Other papers:
Voting for jobs: Policy
persistence and unemployment
ABSTRACT: We study, in a model with unemployment, how labour market
status affects the preferences for public spending, whether in the form of a
public good or subsidies. We then derive the implications for the dynamics of
government expenditures, under the hypothesis of majority voting. These will
exhibit positive persistence if the employed are marginally more powerful than
the unemployed, and negative persistence if the unemployed are marginally more
powerful. Under a uniform distribution of tastes for the public good, there is
no persistence. The unemployed's preferences may be non single-peaked, so that
high unemployment may destroy the existence of a voting equilibrium.
Immigration,
assimilation, et stratification régionale
ABSTRACT: We study
regional dynamics in a model where the assimilation choice of immigrants is
endogenous. We show the existence of threshold effects and stratification
effects.
The
35 hour week and the EMU: How should Euro-Policy makers react to large
asymmetric shocks?
ABSTRACT: We argue that in January 2000 the EWMu will face a strong test
as the introduction of the 35-hour week in
Productivity,
social interaction, and communication
Excerpt: People spend most of their time at the
workplace communicating. Their ability to do so efficiently must have a large
influence on productivity. In this paper, we study how, depdending on the
sociological and technological characteristics of the economy, a ''unified''
or, on the contrary, a stratified way of communiating may emerge. Communication
takes place less efficiently in the stratified case, because people who spend
different languages cannot communicate with each other.
The model has various levels of interpretation. At the
most literal level, ''stratification'' means that people from different
communities speak different languages, and the paper captures how ethnic and
social stratification generates several languages in equilibrium, with a
negative feedback effect on productivity. At a most metaphorical level, people
may speak the same language but use it so differently than communication is
difficult. People from different social and regional backgrounds may have
trouble communicating with each other even though they use the same language.
In the paper we identify two forces which lead to a
''unified'' language: social mobility, by which I mean that people from
different ''groups'' or ''communities'' have frequent interactions with each
other outside the workplace; and technological standardization, which favors
the development of a specialized jargon at the workplace. Technological
standardization avoids the adverse effects on productivity of linguistic
stratification, and increases the tendency towards a homogeneous communication
system. It is shown that an increase in ''flexibility'', meaning a less
specialized, less standardized technology, will have adverse effects on productivity
if society is too socially stratified.
This is the last WP
version of a paper now published in
The Economics of Human Cloning
ABSTRACT:
We discuss the prospects for human cloning to arise in an economic equilibrium.
We embody this into an overlapping generations model and discuss the conditions
under which a market for cloning will arise and its consequences for the distribution
of income and the long-run distribution of abilities.
Fiscal
policy and economic growth: the role of financial intermediation
ABSTRACT: This paper analyzes the impact of public
debt on financial efficiency in an overlapping generations model. We argue that
public debt may reduce intermediation costs by increasing the collateral of
entrepreneurs. This effect is stronger, the stronger the non-Ricardian
component of public debt, i.e. the more it is associated with intergenerational
redistribution. This effect can be interpreted as future generations acting as
a guarantee for the loans provided to the entrepreneurs of the current
generation. Furthermore, multiple growth paths may arise as low taxes increase
private collateral, which in turn boosts growth via financial efficiency, while
higher growth allows to maintain the same debt/GDP ratio with reduced taxes.
Distribution and growth in an
economy with limited needs
ABSTRACT: This paper studies
a model of the distribution of income under bounded needs. Utility derived from
any given good reaches a bliss point at a finite consumption level of that
good. On the other hand, introducing new varieties always increases utility. It
is assumed that each variety is owned by a monopoly. Workers can specialize in
material goods production or in the knowledge sector, which designs new
varieties. It is shown that if the elasticity of labor supply to the knowledge
sector is bounded, as productivity increases, the economy moves from a
''Solovian zone'' where wages increase with productvity, to a ''Marxian'' zone
where they paradoxically decline with productivity. This is because as
consumption of a given good increases, the price elasticity of demand falls,
and markups increase to infinity as consumption reaches the unit elasticity
point. Such a point typically exists because of the finiteness of needs. It is
also shown that if individual creativity is more unevenly distributed than
productivity, technical progress always increases inequality. Redistribution
from profits to workers in the production sectors always benefits arbitrarily
poor workers regardless of their distortionary effect on the number of
varieties, because diversity is not valued by very poor agents. In contrast,
rich agents close enough to their bliss point can only be made better-off by an
increase in diversity. If wages are set by monopoly unions rather than set
competitively, they are proportional to productivity and the Marxian zone no
longer exists. But technical progress always reduces employment in the material
goods sector. International trade may reduce wages in poor countries and
increase them in rich countries if under autarky the former consume less of
each good that the latter.
Information Technology and the Knowledge Elites
ABSTRACT: I study a model where Information Technology,
while typically increasing overall inequality, is likely to harm some people at
intermediate and high levels of the distribution of income but to benefit
people at the bottom. Within a given occupation it may harm some workers while
benefitting others; and it may either reduce or increase the proportion of
knowledge workers in employment. In my model, knowledge (in a broad sense) is
an input into the production function of human capital, and is also a
''quality'' good in the sense that one cannot buy it from several low-quality
producers instead of one high-quality one. People differ in their exogenous
ability and ability is complementary with the quality of the knowledge input in
the production of human capital. An improvement in IT is modelled as an
increase in the number of people who can buy knowledge from one producer. I
show that the economy organizes itself in a succession of clusters of ability
levels, called ''knowledge ladders'', where a member of a given ladder buys
knowledge from a worker in the subsequent ladder and sells it to a worker of
the preceding ladder. The return to human capital increases as one moves up the
knowledge ladder. The economic mechanism considered here rests on the view that
IT makes the acquisition of knowledge cheaper, which intensifies
competition among workers specialized in knowledge production. Those who lose
in such competition end up displaced to occupations with a lower knowledge
intensity; their wages fall, which reduces inequality between them and the least
skilled. Those who win can spread their ability over a larger market and
because of that enjoy a larger increase in wages than the least skilled, which
tends to increase inequality. The least skilled do not participate in this
competition, as they are not specialized in knowledge production; they gain in
absolute terms because of their cheaper access to knowledge.
Some
evolutionary foundations for price level rigidity
ABSTRACT: This paper shows that price rigidity evolves
in an economy populated by imperfectly rational agents who experiment with
alternative rules of thumb. In the model, firms must set their prices in face
of aggregate demand shocks. Their payoff depends on the level of aggregate
demand, as well as on their own price and their ''neighbor'''s price. The
latter assumption captures local interactions. Despite the fact that the
rational expectations equilibrium (REE) is characterized by a simple pricing
rule that firms can easily adopt, the economy does not converge to the REE for
highly autocorrelated aggregate demand shocks and a high level of local
interaction. Instead, the aggregate price level exhibits rigidity, in that it
does not \ fully react to contemporaneous aggregate demand shocks, and inertia,
in that controlling to it positively depends on its past value. We show that
local interactions and serial correlation of aggregate demand shocks play a key
role in generating those results.
Growth effects
of non proprietary innovation
ABSTRACT: We study an endogenous growth model
where a profit-motivated R and D sector coexists with the introduction of free
blueprints invented by philanthropists. These goods are priced at marginal
cost, contrary to proprietary ones which are produced by a monopoly owned by
the inventor. We show that philanthropy does not necessarily increase long-run
growth and that it may even reduce welfare. The reason is that it crowds out
proprietary innovation which on net may reduce total innovation in the long
run. These effects would be reinforced if philanthropical innovation diverted
people from other productive activities, if free goods were less taylored to
customers than proprietary ones, and if philanthropical inventors sometimes
came out with another version of an existing proprietary good. Dynamics can
also be characterized and it is shown that the impact effect of free inventions
on growth is positive.
Presented
at an invited session on "Macroeconomic consequences of new information
technologies", EEA,
The
Complexity of Economic Policy:
ABSTRACT: Economists
traditionally tackle normative problems by computing optimal policy, i.e. the
one that maximizes a social welfare function. In practice, however, a
succession of marginal changes to a limited number of policy instruments are
implemented, until no further improvement is feasible. I call such an outcome a
''restricted local optimum''. I consider the outcome of such a tatonment
process for a government which wants to optimally set taxes given a tax code
with a fixed number of brackets. I show that there is history dependence, in
that several local optima may be reached, and which one is reached depends on
initial conditions. History dependence is stronger (i.e. there are more local
optima), the more complex the design of economic policy, i.e. the greater the
number of tax brackets. It is also typically stronger, the greater the
interaction of policy instruments with one another--which in my model is
equivalent to agents having a more elastic labor supply behavior. Finally, for
a given economy and a given tax code, I define the latter's average performance
as the average value of the social welfare function across all the local
optima. One finds that it eventually sharply falls with the number of brackets,
so that the best performing tax code typically involves no more than three
brackets.
Cognitive
ability and paternalism
ABSTRACT: This paper analyses the
welfare effects of price restrictions on private contracting in a world where
agents have a limited cognitive ability. People compute the costs and benefits
of entering a transaction with an error. The government knows the distribution
of true costs and benefits as well as that of errors. By imposing constraints
on transaction prices, the government eliminates some that are on average
inefficient--because the price signals that one of the parties has typically
grossly overestimated its benefit from participation. This policy may increase
aggregate welfare even though some of the transactions being blocked are
actually efficient.
The paper also studies the extent to which the use of
private consultants with sufficient intelligence by people with limited
intelligence may dominate government regulation.
Economic aspects of Human Cloning and Reprogenetics
ABSTRACT: This paper analyses the economic issues
associated with human cloning and new reproductive technologies. We analyze the
incentives for human cloning and its implications for the long run distribution
of skills and income. We analyse models of human cloning for different motives,
focusing on those which tend to produce new human beings with improved ability.
We thus ignore purely therapeutic applications, which may well be the most
likely ones to happen in the near future, but have no first-order implications
for the long-run distribution of skills and income.
An important consequence of these models
is that if ability is genetically heritable, cloning tends to increase the
proportion of high ability people in society, and that under some hypothesis
the distribution of ability converges to a mass point at the highest possible
ability level. Under weaker assumptions, it is shown that ability-reducing
genes are eventually eliminated. However, if fertility is negatively correlated
with ability, cloning leads to a strongly segregated society with a top-ability
caste and a bottom ability one which produces clones of the top ability one.
The paper also discusses the plausibility of these results
in light on the evidence from economics and other sciences on marriage markets,
child selection, assisted reproduction, and animals.
Prepared for the Economic Policy Panel,
On market forces
and human evolution
ABSTRACT:
This paper studies how an institution such as markets affects the evolution of mankind.
My key point is that the forces of natural selection are made weaker because
trade allows people to specialize in those activities where they are strong,
and to offset their weaknesses by purchasing adequate goods on the market.
Absent trade, people must allocate their time among all the activities
necessary for their fitness. A fitness advantage in any given dimension will
increase survival probability, so that in the long run natural selection makes
sure that population is entirely made of individuals with the best alleles at
all locations. Under trade, there exist long-run equilibria where less fit
individuals are able to achieve the same survival potential as the fittest, by
specializing in activities where they are not at a disadvantage, and purchasing
goods that are substitute for activities for which they are 'weak'.
The former
mathematical appendix of this paper is now a paper on its own, "Equilibrium
allele distribution in trading populations":
Are intellectual property rights unfair?
ABSTRACT: If redistribution
is distortionary, and if the income of skilled workers is due to
knowledge-intensive activities and depends positively on intellectual property,
a social planner which cares about income distribution may in principle want to
use a reduction in Intellectual Property Rights (IPRs) rather than
redistributive transfers. On the one hand, such a reduction reduces statis
inefficiency. On the other hand, standard redistribution also reduces the level
of R and D because it distorts occupational choice. We study this possibility
in the context of a model with horizontal innovation, where the government, in
addition to taxes and transfers, controls the fraction of innovations that are
granted patents. The model predicts that standard redistribution always
dominates limitations to IPRs.
This paper elaborates on my invited lecture at the European Association of
Labour Economists meeting,
Environmental policy and
directed innovation in a Schumpeterian growth model.
ABSTRACT: This paper describes the main long-run
properties of an endogenous growth model with carbon emissions. Growth comes
from innovation, which is produced by an R and D sector. Innovations can be
either energy-augmenting or labor-augmenting. We consider the impact of a
carbon tax as well as a subsidy to energy-augmenting R \& D. While the
former has moderate effects in inducing cleaner technologies in the long run,
the latter is much more efficient. However, only an exploding carbon tax may
implement a `sustainable' growth path where output grows while emissions fall.
Information sharing
and cumulative innovation in business networks
ABSTRACT: How can we explain the success of
cooperative networks of firms which share innovations, such as the
Why are European countries diverging in their
unemployment experience?
ABSTRACT: During the nineties, unemployment has fallen in a number of
European countries while it has remained high in others. The paper discusses
potential causes for that evolution in light of recent economic research,
emphasizing obstacles to reform due to political constraints, the prevalence of
ideology, and agency issues within those bureaucracies concerned with the
unemployment problem. Some speculative thoguhts are offered as to why those
factors might be more stringent in countries where unemployment remained high.
Did European labor markets become more competitive in
the 1990s?
Evidence from estimated worker rents.
ABSTRACT: This paper analyses
the evolution of quantitative measures of employee rents in
.
Social networks and labor market transitions
(Joint with Yann Bramoullé)
ABSTRACT: We study the
influence of social networks on labor market transitions. We develop the first
model where social ties and job status coevolve through time. Our key
assumption is that the probability of formation of a new tie is greater between
two employed individuals than between an employed and an unemployed individual.
We show that this assumption generates negative duration dependence of exit
rates from unemployment. Our model has a number of novel testable implications.
For instance, we show that a higher connectivity among unemployed individuals
reduces duration dependence and that exit rates depend positively on the duration
of the last job held by the unemployed worker.
Welfare effects of
Intellectual Property in a North-South model of endogenous growth with comparative
advantage
ABSTRACT: This paper develops
a model for analyzing the costs and benefits of intellectual property
enforcement in LDCs. The North is more productive than the South and is the
only source of innovator. There are two types of goods, and each bloc has a
comparative advantage in producing a specific type of good. If comparative advantage is strong enough,
even under piracy there are goods that the South will not produce. Piracy will
then lead to a reallocation of innovative activity in favor of these goods.
That may harm consumers (including consumers in the South) to the extent that
these goods have smaller dynamic learning externalities than the other goods,
and that their share in consumption is small. Thus, whether or not piracy is in
the interest of the South depends on how important are the goods for which it
has a comparative advantage to its consumers, and what the growth potential of
these goods is. While, all else equal, the North tends to lose more (or gain
less) from piracy than the South, because monopoly profits eventually accrue to
the North, the South may lose more than the North if there is a strong enough
home bias in favor of the goods for which it has a comparative advantage.
The brain drain:
some evidence from European expatriates in the United States
ABSTRACT: This paper uses U.S.
Census data from 1990 and 2000 to provide evidence on the labor market
characteristics of European-born workers living in the
Making sense of
Bolkestein-bashing: trade liberalization under segmented labor markets
ABSTRACT: Trade liberalization
is often met with sharp opposition. Recent examples include the so-called
''Bolkestein'' directive, which allows service providers from a given EU member
to temporarily work in another member country. One way to view such a reform is
that it simply widens the range of goods that are tradeable. This kind of
reform is analyzed in a two-country Dornbusch-Fischer-Samuelson style model,
where labor cannot relocate to another sector upon a non expected increase in
the range of goods that can be traded.
The effect of liberalization on the terms of trade tend to
favor the poorer country (the ''East''), if (as assumed) the most sophisticated
goods are tradeable before reform. Second, under ex-post liberalization, there
exists a class of workers in the West who are harmed because they face
competition from Eastern workers and cannot relocate to other activities. But
if the East's economy is relatively small, their wage losses are not very
large. Things are different, however, if there exist asymmetries in labor market
institutions, such that upon reform, labor can relocate in the East but not in
the West. Some workers in the West can then experience very large wage losses.
Thus, rigid labor markets in the West magnify opposition to reform there.
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Selection of
boundedly rational firms and the allocation of resources
ABSTRACT: I study how savers
allocate funds between boundedly rational firms which follow simple pricing
rules. Firms need cash to pay their inputs in advance, and savers-shareholders
allocate cash between them so as to maximize their rate of return. When the
rate of return on each firm is observed, there are multiple equilibria, and
some degree of monopoly power is sustained. However, the economy gets close to
the Walrasian equilibrium when the availability of funds goes to infinity.
Multiple equilibria also arise when there are entrants with unobservable rates of return. In an equilibrium where
entrants are not funded, savers invest in incumbents because those entrants
which will divert customers from incumbents are likely to be excess
underpricers.
(Joint
with Yann Bramoullé)
ABSTRACT: This paper studies the dynamics of
fundamental research. We develop a simple model where researchers allocate
their effort between improving existing fields and inventing new ones. A key
assumption is that scientists derive utility from recognition from other
scientists. We show that the economy can be either in a regime where new fields
are constantly invented, and then converges to a steady state, or in a cyclical
regime where periods of innovation alternate with periods of exploitation. We
characterize the cyclical dynamics of the economy, show that indeterminacy may
appear, and establish some comparative statics and welfare implications.