 Economics  Research Publications
Economics  Research Publications
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ItemInefficient policies and incumbency advantageHODLER, ROLAND ; LOERTSCHER, SIMON ; Rohner, Dominic ( 200706)We study incumbency advantage in a dynamic game with incomplete information between an incumbent and a voter. The incumbent knows the true state of the world, e.g., the severity of an economic recession or the level of criminal activities, and can choose the quality of his policy. This quality and the state of the world determine the policy outcome, i.e., the economic growth rate or the number of crimes committed. The voter only observes the policy outcome and then decides whether to reelect the incumbent or not. Her preferences are such that she would reelect the incumbent under full information if and only if the state of the world is above a given threshold level. In equilibrium, the incumbent is reelected in more states of the world than he would be under full information. In particular, he chooses inefficient policies and generates mediocre policy outcomes whenever the voter's induced belief distribution will be such that her expected utility of reelecting the incumbent exceeds her expected utility of electing the opposition candidate. Hence, there is an incumbency advantage through ine±cient policies. We provide empirical evidence consistent with the prediction that reelection concerns may induce incumbents to generate mediocre outcomes

ItemFalse alarm? terror alerts and reelectionHODLER, ROLAND ; LOERTSCHER, SIMON ; Rohner, Dominic ( 2007)We study a game with asymmetric information to analyze whether an incumbent can improve his reelection prospects using distorted terror alerts. The voters’ preferred candidate depends on the true terror threat level, and the voters are rational and therefore aware of the incumbent’s incentive to distort alerts. In equilibrium, a moderately “Machiavellian” incumbent reports low and high threat levels truthfully, but issues the same distorted alert for a range of intermediate threat levels. He thereby ensures his reelection for some threat levels at which he would not be reelected under full information.

ItemAn Analysis of the Questions on University Teaching Surveys and the Universities that Use Them: The Australian ExperienceDavies, Martin ; Hirschberg, Joe ; Lye, Jenny ; Johnston, Carol ( 200705)This paper is the first attempt to perform an analysis of the internal Quality of TeachingSurveys (QTS) used in all Australian Universities by investigating how they compareacross Universities. We categorize the questions on each university’s QTS into one of 18types and then define a proximity measure between the surveys. We then use anagglomerative cluster analysis to establish groupings of these institutions on the basis ofthe similarity of their QTSs as well as groupings of question types by their frequency ofuse. In addition, we also determine if the form of the survey is related to the responsesrecorded by the Course Evaluation Questionnaire (CEQ) that is administered to allgraduates of Australian Universities. This was done by the use of regression analysis toestablish if the form of the questionnaire is related to the overall good teaching scoresearned by the universities from the CEQ..

ItemCooperative R&D under uncertainty with free entryErkal, N. ; Piccinin, D. ( 200708)In the last few decades, the effects of cooperative R&D arrangements on innovation andwelfare have played an important role in policy making. The goal of this paper is to analyzethe effects of cooperative R&D arrangements in a model with a stochastic R&D process andoutput spillovers. Our main innovation is to allow for free entry in both the R&D race andthe product market. To determine the desirability of cooperation in R&D environments,we compare three different ways of organizing R&D activities: R&D competition, R&Dcartels, and RJV cartels. In contrast with the literature, we assume that cooperative R&Darrangements do not have to include all of the firms in the industry. We show that sharingof research outcomes is a necessary condition for the profitability of cooperative R&Darrangements with free entry. The profitability of RJV cartels depends on their size. Theimpact of cooperative R&D arrangements on the aggregate level of innovation depends onwhether there are participants in the R&D race who are a part of the cooperative R&Darrangement. If some outsiders choose to participate in the R&D race, the aggregate rate ofinnovation remains unaffected by the formation of a cooperative R&D arrangement. Otherwise,it increases. R&D cartels may be welfareimproving in cases when they cause theaggregate rate of innovation to increase. In such cases, it may be desirable to subsidizethem. Since sharing of R&D outcomes affects the equilibrium number of firms in the productmarket after the R&D race, the consumer welfare effects of RJV cartels are sensitiveto the specification of consumer preferences. Subsidies may be desirable in cases of largerRJVs since they are the ones which are less likely to be profitable.

ItemRockpaperscissors; a new and elegant proofvan den Nouweland, A. ( 200709)I provide an elegant proof identifying the unique mixed Nash equilibriumof the RockPaperScissors game. The proof is based on intuitionrather than elimination of cases. It shows that for any mixedstrategy other than the one that puts equal probability on each of aplayer’s actions, it holds that this strategy is not a best response toany mixed strategy that is a best response to it.

ItemChoosing longevity with overlapping generationsChen, Weichun ; Engineer, Merwan ; KING, IAN ( 200709)We extend Diamond’s (1965) OLG model to allow agents to choose whether toparticipate in the second period of life. The valuation of early exit (x) is a keyparameter. We characterize competitive equilibria, efficient allocations, andpredictions for income and life expectancy over time. We find that, with logarithmicutility, for any value of x, there is a range of initial values of the capital stock forwhich some agents would prefer to exit in equilibrium. The shape of the transitionfunction and the number of steady state equilibria depend crucially on the value ofcapital’s share of income.

ItemDiscounting and the Time Preference Rate:an introductionCreedy, J. ; Guest, R. ( 200704)This paper provides an introduction to the evaluation of alternativetime streams of consumption and the closely related concept oftime preference. The potential sensitivity of comparisons, especiallyto the choice of time preference rate and elasticity of marginal valuation,is demonstrated. The nature of time preference, based on anaxiomatic approach, is then discussed. The analysis of optimisationover time leads to the concept of the social time preference rate, and adifficulty with using this rate is highlighted. Finally, complications introducedby nonincome differences between individuals are examined.Emphasis is placed on the central role of value judgements.

ItemProviding intuition to the Fieller Methodwith two geometric representationsusing STATA and EviewsHirschberg, J. G. ; Lye, J. N. ( 200704)The Fieller Method for the construction of confidence intervals for ratios of the expectedvalue of two normally distributed random variables has been shown by a number of authorsto be a superior method to the delta approximation. However, it is not widely used due inpart, to the tendency to present the intervals only in a formula context. In addition, potentialusers have been deterred by the potential difficulty in interpreting nonfinite confidenceintervals when the confidence level is less than 100%. In this paper we present two graphicalmethods which can be easily constructed using two widely used statistical software packages(Eviews and Stata) for the representation of the Fieller intervals. An application is presentedto assess the results of a model of the nonaccelerating inflation rate of unemployment(NAIRU).

ItemCommon cycles in labour market separation rates for Australian statesDIXON, ROBERT ( 200704)There is a considerable body of evidence showing that it is the inflow intounemployment that drives the unemployment rate up and down and so from a policy point ofview an important question is whether or not movements in state inflow reflect the impact ofstatespecific shocks or common shocks affecting the entire economy This paper reports theresults of using principal components analysis to search for a common cycle in time series datafor the rate at which people are leaving employment and moving to unemployment in the sixstates of Australia. It is concluded that there is a common cyclical component to each of thestate’s separation rates but that it accounts for only a small part of the total variation weobserve in the data set. In addition there are large idiosyncratic variations especially in the caseof three of the six states. These findings strengthen the case for regional labour market policyin Australia.

ItemInvestment, profits and employmentin Kalecki & KeynesDIXON, ROBERT ( 200703)This paper sets out my response to the articles by Paul Davidson in the Journal of PostKeynesian Economics in 2000 and 2002 dealing with the (supposed) superiority of Keynes’sexplanation of the “ultimate cause” of unemployment over that of Kalecki. I show that thereare a number of serious errors in Davidson’s explanation of Kalecki’s theories. I also arguethat we would have less of this sort of nonsense if ‘post keynesians’ like Davidson were torecognize that, for Keynes as for Kalecki, aggregate demand shocks are profit shocks. In thefinal section of the paper I explain why it is that I nonetheless agree most emphatically withDavidson when he says that Kalecki and Keynes had quite different ideas on the ‘causes’ or‘origins’ of (involuntary) unemployment in a capitalist economy.