation negative rainfall shock increases the incidence of domestic violence by about 18.8 percentage points compared to baseline for wives. We furthermore show that rainfall shocks have an effect on physical violence, while we do not find an effect on severe physical or sexual abuse, which is consistent with the strategic use of violence. Estimates from non-linear specifications reveal that the overall effects are driven by droughts rather than floods. We furthermore show that effects are more pronounced for poorer households. In addition, we also provide evidence that female empowerment mitigates the impact of rainfall shocks on violence.

16/13 Carlos Diaz Vela

Adobe Acrobat (PDF) 16/13 Extracting the Information Shocks from the Bank of England Inflation Density Forecasts

This paper shows how to extract the density of the shocks of information perceived by the Bank of England between two consecutive releases of its inflation density forecasts. These densities are used to construct a new measure of ex ante in ex ante inflation uncertainty, and a measure of news incorporation into subsequent forecasts. Also dynamic tests of point forecast optimality is constructed. It is shown that inflation uncertainty as perceived by the Bank was decreasing before the financial crisis, increasing sharply during the period 2008-2011. Since then, uncertainty seems to have stabilized, but it remains still above its pre-crisis levels. Finally, it is shown that forecast optimality is lost at some points during the financial crisis, and that there are more periods of optimal forecasts in long term than in short term forecasting. This could be also interpreted as that short term forecasts are subject to profound revisions.

16/12 Matteo Foschi

Adobe Acrobat (PDF) 16/12 Temptation in Markets with no Commitment: Give-aways, Scare-aways and Reversals

I study a two period model where the buyer suffers from self-control problems and his level of temptation is private information. I derive the optimal behaviour of a seller that offers her product to a buyer. In period 1, the latter decides whether or not to “enter the store” based on the prices posted by the seller. In period 2 he decides how much of the product to buy, if any. Differently from the existing literature, I assume that the seller cannot commit to the prices posted in period 1. I show how, under this framework, the presence of tempted consumers and asymmetric information can explain the existence of free vouchers offered by the seller to the consumer in exchange for entering the store. In contrast with classical contract theory, I show that the relatively untempted consumer (the “low type”) can be better off when information about his type is private than when the seller is fully informed. Moreover, the presence of self-control may induce the seller to exclude the relatively strongly tempted consumer (the “high type”) from the market.

16/11 P. A. V. B. Swamy, I-Lok Chang, Jatinder S. Mehta, William H. Greene, Stephen G. Hall, and George S. Tavlas

Adobe Acrobat (PDF) 16/11 Removing Specification Errors from the Usual Formulation of Binary Choice Models*

We develop a procedure for removing four major specification errors from the usual formulation of binary choice models. The model that results from this procedure is different from the conventional probit and logit models. This difference arises as a direct consequence of our relaxation of the usual assumption that omitted regressors constituting the error term of a latent linear regression model do not introduce omitted regressor biases into the coefficients of the included regressors.

Share this page: