Volume 6, Issue 1

In this paper the authors develop an innovative 21 sector computable general equilibrium model of Armenia to assess the impact on Armenia of a Deep and Comprehensive Free Trade Agreement (DCFTA) with the EU, as well as further regional or multilateral trade policy commitments. They find that a DCFTA with the EU will likely result in substantial gains to Armenia, but they show that the gains derive from the deep aspects of the agreement. In order of importance, the sources of the gains are: (i) trade facilitation and reduction in border costs; (ii) services liberalization; and (iii) standards harmonization. A shallow agreement with the EU that focuses only on preferential tariff liberalization in goods will likely lead to small losses to Armenia primarily due to a loss of productivity from lost varieties of technologies from the Rest of the World region in manufactured products. Additional gains can be expected in the long run from an improvement in the investment climate. The authors estimate only small gains from a services agreement with the CIS countries, but significant gains from expanding services liberalization multilaterally.

Trade policy barriers are only one element of overall trade costs. Among these, and due to the decrease in the influence of tariff barriers on trade over time, institutional barriers might increase in relative importance and become a key obstacle to the movements of goods across countries. This paper quantifies and compares the impact that a number of trade facilitation and trade policy barriers have on bilateral trade flows. A theoretically justified gravity model of trade is estimated by using the methodology proposed in Baier and Bergstrand ( Bonus vetus OLS: A simple method for approximating international trade-cost effects using the gravity equation, 2009) for a cross-section of countries in the year 2000. Results indicate that institutional trade barriers have a greater impact on trade flows than tariff barriers. According to these findings, trade policy negotiation efforts should focus on facilitating trade processes and should be at the forefront of multilateral negotiations.

The objective of the paper is to explore and give an overview of two central policy alternatives to improve the integration between the European Union and developing countries by removing barriers to trade: trade preferences and trade facilitation. The author reviews the relevant literatures and discusses the issues which constitute problems or opportunities for practitioners and researchers in both areas. She concludes that while at least some trade preferences actually have been less of a failure than their reputation suggests, trade facilitation is a far more promising policy option for the future.

Previous work has shown that a significant number of preference eligible goods are imported into the EU from developing countries at relatively small values and that the rate of preference utilisation of these imports are low and in many cases zero. This fact is unobserved in the aggregate figures because large flows have high utilisation rates, thereby pushing up the average preference utilisation rate. This paper examines this phenomenon further by using monthly data on EU imports from African LDCs at the lowest level of (publicly) available aggregation thereby coming close to transaction level data. It identifies the average value of preference eligible imports, utilising and not utilising preferences, by country and product category and test their empirical relevance for explaining the African LDCs’ preference utilisation rates.

The paper uses a gravity trade model to examine the impact of corruption on bilateral trade using a data set comprising OECD economies, new EU members and developing nations. Although the level of corruption of both the importing and exporting nations does hinder cross-border transactions, differences between their ethical standards do have a negative impact on trade flows. The model is used to assess the impact on exports and imports of Romania and Bulgaria joining the European Union.

We address the following question: how does a higher education funding system influence the trade-off that universities make between research and teaching? We do so by constructing a model that allows universities to choose actively the quality of their teaching and research when faced with different funding systems characterised by the pivotal role of the university funding budget constraint. In particular, we derive the feasible sets that face universities under such systems and show how, as the parameters of the system (the research block grant element, the research quality premium and the incentives-triggering quality threshold) are varied, the nature of the university system itself changes. Different ‘cultures’ of the university system emerge such as the ‘research elite’ and the ‘binary divide’.

Historically, the banking multiplier has been in a range of 4 to 100, with 25% to 1% reserve ratios at most layers of the banking system encompassing the majority of its range in recent centuries. Here it is shown that multipliers over 1 000 can occur from a new mechanism in banking. This new multiplier uses a default insurance note to insure an outstanding loan in order to return the value of the insured amount into capital. The economic impact of this invention is calculably greater than the original invention of reserve banking. The consequence of this lending invention is to render the existing money multiplier equations of reserve banking obsolete where it occurs. The equations describing this new multiplier do not converge. Each set of parameters for reserve percentage, nesting depth, etc. creates a unique logarithmic curve rather than approaching a limit. Thus it is necessary to show the behavior of this new equation by numerical methods. Understanding this new multiplier and associated issues is necessary for economic analyses of the Global Financial Crisis.

The paper builds an argument that international trade can be an explanation behind polarization of employment in the labor market observed in developed countries such as U.K. and U.S. It considers a small open economy, having production sectors which use three types of labor: high-skill, middle-skill and low-skill. The economy faces an increase in the relative price of the high-skill intensive sector. Using decision rules for choosing high-skill, middleskill and low-skill education, it is shown that such a terms-of- trade shock can lead to polarization: shrinkage of middle-skill jobs, combined with higher shares of high-skill as well as low-skill workers in the total workforce. The effects of off-shoring on wages and job composition are also studied. Off-shoring of low-skill and high-skill tasks, not middle-skill tasks, is shown to contribute towards polarization in job composition.

The existence of an exact Walrasian equilibrium in nonconvex economies is still a largely unexplored issue. This paper shows that such an equilibrium exists in nonconvex economies by following the ‘nearby economy’ approach introduced by Postlewaite and Schmeidler ( Approximate Walrasian Equilibrium and Nearby Economies , 1981) for convex economies. More precisely, the paper shows that any equilibrium price of the convexified version of a nonconvex economy is an equilibrium price also for a set of ‘perturbed’ economies with the same number of agents. It shows that in this set there are economies that differ from the original economy only as regards preferences or initial endowments.

In this paper the authors present a New Keynesian quantitative model with endogenous investment and stock-market sector that may shed further light on two unsettled issues: whether central banks should include some financial indicator in their policy rules, and which indicator may be expected to generate better stabilization performance. For comparative purposes the authors replicate the policy framework and assessment strategy of the well-known ‘no-inclusion’ model of Bernanke–Gertler ( Monetary Policy and Asset Price Volatility, 1999, and Should Central Banks Respond to Movements in Asset Prices? 2001). The performance of five policy rules is assessed. Two are ‘traditional’ Taylor rules (i.e. with no financial indicators) that differ in the relative weight on the output and inflation gaps. Three are ‘financial’ Taylor rules, that is, augmented with one financial indicator: the deviation from trend of stock prices, of Tobin’s q (the rate of change stock prices relative to capital stock) and of investment. The authors show results that are at variance with Bernanke–Gertler. First, because among the traditional rules the best performing one is output aggressive instead of inflation aggressive. Second, because the financial rule with Tobin’s q outperforms the traditional inflation-aggressive one under all dimensions and cases. However, the authors cannot draw a univocal conclusion as regards the comparison between the financial rule with Tobin’s q and the traditional but output aggressive rule.

Vietnam has gone through massive economic restructuring from a socialist command economy to market-oriented economy. This provides an excellent example of a country that has experienced changes in competition regime. Economic reforms in late 1980s and 1990s and the introduction of pro-competitive policies in the first half of 2000s have radically altered the economic and, in particular, competitive environment. Understanding the evolution of competition across industries is an important step towards understanding the impact of economic reform on the economic performance of Vietnam as a result of the economic transition. In this paper, the authors investigate the evolution of competition in Vietnam during the economic transition using the price-cost margin (or Lerner Index) and the profit elasticity measure recently developed by Boone ( Competition , 2000). This paper provides the first empirical study of intensity and evolution of competition across majority of industries in Vietnam in the last decade using firm-level data from the Vietnam Enterprise Census (VEC) conducted annually since 2000 by the Vietnam General Statistical Office (GSO).

The authors address the issue of estimation and inference in dependent nonstationary panels of small cross-section dimensions. The main conclusion is that the best results are obtained applying bootstrap inference to single-equation estimators, such as fully modified ordinary least squares and dynamic ordinary least squares. Seemingly unrelated regression estimators perform badly, or are even unfeasible, when the time dimension is not very large compared to the cross-section dimension.

This article explores the influence of competitive conditions on the evolutionary fitness of different risk preferences. As a practical example, the professional competition between fund managers is considered. To explore how different settings of competition parameters, the exclusion rate and the exclusion interval, affect individual investment behavior, an evolutionary model is developed. Using a simple genetic algorithm, two attributes of virtual fund managers evolve: the share of capital invested in a risky asset and the amount of excessive risk accepted, where a positive value of the latter parameter points to an inefficient investment portfolio. The simulation experiments illustrate that the influence of competitive conditions on investment behavior and attitudes towards risk is significant. What is alarming is that intense competitive pressure generates risk-seeking behavior and undermines the predominance of the most skilled. In these conditions, evolution does not necessarily select managers with efficient portfolios. These results underline the institutional need for the creation of a competitive framework in which risk-taking does not provide an evolutionary advantage per se, and indicate measures on how to achieve this.

Two conversion schemes may be employed for assessing income inequality from household equivalent incomes: to weight household units by size or by needs. Using data from the Luxembourg Income Study, we show the sensitivity of country inequality rankings to conversion schemes and explain the finding by means of inequality decomposition. A bootstrap approach is implemented to test for statistical significance of our results.

The paper explores utility measures by combining experiments with mathematical derivations in the psychophysics paradigm. The analysis on the ultimatum game experiment reveals evidences for the utility threshold and thus supports Bernoulli’s utility logarithmic law. Both experimental results and theoretical derivations show that the logarithmic law is suitable for the description of commodity choice and the power law for risk choice. The further mathematical demonstration indicates the logarithmic law for utility scaling to be a Klein– Rubin utility function, a utility function well defined in microeconomics. Based on this, the experimental utility measure is connected with the econometric model Linear Expenditure System, and presents an experimental procedure for testing the utility maximization hypothesis, which will resolve a long unsettled perplexity in a fundamental stone of economics since Gossen proposed it in 1854.

This paper is concerned with the axiomatic foundation of the revealed preference theory. Many well-known results in the literature rest upon the ability to choose over budget sets that contain only 2 or 3 elements. This paper shows that for any given choice function, many of the famous consistency requirements, such as those proposed by Arrow, Sen, Samuelson etc., are equivalent if every bundle of goods is chosen from some budget sets, and the domain of the choice function satisfies some set of theoretical properties.

Some countries fail to ensure that their citizens and businesses make an appropriate contribution to the financing of public tasks. But not all countries with a low tax ratio automatically fall into this category. This paper presents an approach to bridge the gap between probabilistic statements based on statistical analyses, and country-specific information. Rather than defining general across-the-board criteria, the approach accounts for different development levels and other influencing factors, such as regional patterns, non-tax revenue and governance. Findings on individual countries or groups of countries should put governments, donors and international organisations in a better position to decide on tax reform programmes and aid modalities.

This paper studies the remittances’ effect on economic growth. Using panel data techniques, the authors estimate several specifications to provide support of such relationship for MENA countries over the period 1980–2009. The findings provide new robust evidence on how remittances are used in MENA countries and detect the main channels which may interfere in this process. Estimation outcomes show that the most important part of remittances is consumed and that remittances stimulate growth only when they are invested. Moreover, empirical results suggest that remittances can enhance growth by encouraging human capital accumulation. Human capital is therefore an effective channel through which remittances stimulate growth in MENA countries.

This paper asks why modern finance theory and the efficient market hypothesis have failed to explain long-term carry trades; persistent asset bubbles or zero lower bounds; and financial crises. It extends Godley and Lavoie ( Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth, 2007) and the Theory of the Monetary Circuit to give a mathematical representation of Minsky’s Financial Instability Hypothesis. In the extended circuit, the central bank rate is not neutral and the path is nonergodic. The extended circuit has survival constraints that include a living wage, a zero interest rate and an upper interest rate. Inflation is everywhere. The possibility of stable carry trades emerges. In high interest rate, hedge economies, powerful banks invest surplus loan interest. With speculation, banks lobby to enter investment markets and the system is precariously liquid/illiquid. In a Ponzi economy, where loans never get repaid, solvency is a balance between increasing reserves, reducing interest rates and rebuilding banks’ balance sheets during systemic crises. Simulating bank bailouts, household bailouts and a Keynesian boost suggests that bank bailouts are the least effective intervention, exerting downward pressure on wages and household spending: austerity.

In this paper we assess the importance of sample type in the estimation of risk preferences. We elicit and compare risk preferences from student subjects and subjects drawn from the general population, using the multiple price list method devised by Holt and Laury in their paper Risk Aversion and Incentive Effects (2002). We find evidence suggesting that under rank dependent utility, students exhibit approximately risk neutral preferences while subjects drawn from the general population exhibit risk loving preferences. However, when we assume an incorrect characterization of risk preferences, in particular we adopt the framework of expected utility theory, our estimation results lead to erroneous inferences. In this case, students are on average risk averse, while subjects drawn from the general population exhibit risk neutrality. Our results have implications for economic policy making under uncertainty.

This paper examines the presence of asymmetric behavior in exchange rate passthrough (ERPT) to CPI inflation in 12 euro area (EA) countries. Using a class of nonlinear smooth transition models, the author tests for asymmetry with respect to the direction and the magnitude of exchange rate changes. On the one hand, the author finds only 5 out of 12 EA countries showing asymmetric pass-through related to exchange rate appreciations and depreciations. Results are somewhat mixed with no clear evidence about the direction of asymmetry. On the other hand, the author reports strong evidence that ERPT responds asymmetrically to the size of exchange rate changes as a result of presence of menu costs. The degree of ERPT is found to be higher for large exchange rate changes than for small ones in 9 out of 12 EA countries.

A popular interpretation of the Rational Expectations/Efficient Markets hypothesis states that, if it holds, market valuations must follow a random walk; hence, the hypothesis is frequently criticized on the basis of empirical evidence against such a prediction. Yet this reasoning incurs what we could call the ‘fallacy of probability diffusion symmetry’: although market efficiency does indeed imply that the mean (i.e. ‘expected’) path must rule out any cyclical or otherwise arbitrage-enabling pattern, if the probability diffusion process is asymmetric the observed path will most closely resemble not the mean but the median, which is not subject to this condition. In this context, this paper develops an efficient markets model where the median path of Tobin’s q ratio displays regular, periodic cycles of bubbles and crashes reflecting an agency problem between investors and producers. The model is tested against U.S. market data, and its results suggest that such a regular cycle does indeed exist and is statistically significant. The aggregate production model in Gracia ( Uncertainty and Capacity Constraints: Reconsidering the Aggregate Production Function , 2011) is then put forward to show how financial fluctuations can drive the business cycle by periodically impacting aggregate productivity and, as a consequence, GDP growth.

Aphorisms that “rising tides raise all boats” or that material advances of the rich eventually “trickle down” to the poor are really maxims regarding the nature of stochastic processes that underlay the income/wellbeing paths of groups of individuals. This paper looks at the implications for the empirical analysis of wellbeing of conventional assumptions regarding such processes which are employed by both micro and macro economists in modeling economic behavior. The implications of attributing different processes to different groups in society following the club convergence literature are also discussed. Various forms of poverty, inequality, polarization and income mobility structures are considered and much of the conventional wisdom afforded us by such aphorisms is questioned. To exemplify these ideas the results are applied to the distribution of GDP per capita in the continent of Africa.

This paper provides new evidence on the long-run relationship between exports and imports of the Iranian economy by employing bounds testing approach to level relationships. In Iran, there have been many unusual policy changes and/or external shocks to the economy; this has resulted in the occurrence of a multitude of structural breaks in macroeconomic variables. By taking these breaks into account, results of the present study reveal that there is a long-run equilibrium relationship between imports and exports over the sample period, 1960–2007. This result confirms the finding of Arize ( Imports and exports in 50 countries: Tests of cointegration and structural breaks , 2002) by employing bounds tests to level relationships and suggests that current account deficits in Iran are sustainable.

A source of anxiety of policy makers and the public in general is the detrimental impact of trade and immigration on unemployment. The transitory restrictions for worker migration after the EU enlargements of 2004 and 2007 exemplify the supposed negative effect of immigration on labor markets. This paper aims to identify the effects of immigration alongside trade on unemployment controlling for the high correlation between immigration and goods flows in order to prevent an omitted variable bias. The authors use data from 24 OECD countries over the period from 1997 to 2007 and employ instrumental variables fixed effects and dynamic panel estimators in order to account for unobserved heterogeneity as well as the potential endogeneity of migration flows and the high persistence of unemployment. We find no significant effect of immigration on unemployment on average.

The authors provide evidence on the impact of foreign ownership on labor market outcomes analyzing pay differences between foreign-acquired and domestically owned firms. For this purpose, they use firm-level data from 16 European countries over the time period 1999–2006. Combing propensity score matching techniques with difference-in-differences (DID) estimators the authors estimate positive wage premia of cross-border merger and acquisitions (M&As), suggesting that foreign-acquired firms exhibit higher short-run (postacquisition) wage growth than their domestic counterparts. The observed wage disparities are most pronounced for low paying firms (with average wages below the median) which are typically located in Eastern European transition economies.

National labour market institutions interact across national boundaries when product markets are global. Labour market policies can thus entail spill-overs, which suggest that there are benefits from international policy coordination. This paper studies the effects of wage subsidies in an international duopoly model with unionized labour markets. The authors document both positive and negative spill-over effects and discuss the benefits and costs from international policy coordination both for the case of symmetric and asymmetric labour market institutions. The results suggest that institutional differences could sign responsible for the slow speed at which labour market policy coordination has progressed so far.

This paper proposes a multi-industry trade model with integrated capital and goods markets. Labor market imperfections in line with Mortensen and Pissarides ( Job Creation and Job Destruction in the Theory of Unemployment , 1994) give rise to unemployment and a channel for the government to influence markets through institutional changes. Labor market interventions feedback into the product market through changes in a country’s competitiveness. Moreover, the distinction between high- and low-skill workers facilitates the analysis of skillbiased institutional changes that have stronger impact on certain skill groups. The comparative static exercise in this paper shows that high-skilled benefit from low-skill biased labor market reforms through higher wages. Lower labor costs reduce unemployment of the low-skilled and increases the reforming country’s competitiveness. One-sided labor market interventions have feedback effects through adjustments at the extensive margin, which affect all workers at home and abroad irrespective of their level of skill. Governments in the non-reforming countries may react to this loss in competitiveness by initiating cooperative labor market reforms instead.

The authors performed a comprehensive time series segmentation study on the 36 Nikkei Japanese industry indices from 1 January 1996 to 11 June 2010. From the temporal distributions of the clustered segments, we found that the Japanese economy never fully recovered from the extended 1997–2003 crisis, and responded to the most recent global financial crisis in five stages. Of these, the second and main stage affecting 21 industries lasted only 27 days, in contrast to the two-and-a-half-years acrossthe- board recovery from the 1997–2003 financial crisis. We constructed the minimum spanning trees (MSTs) to visualize the Pearson cross correlations between Japanese industries over five macroeconomic periods: (i) 1997–1999 (Asian Financial Crisis), (ii) 2000–2002 (Technology Bubble Crisis), (iii) 2003–2006 (economic growth), (iv) 2007–2008 (Subprime Crisis), and (v) 2008–2010 (Lehman Brothers Crisis). In these MSTs, the Chemicals and Electric Machinery industries are consistently hubs. Finally, we present evidence from the segment-to-segment MSTs for flights to quality within the Japanese stock market.

The authors model trades-through, i.e. transactions that reach at least the second level of limit orders in an order book. Using tick-by-tick data on Euronext-traded stocks, they show that a simple bivariate Hawkes process fits nicely their empirical observations of tradesthrough. The authors show that the cross-influence of bid and ask trades-through is weak.

The Boltzmann–Gibbs distribution is currently widely used in economic modeling. One of the applications is integrated with the DSGE (Dynamic Stochastic General Equilibrium) model. However, a question that arises concerns whether the Boltzmann–Gibbs distribution can be directly applied, without considering the underlying social network structure more seriously, even though the social network structure is an important factor of social interaction. Therefore, this paper proposes two kinds of agent-based DSGE models. The first one belongs to mesoscopic modeling in formulating the social interaction with the Boltzmann–Gibbs machine, and the other one belongs to microscopic modeling in that it is augmented by the network-based ant machine. By comparing the population dynamics generated by those different agent-based DSGE models, we find that the Boltzmann–Gibbs machine offers a good approximation of herding behavior. However, it is difficult to envisage the population dynamics produced by the Boltzmann–Gibbs machine and by the network-based ant machine as having the same distribution, particularly in popular empirical network structures such as small world networks and scale-free networks. Thus, the social interaction behavior may not be replaced by the Boltzmann–Gibbs distribution.

The recent financial crises pointed out the central role of public and private debt in modern economies. However, even if debt is a recurring topic in discussions about the current economic situation, economic modeling does not take into account debt as one of the crucial determinants of economic dynamics. The authors’ contribution, in this paper, is to investigate the issues of borrowing and debt load by means of computational experiments, performed in the environment of the agent-based Eurace simulator. The authors aim to shed some light on the relation between debt and main economic indicators. Their results clearly confirm that the amount of credit in the economy is a very important variable, which can affect economic performance in a twofold way: fostering growth or pushing the economy into recession or crisis. The outcomes of their computational experiments show a rich scenario of interactions between real and financial variables in the economy, and therefore represent a truly innovative tool for the study of economics.

Financial markets witness high levels of activity at certain times but remain calm at others. This makes the flow of physical time discontinuous. Therefore, to use physical time scales for studying financial time series runs the risk of missing important activities. An alternative approach is to use an event-based time scale that captures periodic activities in the market. In this paper, the authors use a special type of event, called a directional-change event, and show its usefulness in capturing periodic market activities. The study confirms that the length of the price-curve coastline, as defined by directional-change events, turns out to be a long one.

This paper proposes a multidimensional procedure for jointly assessing the absolute and relative pro-poorness of growth. It is also a procedure for testing whether poverty comparisons can be made over classes of indices that incorporate both absolute and relative views of poverty. Besides being robust to whether pro-poor judgements should be absolute or relative, the procedure is also robust to choosing over a class of weights to aggregate the impact of growth on the poor as well as over ranges of absolute and relative poverty lines. The test is applied to distributional changes in five middle- and four lower-income African countries, countries that have witnessed different impacts of growth in the last two decades.

Despite the formal rigour that attends social and economic measurement, the substantive meaning of particular measures could be compromised in the absence of a clear and coherent conceptualization of the phenomenon being measured. A case in point is afforded by the status of a ‘focus axiom’ in the measurement of poverty. ‘Focus’ requires that a measure of poverty ought to be sensitive only to changes in the income-distribution of the poor population of any society. In practice, most poverty indices advanced in the literature satisfy an ‘incomefocus’ but not a ‘population-focus’ axiom. This, it is argued in the present paper, makes for an incoherent underlying conception of poverty. The paper provides examples of poverty measures which either satisfy both income and population focus or violate both, or which effectively do not recognize a clear dichotomization of a population into its poor and non-poor components, and suggests that such measures possess a virtue of consistency, and coherent meaning, lacking in most extant measures of poverty available in the literature.

A long literature on inter-distributional inequality (IDI) has developed statistical tools for measuring the extent of inequality between two groups (e.g. men versus women). The paper reviews some of the most prominent IDI indices proposed in the last four decades. The assessment focuses on how these indices react to inequalities that are disadvantageous to different groups, using two operationalizations of a concept of group-specific disadvantage focus (GDF). Relying on a complementary set of properties, the review also assesses whether these indices are informative about other interesting features related to IDI comparisons, chiefly distributional equality, but also absence of distributional overlap and presence of firstorder stochastic dominance. The author proposes amendments to several of these indices in order to render them in fulfillment of GDF properties and more informative on the mentioned distributional features.

The social cost of carbon – or marginal damage caused by an additional ton of carbon dioxide emissions – has been estimated by a U.S. government working group at $21/tCO 2 in 2010. That calculation, however, omits many of the biggest risks associated with climate change, and downplays the impact of current emissions on future generations. Our reanalysis explores the effects of uncertainty about climate sensitivity, the shape of the damage function, and the discount rate. We show that the social cost of carbon is uncertain across a broad range, and could be much higher than $21/tCO 2 . In our case combining high climate sensitivity, high damages, and a low discount rate, the social cost of carbon could be almost $900/tCO 2 in 2010, rising to $1,500/tCO 2 in 2050. The most ambitious scenarios for eliminating carbon dioxide emissions as rapidly as technologically feasible (reaching zero or negative net global emissions by the end of this century) require spending up to $150 to $500 per ton of reductions of carbon dioxide emissions by 2050. Using a reasonable set of alternative assumptions, therefore, the damages from a ton of carbon dioxide emissions in 2050 could exceed the cost of reducing emissions at the maximum technically feasible rate. Once this is the case, the exact value of the social cost of carbon loses importance: the clear policy prescription is to reduce emissions as rapidly as possible, and cost-effectiveness analysis offers better insights for climate policy than costbenefit analysis.

Drawing upon climate change damage specifications previously proposed in the literature that the authors have calibrated to a common level of damages at 2.5°C, the authors examine the effect upon the social cost of carbon (SCC) of varying damage specifications in a DICE-like integrated assessment model. They find that SCC estimates are highly sensitive to uncertainty in extrapolating damages to high temperatures at moderate-to-high levels of risk aversion, but only modestly so at low levels of risk aversion. While in the absence of risk aversion, all of the SCC estimates but one agree within a factor of two, with a moderate level of risk aversion included, the differences among estimates grow greatly. For example, one composite damage specification, combining elements of different literature-derived specifications and roughly taking into account calibration uncertainty, yields SCC values 32% higher than the standard quadratic DICE damage function in the absence of risk aversion. With a coefficient of relative risk aversion of 1.4, however, the same uncertain specification yields SCC values almost triple those of the standard function. The authors conclude that failure to consider damages uncertainty and risk aversion jointly can lead to significant underestimation of the SCC.

In 2010, the U.S. government adopted its first consistent estimates of the social cost of carbon (SCC) for government-wide use in regulatory cost-benefit analysis. Here, the authors examine a number of limitations of the estimates identified in the U.S. government report and elsewhere and review recent advances that could pave the way for improvements. The authors consider in turn socio-economic scenarios, treatment of physical climate response, damage estimates, ways of incorporating risk aversion, and consistency between SCC estimates and broader climate policy.

This note considers the treatment of risk and uncertainty in the recently established ‘social cost of carbon’ (SCC) for analysis of federal regulations in the United States. It argues that the analysis of the US Interagency Working Group on Social Cost of Carbon did not go far enough into the tail of low-probability, high-impact scenarios, and, via its approach to discounting, it mis-estimated climate risk, possibly hugely. Given the uncertainty about estimating the SCC, the note concludes by arguing that there is in fact much to commend an approach whereby a quantitative, long-term emissions target is chosen, and the price of carbon for regulatory impact analysis is then based on estimates of the marginal cost of abatement to achieve that very target.

The aim of this paper is to provide an overview of empirical cross-country growth literature. The paper begins with describing the basic framework used in recent empirical crosscountry growth research. Even though this literature was mainly inspired by endogenous growth theories, the neoclassical growth model is still the workhorse for cross-country growth empirics. The second part of the paper emphasises model uncertainty, which is indeed immense but generally neglected in the empirical cross-country growth literature. The most outstanding feature of the literature is that a large number of factors have been suggested as fundamental growth determinants. Together with the small sample property, this leads to an important problem: model uncertainty. The questions which factors are more fundamental in explaining growth dynamics and hence growth differences are still the subject of academic research. Recent attempts based on general-to-specific modeling or model averaging are promising but have their own limits. Finally, the paper highlights the implications of model uncertainty for policy evaluation.

The authors solve a linear problem where a potential conflict between two agents (Destination manager and Firm) arises in a tourism destination. The Destination manager has to choose how to allocate limited resources (capital and land) between either second homes or hotels. This conflict stems from the assumption of agents who have different linear preferences with respect to the allocation of limited resources. As a solution to this policy problem the authors consider three different policies: no intervention ( laissez faire ), taxation and temporary de-taxation policy. Comparing these different policies, they show that a compromise solution (internal solution), which results from the de-taxation policy, may be preferred by both agents over the clash of interests outcomes (corner solutions). Thus, the authors show that in a framework of “conflict” between agents a compromise solution may be preferable to both the absence of public intervention and the imposition of a tax by a public policy maker who has the discretionary “power to regulate” conflicts.

The purpose of this paper is to demonstrate that, for the case of Italy, ceteris paribus, tourist areas tend to have a greater amount of crime than non-tourist ones in the short and long run. Following the literature of the economics of crime à la Becker ( Crime and Punishment: An Economic Approach , 1968) and Enrlich ( Participation in Illegitimate Activities: A Theoretical and Empirical Investigation , 1973) and using a System GMM approach for the time span 1985–2003, the authors empirically test whether total crime in Italy is affected by the presence of tourists. Findings confirm the initial intuition of a positive relationship between tourism and crime in destinations. When using the level rather than the rate of total crime and controlling for the equivalent tourists (i.e. the number of tourists per day in a given destination) the effect of the tourist variable is confirmed. Overall results indicate however that the resident population has a greater effect on crime than the tourist population. Therefore, the main explanation for the impact of tourism on crime seems to be agglomeration effects.

This paper investigates residents’ preferences of investment in cruise tourism, taking its externalities into full account. The research involved data collection in the port of call of Messina (Sicily, Italy), during the peak cruise season in 2011. A mixed generalized ordered logit analysis, based upon a correspondence analysis, is run to examine what factors influence residents’ perceptions about investing in cruise tourism. Potential positive and negative externalities produced by this economic activity, as well as socio-demographic and economic determinants are taken into account. Overall, residents in Messina, treated as a composite stakeholder, would invest a very high level of resources in cruising if their income depends on the cruise activity, if they had a cruise trip in the past, if they belong to a family with a high number of components, and if they believe this activity to exert positive welfare, cultural and social externalities. Conversely, residents in Messina are likely to prefer a low, or very low level of investment the farther they live from the port, if they are female, retired and if they perceive a deterioration of the environment. Implications for policy makers are drawn from these empirical findings.

In this article, the authors present a theoretical model to investigate the private and social incentives to reduce seasonality in a given market. They assume that consumers derive different utilities from the consumption of the same good in different seasons. The seasonal product differentiation is modelled along the lines of Gabszewicz and Thisse ( Price Competition, Quality and Income Disparities , 1979) and Shaked and Sutton ( Relaxing Price Competition through Product Differentiation , 1982). The authors assume that it is possible for a firm to invest in order to reduce the degree of the demand seasonality. They show that, for a wide set of parameter configuration, the optimal effort to reduce seasonality is higher from a social welfare perspective, as compared to the private producer perspective. The tourism market can represent an application of the present model. However, unlike most available literature in this field, their model provides a microeconomic basis for the evaluation of investments aimed at reducing seasonality, rather than taking a macroeconomic approach.

The knowledge of the actual magnitude and main features of tourism flows in a given destination is an essential prerequisite for the evaluation of tourism impacts and externalities. Indeed, many pleasure trips are often characterized by the visit to more than a single destination. Although the topic is well-documented in literature, the empirical results are limited to a few pioneering studies. The lack may be attributable to the failure of tourism organizations to collect data on multi-destination trip behaviour. This can be seen, for example, in the system of European statistics on tourism (according to the Council Directive 95/57 EC), where information on the average number of visited destinations within a single trip is not provided. This paper aims at discussing the main implications of multi-destination trips, both on tourism statistics and on destination management. It also proposes to describe the research design and main preliminary results of a survey on incoming tourism in Sicily. Some remarks dealing with the positive and negative impacts of unobserved tourism and of multi-destination trips are reported at the end.

Knowledge exchange, innovation policy, and international trade flows are key aspects of the knowledge-based economy. In her introduction to the special issue on The Knowledge-Based Society: Transition, Geography, and Competition Policy the author briefly reviews these aspects. She begins with spillovers, emphasising the effects that drive the variety of results in this literature, and their role in a model of research joint venture formation among asymmetric partners. She then moves on to the linkages between universities and industry, underlining the diversity of these linkages and their goals. She discusses the interaction among innovative skills, minimum quality standards, and patent protection, noting how these generate welfare outcomes that vary with industry innovative skill levels. Finally, the author examines threshold effects in the relation between innovation and exports.