2010 Discussion Papers: Abstracts
Abstracts for 2010 Discussion Papers (#682 onwards)
January 2010
Author: Marco Francesconi Christian Ghiglino and Motty Perry
Title: On the Origin of the Family (pdf
version)
Abstract
This paper presents an overlapping generations model to explain why humans live in
families rather than in other pair groupings. Since most non-human species are not
familial, something special must be behind the family. It is shown that the
two necessary features that explain the origin of the family are given by uncertain
paternity and overlapping cohorts of dependent children. With such two features built into our
model, and under the assumption that individuals care only for the propagation of
their own genes, our analysis indicates that fidelity families dominate promiscuous pair
bonding, in the sense that they can achieve greater survivorship and enhanced genetic
fitness. The explanation lies in the free riding behaviour that characterizes the
interactions between competing fathers in the same promiscuous pair grouping. Kin ties could
also be related to the emergence of the family. When we consider a kinship system
in which an adult male transfers resources not just to his offspring but also to his younger
siblings, we find that kin ties never emerge as an equilibrium outcome in a
promiscuous environment. In a fidelity family environment, instead, kinship can occur
in equilibrium and, when it does, it is efficiency enhancing in terms of greater survivorship
and fitness. The model can also be used to shed light on the issue as to why virtually
all major world religions are centered around the importance of the family.
February 2010 (updated March 2010)
Author: Sheri Markose, Simone Giansante, Mateusz Gatkowski and Ali Rais Shaghaghi
Title: Too Interconnected To Fail: Financial Contagion and Systemic Risk in Network Model
of CDS and Other Credit Enhancement Obligations of US Banks(pdf version)
Abstract
Credit default swaps (CDS) which constitute up to 98% of credit
derivatives have had a unique, endemic and pernicious role to play in
the current financial crisis. However, there are few in depth empirical
studies of the financial network interconnections among banks and
between banks and nonbanks involved as CDS protection buyers and
protection sellers. The ongoing problems related to technical insolvency
of US commercial banks is not just confined to the so called
legacy/toxic RMBS assets on balance sheets but also because of their
credit risk exposures from SPVs (Special Purpose Vehicles) and the CDS
markets. The dominance of a few big players in the chains of insurance
and reinsurance for CDS credit risk mitigation for banks' assets has led
to the idea of ''too interconnected to fail'' resulting, as in the case of
AIG, of having to maintain the fiction of non-failure in order to avert
a credit event that can bring down the CDS pyramid and the financial
system.
This paper also includes a brief discussion of the complex system
Agent-based Computational Economics (ACE) approach to financial network
modeling for systemic risk assessment. Quantitative analysis is confined
to the empirical reconstruction of the US CDS network based on the FDIC
Q4 2008 data in order to conduct a series of stress tests that
investigate the consequences of the fact that top 5 US banks account for
92% of the US bank activity in the $34 tn global gross notional value of
CDS for Q4 2008 (see, BIS and DTCC). The May-Wigner stability condition
for networks is considered for the hub like dominance of a few financial
entities in the US CDS structures to understand the lack of robustness.
We provide a Systemic Risk Ratio and an implementation of concentration
risk in CDS settlement for major US banks in terms of the loss of
aggregate core capital. We also compare our stress test results with
those provided by SCAP (Supervisory Capital Assessment Program).
Finally, in the context of the Basel II credit risk transfer and
synthetic securitization framework, there is little evidence that the
CDS market predicated on a system of offsets to minimize final
settlement can provide the credit risk mitigation sought by banks for
reference assets in the case of a significant credit event. The large
negative externalities that arise from a lack of robustness of the CDS
financial network from the demise of a big CDS seller undermines the
justification in Basel II that banks be permitted to reduce capital on
assets that have CDS guarantees. We recommend that the Basel II
provision for capital reduction on bank assets that have CDS cover
should be discontinued.
February 2010
Author: Marcus J. Chambers
Title: Jackknife Estimation of Stationary Autoregressive Models (pdf version)
Abstract
This paper reports the results of an extensive investigation into the
use of the jackknife as a method of estimation in stationary
autoregressive models. In addition to providing some general theoretical
results concerning jackknife methods it is shown that a method based on
the use of non-overlapping sub-intervals is found to work particularly
well and is capable of reducing bias and root mean squared error (RMSE)
compared to ordinary least squares (OLS), subject to a suitable choice
of the number of sub-samples, rules-of-thumb for which are provided. The
jackknife estimators also outperform OLS when the distribution of the
disturbances departs from normality and when it is subject to
autoregressive conditional heteroskedasticity. Furthermore the jackknife
estimators are much closer to being median-unbiased than their OLS
counterparts.
February 2010
Author: Marcus J. Chambers and Maria Kyriacou
Title: Jackknife Bias Reduction in the Presence of a Unit Root (pdf version)
Abstract
This paper analyses the properties of jackknife estimators of the first-order autoregressive
coefficient when the time series of interest contains a unit root. It is shown that, when the
sub-samples do not overlap, the sub-sample estimators have different limiting distributions
from the full-sample estimator and, hence, the jackknife estimator in its usual form does not
eliminate fully the first-order bias as intended. The joint moment generating function of the
numerator and denominator of these limiting distributions is derived and used to calculate
the expectations that determine the optimal jackknife weights. Two methods of avoiding
this procedure are proposed and investigated, one based on inclusion of an intercept in the
regressions, the other based on adjusting the observations in the sub-samples. Extensions to
more general augmented Dickey-Fuller (ADF) regressions are also considered. In addition to
the theoretical results extensive simulations reveal the impressive bias reductions that can
be obtained with these computationally simple jackknife estimators and they also highlight
the importance of correct lag-length selection in ADF regressions.
February 2010
Author: Gordon C.R. Kemp and J.M.C. Santos Silva
Title: Regression towards the mode (pdf
version)
Abstract
We propose a semi-parametric mode regression estimator for the case in
which the variate of interest is continuous and observable over its
entire un- bounded support. The estimator is semi-parametric in that the
conditional mode is specified as a parametric
function, but only mild assumptions are made about the nature of the
conditional density of interest. We show that the proposed estimator is
consistent and has a tractable asymptotic distribution. Simulation
results and an empirical illustration are provided to highlight the
practicality and usefulness of the estimator.
April 2010
Author: Stefan Niemann, Paul Pichler and Gerhard Sorger
Title: Central bank independence and the monetary instrument problem (pdf version)
Abstract
We study the monetary instrument problem in a model of optimal
discretionary fiscal and monetary policy. The
policy problem is cast as a dynamic game between the central bank, the
fiscal authority, and the private sector. We
show that, as long as there is a conflict of
interest between the two policy-makers, the central bank's monetary
instrument choice critically affects the
Markov-perfect Nash equilibrium of this game. Focussing on a scenario
where the fiscal authority is impatient
relative to the monetary authority, we show that the equilibrium
allocation is typically characterized by a public spending bias if the
central bank uses the nominal money supply as its instrument. If it uses
instead the nominal interest rate, the central bank can prevent
distortions due to fiscal impatience and
implement the same equilibrium allocation that would obtain under
cooperation of two benevolent policy authorities. Despite this property,
the welfare-maximizing choice of instrument depends on the economic
environment under consideration. In particular, the money growth
instrument is to be preferred whenever fiscal
impatience has positive welfare effects, which
is easily possible under lack of commitment.
April 2010
Author: David Reinstein and Gerhard Riener
Title: Reputation and Influence in Charitable Giving: An Experiment (pdf version)
Abstract
Previous experimental and observational work suggests that
people act more generously when they are observed and observe others in
social settings. But the explanation for this is unclear. An individual
may want to send a signal of her generosity in order to improve her own
reputation. Alternately (or additionally) she may value the public good
or charity itself and, believing that contribution levels are strategic
complements, give more in order to influence others to give more. We
perform the first series of laboratory experiments that can separately
estimate the impact of these two social effects, and test whether
realized influence is consistent with the desire to influence, and
whether either of these are consistent with anticipated influence. We
find that “leaders†are influential only when their identities are
revealed along with their donations, and female leaders are more
influential then males. Identified leader's predictions suggest that are
aware of their influence. They respond to this by giving more than
either the control group or the unidentified leaders. We find mixed
evidence for 'reputation-seeking'.
April 2010
Author: David Hugh-Jones and David Reinstein
Title: The Benefit of Anonymity in Public Goods Games (pdf version)
Abstract
Previous work has found that in social dilemmas, the selfish always
free-ride, while others will cooperate if they expect their peers to do
so as well. Outcomes may thus depend on conditional cooperators’ beliefs
about the number of selfish types. An early round of the game may be
played anonymously, so that contributions cannot be traced back to
particular individuals. By protecting low contributors from potential
sanctions, this encourages selfish types to reveal their true
preferences in their play. We offer a simple model illustrating when
revelation of types can increase contributions, and when only an
anonymous game can separate types. As a proof of concept, we run a
laboratory experiment involving a two-stage public goods game with an
exclusion decision between stages. An anonymous first stage led to
significantly higher stage-two cooperation than a revealed first stage,
a slower decline across the 15 repetitions, unusually high final-stage
contributions relative to previous work, and greater profits.
Statistical analysis shows that the anonymous first stage reduced
uncertainty about types, and this preserved cooperation and led to
greater efficiency. Our results suggest that customs such as anonymous
church donations may play an important role in building social trust.
May 2010
Author: George Symeonidis
Title: Competition and the relative productivity of large and small firms (pdf version)
Abstract
Using a comprehensive dataset on the incidence of price-fixing across
British manufacturing industries in the 1950s, I compare collusive and
competitive industries and find evidence of a negative relationship
between collusion and the labour productivity of larger firms relative
to smaller firms. In particular, collusion is associated with a
reduction or even a reversal of the productivity gap between larger and
smaller firms. This result is robust to controlling for the potential
endogeneity of collusion.
September 2010
Author: David Hugh-Jones and David Reinstein
Title: Losing Face (pdf version)
Abstract
When person A takes an action that can be interpreted as “making an offer†to
person B and B “rejects the offer,†then A may “lose face.â€
This loss of face (LoF) and consequent disutility will
occur only if these actions are common knowledge to A and B.
While under some circumstances this LoF can be rationalized
by the consequences for future reputation, we claim it also
enters directly into the utility function. LoF concerns can
lead to fewer offers and inefficiency in markets that
involve matching, discrete transactions, and
offers/proposals in both directions. This pertains to the
marriage market, certain types of labor markets, admissions
to colleges and universities, and certain types of joint
ventures and collaborations. We offer a simple model of
this, and show that under some circumstances welfare can be
improved by a mechanism that only reveals offers when both
parties say "yes".
October 2010
Author: Christian Ghiglino and Nicole Kuschy
Title: Are Patent Citations driven by Quality? (pdf version)
Abstract
The present paper builds a simple model of patent citations not based on the
rich-get-richer aspect of preferential attachment. In our
model the dynamics of citations are driven by known
heterogeneities in the applicability of existing patents and
aging. The model matches closely the hazard rates of
citations for the vast majority of patents in a random
sample of patents granted by the USPTO between 1975 and
1999. Furthermore, we show that the long run distribution of
patent citations is well fitted when the distribution of
applicability across patents follows a Gamma-distribution.
We also discuss the possibility that popularity of patents
might influence citation decisions if innovators are not
perfectly informed about patents' applicability. We find
that popularity matters but the size of the effect is very
small. Finally, the possibility to distinguish between
citations to patents within the same class and to different
classes allows us to show that the magnitude of the
influence of popularity is increasing in technological
distance.
November 2010
Author: Holger Breinlich, Stefan Niemann, Edna Solomon
Title: A Portrait of Firm Expansion and Contraction Channels (pdf version)
Abstract
We present a novel set of stylised facts on forms of firm expansion and contraction,
using unique business register data for the United Kingdom
between 1997 and 2005. We distinguish between adjustments of
employment and turnover at existing establishments,
expansions and contractions taking place via greenfield
investments and disinvestments, and via acquisitions and
sell-offs. We document the relative importance of these
three channels and how firms choose between them. We
interpret our findings in the light of existing theories of
firm dynamics, and propose directions for future theoretical
developments.
May 2010
Author: Andre Barreira da Silva Rocha
Title: An Evolutionary Game Approach to the Issues of Migration, Nationalism, Assimilation and Enclaves (pdf version)
Abstract
I use evolutionary game theory to address the relation between nationalism and
immigration, studying how two different populations in a
country, one composed of national citizens and the other of
immigrants, evolve over time. Both populations depart from
some polymorphic initial state. A national citizen may
behave either nationalistically or may welcome immigrants.
Immigrants may have an interest in learning the host country
language or not. I also account for the presence of
enclaves, which make the immigrants'own population effects
important. The results show that six types of evolutionary
equilibria are possible, although they never co-exist in the
state space. A low cost of learning the host country
language leads to complete assimilation of immigrants over
time. Enclaves make assimilation a less competitive
strategy. A high cost of learning may lead to peaceful
multiculturalism or to political instability depending on
the ability of policy makers to prevent nationalistic
attitudes.
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