Volume 15, Issue 4 -

Street-level illegal drug markets generate much of the violence and intimidation that local communities face nowadays. These markets are mainly driven by territorial gangs who finance their activities through the sale of drugs. Understanding how the existence of both turf and drug market competition may have unintended consequences of law enforcement policies on violence is the main contribution of the paper. We propose a two-stage game-theoretical model where two profit maximizing gangs compete in prices and invest in guns. We find that policies such as traditional or community policing can have different and unexpected effects on the level of violence.

The argument that stringent environmental regulations are generally thought to harm export flows is crucial when determining policy recommendations related to environmental preservation and international competitiveness. By using bilateral trade data, we examine the relationships between trade flows and various environmental stringency indices. Previous studies have used energy intensity, abatement cost intensity, and survey indices for regulations as proxies for the strictness of environmental policy. However, they have overlooked the indirect effect of environmental regulations on trade flows. If the strong version of the Porter hypothesis is confirmed, we need to consider the effect of environmental regulation on gross domestic product (GDP), because GDP induced by environmental regulation affects trade flows. The present study clarifies the effects of regulation on trade flows by distinguishing between the indirect and direct effects. Our results indicate an observed non-negligible indirect effect of regulation, implying that the overall effect of appropriate regulation benefits trade flows.

This paper sets up an imperfectly competitive macroeconomic model that features the strategic interaction between the patent-holding firm and licensees, and uses it to analyze the relevant macro-variables under various licensing arrangements. Some main findings emerge from the analysis. First, the equilibrium aggregate output and aggregate consumption under fixed-fee and royalty licensing regimes are always greater than those under the no licensing regime. Moreover, the equilibrium aggregate output and consumption under the fixed-fee licensing regime are always greater than those under the royalty licensing regime. Second, with the higher (lower) technology level the patent holder prefers the fixed-fee (royalty) contract. Third, welfare could be improved through technology transfer, and the level of welfare under the fixed-fee licensing regime is higher than that under the royalty licensing regime. Lastly, this paper discusses some extensions of the baseline model.

Numerous experimental studies of informational nudges both in the lab and the field have demonstrated not just that informational nudges are effective policy tools for influencing behavior, but also that nudges have heterogeneous impacts that differ depending on the characteristics of the person involved and the situation. We adapt Andreoni’s theory of warm-glow impure altruism to account for how altruism motives respond differently depending on the disposition of the person and the situation. The model explains both positive spillovers (moral cleansing) and negative spillovers (moral licensing) for behavioral interventions, showing that targeting of informational campaigns depends on the complementarity between people’s traits and the intervention’s content. More importantly, the design of economic incentives (like Pigouvian taxes) to shift economic behavior should depend on both the distribution of social preferences in the population and the use of behavioral interventions.

This paper analyzes measures that limit firms’ profit shifting activities in a model that incorporates heterogeneous firm productivity and monopolistic competition. Such measures, e.g. thin capitalization rules, have become increasingly widespread as governments have reacted to growing profit shifting activities of multinational companies. However, besides limiting profit shifting, such rules entail costs. As the regulations can only focus on the means to shift profits, not on profit shifting itself, they impose costs on all firms, no matter whether these firms shift profits abroad or not. In the model, these costs force some firms to exit the market. Thus, as the resulting lower competition makes the remaining firms more profitable, regulations to limit profit shifting may even increase the aggregate amount of profits shifted abroad. From a welfare point of view, it can be optimal not to limit profit shifting by such rules.

Against the backdrop of a growing national and international accountability movement in education outcomes, this study sets up a simple model of yardstick competition with incumbent-disciplining effects through voters comparing performance measures of public education both across nations and federal states. It implies a potential strategic dilemma where a single top-performance state can block reform measures that could benefit low-performance states more than would do for itself. The linchpin predictions of the model are tested by analyzing announcement effects of student achievement tests on vote and popularity (VP) functions of German national and state government incumbents.

This paper explores the optimal tax structure in the presence of status effect. When the consumption of certain goods affects one’s social status, this creates an externality, which results in two opposite effects in a society. Seeking higher status through “positional goods” gives individuals much incentive to supply labor but still allocates income for less “nonpositional goods” as well. In this case, differentiated taxes on positional goods work as corrective instruments to internalize the social cost stemming from status seeking. Furthermore, the differentiated taxes generate revenue that can be used to alleviate preexisting income tax distortion. We develop a game-theoretic model in which each individual with different labor productivity unknown to the others engages in a status-seeking game, where government has a revenue requirement. Then we show that under a condition in which utility is separable between positional goods and leisure, a revenue-neutral shift in the tax mix away from nonlinear income taxes toward positional-good taxes enhances welfare. Hence, the differentiated taxes on positional goods are necessary together with the nonlinear income taxes for an optimal tax structure. Moreover, the differentiated taxes on positional goods could reduce the progressivity of the nonlinear income taxes, which is the case that can easily apply to practical use.

Economic activity is implicated in the long-range spread of invasive species, resulting in ecological and economic damages. Current policies that are used to prevent such spread include specific and ad valorem taxes. However, these taxes are often created under ecological and economic uncertainty. To address this concern, this paper develops a general equilibrium model capable of evaluating the efficiency of specific and ad valorem taxes under uncertainty. Results show that specific taxes are more efficient at achieving a social optimum under imperfect information and that a combination of taxes is needed for multiple forms of long-range transmission.

We assess the effect of two antithetic non-monetary incentive schemes based on grading rules on students’ effort, using experimental data. We randomly assigned students to a tournament scheme that fosters competition between paired up students, a cooperative scheme that promotes information sharing and collaboration between students and a baseline treatment in which students can neither compete nor cooperate. In line with theoretical predictions, we find that competition induces higher effort with respect to cooperation, whereas cooperation does not increase effort with respect to the baseline treatment. Nonetheless, we find a strong gender effect since this result holds only for men while women do not react to this type of non-monetary incentives.

This paper uses data from the 1968 through 1997 survey waves of the Panel Study of Income Dynamics to analyze how the long-term costs of job loss vary by a worker’s post-displacement migration status. Results from the analysis show that those individuals who move within the first 2 years after a job loss experience lower earnings losses, lower reductions in hours worked, and smaller increases in time unemployed when compared to a group of displaced workers who are not geographically mobile during the early years following this life event. Workers who move within the first 2 years after displacement face a lower probability of homeownership when compared to their non-mobile counterparts. However, this lower probability is short-lived.

Improving a company’s bargaining position is often cited as a chief motivation to vertically integrate with suppliers. This paper expands on that view in building a new theory of vertical integration. In my model firms integrate to gain bargaining power against other suppliers in the production process. The cost of integration is a loss of flexibility in choosing the most suitable suppliers for a particular final product. I show that the firms who make the most specific investments in the production process have the greatest incentive to integrate. The theory provides novel insights into the understanding of numerous stylized facts such as the effect of financial development on the vertical structure of firms, the observed pattern from FDI to outsourcing in international trade, and the effect of technological obsolescence on organizations.

This paper combines ideas from models of electoral competition with forward-looking voters and models of electoral competition with backward-looking voters. Two political parties can commit in advance to policy platforms, but not to a maximum level of rent extraction. In the case without uncertainty, the electorate can limit rents to the same extent as in a purely backward-looking model of accountability, and the policy preferred by the voter who represents the median preferences of the electorate is implemented. In the case with uncertainty about the bliss point of the representative voter, the electorate has to accept higher rent seeking by the incumbent politician, but nonetheless retains some control over rent extraction. The policy positions of the two competing parties do not converge as they do in the case without uncertainty. I show in an example that this nonconvergence can increase the welfare of the representative voter.

This study analyzes changes in the transmission of education across generations in Australia for the birth cohorts 1942 through 1991 using a range of measures: the estimated effect of parental education on that of the child, schooling correlations between parents and children and a series of mobility indices. Our results suggest that while the overall level of education and intergenerational education mobility has increased over time, there are considerable regional and gender differences. Daughters’ education attainment is still relatively highly correlated with their parents compared to sons and the extent of absolute upward mobility was modest while immobility and downward mobility have remained relatively steady during the last five decades. During this period, relative education opportunities have increased over time at lower education levels, while the trend has been comparatively stable at higher levels.

This paper analyzes the effect of tied-in sales by an essential goods monopolist in a two-sided market. In a two-sided market, the essential goods monopolist may tie a good essential for users, such as an operating system, with a platform, such as a media player, in the user side of the market, to extract profits not from the user side, but from the developer side of the market. From this simple idea, we build a simple two-sided market model and show how the essential goods monopolist may tie a platform with the essential goods on the user side of the market to foreclose a rival firm from the developer side of the market. We also analyze various welfare impacts of tying and discuss the antitrust implications.

We study spousal peer effects on smoking and their implication for the health of children. Smoking decisions are modeled as equilibrium strategies of an incomplete information game within the couple. Using French data, we identify two peer effects: a smoking enhancing effect of smoking partners and a smoking deterring effect of non-smoking partners. An implication of these findings is that the smoking behavior may differ qualitatively in couples where both partners smoke and where only one partner smokes. This interpretation is supported by our finding that, controlling for total tobacco consumption of parents, the respiratory health of children is negatively affected only if both parents smoke.

Previous research has found that weak institutions can hamper investment and alter patterns of trade. However, little is known about the impact of institutional quality on offshoring. This lack of knowledge is surprising, given that offshoring has become an important part of many firms’ internationalization strategies. This study uses detailed firm-level data for the 1997–2005 period to examine the relationship between institutional quality in 113 source countries and offshoring by Swedish firms. The results suggest that weak institutions are negatively related to offshoring in general and to the offshoring of R&D- and relationship specificity-intensive inputs in particular. An analysis of learning effects suggests that the impact of weak institutions on the offshoring of relationship specificity-intensive inputs vanishes when firms return to countries from which they have previous market experience. Our results are robust to the use of various measures of institutional quality.

Previous studies have linked Catholic schooling to higher academic achievement. We add to the literature on Catholic schooling by examining its effect on long-term wages in Australia, independent of effects on academic achievement. Using panel data from the Household Income and Labour Dynamics Australia (HILDA) survey and fixed effects estimation, we find that during the prime-age of a career, wages for Catholic school graduates progress with labor market experience at a greater rate, on average, than wages for public school graduates. Importantly, we find no evidence to suggest that these benefits are peculiar to Catholic schooling, with similar benefits estimated for graduates of independent private schools. These findings suggest that private schooling may be important in not only fostering higher academic achievement but also in better preparing students for a working life.

Factor price differences create economic incentives for migration to industrialized countries and for capital flows to developing countries. However, immigration restrictions and capital expropriation risks impede factor flows. Using a political-economy approach that takes into account different generations’ conflicting attitudes toward immigration and expropriation, we explore how these restrictions interact. Then, we run two separate country fixed regressions to explore the interdependence of policies empirically. The results from our theoretical model are borne out by the data: We find a positive relationship between emigration and foreign investors’ perceived security of property rights in developing countries and a negative relationship between the US foreign direct investment (FDI) outflows to developing countries and the share of US green cards granted to natives from the respective countries. Based on our analyses, we conclude that the key to lowering mobility barriers is not simply a quid pro quo.

In this paper we verify whether enterprises that have started to produce abroad have reduced employment at home after the first foreign investment (extensive margin). Next, we assess whether changes in foreign employment induce changes in domestic employment for a sample of multinationals that have already established activities abroad (intensive margin). Using matching method and diff-in-diffs estimates, we find that two years after the first foreign investment domestic employment of investing firms is slightly higher than that of domestic enterprises, but mainly among those that have undertaken horizontal foreign direct investment. In multinationals that have already activated foreign operations we find a positive relationship between foreign and domestic employment. Our findings suggest that the skill composition of domestic workforce does not change neither at the extensive nor at the intensive margin of FDI.

Drawing data from a longitudinal survey of college students from 514 institutions of higher education, we add to the discussion on the education–religion puzzle by providing information on specifically which college students experience the most religiosity change, investigating multiple change measures (conviction strength, service attendance, and religious identity), and estimating which programs of study and collegiate experiences cause the most change. We also provide an analysis of students who seek or initially sought an occupation within the clergy. Among our findings, 56% of students report changes in the strength of their religious convictions during college, while 45% report changes in religious service attendance frequency. Of those who matriculate as religious, about 9% lose their religion by graduation. Of those who matriculate with no religious identity, an impressive 33% graduate with one. Choice of institution, major of study, academic success, and many other collegiate experiences are shown to be determinants of these changes.