Inverse Of Elasticity Research Articles

Publication and Attenuation Biases in Measuring Skill Substitution

Abstract A key parameter in the analysis of wage inequality is the elasticity of substitution between skilled and unskilled labor. We show that the empirical literature is consistent with both publication and attenuation bias in the estimated inverse elasticities. Publication bias, which exaggerates the mean reported inverse elasticity, dominates and results in corrected inverse elasticities closer to zero than the typically published estimates. The implied mean elasticity is 4, with a lower bound of 2. Elasticities are smaller for developing countries. To derive these results, we use nonlinear tests for publication bias and model averaging techniques that account for model uncertainty.

Grounded by Gravity: A Well-Behaved Trade Model with Industry-Level Economies of Scale

We propose a model to study the role of industry-level external economies of scale in open economies. If the elasticity governing the strength of external economies is below the inverse of the trade elasticity in each industry, then specialization under frictionless trade is consistent with comparative advantage, the model is tractable even with trade frictions, and all countries gain from trade. External economies lower gains from trade except if the country specializes in industries with high scale economies, and they amplify the gains from further trade liberalization except if it leads to specialization in industries with low scale economies. (JEL D24, F11, F12, F13)

Flow-Driven ESG Returns

I show that the performance of ESG investments is strongly driven by price-pressure arising from flows towards sustainable funds, causing high realized returns that do not reflect high expected returns. The coefficient linking ESG flows and realized returns is the product of two factors: The deviation of green funds' portfolios from the market portfolio and a flow multiplier matrix that is the inverse of the market's demand elasticity of substitution between stocks. Empirically, withdrawing 1 dollar from the market portfolio and investing it in the representative ESG fund increases the aggregate value of high ESG-taste stocks by 2-2.5 dollars. Under the absence of flow-driven price pressure, the aggregate ESG industry would have strongly underperformed the market from 2016 to 2021. Furthermore, the positive alpha of a long-short ESG taste portfolio becomes significantly negative.

Monopsony in Labor Markets: A Meta-Analysis

When jobs offered by different employers are not perfect substitutes, employers gain wage-setting power; the extent of this power can be captured by the elasticity of labor supply to the firm. The authors collect 1,320 estimates of this parameter from 53 studies. Findings show a prominent discrepancy between estimates of direct elasticity of labor supply to changes in wage (smaller) and the estimates converted from inverse elasticities (larger), suggesting that labor market institutions may rein in a substantial amount of firm wage-setting power. This gap remains after they control for 22 additional variables and use Bayesian Model Averaging and LASSO to address model uncertainty; however, it is less pronounced for studies employing an identification strategy. Furthermore, the authors find strong evidence that implies the literature on direct estimates is prone to selective reporting: Negative estimates of the elasticity of labor supply to the firm tend to be discarded, leading to upward bias in the mean reported estimate. Additionally, they point out several socioeconomic factors that seem to affect the degree of monopsony power.

Market power and export taxes

This paper explores the extent to which market power considerations explain levels of export taxes. Market power is proxied by the inverse import demand elasticities faced by exporters. The paper first provides estimates of market power for exporting countries and products at the 6-digit level of the Harmonized System. It then finds a positive correlation between market power and export taxes. This result supports the theory that, when unconstrained in their trade policy choices, countries take their market power into account when setting their export taxes.

The closed-form solutions for finance-extended Lucas–Uzawa model

In this paper, I establish the closed-form solutions for all the variables in the finance-extended Lucas–Uzawa model under no parameter restrictions by utilizing the partial Hamiltonian approach and second by direct utilization of the standard methods. I provide an overview of the model and properties of the balanced growth path (BGP) as discussed in Bucci and Marsiglio (Scot J Polit Econ 2018). I have provided sufficient conditions as well. First, the model is solved by utilizing the partial Hamiltonian approach and I obtain two first integrals. I utilize both first integrals to find the closed-form solutions for all variables of finance-extended Lucas–Uzawa model. I also establish the growth rates of all the variables in the model to fully understand the dynamics of the model. The properties of BGP as described by Bucci and Marsiglio (2018) are analyzed and some additional properties are provided as well. Next, I establish a closed-form solution for all the variables of the model directly by utilizing the standard methods and these can be, alternatively, derived by utilizing only one first integral. This closed-form solution also satisfies all properties of the BGP. For the special case when inverse of intertemporal elasticity of substitution is equal to the share of physical capital, both approaches provide same closed-form solution for all the variables of the model which is presented in Bucci and Marsiglio (2018). The relationship between financial development and imbalance effects is analyzed in detail.

Survival and Long-Run Dynamics with Heterogeneous Beliefs under Recursive Preferences

I analytically characterize the long-run behavior of an economy with two types of agents who differ in their beliefs and are endowed with homothetic recursive preferences. Agents with more incorrect beliefs dominate, or agents with different accuracy of their beliefs coexist in the long run, for broad ranges of plausible parameterizations when risk aversion is greater than the inverse of the intertemporal elasticity of substitution. The results highlight a crucial interaction between risk sharing, speculative behavior and consumption-saving choice of agents with heterogeneous beliefs, and the role of equilibrium prices in shaping long-run outcomes.

On sufficiency issues, first integrals and exact solutions of Uzawa-Lucas model with unskilled labor

In this article, the sufficiency issues, first integrals and exact solutions for the Uzawa-Lucas model with unskilled labor are investigated. The sufficient conditions are established by utilizing Arrow's Sufficiency theorem. The non-negativeness conditions for the balanced growth path (BGP) are provided and growth rate is explicitly given in terms of parameters of the model. The first integrals are established by the partial Hamiltonian approach. Then first integrals are utilized to construct the exact solutions for all the variables. The growth rates of all variables and graphical representation of exact solutions are provided for the special case when the inverse of the intertemporal elasticity of substitution is the same as the share of physical capital.

Effects of Collagenase Type II on Vitreous Humor-An In Situ Rheological Study.

The purpose of this study is to quantify the impact of enzyme activity on the vitreous humor structure over time to understand the mechanical characteristics of the vitreous humor gel. Changes in the mechanical behavior of the vitreous occur due to many reasons including aging, which may lead to many vitreoretinal diseases. The degeneration process of the vitreous has been studied; however, in situ experimental procedures to validate the existing hypotheses are limited. We examined thirty-eight porcine eyes using in situ rheological creep tests to measure the mechanical properties of the vitreous humor of the eyes prior to, 1 h and 24 h after the intravitreal injection. Eyes in one group were injected with collagenase type II solution and eyes in the control group were injected with phosphate buffered saline solution (PBS) with calcium and magnesium chloride. Prior to the injection, viscosity and creep compliance intercept values between both groups were not statistically different. At 1 h and 24 h after the injection, vitreous properties in the eyes from the first group showed a statistically significant increase in the J intercept values (representing the inverse of elasticity) compared to the control group. In addition, 1 h and 24 h after the injection, vitreous viscosity was lower in the eyes from the first group than in the eyes from the control group. These findings are a foundation for future studies on the effectiveness of intravitreal drugs that modify the mechanical properties of the vitreous humor.

The Armington assumption and the size of optimal tariffs

There has been commentary on the seeming success of the world trading system in responding to the large shock of the 2008 financial crisis without an outbreak of retaliatory market closing. The threat of large retaliatory tariffs and fears of a 1930s style downturn in trade have been associated with numerical trade modelling, which projects post retaliation optimal tariffs in excesses of 100%. In the relevant numerical modelling, it is common to use the Armington assumption of product heterogeneity by country. Here, we argue and show by numerical calculation that the widespread use of this assumption gives a large upward bias to optimal tariffs, both first step and post retaliation, relative to alternative homogenous good models used in trade theory. The reason is that optimal tariffs equal the inverse of the foreign export supply elasticity and are negatively related to the elasticity of the foreign offer curve. The Armington assumption model has a much more bowed foreign offer curve, which generates unrealistic larger optimal tariffs.

COMPARISON OF CLOSED-FORM SOLUTIONS FOR THE LUCAS-UZAWA MODEL VIA THE PARTIAL HAMILTONIAN APPROACH AND THE CLASSICAL APPROACH

In this paper we derive the closed-form solutions for the Lucas-Uzawa growth model with the aid of the partial Hamiltonian approach and then compare our results with those derived in literature. The partial Hamiltonian approach provides two first integrals [9] in the case where there are no parameter restrictions and these two first integrals are utilized to construct three sets of closed form solutions for all the variables in the model. We begin by using the two first integrals to find two closed form solutions, one of which is new to the literature. We then use only one of the first integrals to derive a third solution that is the same as that found in the previous literature. We continue by analyzing the newly derived solution in detail also show that all three solutions converge to the same long run balanced growth path. The special case when the share of capital is equal to the inverse of the intertemporal elasticity of substitution is also investigated in detail.

The design of long term care insurance contracts

This paper studies the design of long term care (LTC) insurance contracts in the presence of ex post moral hazard. While this problem bears some similarity with the study of health insurance (Blomqvist, 1997) the significance of informal LTC affects the problem in several crucial ways. It introduces the potential crowding out of informal care by market care financed through insurance coverage. Furthermore, the information structure becomes more intricate. Informal care is not publicly observable and, unlike the insurer, caregivers know the true needs of their relatives. We determine the optimal second-best contract and show that the optimal reimbursement rate can be written as an A-B-C expression à la Diamond (1998). These terms respectively reflect the efficiency loss as measured by the inverse of the demand elasticity, the distribution of needs and the preferences for risk sharing. Interestingly, informal care directly affects only the first term. More precisely the first term decreases with the presence and significance of informal care. Roughly speaking this means that an efficient LTC insurance contract should offer lower (marginal) reimbursement rates than its counterpart in a health insurance context.

Market Power and Transmission Congestion in the Italian Electricity Market

Analysis of market power in electricity markets is relevant for understanding the competitive development of the industry’s restructuring and liberalization process, but in the existing literature, there is not an adequate consideration of line transmission congestion. The aim of this paper is to propose a new approach to measuring market power in the Italian Power Exchange (IPEX), explicitly considering transmission line congestion. We construct a new measure of the residual demand curve to disentangle unilateral market power from congestion rent for the main Italian generators during the period April 2004 to December 2007. In Italy, this period was one of stable transmission network structure. Following the approach of Wolak (2003, 2009), we measure the unilateral market power with the Lerner index (LI), computed as the inverse of the residual demand elasticity. In conclusion, the correct modeling of the residual demand curve including transmission congestions enables us to compute the zonal LI and therefore more accurately measure the market power when congestion occurs. Our results show that various generators exercise market power only in specific zones. These findings provide deeper understanding of market outcomes in the presence of congestion, suggesting appropriate policy directions for market surveillance and competition regulation.

International business cycles and risk sharing with uncertainty shocks and recursive preferences

This paper analyzes the effects of output volatility shocks on the dynamics of consumption, trade flows and the real exchange rate, in a two-country, two-good world with consumption home bias, recursive preferences, and complete financial markets. When the risk aversion coefficient exceeds the inverse of the intertemporal substitution elasticity, then an exogenous rise in a country׳s output volatility triggers a wealth transfer to that country, to compensate for the greater riskiness of the country׳s output stream. This risk sharing transfer raises the country׳s consumption, lowers its trade balance and appreciates its real exchange rate. In the recursive preferences framework here, volatility shocks account for a non-negligible share of the fluctuations of net exports, net foreign assets and the real exchange rate. These shocks help to explain the high empirical volatility of the real exchange rate and the disconnect between relative consumption and the real exchange rate.

Risk Sharing in a World Economy with Uncertainty Shocks

This paper analyzes the effects of output volatility shocks and of risk appetite shocks on the dynamics of consumption, trade flows and the real exchange rate, in a two-country world with recursive preferences and complete financial markets. When the risk aversion coefficient exceeds the inverse of the intertemporal substitution elasticity, then an exogenous rise in a country's output volatility triggers a wealth transfer to that country, in equilibrium; this raises its consumption, lowers its trade balance and appreciates its real exchange rate. The effects of risk appetite shocks resemble those of volatility shocks. In a recursive preferences-complete markets framework, volatility and risk appetite shocks account for a noticeable share of the fluctuations of net exports, net foreign assets and the real exchange rate. These shocks help to explain the high empirical volatility of the real exchange rate and the disconnect between relative consumption growth and the real exchange rate.

Market Power in Power Markets: An Analysis of Residual Demand Curves in California’s Day-ahead Energy Market (1998-2000)

2000, with a focus on its day-ahead energy market and its five non-utility thermal generating companies. Our goal is to assess whether the hourly bids of market participants, together with information on thermal unit characteristics and power output, suggest that the five suppliers were behaving in line with Nash supply function competition, bidding close to their marginal costs or restraining quantities relative to the Nash level. The analysis of residual demand inverse elasticities suggests that the five thermal generators had an incentive to exercise unilateral market power that was not always fully exploited. A comparison of market-clearing prices, estimated marginal costs and marginal revenues finds that firm conduct was broadly consistent with Nash supply function competition or more competitive than Nash behavior in most of our sample.

Risk Sharing in a World Economy with Uncertainty Shocks

This paper analyzes the effects of output volatility shocks and of risk appetite shocks on the dynamics of consumption, trade flows and the real exchange rate, in a two-country world with recursive preferences and complete financial markets. When the risk aversion coefficient exceeds the inverse of the intertemporal substitution elasticity, then an exogenous rise in a country’s output volatility triggers a wealth transfer to that country, in equilibrium; this raises its consumption, lowers its trade balance and appreciates its real exchange rate. The effects of risk appetite shocks resemble those of volatility shocks. In a recursive preferences-complete markets framework, volatility and risk appetite shocks account for a noticeable share of the fluctuations of net exports, net foreign assets and the real exchange rate. These shocks help to explain the high empirical volatility of the real exchange rate and the disconnect between relative consumption growth and the real exchange rate.

Competitive Equilibrium in the Italian Wholesale Electricity Market

The market power analysis in electricity market is relevant for understanding the competitive development of the industry’s restructuring and the liberalization process. The paper analyzes the market power exercised by power generators in the Italian wholesale electricity market. Following the approach of Wolak (2003, 2009), the extent of market power is measured using the Lerner index computed as the inverse of arc elasticity of the residual demand faced by each Cournot competitors. Then, the market supply curves have been adjusted to entail market power effects and the new market resolutions were derived. The new equilibrium prices are the competitive ones and represent the market clearing price that would have been if the electricity market was competitive and the effects of unilateral market power were removed.

Some Properties of The Solution of The Ramsey Model

Abstract The main aim of this paper is to improve some results obtained by Smith. We provide here a closed-form solution for the Ramsey model. We prove that if the inverse of the constant elasticity of intertemporal substitution is different to the elasticity of output with respect to physical capital, then the economy described by this model reaches the unique steady-state equilibrium, for any starting values of per-capita consumption. The advantage of the paper over the existing paper is that the arguments here are not local, that is, our hypotheses are most generally possible. Consequently, we can obtain almost all other results as particular cases of our solution. Our approach clarifies why different starting values of per-capita consumption generates the same steady-state equilibrium, but of different periods of time. We also clarifiy some of previous result obtained by other authors as for example Luca Guerrini.

Reassessing Edgeworth’s conjecture when population dynamics is stochastic

We analyze the implications of different welfare criteria on economic and population growth in the case of stochastic population change. Edgeworth (1925) argues that total utilitarianism leads to a lower economic performance and a larger population size than average utilitarianism. Following works show that while his intuition holds in a static framework, the result is unclear in a dynamic setting of endogenous growth. We show that if population dynamics is stochastic, Edgeworth’s conjecture may or may not hold. In particular, which utilitarian criterion implies larger economic and population growth rates depends on the value of the inverse of the intertemporal elasticity of substitution, the features of the random process driving demographic change and the magnitude of the (linear) dilution coefficient. We also characterize the size of the range of parameter values supporting Edgeworth’s conjecture; such a range is wide if the dilution parameter is large enough while it is particularly narrow (but still non-empty) if the parameter is small.