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    Non-monotone incentives in a model ofcoexisting hidden action and hidden information
    Basov, S. ( 2006-12)
    In this paper I consider a model of coexisting moral hazard andadverse selection, similar to one considered by Guesnerie, Picard, and Rey(1989). I provide an explicit solution for the optimal incentive scheme in thecase, when the effort is observed with a normally distributed error. The mainobservation is that in this case the optimal incentive scheme often fails tobe monotone. If the monotonicity constraint is imposed on the solution foreconomic reasons there would exist a region of profit realizations, such thatthe optimal compensation will be independent of on performance.Keywords and Phrases: hidden action, hidden information, Fredholmintegral equations of the first type, Hermit polynomials.
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    Education vouchers: means testing versusuniformity
    Creedy, J. ( 2006-12)
    This paper compares a uniform education voucher system with ameans-tested scheme in which the voucher is subject to a taper orwithdrawal rate as parental gross income increases. Parents are assumedto maximise a utility function which includes their consumption,leisure and the human capital of children. The human capitalproduction function has inputs consisting of parental human capitaland expenditure on education. The government faces a budget constraintsuch that the voucher and a social dividend are financed froma proportional income tax. Alternative combinations of voucher andtax and transfer schemes are evaluated using a social welfare functiondefined in terms of the utility of parents. It is found that for allcombinations of policy variables, a uniform voucher turns out to beoptimal. However, if a binding constraint is placed on the maximumtax rate, means-testing, with a low taper, is found to be optimal.
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    Consequences of FDI in Australia-Casual Links Between FDI, Domestic Investment, Economic Growth and Trade
    Faeth, Isabel ( 2006-12)
    In this paper the consequences of FDI inflows in Australia, the second largest netimporter of FDI in the developed world, are analysed using quarterly aggregate data forQ3/1985 to Q2/2002. The dynamic relationship between Australia’s aggregate quarterly FDIinflows and a set of endogenous variables including GDP, domestic investment, imports andexports was explored by estimating a multivariate vector error correction model. Grangercausalitytests and impulse response analysis were applied. FDI was found to directly increasedomestic investment growth, GDP growth and FDI itself, but decrease export growth.Furthermore, through its impact on GDP growth, FDI also leads to an increase in importgrowth.
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    Horizontal mergers with free entryin differentiated oligopolies
    ERKAL, NISVAN ; Piccinin, Daniel ( 2006-10)
    Antitrust authorities view the possibility of entry as a key determinant of whether a proposedmerger will be harmful to society. This paper examines the effects of horizontalmergers in models of non-localized, differentiated Bertrand oligopoly that allow for freeentry. The analysis of the long run effects of mergers in differentiated products marketsraises issues that are significantly different from those in the short run or in homogeneousproducts markets due to the introduction of new varieties. Our analysis reveals that determiningthe properties of consumer preferences is crucial to the antitrust analysis of mergersin differentiated products markets. Specifically, we show that if the demand system satisfiesthe Independence from Irrelevant Alternatives (IIA) property and if the number of firms istreated as a continuous variable, mergers in differentiated products markets have no longrun effect on consumer welfare. Moreover, in this case, marginal cost savings are to a largeextent irrelevant to the consumer welfare effects of mergers. If the number of firms is treatedas a discrete variable, fixed or marginal cost savings are a necessary condition for mergersto have zero or positive effect on consumer welfare. Using the example of linear demand,we show that if the demand system does not satisfy the IIA property, mergers in differentiatedproducts markets can harm consumer welfare in long run equilibrium. Moreover, theamount of harm increases with consumers’ taste for variety.
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    Subject pool effects in a corruption experiment: a comparison of Indonesian public servants and Indonesian students.
    Alatas, Vivi ; CAMERON, LISA ; Chaudhuri, Ananish ; ERKAL, NISVAN ; GANGADHARAN, LATA ( 2006-10)
    We report results from a corruption experiment with Indonesian public servants andIndonesian students. Our results suggest that although both subject pools show a high levelof concern with the extent of corruption in Indonesia, the Indonesian public servantsubjects have a significantly lower tolerance of corruption than the Indonesian students.We find no evidence that this is due to a selection effect. The reasons given by the publicservants for either engaging in or not engaging in corruption suggest that the differences inbehavior across the subject pools are driven by their different real life experiences. Forexample, when abstaining from corruption public servants more often cite the need toreduce the social costs of corruption as a reason for their actions, and when engaging incorruption they cite low government salaries or a belief that corruption is a necessary evilin the current environment. In contrast, students give more simplistic moral reasons. Weconclude by arguing that experiments such as the one considered in this paper can be usedto measure forward-looking attitudinal change in society and that results obtained fromdifferent subject pools can complement each other in the determination of such attitudinalchanges.
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    Subject pool effects in a corruption experiment: a comparison of Indonesian public servants and Indonesian students
    Alatas, Vivi ; CAMERON, LISA ; Chaudhuri, Ananish ; ERKAL, NISVAN ; GANGADHARAN, LATA ( 2006-10)
    We report results from a corruption experiment with Indonesian public servants andIndonesian students. Our results suggest that although both subject pools show a high levelof concern with the extent of corruption in Indonesia, the Indonesian public servantsubjects have a significantly lower tolerance of corruption than the Indonesian students.We find no evidence that this is due to a selection effect. The reasons given by the publicservants for either engaging in or not engaging in corruption suggest that the differences inbehavior across the subject pools are driven by their different real life experiences. Forexample, when abstaining from corruption public servants more often cite the need toreduce the social costs of corruption as a reason for their actions, and when engaging incorruption they cite low government salaries or a belief that corruption is a necessary evilin the current environment. In contrast, students give more simplistic moral reasons. Weconclude by arguing that experiments such as the one considered in this paper can be usedto measure forward-looking attitudinal change in society and that results obtained fromdifferent subject pools can complement each other in the determination of such attitudinalchanges.
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    Gender and corruption: insights from an experimental analysis
    Alatas, Vivi ; CAMERON, LISA ; Chaudhuri, Ananish ; ERKAL, NISVAN ; GANGADHARAN, LATA ( 2006-10)
    In recent years, a substantial body of work has emerged in the social sciences exploringdifferences in the behavior of men and women in various contexts. This paper contributes tothis literature by investigating gender differences in attitudes towards corruption. It departsfrom the previous literature on gender and corruption by using experimental methodology.Attitudes towards corruption play a critical role in the persistence of corruption. Based onexperimental data collected in Australia (Melbourne), India (Delhi), Indonesia (Jakarta) andSingapore, we show that while women in Australia are less tolerant of corruption than men inAustralia, there are no significant gender differences in attitudes towards corruption in India,Indonesia and Singapore. Hence, our findings suggest that the gender differences found in theprevious studies may not be nearly as universal as stated and may be more culture-specific.We also explore behavioral differences by gender across countries and find that there arelarger variations in women’s attitudes towards corruption than in men’s across the countriesin our sample.
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    Francis Ysidro Edgeworth 1845-1926
    Creedy, J. ( 2006-09)
    Francis Ysidro Edgeworth (1845-1926) was born in Edgeworthstown in CountyLongford, Ireland. The background into which he was born was dominatedby the ‘larger than life’ figure of his grandfather Richard Lovell Edgeworth(1744-1817), whose life was documented in a two-volume memoir (1820)by his oldest daughter, the famous novelist Maria Edgeworth (1767-1849).1Richard Lovell’s many scientific and mechanical experiments were helped byhis strong association with the Lunar Society of Birmingham, whose membersincluded Watt, Bolton, Wedgwood, Priestley, Darwin, and Galton. In addition,Maria’s scientific acquaintances also included Davy, Humboldt, Herschel,Babbage, Hooker and Faraday. The marriage of F. Y. Edgeworth’scousin Harriet Jessie Edgeworth (daughter of Richard Lovell’s seventh andyoungest son Michael Pakenham, 1812-81) to Arthur Gray Butler providedlinks with another large and eminent academic family. These connections extendeven further since A. G. Butler’s sister, Louisa Butler, married FrancisGalton, a cousin of Charles Darwin.Richard Lovell’s sixth son, and seventeenth surviving child, was FrancisBeaufort Edgeworth (1809-46), who met his wife, Rosa Florentina Eroles, thedaughter of a Spanish refugee from Catalonia and then aged sixteen, while onthe way to Germany to study philosophy; they married within three weeks.This is a forthcoming entry for the New Palgrave Dictionary of Economics. I amgrateful to Denis O’Brien and Steven Durlauf for comments on an earlier draft.1On the family background, see also Butler and Butler (1927). For a full-length treatmentof Edgeworth’s work, see Creedy (1986).in 1831. F. Y. Edgeworth was their fifth son. With his family backgroundand his knowledge of French, German, Spanish and Italian, Edgeworth hadwide international sympathies.Edgeworth was educated by tutors in Edgeworthstown until the age of 17,when in 1862 he entered Trinity College Dublin to study languages. In 1867Edgeworth entered Exeter College,
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    Population ageing and intertemporal consumption: representative agent versus social planner
    Creedy, J. ; Guest, R. ( 2006-09)
    This paper examines the optimal path of consumption over time in the contextof population ageing. Older age groups are considered to have relatively greater‘needs’, resulting for example from additional health costs. These differences give riseto the concept of the ‘equivalent number of persons’, as distinct from the populationsize. Emphasis is given to the difference between a framework involving arepresentative agent and one in which plans are made by a social planner. The preciseconditions under which consumption growth paths are the same under therepresentative agent and the social planner are established. This equivalence is foundto hold only in the case where the social planner’s value judgements are such thatindividuals are considered to be the appropriate unit of analysis. An alternativeassumption, in which equivalent persons are regarded as the appropriate units, isfound to give rise to a different optimal consumption path. Numerical examplesdemonstrate the relative orders of magnitude for a range of parameter values. Thedifferences are found to be potentially important. The choice of appropriateconsumption units – individuals or equivalent persons – is far from arbitrary since itinvolves possibly conflicting value judgements. This choice has implications forpolicies designed to influence the optimal saving rate, such as superannuation policyand the fiscal balance.
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    Evaluating policy: welfare weights and value judgements
    Creedy, J. ( 2006-09)
    This paper is concerned with the use of social welfare functions inevaluating changes. In particular, it considers suggestions that welfareweights to be used in comparing the gains and losses of different individuals(or other appropriate units of analysis), and a social time preferencerate for use in cost benefit evaluation, can be estimated eitherfrom consumers’ behaviour or from the judgements implicit in tax policy.It is suggested that results are highly sensitive to the context andmodel specification assumed. More importantly, the argument that anestimated elasticity of marginal utility or time preference rate shouldbe used in policy evaluations fails to recognise that fundamental valuejudgements are involved. Various estimates may be of interest, butthey cannot be used by economists to impose value judgements. Themain contribution economists can make is to examine the implicationsof adopting a range of alternative value judgements.