In this paper, I analyze the determinants of college enrolment and the changes in these determinants over time. I propose a quantitative life-cycle model with college enrolment. Altruistic parents provide financial support to their children. Using counterfactual experiments, I find that 24 percent of all households are financially constrained in their college decision. Constraints become more severe over time. I show that my model is consistent with a narrow college enrolment gap between students from rich and poor families, as previously reported in the empirical literature. The estimation of enrolment gaps is a popular reduced-form approach for measuring the fraction of constrained households. My results suggest that these reduced-form estimates are misleading, and that a structural model of parental transfers is needed to correctly identify constrained households. Further, I show that parental transfers are an important driver behind the changing role of family income as a determinant of college entry, a fact that is well documented for the US economy.
A strategy profile of a game is called robustly stochastically stable if it is stochastically stable for a given behavioral model independently of the specification of revision opportunities and tie-breaking assumptions in the dynamics. We provide a simple radius–coradius result for robust stochastic stability and examine several applications. For the logit-response dynamics, the selection of potential maximizers is robust for the subclass of supermodular symmetric binary action games. For the mistakes model, the weaker property of strategic complementarity suffices for robustness in this class of games. We also investigate the robustness of the selection of risk-dominant strategies in coordination games under best-reply and the selection of Walrasian strategies in aggregative games under imitation.
Heterogeneity in size and productivity is central to models that explain which manufacturing firms export. This study presents descriptive evidence on similar heterogeneity among international banks as financial services providers. A novel and detailed bank-level data set reveals the volume and mode of international activities for all German banks. Only a few, large banks have a commercial presence abroad, consistent with the size pecking order documented for manufacturing firms. However, the relationship between internationalization and productivity also yields two inconsistencies with recent trade models. First, virtually all banks hold at least some foreign assets, irrespective of size or productivity. Second, some fairly unproductive banks maintain commercial presences abroad.
We study the effect of civil conflict on social capital, focusing on the experience of Ugandaduring the last decade. Using individual and county-level data, we document large causal effects on trust and ethnic identity of an exogenous outburst of ethnic conflicts in 2002-05. We exploit two waves of survey data from Afrobarometer 2000 and 2008, including information on socioeconomic characteristics at the individual level, and geo-referenced measures of fi ghting events from ACLED.Our identifi cation strategy exploits variations in the intensity of fighting both in the spatial and cross-ethnic dimensions. We fi nd that more intense fighting decreases generalized trust and increases ethnic identity. The effects are quantitatively large and robust to a number of control variables, alternative measures of violence, and different statistical techniques involving ethnic and spatial fi xed effects and instrumental variables. Controlling for the intensity of violence during the conflict, we also document that post-conflict economic recovery is slower in ethnically fractionalized counties.Our findings are consistent with the existence of a self-reinforcing process between conflicts and ethnic cleavages.
Is financial globalization associated with improved international consumption
risk sharing? We focus on the long-term (i.e. low frequency) comovement
of consumption and output in answering this question. Theoretically,
the impact of financial globalization should show up first and most robustly
in the lower frequencies of the data. We show that this is the case
empirically: by the end of our sample period (1960-2007) up to 40 percent
of long-term idiosyncratic consumption risk get shared between industrialized
countries – as compared to less than 10 percent before 1990. This
dramatic increase is associated with a huge increase in international capital
income flows: while capital income flows remain relatively limited as
a channel of risk sharing at business cycle horizons, their contribution to
international risk sharing at longer horizons has increased substantially.
Much of this increase can be attributed to the growth in international asset
positions over the recent globalization period.
We introduce intention-based social preferences into mechanism design. We explore information structures that differ with respect to what is commonly known about the weight that agents attach to reciprocal kindness. When the designer has no information on reciprocity types, implementability of an incentive-compatible social choice function is guaranteed if it satisfies an additional insurance property. By contrast, precise information on reciprocity types may imply that all efficient social choice functions are implementable. We show how these results extend to a two-dimensional mechanism design setting where the agents have private information about their material payoff types and their reciprocity types. We also provide a systematic account of the welfare implications of intentionality.
Many statistical applications require an estimate of a covariance matrix and/or its inverse. Whenthe matrix dimension is large compared to the sample size, which happens frequently, the samplecovariance matrix is known to perform poorly and may suffer from ill-conditioning. There alreadyexists an extensive literature concerning improved estimators in such situations. In the absence offurther knowledge about the structure of the true covariance matrix, the most successful approachso far, arguably, has been shrinkage estimation. Shrinking the sample covariance matrix to amultiple of the identity, by taking a weighted average of the two, turns out to be equivalent tolinearly shrinking the sample eigenvalues to their grand mean, while retaining the sampleeigenvectors. Our paper extends this approach by considering nonlinear transformations of thesample eigenvalues. We show how to construct an estimator that is asymptotically equivalent toan oracle estimator suggested in previous work. As demonstrated in extensive Monte Carlosimulations, the resulting bona fide estimator can result in sizeable improvements over the samplecovariance matrix and also over linear shrinkage.
This article studies several attributes of a firm's long-run decisions about organizational structure, attributes that affect the firm's short-run innovative activity. We focus on flexibility, which lowers the future costs of implementing innovations, and research capabilities, which improve the future opportunities for innovation. We consider two dimensions of innovation: demand-enhancing (product) and cost-reducing (process). These two types of innovation are complementary in terms of increasing the firm's net revenue in the short run. The complementarities between the firm's short-run decision variables then lead to complementarities between its long-run decisions about product and process flexibility and research capabilities.
Rules on abuse of dominance are used to find a balance between three objectives: 1) ensuring enough competition between firms in order to force them to be efficient and to compete on merit, 2) allowing a certain degree of profitability so that companies have incentives to become more efficient, and 3) achieving an equal distribution of wealth and business opportunities among different sectors of society. While the discussion in developed countries focuses on the first two aspects in order to maximize innovation and growth, developing countries may also want to consider the third dimension and include the reduction of inequality and poverty as objectives of abuse of dominance laws. But even the relationship between the first two aspects tends to vary among regions, because investment depends on factors that differ between developing and developed countries. These factors sometimes contradict each other and it is crucial to find a sound balance between them. Firstly, since developing economies often have smaller markets and, therefore, a lower equilibrium number of firms that can exploit economies of scale and operate efficiently, markets in developing countries are more likely to be concentrated. Furthermore, entry barriers tend to be higher and capital markets are often less developed, which causes obstacles for firms trying to compete with a dominant company. Secondly, large firms play a different role regarding their investment activity in developing countries than they do in more developed economies. Established firms can be important for less developed economies to have a sufficiently high level of investment in production. In such countries, the benefits of increased investments may outweigh efficiency losses that can arise from a more lax treatment of dominant firm conduct. Thirdly, distributional aspects may be especially important for developing countries. Smaller firms, which often represent poorer sectors of society, may have to be given better chances to compete against large dominant companies. Competition law can be used for such public interest issues, but it is crucial that the law gives clear guidance on how these objectives should be balanced against other objectives such as efficiency. The comparison of the EU and the US regarding abuse of dominance shows that significant differences exist even among developed countries. One reason for the disparity is differing assumptions about what types of conduct are harmful and how difficult it is to differentiate them from other conduct. The 'access to market principle' of the EU arises from the assumption that restrictions of market access are harmful to the economy and that a harmful conduct can be distinguished from other, not harmful, conduct. On the other hand, the 'non-intervention principle' of the US is based on the assumption that the distinction of such conduct is difficult, that there is great danger of prohibiting behaviour that is efficient and that the unnecessary prohibition of efficient conduct is severe. One conclusion from the comparison is that these assumptions should be analysed and be grounded on the economic reality. How likely and severe errors of competition authorities are can, for example, be assessed in an analysis of past decisions and their effects on the economy. Support of developing countries' competition authorities in analysing their own cases and the impact of their decisions on the economy would therefore be valuable.
