timag07-spring2003

magazine

Spring 2003

tinbergen institute7

Tinbergen Magazine is published

by Tinbergen Institute, the

Institute for economic research of

Erasmus Universiteit Rotterdam,

Universteit van Amsterdam and

Vrije Universiteit Amsterdam.

What determines the enormous variation in the wealth of nations?

The economics of poverty

Shocks, trends and cycles in the twentieth century




In depth

References

In short

2

www.tinbergen.nl

In this issue

In depth


Coen Teulings


Jan Willem Gunning


Herman K. van Dijk

In short

Papers in journals

Discussion papers

Theses

References

Papers in journals, discussion papers and theses that have

appeared in the last half year

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19

magazine

Spring 2003

tinbergen institute7

Tinbergen Magazine is published

by Tinbergen Institute, the

Institute for economic research of


Universteit van Amsterdam and

Vrije Universiteit Amsterdam.







Highlighting ongoingresearch at TinbergenInstitute for policymakersand scientists.

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16

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tinbergen magazine 7, spring 2003

This first issue of Tinbergen Magazinein 2003 has a special celebratory character.12 April 2003 marks the hundredth anniver-sary of the birth of Jan Tinbergen. This willbe celebrated in the Tinbergen week, fromApril 7 to April 11 2003 at the ErasmusUniversiteit Rotterdam, Jan Tinbergen’s homebase during his long and distinguished scientific career. Jan Tinbergen’s fundamentalscientific insights were combined with astrong commitment to furthering justice inthe world and the well being of all its popu-lation. This double commitment made JanTinbergen a source of inspiration whoseinfluence ranges far beyond just the scientificcommunity.

Marking the anniversary in style, quitea long list of diverse activities has been scheduled during the Tinbergen week. Thisyear, students have organized their yearlybusiness week along the special theme:Development: social and economic interests.Ruud Lubbers, former Dutch prime ministerand at present High commissioner of the UNRefugee Agency, will give the Mandeville lecture. Jan Pronk, former Dutch minister ofdevelopment and previously involved inmany UN activities, will give a public lecture,Tinbergen, inspirator and idealist. Both RuudLubbers and Jan Pronk were students ofTinbergen. A group of eight Nobel Prize win-ners will discuss the progress and future ofeconomics as a social science. And finally,there will be a major scientific conferencefocusing around three central themes in JanTinbergen’s scientific work–the econometricsof business cycles, the policy analysis ofgrowth and education, and poverty. Today’sleading scientists have been invited to discusstheir recent progress on these themes.

This issue of Tinbergen Magazine openswith three papers that give an overview ofsome of the recent progress on these threethemes. Whereas some of Tinbergen’s workhas lost its relevance for today’s scientificwork, other parts of his work– on assignmentand hedonic models, for example– are stillhighly relevant for today’s scientists in thediscipline. This is a remarkable accomplish-ment in a field that evolves so quickly.

For more information on the Tinbergen week,see www.tinbergenweek.org

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Why is Europe so much richer thanAfrica? Why has Argentina, one of the richestnations of the world at the beginning of thiscentury, declined so dramatically? Why havethe fortunes of Sri Lanka and Taiwan–twocountries with about the same wealth onlyjust after World War II–been so different?Taiwan’s GDP per head grew by an incrediblerate of 6.1% per year, while Sri Lanka’s pro-ductivity almost stagnated at a rate of 1.8%per year. Or consider North and South Korea,separated at the end of World War II, the latternow ten times richer than the former. Andfinally, consider a question that has raisedsubstantial interest in the aftermath ofSeptember 11th: what explains the economicdecline of Islamic culture during the past500 years?

These are obvious questions, with greatpractical relevance. If politicians knew theanswers, they would install policies to improvethe wealth of their nations, wouldn’t they?Tremendous progress on these issues hasbeen made in the last 25 years. Theories of

endogenous growth have revealed the mech-anisms by which current growth creates theconditions for future growth. Human capitalwas found to play a role, next to physicalcapital in the old growth theory. And the theory of institutions and property rights hasproven to be relevant for growth.

The role of geographyAn obvious explanation for the differ-

ences in prosperity between nations is theirgeographical location. A broad and easilyaccessible contribution to this literature isJared Diamond’s (1997) Gun, Germs andSteel. Diamond asks himself why Europe, andits offspring in North America and Australia,runs the world. He seeks the answer in theentire history of mankind over the past13,000 years and shows how geographyfavored Eurasia, the only large connectedlandmass, above other continents. His bookprovides beautiful insight for economistsequipped with modern training of examiningissues of causality by means of natural


I n d e p t h

Coen Teulings●

●

Coen Teulings is general directorof Tinbergen Institute. His research interests include labour economics, particularly education, and income distribution.

5


experiments. The crossing by the Indians ofthe Bering Strait, some 12,000 years ago, andtheir subsequent separation from Eurasia bythe rising sea level, provides the best naturalexperiment imaginable. On a much smallerscale, the colonization of the islands in thePacific provides similar experiments. Thesenatural experiments suggest that scale mattersfor subsequent growth.

These ideas have been taken up byGallup, Sachs and Mellinger (1999). Theyshow how differences in a country’s prosperitycan be adequately explained by geographicalfactors, like access to open sea (either directlyor via navigable rivers) and the distance fromthe equator. The open sea provides cheaptransport, while tropical climates suffer fromdiseases like yellow fever and malaria. Theirregressions show a large impact of these fac-tors: access to open sea raises GDP growthby 1%. The worrisome fact is that most peoplelive in regions with unfavorable geography,and even worse, that population growth is thehighest in these regions. The authors stressthat these results do not necessarily implyonly a direct effect of geography on wealth.Favorable geography might have created theinitial level of wealth that generated the initial conditions for subsequent growth, aspredicted by endogenous growth theories.

Geography or institutions?These ideas have not remained undis-

puted. A large literature (see e.g. Hall andJones (1999)) has pointed out the importanceof institutions protecting property rights–the rule of law, the absence of corruption, aconstitution and political stability. Hall andJones refer to these institutions as socialinfrastructure. In the absence of an adequatesocial infrastructure, prospective investors(fearing expropriation) are reluctant to takerisks. Simple regressions show the relevanceof these factors. There is a causality issuehere: do good institutions generate growth,or does growth create good institutions? In arecent paper, Acemoglu, Johnson andRobinson (2002) develop an interestinghypothesis. They observe that from 1500onwards, Europeans conquered the wholeworld. The effect of their occupation, however,differed between countries. In some placesthe European presence remained marginal.They set up fortresses along the coast todraw profits from the hinterland, by trade orby robbery, but left the people alone. Inother places the Europeans really settled.Whether or not they settled depended onwhether they could physically survive thelocal climate and the diseases that came withit. Where they survived they set up institu-tions similar to those at home in Europe. Onestudy (Acemoglu et al.) used the percentageof casualties among the first settlers as an

indicator of the effect of institutions on GDP.Their results show a strong effect of institu-tions on GDP. Their regressions cast somedoubt on the validity of the conclusions ofGallup et al. regarding the role of geography.Open access to sea and a temperate climatemight well be proxies for conditions thatwere favorable for European settlers, andthereby conducive for the introduction ofEuropean institutions.

In a later paper, Acemoglu and Johnson(2001) develop a related theory regarding thefortunes of newly conquered territories inAmerica. The regions in America that weremost prosperous at the time of Europeaninvasion (the Aztec empire in modern Mexicoand the Inca empire in modern Peru) are nowthe poorest. Acemoglu and Johnson put for-ward the theory that this reversal of fortunesis due to the type of institutions that the

6

Europeans set up: where there was a lot ofproperty that could be profitably robbed,institutions were geared to that purpose;where there was nothing to take, Europeansset up institutions that enabled them to gen-erate wealth themselves.

Human capital, inequality andgrowthAnother factor that has received a lot of

attention is human capital. A simpleWalrasian model predicts that the effect of aone-year increase in the average educationallevel of the workforce on the level of GDP

will be equal to the Mincerian rate of returnto human capital, or from the point of viewof the firm, the relative cost of the marginalunit of education of the workforce (seeHeckman and Klenow (1997)). Since wagesare equal to (marginal) productivity, theeffect of an additional year of education on aworker’s wage rate (the private return to edu-cation, about 8 % per year) should be equalto the effect of an increase in every worker’seducation on total output (the social return).Or, after first differencing, there should be arelation between the growth of GDP and thegrowth of education. However, Barro and Lee

7


(1993) showed that empirically there is arelation between the growth of GDP and thelevel (but not the growth) of education. Thisfinding is not consistent with a standardWalrasian human capital model, but is in linewith endogenous growth models. Kruegerand Lindahl (2001) show that Barro and Lee’sconclusion is partly driven by problems ofmeasurement error, which contaminatesregression coefficients towards zero. Thisproblem affects more heavily variables infirst differences than in levels. However,Krueger and Lindahl’s evidence suggests thatthe long-run social rate of return is six timesthe private return–an incredible difference.

Teulings and Van Rens (2001) offer amore complete reconciliation of the evidence.Their argument goes back to an idea by JanTinbergen (1956, 1975) that was first implic-itly formulated in his groundbreaking 1956paper on hedonic pricing. Technologicalprogress, which makes production processesmore complex, raises the demand for humancapital and therefore the private return,which subsequently raises income inequality.A greater supply of education is the onlyforce that can offset this trend. This isTinbergen’s race between education and tech-nology. Teulings and Van Rens do indeeddocument a strong negative relation betweeneducation and income inequality (see Figure1). This relationship generates the impres-sion that there is endogenous growth,because countries with a higher educationallevel are better equipped to benefit from newtechnologies.

A second issue raised by Teulingsand Van Rens relates to the discussion ofgeography and institutions. Since the lattertwo factors are largely fixed, countries withfavorable geography and institutions startwith higher wealth. Part of this wealth isinvested in human capital. There is thusreverse causality, from GDP to education.When we fail to correct for this reversecausality, we overestimate the effect of edu-cation on GDP. Accounting for this problemreduces the long-run social return to a morerealistic number of about three times the private return.

Even then, education remains anincredibly important factor in explaining thepost-war growth in productivity. Teulingsand Van Rens estimate the long-run effect ofthe actual increase in the average education-al level of the world’s workforce on produc-tivity growth to be about 2.7% per year–35%more than the productivity growth actuallyobserved. This implies that those countriesthat did not invest in human capital actuallylost a substantial share of their GDP. Thisinformation helps to explain the huge differ-ences in the post-war history of Taiwan versus Sri Lanka.

References

Acemoglu, D. (2002), Technical change, inequality,

and the labor market, Journal of Economic Literature,

vol.40 no.1, pp. 7-72.

Acemoglu, D. (2002), Why not a political Coase

theorem? Social conflict, commitment and politics,

NBER Working Paper, nr 9377.

Acemoglu, D. and S. Johnson (2001), Reversal of

fortune: Geography and institutions in the making

of the modern world income distribution, mimeo,

MIT, Cambridge.

Acemoglu, D., S. Johnson and J.A. Robinson (2001),

The colonial origins of comparative development:

An empirical investigation, American Economic

Review, vol.91 no.5, pp. 1369-1401.

Barro, R.J. and J.W. Lee (1993), International

Comparisons of Educational Attainment, Journal of

Monetary Economics, vol.32 no.3, pp.363-394.

Diamond, J. (1997), Gun, germs and steel, A short

history of everybody for the last 13,000 years,

Random House, London, ISBN 0-224-03809-5.

Gallup, J.L., J.D. Sachs and A.D. Mellinger (1999),

Geography and economic development, NBER

Working Paper, nr 6849.

Hall, R.E. and C.I. Jones (1999), Why do some

countries produce so much more output per head

than others? Quarterly Journal of Economics 10,

pp. 463-483.

Heckman, J.J. and P.J. Klenow (1997), Human capital

policy, mimeo, University of Chicago.

Krueger, A.B. and M. Lindahl (2001), Education for

growth: Why and for whom? Journal of Economic

Literature, vol.39 nr.4 (Dec.).

Teulings, C.N. and T. van Rens (2001), Education,

growth and income inequality, Tinbergen Institute

discussion paper 02-001/3, Amsterdam/Rotterdam.

Tinbergen, J. (1956), On the theory of income

distribution, Weltwirtshaftliches Archiv, pp. 156-173.

Tinbergen, J. (1975), Income Distribution: Analysis

and Policies, Amsterdam: North Holland.

8

Like a number of others in the

field of economics I deserted

the subject of my education,

physics, under the influence

of the phenomena of poverty–

to begin with, in my own

country.

Jan Tinbergen (1984, p. 315)

I n d e p t h

Jan Willem Gunning●

●

Jan Willem Gunning is professor of development

economics at Vrije Universiteit Amsterdam. His

research interests include poverty dynamics,

growth theory and trade policy.

The concern with poverty that madeTinbergen switch from physics to economicsremained his prime motivation for the rest ofhis life. After his early work on businesscycle theory and econometrics, he focusedincreasingly on the economics of poverty indeveloping countries. Indeed, rumour has itthat he would have preferred to receive theNobel Prize for his work on developmentrather than for his pioneering role in econo-metrics. If Tinbergen were alive today hewould probably be surprised by the directionthat development economics has taken. Theaid and trade policies of rich countries areno longer seen as the most important deter-minants of poverty in developing countries(as they often were in his days). The focushas shifted from the external environment ofdeveloping countries to their domestic poli-cies and institutions. Whereas povertyresearch used to be primarily theoretical andmacroeconomic, it is now typically microeco-nomic and empirical.

Improved data availability has changedthe field beyond recognition. For example,research on the links between growth andinequality has been transformed by the avail-ability of panel data of reasonable quality fora large number of countries (Deininger andSquire, 1996). The biggest change, however,is in the availability of micro data.

If Tinbergen were alive today

he would probably be

surprised by the direction

that development economics

has taken.


9


Economists have invested heavily (oftenagainst strong opposition from the social sciences) in the collection of survey data forindividual households or firms. Policy makersin developing countries, donor agencies andNGOs in rich countries have long peddledtheir pet remedies (“education for girls”,“bank credit for small firms”) without muchempirical basis. Their preconceptions arenow increasingly being challenged by microresearch based on these new data sets.

Macro research has focused on the linkbetween economic growth and poverty reduction. This work has started to dismantlethe idea that growth bypasses the poor. Theelasticity of the income of the bottom 20%with respect to mean income appears to beclose to unity: the poor are not left behind,but their income grows at about the samerate as mean income (Dollar and Kraay,2002). This finding offers little comfort, how-ever: at that rate, poverty may persist for avery long time and the elasticity is substan-tially lower than 1 in some of the poorercountries. In policy circles there now is muchdiscussion on how growth can be made “pro-poor” (more effective in reducing poverty).Researchers tend to emphasize that thesearch for widely applicable recipes for pro-poor growth is like looking for the HolyGrail. What eventually succeeds is likely tobe highly location and time specific.

This is where microeconomics comes in.Modern poverty research often involvesempirical testing of micro models. Thesemodels describe for individual households orfirms what incentives they face to initiategrowth. Why doesn’t a particular type of farmhousehold adopt an existing, superior tech-nique? Or why does a certain firm refrainfrom investing in what appears to be a prof-itable export activity? The answers offered bythe models are wide-ranging: indivisibilitiesmay make the superior technique unattainablein the presence of capital market imperfec-tions; a manufacturing firm may not wish tomake investments that are difficult toreverse when it considers the continuation ofcurrent government policies to be unlikely; ifgood institutions for contract enforcementdo not exist, a firm may steer clear of a givenprofitable activity because it requires dealingwith unreliable suppliers; in the absence ofinsurance markets farm households exposedto climatic risk may prefer to hold their sav-ings in liquid form rather than invest.Microeconometric research tries to test suchexplanations. The models used may involvemultiple equilibria: poor households maythus be stuck in a stable, inferior equilibri-um. A common theme in this work is theimportance of financial markets and the con-

ditions under which these will not emergesimultaneously.

The micro research has led to rigorousanalysis of the economic functioning of insti-tutions: formal and informal arrangementsfor contract enforcement, credit, and socialsecurity. In this area economists, geographersand social scientists– bien étonnés de se trou-ver ensemble – have started to collaboratefruitfully. For example, Dekker andHoogeveen (2002) use household survey datato demonstrate that the institution of bridewealth in rural Zimbabwe functions as aninsurance substitute: dormant contingentclaims of the bride’s parents on their son-in-law are activated when the creditors experiencea negative shock.

The microeconometric approach hasbrought excellent scholars into the field. Ithas also attracted media attention. When theNew York Times recently described this newdevelopment (“Small-Picture Approach to aBig Problem: Poverty,” August 20, 2002), itcorrectly noted an important implication ofthe microeconomic poverty work: “big pictureparadigms” leading to one-size-fits-all policyprescriptions are giving way to highly specificdiagnoses and remedies. All in all, it’s lessgrandiose, but more effective.

Where is poverty research going? Fournew developments may be noted. First, thereare now techniques to combine the detailedinformation collected in household surveyssuch as the Living Standard Measurement

Surveys (typically for rather small samples)with census data, which are much less com-prehensive but do have national coverage(Elbers et al., 2003). LSMS data are used toestimate poverty (measured by householdconsumption) as a function of variables that(unlike consumption) are covered by the cen-sus, e.g. simple wealth indicators such ascharacteristics of the dwelling and access towater, sewage and electricity. The estimatedrelation can then be used to predict povertyfor each of the census households, makingpoverty estimates representative at a muchlower level of aggregation than is possiblewith LSMS data. If the disaggregation is spatial,this amounts to poverty mapping, wherepoverty incidence is estimated for small geo-graphical units. The poverty map shown herefor Ecuador gives the spatial distribution ofpoverty for two common poverty measures:the headcount (which gives the percentage ofthe population below the poverty line) andthe poverty gap (which takes into accountthe distance from the poverty line– i.e. thedepth of poverty). Such poverty maps arebeginning to improve the targeting of inter-ventions. During a recent cholera epidemic in

South Africa, for example, authorities wereable to target preventive information on poorcommunities because poverty maps showedthat the epidemic spread along streams, butskipped relatively well-off locations.

A second development is that panel dataallow the estimation of dynamic models ofpoverty. It is a well-documented fact that alarge component of poverty in developingcountries is transient (people moving in andout of poverty) rather than structural. Poorhouseholds are exposed to very large shocks(reflecting greater exposure to extremeweather conditions, price volatility, illnessesetc.), and a lack of well-developed financialmarkets may lead to temporary spells ofpoverty. In addition, household responses torisk may make it difficult to escape frompoverty through growth. For example, diver-sification (a typical response of rural house-holds to risk) lowers mean incomes (by elimi-nating the gains from specialisation); thismay well lead to lower investment andgrowth. In much of the literature the effectof risk is analysed in an essentially staticframework. Conversely, the empirical analy-

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sis of growth typically proceeds as if agentsface no risk. To combine the two, one needsto model growth under uncertainty. This hasremained (since the 1960s) limited to veryspecial cases, however, and there have beenfew serious empirical applications. Recentmethodological advances in the area of esti-mation by simulation, as well as the avail-ability of panel data sets, are changing this.It is now possible to analyse the dynamics ofpoverty as the outcome of investment deci-sions taken under uncertainty by estimatingstochastic growth models on micro data(Elbers, Gunning and Kinsey, 2002). Thisapproach may help to improve the design ofanti-poverty programs: since structural andtransient poverty call for very different policyresponses, it is important to disentangle thecontributions of growth and risk in thedynamics of poverty.

Structural and transient

poverty call for very different

policy responses. It is important

to disentangle the contributions

of growth and risk in the

dynamics of poverty.

In poverty research there is now grow-ing concern, in both academic and policy cir-cles, about the exposure of poor householdsto risk– concern about potential poverty (vul-nerability) rather than the actual povertyrecorded in survey data. There have beenrather unconvincing attempts to identify vul-nerable households from cross-sectional data(e.g. by making the heroic assumption thathousehold consumption is generated by a

stationary distribution). Now that dynamicmodels can be estimated, it is fairly easy togenerate vulnerability estimates by microsimulation without the need to invoke thestationarity assumption. While computation-ally demanding, this approach is not verydata intensive. Although still in its infancy,the approach seems to offer the prospect ofmuch better targeting by identifying thehouseholds most at risk of falling into poverty.

A final development is the insight thatwhile designing effective policy interventionsis clearly necessary for eliminating poverty,it is not sufficient. If policy makers have noincentives to adopt these interventions (as is,unfortunately, the case in many of the poorestcountries), poverty will persist. Some povertyresearch is therefore now beginning to inves-tigate the political economy of reform. Someyears ago a famous tracking survey inUganda established that only about a third ofthe money allocated to primary schools inthe central government budget actuallyarrived at the schools. Shocked by this finding,the government adopted a simple remedy:whenever money was sent, the amount wasposted in a central location in the village.Parents used this information to lobby fordisbursement of the money. This process ofempowerment through information provedeffective: when the tracking survey wasrecently repeated, it found that over 80% ofthe funds arrived.

If policy makers have no incentives toadopt effective interventions, poverty willpersist. Some poverty research is thereforenow beginning to investigate the politicaleconomy of reform.

Poverty research is now applying thebest techniques of economic research to oneof the world’s most vexing problems– verymuch in the Tinbergen tradition.

References

Deininger, K. and L. Squire (1996), A new data set

for measuring income inequality”, World Bank

Economic Review, vol. 10, pp. 565-591.

Dekker, M. and H. Hoogeveen (2002), Bride wealth

and household security in rural Zimbabwe,

Journal of African Economies, vol. 11, pp. 114-

145.

Dollar, D. and A. Kraay (2002), Growth is good for

the poor, Journal of Economic Growth, vol. 7, pp.

195-225.

Elbers, C., J.W. Gunning and B. Kinsey (2002),

Convergence, shocks and poverty: Micro evidence

of growth under uncertainty”, TI Discussion Paper

35/2.

Elbers, C., J.O. Lanjouw and P. Lanjouw (2003),

Welfare in villages and towns: Micro-measurement

of poverty and inequality”, Econometrica, vol. 71,

pp. 355-364.

Tinbergen, J. (1984), Development cooperation as a

learning process, in G.M. Meier and D. Seers (eds.),

Pioneers in Development, Baltimore: Johns Hopkins

University Press.

12

Herman K. van Dijk●

●

Herman Koene van Dijk,

professor of econometrics, is

the director of the Econometric

Institute. His research interests

include development of

Bayesian estimation methods

using analytical methods and

Monte Carlo techniques, and

applications of neural net-

works in economics.

The “business cycle” is a concept of keyinterest for all economic actors and policymakers. Ever since the seminal work on thestatistical testing of business cycles by JanTinbergen (1939) and the empirical analysisby Burns and Mitchell (1946), the cyclicalbehavior of many economic variables hasbeen measured and modeled at the interna-tional level, the national level, the industrylevel and in the financial sector.Consumption, savings and production deci-sions of the private sector, and monetary andfiscal policy decisions of the banking andgovernment sectors, are based on forecastsof the future developments of economic vari-ables, which to a large extent depend on thestate of the business cycle. The characteriza-tion of the business cycle and the analysis of

its properties have been the subject of innu-merable studies.

Tinbergen’s research on key features ofthe business cycles in the years before theSecond World War may be characterized asdata driven. Several theories on periodicmovements in economic variables existed,but extensive empirical research was lacking.In the period before World War II, Tinbergen’sstatistical contribution was pioneering. Healso worked on model building and tried tofind explanatory variables for the businesscycles. Given the lack of good data for manycountries, and the events of World War II,that was no easy task. Some details onTinbergen’s work in that early period may befound in Tinbergen and Polak (1949).

I n d e p t h

Shocks, trends and cyclesin the twentieth century

13


Figure 1 (a) Natural logarithm

of real GDP per capita in the

US (straight line) and deter-

ministic trend (dashed line):

(b) Natural logarithm of real

GDP per capita in the US

(straight line) and stochastic

trend (dashed line), (c)

Residuals of deterministic

trend model (straight line)

and stochastic trend model

(dashed line)

Economists today can extend some fea-tures of Tinbergen’s study with much longerseries of economic data from many morecountries. This note discusses three issues:

1 The relevance of deterministic trendsversus stochastic trends and their effecton the cycle,

2 The importance of shocks versus cycles,3 The existence of long-run nonlinear

trends.

Until the 1970s many economists arguedthat the long-term growth path of the econo-my was exponential, and that deviationsfrom this path lead to temporary cyclicaldeviations. These deviations might bereduced in length and amplitude by a sensiblecounter-cyclical policy. This was alsoTinbergen’s approach. Where the interactionof consumption, investment, output andemployment was studied, the models wereKeynesian. The practice of counter-cyclicalpolicy was to use government expendituresto stimulate investment and consumption ina recession in order to create employment. Inthis context, stochastic shocks have a tempo-rary effect. However, there also exists theSchumpeterian view that stochastic shocks,mostly due to the introduction of new tech-nology, have a permanent effect and are thedriving force of western economies based onthe market mechanism (a view also supportedby Lucas (1977)). The two different viewsmay be explained using a simple time seriesmodel in which output is connected to itsown lagged values. The two views are shownin Figure 1. In case (a), a linear trend gives agood indication of the increase in log of realGNP per capita in the US in the twentiethcentury. In case (b), however, a “stochastictrend” describes the variation in the seriesmuch better than the linear deterministictrend. As a result, case (c) suggests that therewas no major business cycle in the 1930s.The depression of the thirties can now beconsidered a consequence of unexpectedshocks (for more details and a technicalexplanation, see Schotman and Van Dijk(1991)). The important point to note is thatTinbergen makes a plea in his 1939 book fora thorough analysis of the business cycleusing explanatory variables and adequatetime series models and methods. His plea isstill relevant today.

One may also extend the Tinbergenanalysis and argue that the business cyclewas overvalued in the twentieth century. Theoccurrence of a few large shocks (issue (2))influenced economic behavior and growthmore than the cycles. Figure 2 clearly showsthat the devastation due to World Wars I andII had a profound effect on the time seriesbehavior of real Gross Domestic Product perCapita for Germany and Japan. This leads usdirectly to issue (3). In order to describelong-run behavior (economic behavior over acentury), it would seem better to make use ofnonlinear growth patterns. The dotted non-linear lines shown in Figure 2 were obtainedfrom a “neural network” analysis (seeKaashoek and Van Dijk (2002)). These nonlin-ear patterns indicate that the constantgrowth for the twentieth century may not bean adequate description. It also indicatesthat both Germany and Japan had a

Figure 1a

Figure 1b

Figure 1c

‘Wirtschaftswunder’ for a number of decades,but that the current slowdown of theseeconomies may be part of a lower long-rungrowth process. Western economies in thetwenty-first century will certainly not be ableto repeat automatically the high growth ofthe post WW II period. Note that the dashedlines appear to be linear for several countries.However, the long-run effects (which can beobtained by solving nonlinear differenceequations) indicate a sizeable difference.

Despite the abundance of theoreticaland applied research on business cycles,many questions remain for which no definiteanswer has yet been found. Three importantopen issues are the following:

1 Is there a common (“world”) businesscycle across countries, how can it bemeasured, and what is its importance?Is there a convergence of cycles of EMUcountries? Are business cycles “conta-gious” (transmitted across countries,regions and industries)?

14

Figure 2. Natural logarithm of

real GDP per capita (straight

line) and orbit time series

of nn(1,1,1) neural networks

with lagged GDP as input

(dashed line)


15


References

Burns, A.F. and W.C. Mitchell (1946), Measuring

Business Cycles, NBER, New York.

Kaashoek, J.F. and H.K. van Dijk (2002), Neural net-

work pruning applied to real exchange rate analysis,

Journal of Forecasting, 21, 559-577.

Lucas, R.E. (1977), Understanding business cycles,

In: R.E. Lucas, 1989, Studies in business Cycle Memory,

Basil Blackwell, Oxford.

Schotman, P. and H.K. van Dijk (1991b), On

Bayesian roots to unit roots, Journal of Applied

Econometrics, 6, 387-401.

Tinbergen, J. (1939), Statistical Testing of Business-

cycle Theories. Volume 1: A method and its application

to investment activity. Volume 2: Business cycles in

the United States of America, 1919-1932. Geneva:

League of Nations.

Tinbergen, J. and J.J. Polak (1949), The Dynamics of

business cycles, A study in economic fluctuations,

University of Chicago Press.

2 What role does economic policy play incausing or countering asymmetries inbusiness cycles?

3 What is the role of leading indicators in,for example, forecasting business cycleturning points?

The conference “On the Wealth ofNations, extending the Tinbergen heritage”will certainly lead to a lively discussion of,and perhaps some answers to, several ofthese questions.

Speculative currency attacks

This paper studies the conse-quences of extendingKrugman’s seminal (1979)model of balance of paymentscrises and, particularly, itslinear variant of Flood &Garber (1984) with coordina-tion problems among currencyspeculators in a multi-country,multi-period setting.Assuming that speculatorsselect one currency at a timefor their attack– given thatthere are several candidatesthat more or less face thesame kind of problems – andthat individual speculatorslack sufficient resources toattack successfully a fixedexchange rate, coordinationamong speculators is essentialfor a focal point to emerge.While a speculator’s shortposition in an overvaluedcurrency contributes to pro-voking the collapse of thecurrency, it is also the mediumthrough which he or she‘communicates’ with otherspeculators. The timerequired for a focal point (orsuccessful coordination) toemerge proves to be negative-ly related to the following:the difference in initial beliefsabout currency weakness,the degree of communicationperfection, and the funda-mental imbalance. This timeis positively related to thenumber of currencies vulner-able to an attack. The addedvalue of this model extensionis that it allows the occurrenceof several stylized facts ofcrisis situations: overvaluation,exchange rate jumps, specu-lation profits, and contagion.

Dennis P.J. Botman & Henk Jager

(UvA), 2002, Coordination

of speculation, Journal of

International Economics,

58, 159-175.

On the Compositionof Committees

The use of committees iswidespread. In politics, organi-sations and universities smallgroups often assist decisionmakers with collecting infor-mation. A common rationalefor the existence of commit-tees is that their efforts allowdecisions to be based on moreand/or better information.However, delegating the collec-tion of information to commit-tees may raise three agencyproblems. First, committeemembers are required to puteffort into information collec-tion. Second, committee mem-bers must try to find the prop-er pieces of information. Third,committee members have thelatitude to manipulate certainpieces of information. Using a game-theoretic model,this paper explores the conse-quences of these agency prob-lems for the composition ofcommittees. Committee mem-bers with strong preferencesregarding the decision are will-ing to incur high costs ofsearching to convince the deci-sion maker. However, as pref-erence outliers have an incen-tive to manipulate information,outliers can convince the deci-sion maker only by providingverifiable information. Thecommunication of non-verifi-able information requires cred-ibility, which is attained ifcommittee members havepreferences similar to those ofthe decision maker.Additionally, members attunedto the decision-maker will tendto collect the pieces of infor-mation the decision makerwants them to collect. Ourpaper thus identifies the con-ditions under which varioustypes of committees are opti-mal from the decision makers’point of view.

By Klaas J. Beniers, Otto H. Swank

(EUR), On the Composition of

Committees, TI03-006/1

papers in journals discussionpapers

16


Peter P. Wakker (UvA) and his co-authorsreceived the 2002 publication award of theDecision Analysis Society for their paper, “Unstable Preferences: A Shift in Valuation or an Effect of the Elicitation Procedure?”

Before, the paper won the 2001 publication award ofthe Dutch Medical Technology Association.

The paperIt has often been debated which utility is more relevant formaking optimal decisions, the decision utility of a client facingfuture outcomes, or the experienced utility of someone elsewho is already experiencing the outcomes (Kahneman, Wakker,& Sarin, Quarterly Journal of Economics 1997). The formerperson is the one to decide, but the latter person knows better.In the health domain, experienced utilities are usually believedto exceed decision utilities. This paper provides a method formeasuring the discrepancies between the two kinds of utility,and also develops a design that can detect the causes of thediscrepancies; this makes it easier to decide which utility is bestfor assisting in the decision-making process. The method isapplied to the measurement of the wellbeing of patientsundergoing radiotherapy treatment.

Jansen, Sylvia J.T., Anne M. Stiggelbout, Peter P. Wakker, Marianne A. Nooij, Evert M. Noordijk and Job Kievit (2000),

“Unstable Preferences:A Shift in Valuation or an Effect of the Elicitation Procedure?”

Medical Decision Making 20, 62-71.

Further information can be found athttp://faculty.fuqua.duke.edu/daweb/danews.htm

All discussion papers

can be downloaded via

www.tinbergen.nl

17


The EconomicValue ofFlexibility

This paper develops an eco-nomic theory of “flexibility”,which is interpreted as thediscretion or ability to makea decision that others maydisagree with. It is a ques-tion of divergent beliefsregarding the optimal courseof action, with insufficienttime or objective data forbeliefs to converge. Thepaper shows that flexibilityis essentially an option forthe decision maker, and canbe valued as such. The valueof the flexibility optiondecreases in relation to theextent to which the decisionmaker’s future decision-rele-vant opinion is correlatedwith the opinions of otherswho may be able to impedethe decision.

The paper argues thatflexibility has in principlenothing to do with agency orasymmetric informationproblems. Our ‘theory offlexibility’ applies to cases inwhich there is full alignmentbetween principal and agent.What is essential is that dif-ferences in interpreting thesame information set couldgive rise to disagreement,and hence give value to flex-ibility. While related, ournotion of flexibility is alsoquite distinct from thedebate on rules versus dis-cretion (e.g. Kydland andPrescott, 1977).

To argue that flexibilitydrives economic decisions ina significant way, the paperexamines several applicationsto gain insights into variouseconomic phenomena. Theapplications considered arethe following: theentrepreneur’s choice of flex-ibility in the initial mix offinancing raised, the use offlexibility to understand dif-ferences in security designand the firm’s security-issuance decision, theimpact of flexibility on theuse of collateral in lending,

the role of flexibility in capi-tal budgeting decisions, theeffect of flexibility considera-tions in the design of con-tracts in a principal-agentsetting, the interpretation of“power” and conformity inorganizations in the contextof flexibility, and the choicebetween private and publicownership in the context offlexibility.

By Arnoud W.A. Boot (UvA) and

Anjan V. Thakor (University of

Michigan Business School), The

Economic Value of Flexibility

when there is Disagreement,

TI03-002/2

Has the Euroincreased Trade?

A major economic motivedriving the process towardsEconomic and MonetaryUnion (EMU) in Europe wasthe widespread view thatEMU would enhance tradebetween the participatingcountries. The euro would,for instance, eliminate (nom-inal) exchange rate risk,making trading profits lessrisky, so that risk-aversetraders would increase trade.Moreover, the euro wouldreduce intra-EMU foreignexchange transaction costs.

Given the importance of theEMU project and the seriouscosts involved in achievingEMU, many researchers ana-lyzed the validity of the viewthat the euro (more precisely,EMU) would stimulate trade.Until the introduction of theeuro in 1999, however, therewas no data on EMU.Authors therefore used non-EMU data to obtain an indi-rect indication of the EMUeffect on trade. The results,however, were ambiguous.Now that the euro has beenaround for a few years,researchers can make moreinformed attempts to estimatethe EMU effect directly withdata that include EMU obser-vations. Using a dynamicpanel model for annual bilat-eral exports, we find that theeuro has significantlyincreased trade, with aneffect of 4% in 1999, cumu-lating to around 40% in thelong run. The estimatesmight be useful to countrieslike the UK, for example, inthe national debate onwhether or not to join theeurozone.

By Maurice J.G. Bun, and

Franc J.G.M. Klaassen (UvA),

Has the Euro increased trade?

TI02-108/2

Earnings riskand demand forhigher educationMost studies on investmentin (higher) education ignorethe fact that such an invest-ment entails large risks.Individuals about to begin aprogram of higher educationknow little about their abili-ties, whether or not they willsucceed in their training andwhere in the earnings distri-bution they will end up afterleaving school. This studydevelops a model that pointsto the key parameters indeciding whether or not toembark upon an educationalprogram: additional incomegenerated later as a result ofthe education, additionalearnings uncertainty and riskattitude. Risk-averse individ-uals will shy away fromhigher education if itincreases earnings risk; forpersons with lower riskaversion this effect will bedampened.

Data from Spain are used totest the model. An individual’sdecision to participate in aneducational program isassumed to be related to theearnings consequencesobserved by the individual inhis or her environment. Inmost cases earnings riskseems to decline for thehigher educated in compari-son to those with a secondaryeducation. The study revealsthat if earnings risk associatedwith higher education increas-es, then individuals will beless inclined to enroll. But ifthe parental household isless risk averse, as measuredby expenditures on lotterytickets, this effect is signifi-cantly reduced.

Joop Hartog, (UvA); Luis Diaz

Serrano, University of Barcelona,

Earnings risk and demand

for higher education,

TI02-122/3

18


Integrating immigrants

Economists have been exploring migration issues (especiallymigration as an equilibrium mechanism) since the 1930s. Thespatial dimension has often been neglected, however, whichdefies empirical evidence showing that the size of the group offormer immigrants has always been one of the largest pull factorsfor new immigrants. This force of attraction has led to the exis-tence of large immigrant communities in all big cities over theworld. Important causes behind these concentrations of immi-grants include diminishing migration and adaptation costs andcertain information asymmetries. Concentrations of immigrants,in the long run, could create different forms of human capitalaccumulation compared with the indigenous population. Forexample, such concentrations may lead to fewer incentives toinvest in the native language, thereby hampering integration. This thesis first focuses on the economic forces driven and created by immigrant clustering. In so doing, it provides a generaltheoretical framework for the source of immigrant clustering andits consequences for group average growth of human capitalamong clustered immigrant groups. Thereafter, the thesisexplores the effects of immigrant clustering in the Netherlandson the immigrant’s educational attainment, employment proba-bilities and language proficiency. The empirical results suggest that especially language proficiencyis the most important determinant for the socioeconomic successof a migrant. The way an immigrant’s social network is con-structed also seems to determine his or her socioeconomic status.No evidence was found, however, that space (or in other wordsethnic clustering) significantly affects the dynamics of an immi-grant’s human capital in the Netherlands.

Thesis: ‘Migration, Ethnic Minorities and Network Externalities’ by Thomas

de Graaff. Published in the Tinbergen Institute Research Series #278.

The essays presented in thisvolume cover topics in bothindustrial organization andcorporate finance. In eacharea, timing is the key choicein the strategic decisions offirms. The first essay exploresthe launching of a new prod-uct in a duopoly with com-petitive advantage: dependingon the level of competitiveadvantage and the level ofuncertainty, there are differentoptimal entering strategies,ranging from pre-emption toavoiding direct competition.The second essay examinesthe advantage of partial exitfrom an investment as astrategy to overcome negativesynergies between theinvestment and the mainfirm activity. The third essaydevelops a model thatexplains two empirical puzzlesregarding IPOs, namely thehot issue phenomena and thedifferent under-pricing strate-gies of venture capitalistsover time.

Such a diversity of topicsunderscores how relevantand conclusive the timingissue is in widely differingissues in economics andfinance.

Thesis: “Optimal timing of

strategic financial decisions” by

Silvia Rossetto. Published in the

Tinbergen Institute Research

Series #300

theses Optimal Timing

19

Theses

285 JOOST LOEF (26/09/02), Incongruity between

Ads and Consumer Expectations of Advertising.

286 JEDID-JAH JONKER (19/09/02), Target Selection

and Optimal Mail Strategy in Direct Marketing.

287 SILVIA CASERTA (04/10/02), Extreme Values in

Auctions and Risk Analysis.

288 WENDLY DAAL (18/10/02), A Term Structure

Model of Interest Rates and Forward Premia: An

Alternative Monetary Approach.

289 HSIANG-KE CHAO (12/12/02), Representation

and Structure. The Methodology of Econometric

Models of Consumption.

290 JASPER DALHUISEN (24/10/02), The Economics

of Sustainable Water Use, Comparisons and Lessons

from Urban Areas.

291 PAUL DE BRUIN (10/09/02), Essays on Modelling

Nonlinear Time Series.

292 JOOST ARDTS (31/10/02), All is well that

begins well: A Longitudinal Study of Organisational

Socialisation.

293 J.E.M. VAN NIEROP (20/12/02), Advanced

Choice Models.

294 DANIËL VAN VUUREN (22/10/02), The Market

for Passenger Transport by Train. An Empirical

Analysis.

295 ADA FERRER CARBONELL (17/01/03),

Quantitative Analysis of Well-being with Economic

Applications.

297 JESSE D. LEVIN (23/10/02), Essays in the

Economics of Education.

298 EELKE WIERSMA (16/01/03), Non-financial

Performance Measures: An Empirical Analysis of a

Change in a Firm’s Performance Measurement

System.

299 MEHARI MEKONNEN (23/01/03, Project for

Shareholder Value: A Capital Budgeting Perspective.

300 SILVIA ROSSETTO (29/11/02), Optimal Timing

of Strategic Financial Decisions.

301 PIETER VAN FOREEST (22/11/02), Essays in

Financial Economics.

302 ARJEN H. SIEGMANN (07/01/03), Optimal

Financial Decision Making under Loss Averse

Preferences.

303 ALBERT VAN DER HORST (13/02/03),

Government Interference in a Dynamic Economy.

304 PAOLO RUSSO (19/12/02), The Sustainable

Development of Heritage Cities and their Regions:

Analysis, Policy, Governance.

Bartelsman, E.J., 2002, Discussion of matching

demand and supply in a weightless economy:

Market-driven creativity with and without IPRs,

De Economist, 150(4), 405-08.

Berk, J.M., 2002, Consumers’ inflation expectations

and monetary policy in Europe, Contemporary

Economic Policy, 20(2), 122-32.

Biais, B. and E. Perotti, 2002, Machiavellian privati-

zation, American Economic Review, 92(1), 240-58.

Bosman, R. and F. van Winden, 2002, Emotional

hazard in a Power-to-Take experiment, Economic

Journal, 112(476), 147-69.

Boswijk, H.P. and L.A., 2002, Semi-nonparametric

cointegration testing, Journal of Econometrics,

108(2), 253-80.

Broersma, L. and F.A.G. den Butter, 2002, An explo-

rative empirical analysis of the influence of labour

flows on wage formation, Applied Economics,

34(13), 1583-92.

Buurman, J. and P. Rietveld,, 2002, Spatial differ-

ences in rural land prices, a hedonic pricing

approach, Jahrbuch fur Regionalwissenschaft/Review

of Regional Research, 22(2), 105-22.

Papers in Journals by TI fellows


Carree, M., et al, 2002, Economic development and

business ownership: An analysis using data of 23

OECD countries in the period 1976-1996, Small

Business Economics, 19(3), 271-90.

Claessens, S. and S. Djankov, 2002, Privatization

benefits in Eastern Europe, Journal of Public

Economics, 83(3), 307-24.

Cramer, J. S., et al., 2002, Low risk aversion

encourages the choice for entrepreneurship:

An empirical test of a truism, Journal of Economic

Behavior and Organization, 48(1), 29-36.

Danielsson, J., B.N. Jorgensen and C.G. de Vries,

2002, Incentives for effective risk management,

Journal of Banking and Finance, 26(7), 1407-25.

Davis, J.B. and P. Zong, 2002, Household own-

consumption and grain marketable surplus in

China, Applied Economics, 34(8), 969-74.

Diecidue, E. and P.P. Wakker, 2002, Dutch books:

Avoiding strategic and dynamic complications, and

a comonotonic extension, Mathematical Social

Sciences, 43(2), 135-49.

Dijk D., van, P.H. Franses and R. Paap, 2002, A non-

linear long memory model, with an application to

US unemployment, Journal of Econometrics, 110(2),

135-65.

Dijk, D., van, T. Terasvirta, and P.H. Franses, 2002,

Smooth transition autoregressive models-A survey

of recent developments, Econometric Reviews, 21(1),

1-47.

Dobbelsteen, S., J. Levin and H. Oosterbeek, 2002,

The causal effect of class size on scholastic

achievement: Distinguishing the pure class size

effect from the effect of changes in class composi-

tion, Oxford Bulletin of Economics and Statistics,

64(1), 17-38.

Droste, E., C. Hommes and J. Tuinstra, 2002,

Endogenous fluctuations under evolutionary pres-

sure in Cournot competition, Games and Economic

Behavior, 40(2), August, 232-69.

Fase, M.M.G., 2002, Notes and communications:

Inflation differentials and their convergence in

EMU, De Economist, 150(2), 211-17.

Francois, J. and D. Nelson, 2002, A geometry of

specialisation, Economic Journal, 112(481), 649-78.

Franses, P.H. M. van der Leij and R. Paap, 2002,

Modelling and forecasting level shifts in absolute

returns, Journal of Applied Econometrics, 17(5),

601-16.

Franses, P.H. and R. Paap, 2002, Censored latent

effects autoregression, with an application to US

unemployment, Journal of Applied Econometrics,

17(4), 347-66.

Franses, P.H. and A.L. Montgomery, eds, 2002,

Econometric models in marketing, Advances in

Econometrics, vol. 16, ix, 350.

Franses, P.H. and M. McAleer, 2002, Financial

volatility: An introduction, Journal of Applied

Econometrics, 17(5), 419-24.

Franses, P.H., M. van der Leij, R. Paap, 2002,

Modeling and forecasting level shifts in absolute

returns, Journal of Applied Econometrics, 17(5),

601-16.

Frijters, P. 2002, The Non-parametric identification

of lagged duration dependence, Economics Letters,

75(3), 289-92.

Gahvari, F. (Reviewer), 2002, Review of:

Environmental taxation and the double dividend,

Journal of Economic Literature, 40(1), 221-23.

Gautier, P.A., 2002, Non-sequential search, screening

externalities and the public good role of recruitment

offices, Economic Modelling, 19(2), 179-96.

Gautier, P.A., 2002, Unemployment and search

externalities in a model with heterogeneous jobs

and workers, Economica, 69(273), pages 21-40.

Gautier, P.A., G.J. van den Berg, J.C. van Ours and

G. Ridder, 2002, Worker turnover at the firm level

and crowding out of lower educated workers,

European Economic Review, 46(3), 523-38.

Giersbergen, N.P.A., van, and J.F. Kiviet, 2002, How

to implement the bootstrap in static or stable

dynamic regression models: Test static versus

confidence region approach, Journal of

Econometrics, 108(1), 133-56.

Gilboa, I., D. Schmeidler and P.P. Wakker, 2002,

Utility in case-based decision theory, Journal of

Economic Theory, 105(2), 483-502.

Goeree, J.K., C.A. Holt and T.R. Palfrey, 2002,

Quantal response equilibrium and overbidding in

private value auctions, Journal of Economic Theory,

104(1), 247-72.

Goeree, J.K., C. A. Holt and S. K. Laury, 2002,

Private costs and public benefits: Unraveling the

effects of altruism and noisy behavior, Journal of

Public Economics, 83(2), 255-76.

20

21


Goeree, J.K., and T. Offerman, 2002, Efficiency in

auctions with private and common values: An

experimental study, American Economic Review,

92(3), 625-43.

Groot, H.L.F. de and R. Nahuis, 2002, Optimal

product variety and economic growth: The trade-off

between internal and external economies of scale,

Journal of Economics (Zeitschrift fur National-

okonomie), 76(1), 1-32.

Gustafsson, S.S., C.M.M.P. Wetzels, and E. Kenjoh,

2002, Postponement of maternity and the duration

of time spent at home after first birth panel; Data

analyses, comparing Germany, Great Britain, the

Netherlands and Sweden, Public Finance and

Management, 2(2), 218-44.

Hartog, J., E. Leuven, and C. Teulings, 2002, Wages

and the bargaining regime in a corporatist setting:

The Netherlands, European Journal of Political

Economy, 18(2), 317-31.

Hartog, J., A. Ferrer-i-Carbonell and N. Jonker, 2002,

Linking measured risk aversion to individual

characteristics, Kyklos, 55(1), 3-26.

Heijden, E.C.M., van der, J.H.M. Nelissen and

H.A.A. Verbon, 2002, Should the same side of the

market always move first in a transaction? An

experimental study, Journal of Institutional and

Theoretical Economics, 158(2), 344-67.

Hinloopen, J., 2002, Price regulation in a spatial

duopoly with possible non-buyers, Annals of

Regional Science, 36(1), 19-39.

Hyung, N. and C.G. de Vries, 2002, Portfolio diversi-

fication effects and regular variation in financial

data, Allegemeines Statistisches Archiv/Journal of

the German Statistical Society, 86(1), 69-82.

Janssen, M.C.W., 2002, Catching Hipos: Screening,

wages, and competing for a job, Oxford Economic

Papers, 54(2), 321-33.

Janssen, M.A. and W. Jager, 2002, Stimulating diffu-

sion of green products: Co-evolution between firms

and consumers, Journal of Evolutionary Economics,

12(3), 283-306.

Janssen, M. and E. Rasmusen, 2002, Bertrand

competition under uncertainty, Journal of Industrial

Economics, 50(1), 11-21.

Janssen, M.C.W. and S. Roy, 2002, Dynamic trading

in a durable good market with asymmetric informa-

tion, International Economic Review, 43(1), 257-82.

Kerkhof, J. and A. Pelsser, 2002, Observational

equivalence of discrete string models and market

models, Journal of Derivatives, 10(1), 55-61.

Keyzer, M., 2002, Labeling and the realization of

cultural values, De Economist, 150(4), 487-511.

Kremers, H., P. Nijkamp and P. Rietveld, 2002,

A Meta-analysis of price elasticities of transport

demand in a general equilibrium framework,

Economic Modelling, 19(3), 463-85.

Kovenock, D. and C.G. de Vries, 2002, Fiat exchange

in finite economies, Economic Inquiry, 40(2), 147-57.

Laan, G. van der, and H. Houba, 2002, One-seller/

two-buyer markets with buyer externalities and

(im)perfect competition, International Game Theory

Review, 4(2), 141-64.

Laan, G. van der, D. Talman, and Z. Yang, 2002,

Existence and welfare properties of equilibrium in

an exchange economy with multiple divisible and

indivisible, commodities and linear production

technologies, Journal of Economic Theory.

Leeuwen, M.J. van and B.M.S. van Praag, 2002, The

costs and benefits of lifelong learning: The case of

the Netherlands, Human Resource Development

Quarterly, 13(2), 151-68.

Lijesen, M.G., P. Rietveld and P. Nijkamp, 2002, How

do carriers price connecting flights? Evidence from

intercontinental flights from Europe, Transportation

Research: Part E: Logistics and Transportation

Review, 38(3-4), 239-52.

Lindeboom, M., F. Portrait and G.J. van den Berg,

2002, An econometric analysis of the mental-health

effects of major events in the life of older individuals,

Health Economics, 11(6), 505-20.

Lucas, A., R. van Dijk, and T. Kloek, 2002, Stock

selection, style rotation, and risk, Journal of

Empirical Finance, 9(1), 1-34.

Marrewijk, C. van, 2002, International trade and the

world economy, Oxford University Press.

Martin, S. 2002, Do military exports stimulate civil

exports?, Applied Economics, 34(5), 599-605.

Martin, S., 2002, Spillovers, appropriability and

R&D, Journal of Economics (Zeitschrift fur National-

okonomie), 75(1), 1-32.

Martin, S., 2002, Sunk cost and entry, Review of

Industrial Organization, 20(4), 291-304.

22


Mooij, R.A. de and C.J.M. van den Bergh, 2002,

Growth and the environment in Europe: A guide to

the debate, Empirica, 29(2), 79-91.

Moraga-Gonzalez, J.L. and N. Padron-Fumero, 2002,

Environmental policy in a green market,

Environmental and Resource Economics, 22(3), 419-47

Moraga-Gonzalez, J.L. and S. Goyal, 2001, R & D

networks, Rand Journal of Economics, 32(4), 686-707.

Morgan, M.S., 2002, Symposium on Marshal’s

tendencies: 1: How models help economists to

know, Economics and Philosophy, 18(1), 5-16.

Offerman, T., 2002, Hurting hurts more than helping

helps, European Economic Review, 46(8), 1423-37.

Paelinck, J. H. P., 2002, A multiple gap approach to

spatial economics, Annals of Regional Science,

36(2), 219-27.

Portrait, F., M. Lindeboom and D. Deeg, 2001, Life

expectancies in specific health states: Results from

a joint model of health status and mortality of

older persons, Demography, 38(4), 525-36.

Post, G.T., L. Cherchye and T. Kuosmanen, 2002,

Nonparametric efficiency estimation in stochastic

environments, Operations Research, 50(4), 645-655.

Pradhan, M. and N. Prescott, 2002, Social risk man-

agement options for medical care in Indonesia,

Health Economics, 11(5), 431-46.

Rietveld, P. and R. Roson, 2002, Direction dependent

prices in public transport: A good idea? The back

haul pricing problem for a monopolistic public

transport firm, Transportation, 29(4), 397-417.

Rietveld, P., 2002, Why railway passengers are more

polluting in the peak than in the off-peak,

Environmental effects of capacity, management by

railway companies under conditions of fluctuating

demand, Transportation Research: Part D, Transport

and Environment, 7(5), 347-56.

Schaik, A.B.T.M. van and H.L.F. de Groot, 2002,

Macroeconomic consequences of downsizing,

Economic Modelling, 19(3), 331-52.

Swank, O.H., 2002, Budgetary devices for curbing

spending prone ministers and bureaucrats, Public

Choice, 111(3-4), 237-57.

Ubbels, B., P. Rietveld, and P. Peeters, 2002,

Environmental effects of a kilometre charge in road

transport: An investigation for the Netherlands,

Transportation Research: Part D: Transport and

Environment, 7(4), 255-64.

Ubbels, B. and P. Nijkamp, 2002, Unconventional

funding of urban public transport, Transportation

Research: Part D, Transport and Environment, 7(5),

317-29.

Verhoef, E.T., 2002, Second-Best congestion pricing

in general networks: Heuristic algorithms for find-

ing second-best optimal toll levels and toll points,

Transportation Research: Part B: Methodological,

38(8), 707-29.

Verhoef, E.T. and P. Nijkamp, 2002, Externalities in

urban sustainability: Environmental versus localiza-

tion-type agglomeration externalities in a general

spatial equilibrium model of a single-sector mono-

centric industrial city, Ecological Economics, 40(2),

157-79.

Verhoef, E.T., 2002, Second-best congestion pricing

in general static transportation networks with elastic

demands, Regional Science and Urban Economics,

32(3), 281-310.

Viaene, J.M. and I. Zilcha, 2002, Capital markets

integration, growth and income distribution,

European Economic Review, 46(2) 301-27.

Viaene, J.M. and I. Zilcha, 2002, Public education

under capital mobility, Journal of Economic

Dynamics and Control, 26(12), 2005-36.

Vlist, A.J., van der, P. Rietveld and P. Nijkamp, 2002,

Residential search and mobility in a housing market

equilibrium model, Journal of Real Estate Finance

and Economics, 24(3), 277-99.

Vuuren, D., van and P. Rietveld, 2002, The off-peak

demand for train kilometres and train tickets: A

microeconometric analysis, Journal of Transport

Economics and Policy, 36(1), 49-72.

Wakker, P.P. and H. Zank, 2002, A simple preference

foundation of cumulative prospect theory with

power utility, European Economic Review, 46(7),

1253-71.

23

Discussion papers

Institutions and decision processes

02-094/1

Tibor Neugebauer, University of Hannover, Anders

Poulsen, Aarhus School of Business, and Arthur

Schram, Universiteit van Amsterdam, Fairness and

Reciprocity in the Hawk-Dove Game

02-098/1

Klarita Gërxhani, and Arthur Schram, Universiteit

van Amsterdam, Tax Evasion and the Source of

Income

02-100/1

Jordi Brandts, Instituto de Análasis Económico

(CSIC), Barcelona, Spain, Tatsuyoshi Saijo, Institute

of Social and Economic Research, Osaka, Japan, and

Arthur Schram, Universiteit van Amsterdam, How

Universal is Behavior?

02-105/1

Jean Derks, University of Maastricht, Gerard van der

Laan, Vrije Universiteit Amsterdam, and Valeri

Vasil’ev, Sobolev Institute of Mathematics,

Novosibirsk, Russia, On Harsanyi Payoff Vectors

and the Weber Set

02-106/1

Arthur J.H.C. Schram, Universiteit van Amsterdam,

Experimental Public Choice

02-110/1

E. Algaba, J.M. Bilbao, Escuela Superior de

Ingenieros, Sevilla, Spain, R. van den Brink, Vrije

Universiteit Amsterdam, and A. Jiménez-Losada,

Escuela Superior de Ingenieros, Sevilla, An

Axiomatization of the Banzhaf Value for Cooperative

Games on Antimatroids

02-111/1

Matthijs van Veelen, Vrije Universiteit Amsterdam,

Altruism, Fairness and Evolution: The Case for

Repeated Stochastic Games

02-118/1

Josse Delfgaauw and Robert Dur, Erasmus

Universiteit Rotterdam, From Public Monopsony to

Competitive Market

02-123/1

Josse Delfgaauw and Robert A.J. Dur, Erasmus

Universiteit Rotterdam, From Public Monopsony to

Competitive Market: More Efficiency but Higher

Prices

02-126/1

Gerard van der Laan, Vrije Universiteit Amsterdam,

Dolf Talman, Tilburg University, and Zaifu Yang,

Institute of Mathematical Economics, University of

Bielefeld, Perfection and Stability of Stationary

Points with Applications to Non-cooperative Games

03-005/1

Klaas J. Beniers and Robert A.J. Dur, Erasmus

Universiteit Rotterdam, Product Market Competition

and Trade Union Structure

03-006/1

Klaas J. Beniers and Otto H. Swank, Erasmus

Universiteit Rotterdam, On the Composition of

Committees

03-007/1

Cees Diks, Roy van der Weide, Universiteit van

Amsterdam, Continuous Beliefs Dynamics

03-009/1

Marco J. van der Leij, Erasmus Universiteit

Rotterdam, Competing Transport Networks

Financial and InternationalMarkets

02-089/2

Joseph F. Francois, Erasmus Universiteit Rotterdam

and CEPR, and Felix Eschenbach, Erasmus

Universiteit Rotterdam, Financial Sector

Competition, Service Trade, and Growth

02-092/2

Wouter J. den Haan, University of California at San

Diego, CEPR, NBER, The Comovement between Real

Activity and Prices in the G7

02-107/2

Siem Jan Koopman and André Lucas, Vrije

Universiteit Amsterdam, and Pieter Klaassen, ABN-

AMRO Bank NV and Vrije Universiteit Amsterdam,

Pro-Cyclicality, Empirical Credit Cycles, and Capital

Buffer Formation

02-108/2

Maurice J.G. Bun and Franc J.G.M. Klaassen,

Universiteit van Amsterdam, Has the Euro increased

Trade?

02-114/2

Jeffrey D. Gramlich, University of Hawai’i, and

University of Michigan, Piman Limpaphayom,

Chulalongkorn University, Thailand, and S. Ghon

Rhee, University of Hawai’i, Taxes, Keiretsu

Affiliation, and Income Shifting

02-115/2

Rosita P. Chang, Sang-Hyop Lee and S. Ghon Rhee,

University of Hawai’I, and Sean F. Reid, University of

New Haven, One-Way Arbitrage-Based Interest Parity

02-125/2

Joseph Francois, Erasmus Universiteit Rotterdam,

and Will Martin, World Bank, Formula Approaches

for Market Access Negotiations

03-001/2

Arnoud W.A. Boot, Universiteit van Amsterdam, and

Anjan V. Thakor, University of Michigan Business

School, Disagreement and Flexibility - A Theory of

Optimal Security Issuance and Capital Structure

24

03-002/2

Arnoud W.A. Boot, Universiteit van Amsterdam, and

Anjan V. Thakor, University of Michigan Business

School, The Economic Value of Flexibility when there

is Disagreement

03-008/2

Jeroen Hinloopen, University of Amsterdam, Cartel

Stability with Subjective Detection Beliefs

Labour, Region and Environment

02-091/3

Edwin Leuven and Hessel Oosterbeek, Universiteit

van Amsterdam, A New Approach to estimate the

Wage Returns to Work-related Training

02-095/3

Roberto Patuelli, Ravenna, Eric Pels, and Peter

Nijkamp, Vrije Universiteit Amsterdam,

Environmental Tax Reform and Double Dividend

02-096/3

Sjef Ederveen, CPB Netherlands Bureau for

Economic Policy Analysis, The Hague, Henri L.F. de

Groot, Vrije Universiteit Amsterdam, and Richard

Nahuis, CPB Netherlands Bureau for Economic

Policy Analysis, The Hague, Fertile Soil for

Structural Funds?

02-102/3

Jan Rouwendal, Vrije Universiteit Amsterdam, Speed

Choice, Car Following Theory and Congestion Tolling

02-103/3

Rutger Hoekstra and Marco A. Janssen, Vrije

Universiteit Amsterdam, Environmental

Responsibility and Policy in a Two Country Dynamic

Input-Output Model

02-109/3

Guido Fioretti, IASG, Firenze, ICER, Torino, CSC,

Siena, Individual Contacts, Collective Patterns - Prato

1975-97, A Story of Interactions

02-112/3

Peter Nijkamp and Chiara Maria Travisi, Vrije

Universiteit Amsterdam, and Gabriella Vindigni,

University of Catania, Pesticide Risk Valuation in

Empirical Economies

02-117/3

Jos van Ommeren, Vrije Universiteit Amsterdam,

and Michiel van Leeuwenstein, CPB Netherlands

Bureau for Economic Policy Analysis, The Hague,

New Evidence of the Effect of Transaction Costs on

Residential Mobility

02-120/3

France Portrait, Rob Alessie and Dorly Deeg, Vrije

Universiteit Amsterdam, Disentangling the Age,

Period, and Cohort Effects using a Modeling

Approach

02-122/3

Joop Hartog, Universiteit van Amsterdam, and Luis

Diaz Serrano, University of Barcelona, Earnings Risk

and Demand for Higher Education

03-004/3

James Albrecht, Georgetown University; Pieter

Gautier, Erasmus University Rotterdam; Susan

Vroman, Georgetown University, Equilibrium

Directed Search with Multiple Applications

Econometrics

02-093/4

J.B.G. Frenk, Erasmus Universiteit Rotterdam, G. Kassay,

Babes Bolyai University, Cluj, and V. Protassov,

Moscow State University, Moscow, On Borel Probability

Measures and Noncooperative Game Theory

02-097/4

Rutger van Oest, Philip Hans Franses, and Richard

Paap, Erasmus Universiteit Rotterdam, A Dynamic

Utility Maximization Model for Product Category

Consumption

02-099/4

Maurice J.G. Bun and Jan F. Kiviet, Universiteit van

Amsterdam, On the Diminishing Returns of Higher-

order Terms in Asymptotic Expansions of Bias

02-101/4

Maurice J.G. Bun and J.F. Kiviet, Universiteit van

Amsterdam, The Effects of Dynamic Feedbacks on LS

and MM Estimator Accuracy in Panel Data Models

02-113/4

Siem Jan Koopman and Charles S. Bos, Vrije

Universiteit Amsterdam, Time Series Models with

a Common Stochastic Variance for Analysing Economic

Time Series

02-116/4

Gianni Amisano, University of Brescia, and

Massimiliano Serati, Cattaneo University, What goes

up sometimes stays up: Shocks and Institutions as

Determinants of Unemployment Persistence

02-119/4

J.S. Cramer, Universiteit van Amsterdam,

The Origins of Logistic Regression

02-121/4

Nicole Jonker, De Nederlandsche Bank, Hans van

Ophem and Joop Hartog, Universiteit van Amsterdam,

Dual Track or Academic Route for Auditors

02-124/4

Rutger van Oest, Richard Paap and Philip Hans Franses,

Erasmus Universiteit Rotterdam, A Joint Framework

for Category Purchase and Consumption Behavior

03-003/4

Frank Kleibergen, University of Amsterdam; Richard

Paap, Erasmus University Rotterdam, Generalized

Reduced Rank Tests using the Singular Value

Decomposition

25


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Tinbergen Magazine is published by

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research institute operated jointly by

the Economics and Econometrics

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Tinbergen Research InstituteFour themes distinguish Tinbergen

Institute’s research programme:I. Institutions and Decision AnalysisII. Financial and International MarketsIII. Labour, Region and the EnvironmentIV. Econometrics and Operations Research

Each theme covers the whole spectrumof economic analysis, from theoretical to empirical research. Stimulating discussionson theories, methodologies and empiricalresults arise from the interaction of theInstitute’s faculty–comprised of approximate-ly 96 research fellows. These fellows are fac-ulty members with excellent track records ineconomic research, active in organisingresearch activities, teaching graduate coursesand supervising Ph.D. students.

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Chair), M. Dewatripont (CORE), P. de Grauwe(Leuven University), D.F. Hendry (OxfordUniversity), R.C. Merton (Harvard University),D. Mortensen (Northwestern University),S. Nickell (Oxford University), T. Persson(Stockholm University), L. Wolsey (CORE)

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den Brink (ABN-AMRO), H.J. Brouwer (DNB),M.J. Cohen (Mayor of Amsterdam), F.J.H. Don(CPB), C. Maas (ING), F.A. Maljers, I.W. Opstelten (Mayor of Rotterdam), A.H.G. Rinnooy Kan (ING), H. Schreuder(DSM), J. Stekelenburg, R.J. in ’t Veld, P.J. Vinken, L.J. de Waal (FNV)

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subscriptions:Tinbergen Institute RotterdamBurg. Oudlaan 503062 PA Rotterdamthe Netherlands. E-mail: [email protected] changes may be sent to the above e-mail address.

28


In this issue What determines the enormous variation in the wealth of nations?



Papers in journals

Discussion papers

Theses

timag07-spring2003

Documents

tinbergen week

wealth of nations

issue of tinbergen magazinein

enormous variation

economics of povertyshocks

economic interests

erasmusuniversiteit

yearlybusiness week