infonet-economy

This paper analyzes an overlapping generation model of redistribution and public good provision under repeated voting. Expenditures are financed through age-dependent taxation that distorts human capital investment. Taxes redistribute income both across skill groups and across generations. We focus on politico-economic Markov equilibria and contrast these with the Ramsey allocation under commitment. The model features indeterminate equilibria, with a key role of forward-looking strategic voting. Due to the lack of commitment to future policies, the tax burden may be on the wrong side of the dynamic Laffer curve. Moreover, restrictions on government policies can in some cases be welfare improving.

We used single-pulse transcranial magnetic stimulation of the left primary hand motor cortex and motor evoked potentials of the contralateral right abductor pollicis brevis to probe motor cortex excitability during a standard mental rotation task. Based on previous findings we tested the following hypotheses. (i) Is the hand motor cortex activated more strongly during mental rotation than during reading aloud or reading silently? The latter tasks have been shown to increase motor cortex excitability substantially in recent studies. (ii) Is the recruitment of the motor cortex for mental rotation specific for the judgement of rotated but not for nonrotated Shepard & Metzler figures? Surprisingly, motor cortex activation was higher during mental rotation than during verbal tasks. Moreover, we found strong motor cortex excitability during the mental rotation task but significantly weaker excitability during judgements of nonrotated figures. Hence, this study shows that the primary hand motor area is generally involved in mental rotation processes. These findings are discussed in the context of current theories of mental rotation, and a likely mechanism for the global excitability increase in the primary motor cortex during mental rotation is proposed.

Revolutionary developments in economics are rare. The conservative bias of the field and its enshrined knowledge make it difficult to introduce new ideas not in line with received theory. Happiness research, however, has the potential to change economics substantially. Its findings, which are gradually being taken into account in standard economics, can be considered revolutionary in three respects: the measurement of experienced utility using psychologists' tools for measuring subjective well-being, new insights into how human beings value goods and services and social conditions that include consideration of such non-material values as autonomy and social relations, and policy consequences of these new insights that suggest different ways for government to affect individual well-being. In Happiness, Bruno Frey, emphasizing empirical evidence rather than theoretical conjectures, substantiates these three revolutionary claims for happiness research.

After tracing the major developments of happiness research in economics and demonstrating that we have gained important new insights into how income, unemployment, inflation, and income demonstration affect well-being, Frey examines democracy and federalism, self-employment and volunteer work, marriage, terrorism, and watching television from the new perspective of happiness research. Turning to policy implications, Frey describes how government can provide the conditions under which people can achieve well-being, arguing that effective political institutions and decentralized decision making play crucial roles. Happiness demonstrates the achievements of the economic happiness revolution and points the way to future research.

This paper examines the consequences of introducing mobile number portability (MNP). As MNP allows consumers to keep their telephone number when switching providers, it reduces consumers’ switching costs. However, MNP may also cause consumer ignorance if telephone numbers no longer identify networks. As a result, while fostering competition for mobile customers, MNP may also induce operators to increase termination charges for calls to mobile networks, generating ambiguous welfare e.ects. We examine how extensions such as MNP based on call-forwarding, termination fee regulation, and alternative means of carrier identification a.ect these findings.

Markowitz and Sharpe won the Nobel Prize in Economics more than a decade ago for thendevelopment of Mean-Variance analysis and the Capital Asset Pricing Model (CAPM). In the yearn2002, Kahneman won the Nobel Prize in Economics for the development of Prospect Theory. Cannthese two apparently contradictory paradigms coexist?nIn deriving the CAPM, Sharpe, Lintner and Mossin assume expected utility (EU)nmaximization following the approach proposed by Markowitz, normal distributions and risknaversion. Kahneman & Tversky suggest Prospect Theory (PT) and Cumulative Prospect Theoryn(CPT) as an alternative paradigm to EU theory. They show that investors distort probabilities,nmake decisions based on change of wealth, exhibit loss aversion and maximize the expectation ofnan S-shaped value function which contains a risk-seeking segment. Employing change of wealthnrather than total wealth contradicts EU theory. The subjective distortion of probabilities violatesnthe CAPM assumptions of normality and homogeneous expectations, and the S-shaped valuenfunction violates the risk aversion assumption. We prove in this paper that although CPT (and PT)nis in conflict to EUT, and violates some of the CAPM's underlying assumptions, the securitynmarket line theorem (SMLT) of the CAPM is intact in the CPT framework.

We analyze positive theories of redistribution, social insurance and public good provision in a dynamic macroeconomic framework. Political outcomes are determined via repeated voting and driven by a conflict of interests between agents. Voters and politicians rationally forecast the impact of current political choices on future political and economic outcomes. The theory is consistent with large differences in the size of governments across societies. These need not rely on intrinsic differences in preferences or technology, but may be driven by self-fulfilling expectations about the robustness of the welfare state.

This paper analyzes the distributional effects of international outsourcing in a two sector Heckscher-Ohlin type model if both sectors get economical access to cost-saving international outsourcing. Thereby, it is shown that if both sectors are engaged in international outsourcing in equilibrium, the cost-saving effects of outsourcing as well as the factor contents of the outsourced fragments are relevant for the factor price effects. Concerning the Pareto-criterion the main finding is that a Pareto-improving factor price impact of international outsourcing cannot be excluded from a theoretical point of view.

This paper addresses the question under which circumstances unemployment can be lower if unions bargain over wages and employment in a general equilibrium framework. Thereby, it turns out that the unemployment rate may negatively depend on the wage rate, if the unemployment compensation scheme contains a constant real term in addition to the replacement ratio component. This is, compared with a pure replacement ratio scheme, the more plausible formalization of the real world’s compensation systems, at least for European countries. Besides the theoretical analysis, the paper also derives political implications by identifying the relevant parameters for the decision on whether weakening unions will be a good strategy for an economy to overcome its unemployment problem.

This paper analyzes the effects of intermediate goods trade on the development of real wages in Central and Eastern European manufacturing. The empirical findings show that world exports in intermediate goods of the CEEC exhibit a negative impact on wages, and imports a positive one. Since 1993, intermediate goods trade between the EU and the CEEC accounted for an increase in wages being most pronounced in Slovakia, Poland and the Czech Republic.