As illustrated by some French departments, how can we explain the existence of equilibria with different fertility and growth rates in economies with the same fundamentals, preferences, technologies and initial conditions? To answer this question we develop an endogenous growth model with altruism and love for children. We show that independently from the type of altruism, a multiplicity of equilibria might emerge if the degree of love for children is high enough. We refer to this condition as the love for children hypothesis. Then, the fertility rate is determined by expectations on the future growth rate and the dynamics are not path-dependent. Our model is able to reproduce different fertility behaviours in a context of completed demographic transition independently from fundamentals, preferences, technologies and initial conditions.
We examine in this paper the complex decision-making processes that lead to investment location choice of Sovereign Wealth Funds (SWFs). Using a two-tiered dynamic Tobit panel model, we find that country-level factors do not have the same impact on the investment decision and the amount to invest and that SWFs tend to invest more frequently and with higher amounts in countries in which they already have invested. More specifically, we find that SWFs prefer to invest in countries with higher political stability, whereas they are more prone to investing for large amounts in countries that are less democratic and more financially opened. Our results also lend support to the idea that SWFs are prudent in the choice of target country concerning their investment decision but behave as more opportunistic investors concerning the amounts to be invested.
The purpose of this article is to introduce and analyze the option-based performance participation (OBPP) as performance participation method based on a portfolio consisting of two risky assets. By generalizing the provided guarantee to a participation in the performance of a second risky underlying, this new kind of strategies allows to cope with well-known problems associated with standard portfolio insurance methods, especially in times of low or even negative interest rates. However, the minimum guaranteed portfolio value at the end of the investment horizon is not deterministic anymore, but subject to systematic risk instead. Hence, we compare the newly introduced OBPP with the option-based portfolio insurance (OBPI) in various dimensions such as terminal payoffs, mean-variance efficiency and stochastic dominance. To do this, general analytical expressions for all moments of the payoff distributions of the two strategies are derived. Furthermore, we show how an OBBP can be designed so that it stochastically dominates a given OBPI (with a given probability) while retaining the potential for a participation in rising markets via a so-called reserve asset. Numerical case studies show how the proposed concept can be easily implemented for practical applications.
This paper examines the suitability of an important class of standard financial structured products, namely those whose performances are based on smoothing the return of a given risky underlying asset while providing a guarantee at maturity. Using various assumptions about the customers attitudes towards risk, we show that such standardized products are not optimal, even if the financial market volatility is constant. As a by-product, we provide in particular the optimal portfolio value in the regret/rejoice framework to go further with the notion of aversion of getting a return smaller than the risk-free one. Using the notion of compensating variation, we determine for the first time, the monetary losses of providing these standardized products instead of the optimal ones to the customers. We show that these monetary losses can be very significant when the volatility of the risky asset is stochastic. From the operational point of view, such results highly suggest to trade on the Volatility Index (VIX) and/or to introduce derivatives written on it, when selling standardized funds in order to better meet investors needs and preferences.
The paper investigates how endogenous markups affect the extent to which policy reforms can influence international competitiveness. In a two-country model where trade costs allow for international market segmentation, we show that endogenous pricing-to-market behavior of firms acts as an important transmission channel of the policies. By strengthening the degree of competition between firms, product market deregulation at home leads to a reduction in domestic markups, which generally leads to an improvement in the international competitiveness of the Home country. Conversely, the power of competitive tax policy to depreciate the real exchange rate is dampened, as domestic firms take the opportunity of the labor tax cut to increase their markups. The variability of markups also affects the normative implications of the reforms. This indicates the importance of taking into account endogenous pricing-to-market behavior when intending to correctly evaluate the overall effects of the reforms.
We analyze regional inequalities in access to maternal and neonatal health services in Iraq and Syria during the period 2000–2011, before the rise of the Islamic State in Iraq and Syria, ISIS. Utilizing nationally representative survey data (Iraq 2000, 2006, 2011; Syria 2006, 2009), we examine changes in the rate of babies weighed at birth and women delivering at home. We calculate 4 regional inequality indicators: (1) extremal quotient, (2) interquartile quotient, (3) coefficient of variation, and (4) systematic component of variation. Despite national improvements in both countries over time, indicators show increasing regional inequalities in access to maternal and neonatal health services, particularly in Syria between 2006 and 2009. Spatial regression results indicate that these inequalities associate with inequalities in maternal education, rurality, and wealth. Regions where women experienced deteriorating access over time, reflecting overall inequalities, are those that fell under the control of ISIS. Inequalities in access to basic services (education and health) deserve more attention in understanding social and political change in the Arab region.
In the aftermath of the U.S. financial crisis, both a sharp drop in employment and a surge in corporate cash have been observed. In this paper, based on U.S. data, we argue that the negative relationship between the corporate cash ratio and employment is systematic, both over time and across firms. We develop a dynamic general equilibrium model where heterogenous firms need cash and external liquid funds in their production process. We analyze the dynamic impact of aggregate shocks and the cross-firm impact of idiosyncratic shocks. We show that external liquidity shocks generate a negative comovement between the cash ratio and employment, as documented in the data.
Why do people pay taxes? Rational choice theory has fallen short in answering this question. Another explanation, called “tax morale”, has been promoted. Tax morale captures the behavioral idea that non-monetary preferences (like norm-submission, moral emotions and moral judgments) might be better determinants of tax compliance than monetary trade-offs. Herein we report on two lab experiments designed to assess whether norm-submission, moral emotions (e.g. affective empathy, cognitive empathy, propensity to feel guilt and shame) or moral judgments (e.g. ethics principles, integrity, and moralization of everyday life) can help explain compliance behavior. Although we find statistically significant correlations of tax compliance behavior with empathy and shame, the economic significance of these correlations are low–—more than 80% of the variability in compliance remains unexplained. These results suggest that tax authorities should focus on the institutional context, rather than individual preference characteristics, to handle tax evasion.
The promotion system for French academic economists provides an interesting environment to examine the promotion gap between men and women. Promotions occur through national competitions for which we have information both on candidates and on those eligible to be candidates. Thus, we can examine the two stages of the process: application and success. Women are less likely to seek promotion, and this accounts for up to 76 percent of the promotion gap. Being a woman also reduces the probability of promotion conditional on applying, although the gender difference is not statistically significant. Our results highlight the importance of the decision to apply.
After‐tax income inequality has risen since the mid‐1990s, as increases in market income inequality have not been offset by greater fiscal redistribution. We argue that the substantial increase in the diversity of consumer goods has mitigated mounting political pressures for redistribution. Within a probabilistic voting framework, we demonstrate that if the share of diversified goods in the consumption bundle increases sufficiently with income, then an increase in goods diversity can reduce the political equilibrium tax rate. Focusing on OECD countries, we find empirical support for both the model's micro‐political foundations and the implied relation between goods diversity and fiscal policy outcomes.