2010 Working Papers (AU-CAS-ECON)

Analyzing Policy Risk and Accounting for Strategy
We examine the potential for simple auction mechanisms to efficiently allocate arrival and departure slots during Ground Delay Programs (GDPs). The analysis is conducted using a new approach to predicting strategic behavior called Predictive Game Theory (PGT). The difference between PGT and the familiar Equilibrium Concept Approach (ECA) is that PGT models produce distribution-valued solution concepts rather than set-valued ones. The advantages of PGT over ECA in policy analysis and design are that PGT allows for decision-theoretic prediction and policy evaluation. Furthermore, PGT allows for a comprehensive account of risk, including two types of risk, systematic and modeling, that cannot be considered with the ECA. The results show that the second price auction dominates the first price auction in many decision-relevant categories, including higher expected efficiency, lower variance in efficiency, lower probability of significant efficiency loss and higher probability of significant efficiency gain. These findings are despite the fact that there is no a priori reason to expect the second price auction to be more efficient because none of the conventional reasons for preferring second price over first price auctions, i.e. dominant strategy implementability, apply to the GDP slot auction setting.
Fiscal policy and growth in Saudi Arabia
Whether government spending can boost the pace of economic growth is widely debated. In the neoclassical growth model, it is supplies of productive resources and productivity that determine growth in the long-run. In endogenous growth models, an increase in government spending may raise the steady-state rate of growth due to positive spillover effects on investment in physical and/or human capital. This paper examines the relationship between government spending and non-oil GDP in the case of Saudi Arabia. Using time-series methods and data for 1969-2005, we find that increases in government spending have a positive and significant long-run effect on the rate of growth. Estimated effects of current expenditure on growth turn out to exceed those of capital expenditure -- suggesting that government investment in infrastructure and productive capacity has been less growth-enhancing in Saudi Arabia than programs to improve administration and operation of government entities and support purchasing power. We discuss possible reasons for this finding in the Saudi case and draw some policy implications
Food Security, Gender and Occupational Choice among Urban Low- Income Households
Rising urban poverty and food insecurity are serious concerns in developing countries today. Urban livelihoods and coping strategies remain poorly understood however. This paper examines the response of female and male household members in marginalized urban (predominantly squatter) areas to the risk of food shortage in terms of occupational choice. More specifically, we use probit analyses to investigate whether household vulnerability or the need to provide self-insurance for food security, alongside gender roles, influence a worker’s choice of enterprise activity. We focus our investigation on self-employed women and men using a data set drawn from the 1496 individual sample in 14 urban squatter communities in Bolivia, Ecuador, Philippines and Thailand. Our findings show that selfemployed women in households facing higher risk of food insecurity are likely to engage in food-related enterprise activities and this is especially true in Philippines and Thailand. This suggests the role of occupational choice in in helping urban squatter households in mitigating the risk of food shortage through the selection of an income-generating activity that allows the direct use of unsold inventories for food consumption.
Although healthy societies may require a degree of material inequality, higher levels of inequality have been linked to negative social consequences ranging from poorer health to lessened democracy. However, the greatest contemporary threat of excessive inequality might be its contribution to increased environmental degradation. Indeed, avoiding devastation of our habitat may be the greatest challenge ever faced by humanity. This article explores the manner in which inequality encourages consumption, by drawing upon Thorstein Veblen’s theory of consumer behavior, whereby in societies in which fluid social mobility is believed possible, inequality encourages households to seek social certification and social status through consumption. Rising inequality strengthens the intensity with which households struggle to maintain social respectability through increased consumption. The ideology, institutions, and behavior generated by this focus on consumption reduce the potential for people to achieve certification of value through more environmentally friendly domains such as work and community. This article also addresses the manner in which inequality impedes responses aimed at reducing environmental damage by augmenting the political power of those whose interests would be harmed by environmental measures. Indeed, the wealthy benefit threefold from pollution: Their disproportionate consumption is made less expensive, their assets yield higher profits, and they are better able to shield themselves from the negative consequences of environmental destruction.
Maintaining New Markets
While others have examined the implementation and/or the stringency of enforcement of antitrust laws in post-socialist economies, this paper is the first study that attempts to explain the determinants of antitrust enforcement activity across post-socialist countries using economic and political variables. Using a panel of ten European post-socialist countries over periods ranging from 4 to 11 years, we find a number of significant determinants of enforcement in these countries. For example, larger economies engage in more antitrust enforcement, and countries have tended to increase their enforcement efforts over time. Our results also suggest that countries characterized by more unionization and less corruption tend to engage in greater antitrust enforcement of all types. Countries more successful in privatizing have filed fewer cases, while more affluent or developed countries investigate fewer cases of all types, consistent with an income-shifting motivation for antitrust., Published: Working Paper Series February 2010 No. 2010-5
Recession and the Social Economy
In recessions, there is typically an increase in unmet basic needs -- for food, shelter and health care. While government programs offset these to some extent, and friends and family may also help, an important role is also played by the „social economy‟, i.e. private, nonprofit organizations relying primarily on donations, grants and volunteer labor to support social welfare in their communities. This paper reviews evidence on the growth of unmet needs during recession and documents social-economy mechanisms that aim to contain them. The analysis highlights hallmarks of social-economy models that make them well-suited to accommodating unmet needs, including use of multiple strategies to mobilize resources, ingenuity, efficiency, cooperation, and a dominant ethic of care. It also identifies fragilities in social-economy models and inherent issues of power imbalance between those offering and receiving help. While some view these problems as underlining the need for more generous government programs to meet basic needs, the paper takes the contrary position that the social economy constitutes a critical reserve of nonmarket, nongovernment values that hold better promise for addressing issues of need and social justice than expanded entitlements. As such, the question is how to reduce fragilities and imbalances in the social economy, where furthering its institutional innovations is likely key. These include information sharing, cooperative backbones supporting frontline agencies, strategic connections with socially responsible businesses, and stakeholder strategies that upturn relationships between „helpers‟ and „helped‟., Working Paper Series July 2010
Inequality increased dramatically in the decades leading up to the financial crises of both 1929 and 2008. Yet students of both crises have largely ignored any role that rising inequality might have played in rendering the financial sector more vulnerable to systemic dysfunction. This study draws upon the work of Thorstein Veblen, Michal Kalecki, and Karl Marx to clarify the manner in which growing inequality prior to both crises made U.S. financial markets more prone to systemic dysfunction. Greater inequality generated three dynamics that heightened conditions in which these financial crises might occur. The first is that greater inequality meant that individuals were forced to struggle harder to find ways to consume more to maintain their relative social status, thereby reducing their savings and increasing their indebtedness. The second is that holding ever greater income and wealth, the elite flooded financial markets with credit, helping keep interest rates low and encouraging the creation of new credit instruments. The third dynamic is that, as the rich took larger shares of income and wealth, they gained more command over ideology and hence politics. Reducing the size of government, tax cuts for the rich, deregulating the economy, and failing to regulate newly evolving credit instruments flowed out of this ideology.
Who pays the price when housing bubbles burst?
There has been much debate in recent years about whether the Federal Reserve should have taken action against the housing-price bubble as it was forming. One argument in favor of using monetary policy to offset asset-price bubbles is that it may be impossible after the bubble bursts to ease policy hard enough or fast enough to offset a strong contraction. While the fall in housing prices since 2006 has clearly increased unemployment and depressed growth, much less is known about how the costs have been distributed across households of different means. This paper uses data from the Census Bureau’s annual American Community Survey (ACS) to examine this question. We first lay out the mechanisms via which a housing-market bust would be expected to affect households, in terms of incomes, employment, assets, and ability to service debt. We then use the ACS data to analyze how the house-price bust has affected households with different characteristics, differentiating between communities in which home prices did and did not boom and bust. Our results suggest that costs of the bubble have tended to fall on households less able to endure periods of financial distress. This lends further support to the argument that monetary policy oriented to social welfare should tackle bubbles ex ante rather than ex post.