Discussion Papers

All of the Department Discussion Papers are submitted to RePEc. The EconPapers or IDEAS sites allow you to search by author, title, keyword, JEL category and abstract contents.

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

10 Most Recent Papers

14/15 Maria Jose Gil-Molto and Dimitrios Varvarigos

Adobe Acrobat (PDF) 14/15 Environmental Investments in Mixed vs Private Oligopoly: What are the Implications of Privatization?

We compare economic and environmental outcomes under mixed and private oligopolies, in order to examine the effects of privatization when firms invest in abatement and emissions are taxed. We show that the number of competing firms in the market is an important factor in the determination of these effects. While privatization often involves a welfare trade-off, in the sense that higher (lower) output production implies higher (lower) pollution, there are also circumstances where it leads to both lower output and higher emissions simultaneously. Our results also indicate that privatization tends be associated with reductions in social welfare.

14/14 Svetlana Adrianova, Badi H. Baltagi, Panicos Demetriades and David Fielding

Adobe Acrobat (PDF) 14/14 Ethnic Fractionalization, Governance and Loan Defaults in Africa

We present a theoretical model of moral hazard and adverse selection in an imperfectly competitive loans market that is suitable for application to Africa. The model allows for variation in both the level of contract enforcement (depending on the quality of governance) and the degree of market segmentation (depending on the level of ethnic fractionalization). The model predicts a specific form of non-linearity in the effects of these variables on the loan default rate. Empirical analysis using African panel data for 111 individual banks in 29 countries over 2000-2008 provides strong evidence for these predictions. Our results have important implications for the conditions under which policy reform will enhance financial development.

14/13 Sergio Currarini, Elena Fumagalli and Fabrizio Panebianco

Adobe Acrobat (PDF) 14/13 Games on Network: Direct Compliments and Indirect Substitutes

We study linear quadratic games played on a network where strategies are complements between neighbors and substitutes between agents at distance-two. We provide micro-founded problems where this pattern of interaction is due to a local congestion effect. Equilibrium behavior systematically differs from a model of peer effects only. First, the ranking of equilibrium actions may not follow that of network centralities, with large behavior prevailing at the periphery of the network. Second, network density affects aggregate behavior in a non-monotonic way. Third, segregating agents according to their preferences has a non-monotonic effect on the polarization of behavior. We relate these patterns to evidence from smoking networks, industrial districts and ethnically fragmented societies. We conclude by discussing the implications for the identification of peer effects.

14/12 Subir Bose and Arup Daripa

Adobe Acrobat (PDF) 14/12 Shills and Shipes

Online auctions with a fixed end-time often experience a sharp increase in bidding towards the end despite using a proxy-bidding format. We provide a novel explanation of this phenomenon under private values. We study a correlated private values environment in which the seller bids in her own auction (shill bidding). Bidders selected randomly from some large set arrive randomly in an auction, then decide when to bid (possibly multiple times) over a continuous time interval. A submitted bid arrives over a continuous time interval according to some stochastic distribution. The auction is a continuous-time game where the set of players is not commonly known, a natural setting for online auctions. Our results are robust with respect to the seller’s and the bidders’ priors regarding the set of bidders arriving at the auction. We show that there is a late-bidding equilibrium in which bids are delayed to the latest instance involving no sacrifice of probability of bid arrival, but shill bids fail to arrive with positive probability, and in this sense optimal late bidding serves to snipe the shill bids. We show conditions under which the equilibrium outcome is unique. Further, if these conditions do not hold, and there are any equilibria with a different outcome, they are necessarily characterized by early bidding. Any such equilibria are Pareto dominated for the bidders compared to the late-bidding equilibrium. Finally, our results suggest that under private values, the case against shill-bidding might be weak.

14/11 Ali al-Nowaihi and Sanjit Dhami

Adobe Acrobat (PDF) 14/11 Foundations and Properties of Time Discount Functions

A critical element in all discounted utility models is the specification of a discount function. We introduce three functions: the delay, speedup and generating functions. Each can be uniquely elicited from behaviour. The delay function determines stationary and the common difference effect. The speedup function determines impatience. Additivity is jointly determined by the delay and speedup functions. The speedup and generating functions jointly determine a unique discount function. Conversely, a continuous discount function determines unique speedup and generating functions.  

14/10 Eleni Stathopoulou

Adobe Acrobat (PDF) 14/10 Environmental campaigns and endogenous technology choice under international oligopoly

In an international duopoly context, where two goods are produced by two firms located in two separate countries, F and NF, we study the issue of firms' environmental technology choice. When consumers in country F are environmentally aware, in the sense that they care about emissions in their own country, it is shown that the firm in country F adopts a cleaner technology compared to the firm in country NF. Moreover, leakage appears, as the demand by consumers in country F shifts to the good produced by the firm in country NF. This, in turn, provides a rationale for raising awareness among consumers in country F about the effects of their consumption on pollution in country NF. Thereby, this paper adds to the existing literature by analysing how this increased awareness may affect consumers' demand for the domestic and the foreign good and, therefore,firms' endogenous technology choice. Also, changes in each country's and aggregate pollution are examined in order to assess whether having domestic consumers aware of foreign emissions could be considered as an option for tackling leakage.

14/09 Martin Kaae Jensen and Alexandros Rigos

Adobe Acrobat (PDF) 14/09 Evoluntionary Games with Group Selection*

This paper introduces two new concepts in evolutionary game theory: Nash equilibrium with Group Selection (NEGS) and Evolutionarily Stable Strategy with Group Selection (ESSGS). These concepts generalize Maynard Smith and Price (1973) to settings with arbitrary matching rules, in particular they reduce, respectively, to Nash equilibrium and ESS when matching is random. NEGS and ESSGS are to the canonical group selection model of evolutionary theory what Nash Equilibrium and ESS are to the standard replicator dynamics: any NEGS is a steady state, any stable steady state is a NEGS, and any ESSGS is asymptotically stable. We exploit this to prove what may be called “the second welfare theorem of evolution”: Any evolutionary optimum will be a NEGS under some matching rule. Our results are illustrated in Hawk-Dove, Prisoners’ dilemma, and Stag Hunt games.

14/08 Deborah Gefang and Geraint Johnes

Adobe Acrobat (PDF) Asymmetric volatility spillovers between UK regional worker flows and vacancies

This paper investigates volatility spillovers between UK regional job finding, job separation and vacancy rates. Employing a logistic smooth transition vector autoregression (VAR) to model the large nonlinear dynamic system, we use the methods of Diebold and Yilmaz (2012) to decompose the forecast error variances. Our approach is Bayesian. More specifically, we extend doubly adaptive elastic-net Lasso (DAELasso) methods for VAR parameter shrinkage into a nonlinear framework to allow for the possible regime changes. We find that for each variable, both the volatility spillovers to and from other variables are high, providing clear evidence for the close interdependence between UK regional labour markets. The pivotal role of London in generating and spreading changes in volatility is highlighted. Analysis of net spillovers shows that, in general, shocks to job separation rates tend to spread into job finding and vacancy rates. By contrast, vacancy rates are usually at the receiving ends of shocks transmitted from the job separation and finding rates. We further examine the shock propagation mechanism in more detail, such as the differences in spillovers between regions within the same regime, and that of the same region but in different regimes. Finally, we draw inferences that are of economic and policy importance.

14/07 Stephen Pollock

Adobe Acrobat (PDF) Econometric Filters

A variety of filters that are commonly employed by econometricians are analysed with a view to determining their effectiveness in extracting well-defined components of economic data sequences. These components can be defined in terms of their spectral structures—i.e. their frequency content—and it is argued that the process of econometric signal extraction should be guided by a careful appraisal of the periodogram of the detrended data sequence.

A preliminary estimate of the trend can often be obtained by fitting a polynomial function to the data. This can provide a firm benchmark against which the deviations of the business cycle and the fluctuations of seasonal activities can be measured. The trend-cycle component may be estimated by adding the business cycle estimate to the trend function. In cases where there are evident structural breaks in the data, other means are suggested for estimating the underlying trajectory of the data.

Whereas it is true that many annual and quarterly economic data sequences are amenable to relatively unsophisticated filtering techniques, it is often the case that monthly data that exhibit strong seasonal fluctuations require a far more delicate approach. In such cases, it may be appropriate to use filters that work directly in the frequency domain by selecting or modifying the spectral ordinates of a Fourier decomposition of data that have been subject to a preliminary detrending. 

14/06 Heather D. Gibson, Stephen G. Hall and George S. Tavlas

Adobe Acrobat (PDF) Are All Sovereigns Equal? A Test of the Common Determination of Sovereign Spreads in the Euro Area

With the outbreak of the Greek financial crisis in late 2009, spreads on Greek (and other) sovereigns reached unprecedented levels. Using a panel data of euro-area countries, we test whether the markets treated all euro-area countries in an equal manner over the period 1998:m1 to 2012:m6. In a F-test of the pooling assumptions suggests that Greece, Ireland and Portugal were not part of the overall pool. In a separate test on the individual coefficients we find that the coefficients on these three countries moved in a similar direction away from the pool, suggesting that markets treated these three countries more acutely than the rest of the pool.

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