CER-ETH Research Seminar, Spring Term 2018

Everyone who is interested is cordially invited!

If you would like to receive our weekly invitation via e-mail, or if you have any other question, please contact Jean-Philippe Nicolai.

Speakers

Anastasios Xepapadeas 

Natural Resource Management: A Network Perspective

Network structures characterize a lot of environmental problems and behaviours. In this paper, we study the role of networks in the management of natural resources by assuming a finite number of agents who exploit a specific natural resource. Harvesting is subject to three external effects, namely resource stock externalities, crowding externalities and positive technological spillovers. We show that the structure of network and the interaction among the agents, as well as the strength of the external effects, determine both the equilibrium an the optimal harvesting amount and the corresponding value of the network. We also study the decisions of harvesting agents with respect to the creation or elimination of cooperation links, which are shown to affect total harvest and aggregate welfare. Moreover, we introduce heterogeneity by assuming different geographical distance between each agent and the resource, which changes agents incentive for collaboration. Finally, we show that conservation plans change the regulators objective and increase even further the gap between the decentralized and the optimal outcomes. 

Raouf Boucekkine

On political and institutional dynamics in resource-dependent economies

We consider dynamic game frameworks to study institutional and political dynamics in resource-dependent economies. Motivated by the Arab spring events, we first study the transition from  autocratic to  (more) democratic regimes by means of a multi-stage dynamic game with 2 players (elite vs opposition). In the case where such a transition only takes place if  citizens revolt against the elite, we show that the occurrence of a revolution primarily depends on the autocratic regime vulnerability and the level of inequalities, both being driven by the elite׳s redistribution and repression policies. We prove that when a political transition is inevitable, the elite choose the maximum rate of redistribution to lengthen their period in office. We also find that more resources lead to a shorter reign of a redistributive regime, which may not be the case of a repressive regime. In a second (and independent framework), we analyze how the volatility of resource revenues windfalls affects political decision making wihtin the elite. Based on the Algerian example,we consider a stochastic dynamic lobbying game with 2 players (conservatives vs liberals, within the elite). Uncertainty is driven by windfalls volatility but is also inherent in the institutional process itself. The resource windfall level matters in the relative bargaining power of the players.  We show that the legislative state converges to an invariant distribution and we demonstrate that the most likely asymptotic legislative state is favorable to the liberals. However, the more volatile resource windfalls, the less liberal is the most likely asymptotic state. Finally, we assess the latter prediction on a database covering 91 countries over the period 1973-2005.

Keith Kuester

The dark side of low interest rates

Retirement benefits in industrialized countries have come under great pressure. How should one conduct monetary policy in this scenario? Do low interest rates necessarily stimulate demand? The paper builds a New Keynesian overlapping generations model. The “standard” monetary transmission obtains whenever pensions are sufficiently generous. Below a critical level of government-provided pensions, however, low interest rates can show their darker side: lower interest rates may turn into the cause of a recession rather than supporting economic activity. This is more likely if households do not want to substitute intertemporally, or if they cannot, for example, because the young are borrowing-constrained and the constraints do not ease sufficiently.

Gerhard Sorger

Capital price bubbles and dynamic inefficiency

We demonstrate that the price of physical capital in standard neoclassical one-sector growth models can exceed its fundamental value, that is, a capital price bubble can exist. It is furthermore shown that the existence of a capital price bubble is in general unrelated to the dynamic inefficiency of equilibrium. We illustrate these results in the contexts of the Ramsey-Cass-Koopmans model with finitely many infinitely-lived dynasties of households, the Blanchard-Yaari model with infinitely many overlapping generations of finitely-lived households, and the Solow-Swan model without microfoundation. Our findings are in contrast to those derived by Tirole (Econometrica, 1982) and they are complementary to those from Kocherlakota (Journal of Economic Theory, 1992) and Tirole (Econometrica, 1985).

Casey Rothschild

Adverse Selection and Redistribution in the Irish Tontines of 1773, 1775, and 1777

We construct and analyze a new data set on the mortality experience of the nominees of the 1773, 1775, and 1777 Irish Tontines. The active participation of Genevan speculators in these Irish tontines has been well documented. We use our new data to quantify the extent to which these nominees were longer-lived and the financial consequences of that enhanced longevity. The Genevan nominees were indeed notably longer-lived than non-Genevan nominees—particularly so for the 50 nominees selected by a Genevan investment syndicate. Their enhanced longevity had only trivial consequences for the Irish government issuer, but it led to significant redistributional from non-Genevan to Genevan investors. We highlight the implications of this across-group redistribution for modern proposals to introduce tontine-like elements into modern retirement pensions.

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Sjak Smulders

Closing the Loop in a Circular Economy: Saving Resources or Suffocating Innovations?

In a circular economy, inputs are used and re-used within closed loops of materials. Compared to a linear economy, in which materials are disposed as waste after use, a circular economy may alleviate environmental problems and promote resource efficiency. To investigate how circularity affects innovation and growth, we develop a two-sector endogenous growth model with Schumpeterian innovation. The primary sector is innovative: monopolists continuously develop new products and use primary resources in production. The secondary sector refurbishes retired products: it requires no primary resource for production, but also does not develop new products (and thus does not promote innovations). We find that if the economy shifts to a higher refurbishing intensity, it uses more resources and increases consumption when equilibrium relative resource prices are non-vanishing. In an equilibrium with ever declining relative resource prices, a shift to more refurbishing reduces innovation and increases cumulative resource use. Further, the welfare impact follows a U-curve; increased refurbishing benefit economies only after refurbishing exceeds a certain threshold.

Pietro Paretto

Implications of Tax Policy for Innovation and Aggregate Productivity Growth

The quantitative implications of income taxation for innovation and aggregate productivity growth are evaluated in the context of a Schumpeterian model of innovation-led growth. In the model, innovation comes from entrant ?firms creating new products and from incumbent ?firms improving own existing products. The model embodies key features of the U.S. government sector: (i) an individual income (labor income, dividends, and capital gains) and (ii) corporate tax; (iii) a consumption tax; and (iv) government purchases. The model is further restricted to ?t observations for the post-war U.S. economy. The results suggest that endogenous movements in TFP constitute a quantitatively important channel for the transmission of tax policy to real GDP growth. Endogenous market structure plays a key role in the propagation of tax shocks.

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Micael Castanheira 

Electoral Systems and Inequality in Government Interventions

This paper revisits the economic effects of constitutions. We propose a model of governmental resource allocation under political competition and contrast majoritarian and proportional representation systems. We derive predictions regarding the relationship between resource allocation and local characteristics that differ depending on the electoral system. In contrast with conventional wisdom, we identify a "sprinkling effect'' that may lead to a more unequal allocation of resources under proportional representation than under a majoritarian system.

Margaret Kyle

Experts and Financial Ties: Evidence from FDA Advisory Committees

The use of expert committees is common in many settings. A key concern is the potential for conflict of interest, particularly for members of committees that oversee regulated firms. However, ties to industry may be correlated with relevant expertise. We examine the voting behavior of members of the Food & Drug Administration's Advisory Committees (ACs), which make recommendations on new drug applications and other regulatory questions. Our work exploits a novel dataset that includes detailed information on each AC member, including their academic degrees, age, areas of expertise, and scientific contributions. We construct a measure of financial ties to industry using information disclosed in scientific publications authored by AC members, as well as those reported directly to the FDA and by the industry under the Sunshine Act. Advisors with industry ties generally have higher observable quality: they publish more, receive more NIH grants, etc. We estimate a structural model of voting that allows us to recover each member's skill and bias associated with financial ties to a drug's sponsor or its competitors. Our preliminary results indicate that financial ties to industry are associated with both an increased probability of voting in favor of a drug as well as higher skill.