Evolutionary finance focuses on questions of “survival and extinction” of investment strategies (portfolio rules) in the market selection process. It analyzes stochastic dynamics of financial markets in which asset prices are determined endogenously by a short-run equilibrium between supply and demand. Equilibrium is formed in each time period in the course of interaction of portfolio rules of competing market participants. A comprehensive theory of evolutionary dynamics of this kind has been developed for models in which short selling is not allowed and asset supply is exogenous. The present paper extends the theory to a class of models with short selling and endogenous asset supply.
Many countries are reallocating tasks and powers to more central levels of government. To identify centralization’s welfare effects, I use a difference-in-differences design that relies on time and cross-cantonal variation in the implementation of centralization reforms in Switzerland. I find that centralization provokes significant decreases in residents’ life satisfaction. I identify one mechanism driving the effect, namely the procedural disutility that individuals experience from having less influence over the formulation of political decisions. This effect is largest among individuals with higher expected benefits from being involved in the political decision process, with detrimental effects on local political participation.
OECD countries have experienced a large increase in top wage inequality. Atkinson (2008) attributes this phenomena to the superstar theory leading to a Pareto tail in the wage distribution with a low Pareto coefficient. Do we observe a similar phenomena for academic wages? We examine wage formation in a public US university using for each academic rank a hybrid mixture formed by a lognormal distribution for regular wages and a Pareto distribution for top wages, using a Bayesian approach. The presence of superstars wages would imply a higher dispersion in the Pareto tail than in the lognormal body. We concluded that academic wages are formed in a different way than other top wages. There is an effort to propose competitive wages to some young Assistant Professors. But when climbing up the wage ladder, we found a phenomenon of wage compression which is just the contrary of a superstar phenomenon.
We provide the first analysis of the risk sharing implications of altruism networks. Agents are embedded in a fixed network and care about each other. We explore whether altruistic transfers help smooth consumption and how this depends on the shape of the network. We find that altruism networks have a first-order impact on risk. Altruistic transfers generate efficient insurance when the network of perfect altruistic ties is strongly connected. We uncover two specific empirical implications of altruism networks. First, bridges can generate good overall risk sharing and, more generally, the quality of informal insurance depends on the average path length of the network. Second, large shocks are well-insured by connected altruism networks. By contrast, large shocks tend to be badly insured in models of informal insurance with frictions. We characterize what happens for shocks that leave the structure of giving relationships unchanged. We further explore the relationship between consumption variance and centrality, correlation in consumption streams across agents and the impact of adding links.
This paper aims to present a new explanation for environmental traps through the presence of endogenous hazard rate. We show that adaptation and mitigation policies affect the occurrence of environmental traps differently. The former could cause environmental traps, whereas the latter could help society avoid such traps by decreasing the probability of a harmful event occurring. As a result, we present a new trade-off between adaptation and mitigation policies different than the usual dynamic trade-off that is highlighted in many studies and is crucial to developing countries. Contrary to the literature, when an economy is in a trap, an economy with a high environmental quality equilibrium tends to be more conservative in terms of resource exploitation than an economy with a low environmental quality equilibrium, which implies a heterogeneous reaction against the endogenous hazard rate.
While payoff-based learning models are almost exclusively devised for finite action games, where players can test every action, it is harder to design such learning processes for continuous games. We construct a stochastic learning rule, designed for games with continuous action sets, which requires no sophistication from the players and is simple to implement: players update their actions according to variations in own payoff between current and previous action. We then analyze its behavior in several classes of continuous games and show that convergence to a stable Nash equilibrium is guaranteed in all games with strategic complements as well as in concave games, while convergence to Nash occurs in all locally ordinal potential games as soon as Nash equilibria are isolated.
Although it is widely acknowledged that non-cognitive skills matter for adult outcomes, little is known about the role played by family environment in the formation of these skills. We use a longitudinal survey of children born in the UK in 2000–2001, the Millennium Cohort Study by the Centre for Longitudinal Studies, to estimate the effect of family size on socio-emotional skills, measured by the Strengths and Difficulties Questionnaire. To account for the endogeneity of fertility decisions, we use a well-known instrumental approach that exploits parents’ preference for children’s gender diversity. We show that the birth of a third child negatively affects the socio-emotional skills of the first two children in a persistent manner. However, we show that this negative effect is entirely driven by girls. We provide evidence that this gender effect is partly driven by an unequal response of parents’ time investment in favour of boys and, to a lesser extent, by an unequal demand for household chores.
Two traditional theorems of welfare economics posit a trade-off between a government redistribution targets and efficiency. We propose a third ‘claim’ of welfare economics, stating that in closed economies the actual efficiency costs associated with redistribution are small. We then examine the claim in the current phase of ‘hyper-globalization’. On the one hand, a race-to-the-bottom in taxation restricts the capacity to tax high-earners and the associated brain drain may affect a country’s long-run growth. On the other hand, demand for social insurance should be particularly high in an open economy, especially with advancing digitalization. Xenophobic sentiments may, however, offset this demand. We also discuss the impact of globalization on wage equalization and productive efficiency. We conclude against the idea that the welfare state is intrinsically unable to carry out its redistributive function in an era of globalization. However, its strategies and tools of intervention must be rethought.
We investigate empirically, and explain theoretically, how the relative wages of skilled and unskilled workers vary with their relative supplies in open economies. Our results combine the insights of simple labour market and trade models. In countries that trade, relative wages respond inversely to variation in skill supplies, but the response decreases with the degree of openness to trade and is small in very open countries. To reconcile our results with standard estimates of the elasticity of substitution between skilled and unskilled workers, we allow also for the influence of directed technical change and income elasticity of demand for skill-intensive goods.
To what extent do childhood experiences continue to affect adult wellbeing over the life course? Previous work on this link has been carried out either at one particular adult age or for some average over adulthood. We here use two British birth-cohort datasets (the 1958 NCDS and the 1970 BCS) to map out the time profile of the effect of childhood experiences on adult outcomes, including life satisfaction. We find that the effects of many aspects of childhood do not fade away over time but are rather remarkably stable. In both birth-cohorts, child non-cognitive skills are the strongest predictors of adult life satisfaction at all ages. Of these, emotional health is the strongest. Childhood cognitive performance is more important than good conduct in explaining adult life satisfaction in the earlier NCDS cohort, whereas this ranking is inverted in the more recent BCS.