Standard Intuition Research Articles

Informational Hold-Up, Disclosure Policy, and Career Concerns on the Example of Open Source Software Development

We consider software developers who can either work on an open source project or on a closed source project. The former provides a publicly available signal about their talent, whereas the latter provides a signal only observed by their employer. We show that a talented employee may initially prefer a less paying job as an open source developer to commercial closed source projects, because a publicly available signal gives him a better bargaining position when renegotiating wages with his employer after the signal has been revealed. Also, we derive conditions under which two effects suggested by standard intuition are reversed: a “pooling equilibrium” (with both talented and untalented workers doing closed source) is less likely if differences in talent are large; a highly visible open source job leads to more effort in a career concerns setup. The former effect is because a higher productivity of talented workers raises not only the value but also the cost of signaling; the latter stems from more effort and the choice of a high visibility job being substitutes for the purpose of signaling. Results naturally apply to other industries with high and low visibility jobs, e.g. academic rather than commercial research, consulting rather than management.

Energy taxes and endogenous technological change

This paper studies the effects of a tax on energy use in a growth model where market structure is endogenous and jointly determined with the rate of technological change. Because this economy does not exhibit the scale effect (a positive relation between TFP growth and aggregate R&D), the tax has no effect on the steady-state growth rate. It has, however, important transitional effects that give rise to surprising results. Specifically, under the plausible assumption that energy demand is inelastic, there may exist a hump-shaped relation between the energy tax and welfare. This shape stems from the fact that the reallocation of resources from energy production to manufacturing triggers a temporary acceleration of TFP growth that generates a √ -shaped time profile of consumption. If endogenous technological change raises consumption sufficiently fast and by a sufficient amount in the long run, and households are sufficiently patient, the tax raises welfare despite the fact that—in line with standard intuition—it lowers consumption in the short run.

Black hole bound on the number of species and quantum gravity at CERN LHC

In theories with a large number N of particle species, black hole physics imposes an upper bound on the mass of the species equal to M-Planck/root N. This bound suggests a novel solution to the hierarchy problem in which there are N approximate to 10(32) gravitationally coupled species, for example 10(32) copies of the standard model. The black hole bound forces them to be at the weak scale, hence providing a stable hierarchy. We present various arguments, that in such theories the effective gravitational cutoff is reduced to Lambda(G)approximate to M-Planck/root N and a new description is needed around this scale. In particular, black holes smaller than Lambda(-1)(G) are already no longer semiclassical. The nature of the completion is model dependent. One natural possibility is that Lambda(G) is the quantum gravity scale. We provide evidence that within this type of scenarios, contrary to the standard intuition, micro-black-holes have a (slowly fading) memory of the species of origin. Consequently, the black holes produced at LHC will predominantly decay into the standard model particles, and negligibly into the other species.

On-the-job human capital accumulation in a real business cycle model: Implications for intertemporal substitution elasticity and labor hoarding

A substantial fraction of a worker's time at work goes to acquiring human capital. This paper explicitly considers on-the-job human capital accumulation from the perspective of time invested for acquiring skills and learning by doing in an RBC model and shows that the inability to account for human capital accumulation leads to a substantial bias in conventional estimates of intertemporal substitution elasticity. Our main results are based on the standard intuition that the opportunity cost of time invested in acquiring human capital moves procyclically, so that on-the-job time invested in acquiring human capital is “counter-cyclical.” Furthermore, the true wage rate becomes less procyclical, while production hours become more procyclical than total hours at work. The overall results can be viewed as providing a micro foundation for labor hoarding models without adjustment costs.

The Dynamics of Neighbourhood Watch and Norm Enforcement

We propose a dynamic model of neighbourhood watch schemes. While the state chooses punishment levels, apprehension of criminals depends on the watchfulness of citizens. We show that, contrary to standard intuition, crime levels can increase in punishments. This is because neighbourhood watch schemes can fall victim to their own success if recruitment of new members is driven by fear of crime – a finding that is in line with the empirical literature. We discuss the policy implications of this result and show how it extends to the more general problem of norm enforcement among interacting citizens.

Competitor Collaboration and Product Distinctiveness

Competitors often collaborate by sharing a part of their value-creating activities such as technology development, product design, and distribution, which are important elements for creating product distinctiveness across firms. This paper explores the economic consequences of competitor collaborations in the presence of a non-collaborator under the location framework, in which competitors can save on fixed costs by forming a collaboration. Although collaboration between competitors reduces the distinctiveness between their products, it increases the distinctiveness between their products and the non-collaborators' product. At the same time, intensified competition between collaborators lowers their prices and imposes downward pressure on non-collaborator's pricing strategy. The interaction between these two effects, together with the heterogeneity of consumers, yields rich welfare implications. Furthermore, we demonstrate that contrary to standard intuition, partial ownership arrangements could enhance consumers' welfare by inducing competitors to collaborate. Our analysis yields significant and novel welfare implications for competitor collaborations, which have recently attracted substantial attention from antitrust authorities.

Separate When Equal? Racial Inequality and Residential Segregation

Standard intuition suggests that residential segregation in the United States will decline when racial inequality narrows. In this paper, we hypothesize that the opposite will occur. We note that middle-class black neighborhoods are in short supply in many U.S. metropolitan areas, forcing highly educated blacks either to live in predominantly white high-socioeconomic status (SES) neighborhoods or in more black lower-SES neighborhoods. Increases in the proportion of highly educated blacks in a metropolitan area may then lead to the emergence of new middle-class black neighborhoods, causing increases in residential segregation. We formalize this mechanism using a simple model of residential choice that permits endogenous neighborhood formation. Our primary empirical analysis, based on across-MSA evidence from the 2000 Census, indicates that this mechanism does indeed operate: as the proportion of highly educated blacks in an MSA increases, so the segregation of blacks at all education levels increases. Time-series evidence provides additional support for the hypothesis, showing that an increase in black educational attainment in a metropolitan area between 1990-2000 significantly increases segregation. Our analysis has important implications for the evolution of both residential segregation and racial socioeconomic inequality, drawing attention to a negative feedback loop likely to inhibit reductions in segregation and racial inequality over time.

Optimal Team Incentives with CES Production

Standard economic theory and intuition suggests that the free rider problem will overwhelm firm-wide incentives in large firms. Despite this, such schemes are relatively common in manufacturing firms and may be more popular in larger firms. This paper models an optimal incentive contract and a simple partnership with CES production functions. The results suggest that when employee inputs are complements, firm-wide incentives such as profit sharing and partnerships are quite valuable, even in large firms.

An Empirical Analysis of the Relation Between Option Market Liquidity and Stock Market Activity

We empirically investigate the relation between daily activity in the underlying stock and option liquidity for firms included in the German DAX index and with options traded on the electronic exchange EUREX. By means of regression analyses we identify the major determinants of transaction-based and order-based option liquidity. We find that the transaction volume of the underlying stock is indeed a major determinant of transaction-based liquidity in the options market, whereas contrary to standard intuition, return volatility does not consistently exhibit a significant impact. On the other hand short-term measures of uncertainty, represented by the positive and negative parts of stock returns and their lagged values, are important explanatory factors. Order-based liquidity seems to be harder to model than transaction-based liquidity. The negative return part is a common factor influencing both spread and depth variables, while volatility overall significantly increases option market depth. As an important contribution to the empirical literature on option market liquidity, we provide separate regressions for buyer and seller initiated transactions. It becomes clear that especially the relation between stock returns and transaction-based liquidity is asymmetric with respect to option purchases and sales. Call purchases increase with positive returns and decrease on days with negative returns, while put purchases behave exactly the opposite way. However, both call and put sales increase on days with large positive or negative returns.

The Morphology of Dutch (review)

Reviewed by: The morphology of Dutch by Geert Booij Laurie Bauer The morphology of Dutch. By Geert Booij. Oxford: Oxford University Press, 2002. Pp. xii, 253. ISBN: 019829980X. $26.00. This a companion volume to Booij’s The phonology of Dutch (1995). B is ideally qualified to write such a book. Not only has he presented many analyses of Dutch morphology (published both in Dutch and in English) since his thesis (Booij 1977), but he is also one of the editors of the prestigious periodical Yearbook of Morphology and is thus up to date in his knowledge of morphological theory in general. He has previously written a textbook introduction to Dutch morphology for the Dutch (Booij & van Santen 1995), and the present volume is a state-of-theart presentation on the morphology of Dutch for people who do not understand enough Dutch to read Dutch originals. After a short introduction, which focuses on the nature of morphological rules, productivity, and lexicalization, B has chapters on inflection (19–85), derivation (86–140), compounding (141–66), and the interface with phonology (167–86) and with syntax (187–224). The brief conclusion looks at the implications for ‘the architecture of the grammar’. There is a full reference list, with references to works in both Dutch and English, and there are three indexes (subject, author, and affix). The book is clearly and engagingly presented with only a very few minor exceptions, and I noted only two typographical errors, neither a serious impediment to understanding. The work is rich in exemplificatory material, and one important feature is that alternative analyses of the same data are presented and arguments given for accepting B’s preferred analysis. Implications of these analyses for morphological theory in general are then pointed out (e.g. the comments against Robert Beard on p. 40 and against Stephen Anderson on p. 103). One of the interests for the English-speaker in reading this book is to see the ways in which a closely-related language like Dutch can differ from English. B seldom makes a point of this, preferring to comment on similarities between the two languages in order to clarify some particular point in the exposition. Some of the differences derive from differing patterns of productivity in the two languages and differing uses of commonly-inherited material; some of them arise from the fact that Dutch—despite significant loans from Romance, Latin, and Greek—seems to maintain a more Germanic morphology than English does. Examples of the differences are pointed out in the discussion below. In Ch. 2, B deals with the inflection of nouns (number, possession, and gender), of adjectives (degree, prenominal inflection, the nominalization of adjectives by -e, and partitive constructions), and of verbs (finite forms, periphrasis and aspect, and nonfinite forms). This is the only chapter in the book where B provides optimality theoretic tableaux to illustrate how competing affixes are selected, though the fundamental notion of affix choice being determined by output constraints runs through the explanations that are given here. In addition to a few foreign nouns that have foreign plurals and fifteen nouns that take the suffix (or suffix-sequence—the solution B argues for) -eren, Dutch has two regular plural suffixes, -s and -en. Unlike in English, where -s has taken over almost entirely from -en, in Dutch both of these suffixes are common and productive. B presents an analysis in which the choice between affixes is determined prosodically, following the generalization that ‘a plural noun ends in a trochee’ (24). Atypically, he ignores alternative analyses whereby the choice of affix is determined segmentally and/or morphologically (see e.g. Geerts et al. 1984:60–66). Either of these analyses captures what is clearly a standard intuition among Dutch linguists: that the two endings are in complementary distribution. They are not. Geerts et al. 1984:66–69 lists a number of words where different plural forms are either in free variation or correlate with differences of meaning. B implies that variability occurs where either option leads to an output final trochee (25, 28), but the lists in Geerts et al. seem to deny that this is the only place where such doublets occur [End...

Fiscal Policy and Long-run Growth in R&D-based Models with Endogenous Market Structure

This paper shows that in a model of endogenous growth that does not exhibit the scale effect, taxes on consumption and labor income and the level and composition of public expenditure have no effect on steady-state growth. The only fiscal instruments that affect steady-state growth are taxes on asset and corporate income. In line with standard intuition, tax rates and public expenditure have level effects on income per capita. These results emphasize that although growth is endogenous, in the sense that it is determined by the model and it is subject to policy action, instruments that work by changing market size do not affect it. Effective growth-enhancing policies operate through the interest rate.

Peut-on toujours redistribuer les gains à la spécialisation et à l'échange ? Un retour en pointillé sur Ricardo et Heckscher-Ohlin

Peut-on toujours redistribuer les gains a la specialisation et a l'echange ? Un retour en pointille sur Ricardo et Heckscher-Ohlin ; ; On explore les relations entre les problemes d'efficacite et de redistribution dans la theorie du commerce international. D'abord, dans une version dynamique du modele de Ricardo, l'analyse d'un cas tres stylise montre que des effets d'apprentissage par l'experience peuvent induire des specialisations avantageuses qui appellent des transferts compensatoires internationaux de grande ampleur. On montre ensuite que dans le modele de Heckscher-Ohlin, en l'absence d'outils redistributifs suffisamment efficaces, la conciliation des considerations d'equite et d'efficacite conduit a adopter des politiques economiques fortement contre-intuitives.

Social Insurance and Transition

The authors study the general equilibrium effects of social insurance on transition in a model in which the process of moving workers from matches in the state sector to new matches in the private sector takes time and involves uncertainty. As might be expected, adding social insurance to an economy without any improves welfare. Contrary to standard intuition, however, adding social insurance may slow transition. The authors show that this result depends crucially on general equilibrium interactions of interest rates and savings under alternative market structures. Copyright 1996 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Predictor Sort Sampling, Tight T'S, and the Analysis of Covariance

In this article we revisit a method of sample allocation that has long been known to statisticians and has recently been “discovered” by wood strength researchers. The method allocates experimental units to blocks on the basis of the values of a variable, x, that is known to be correlated with the response, y We call this allocation method “predictor sort sampling.” We demonstrate that the associated paired T analysis recommended in statistical texts is deficient if the sample size is small and the correlation between x and y is high. We temper this criticism of standard statistical intuition with a proof that the approach is asymptotically correct. In a related development we show that a modified pooled T approach can be taken to this data with a resultant increase in power. We compare these approaches to an analysis of covariance approach and discuss the advantages of each. Finally, we warn against the intuitively attractive but incorrect power calculations that are likely to be performed in association...

Restrictions on Price Advertising

In this paper the effects of advertising restrictions in an industry producing an undifferentiated product are analyzed. When the product is undifferentiated, advertising conveys information about price. The standard intuition suggests that such prohibitions will raise buyer search costs, making demand less elastic. This raises price and profits in an industry. Advertising restrictions provide an indirect means of coordinating pricing strategies in this framework. Here we consider the cost side of the same argument. The efficiency of firms in an industry is allowed to vary and information about costs is private. In this environment efficient firms are hurt by advertising restrictions, since lower advertised prices constitute their most effective competitive weapon. We show that when the number of buyers and sellers is finite, there is a nonzero probability that advertising restrictions will reduce every firm's price. This occurs when all firms are more efficient than their competitors expect them to be. Further, when the number of buyers and sellers is infinite, it is possible that average price charged in an industry can fall after a ban on advertising.