DISENFRANCHISEMENT IN LINGUISTICALLY DIVERSE SOCIETIES: THE CASE OF THE EUROPEAN UNION

We consider a linguistically diversified society and examine the notion of language disenfranchisement when some individuals are denied the full access to documents and political process in their native tongues. To calculate the disenfranchisement indices we use the Dyen percentage cognate matrix of linguistic distances between Indo‐European languages and apply survey and population data on language proficiency in the European Union. We then determine optimal sets of official languages that depend on society's sensitivity against disenfranchisement and comprehensiveness of the chosen language regime. We also discuss the language situation in the European Union after its last enlargement. (JEL: D70, O52, Z13)     

POLITICIANS AT WORK: THE PRIVATE RETURNS AND SOCIAL COSTS OF POLITICAL CONNECTIONS

We quantify the private returns and social costs of political connections exploiting a unique longitudinal dataset that combines matched employer–employee data for a representative sample of Italian firms with administrative archives on the universe of individuals appointed in local governments over the period 1985–1997. According to our results, the revenue premium granted by political connections amounts to 5.7% on average, it is obtained through changes in domestic sales but not in exports, and it is not related to improvements in firm productivity. The connection premium is positive for upstream producers for the public administration only, and larger (up to 22%) in areas characterized by high public expenditure and high levels of corruption. These findings suggest that the gains in market power derive from public demand shifts towards politically connected firms. We estimate that such shifts reduce the provision of public goods by approximately 20%.     

THE EROSION IN EUROPEAN MANUFACTURING

The competitiveness of Western European manufacturing is slowly being eroded away and European firms must act decisively to halt this decline. Costs in Europe are high and getting higher. Productivity is not keeping pace. European manufacturers have adopted some of the ideas that have proved useful to manufacturers elsewhere around the globe, but they need to do more. Many European countries remain net exporters of direct investment. If the erosion is to be halted, European manufacturers must address overcapacity, particularly among the many small factories there, inappropriate plant locations, and company organizations that foster too much country-specific independence.     

OPTIMAL TAXATION WITH IMPERFECT COMPETITION AND AGGREGATE RETURNS TO SPECIALIZATION

In this article we explore the proposition that, in economies with imperfect competitive markets, the optimal capital income tax is negative and the optimal tax on firms' profits is confiscatory. We show that if the total factor productivity as well as the number of firms or varieties are endogenous instead of fixed, then the optimal fiscal policy can lead to different results. The government faces a trade‐off between the fixed costs that society pays for the introduction of a new firm and the productivity gains associated to the introduction of a new variety. We find that the optimal fiscal policy depends on the relationship between the index of market power, the returns to specialization, and the government's ability to control entry. (JEL: H21, H30, E62)     

UNEMPLOYMENT INSURANCE AND CULTURAL TRANSMISSION: THEORY AND APPLICATION TO EUROPEAN UNEMPLOYMENT

This paper emphasizes the two‐way causality between the provision of unemployment insurance and the cultural transmission of civicness. The returns to being uncivic are increasing in the generosity of unemployment insurance; but this generosity is decreasing in the number of uncivic individuals. In this context, I determine the evolution of preferences across generations and show that cultural heterogeneity is sustained over the long‐run. The dynamics of cultural transmission can generate a long lag between the introduction of unemployment insurance and an increase in people's willingness to live off government‐provided benefits. Hence, it offers an explanation to the ‘European unemployment puzzle’ due to the coexistence of generous unemployment insurance and low unemployment in the 1950s and 1960s.     

INCOME AND WEALTH CONCENTRATION IN SPAIN FROM A HISTORICAL AND FISCAL PERSPECTIVE

This paper presents series on top shares of income and wealth in Spain using personal income and wealth tax return statistics. Top income shares are highest in the 1930s, fall sharply during the first decade of the Franco dictatorship, then remain stable and low till the 1980s, and have increased since the mid 1990s. The top 0.01% income share in Spain estimated from income tax data is comparable to estimates for the United States and France over the period 1933–1971. Those findings, along with a careful analysis of all published tax statistics, suggest that income tax evasion and avoidance among top income earners in Spain was much less prevalent than previously thought. Wealth concentration has been about stable from 1982 to 2005 as surging real estate prices have benefited the middle class and compensated for a slight increase in financial wealth concentration in the 1990s. We use our wealth series and a simple model to analyze the effects of the wealth tax exemption of stocks for owners‐managers introduced in 1994. We show that the reform induced substantial shifting from the taxable to tax exempt status, hence creating efficiency costs. (JEL D31, H31, O15)     

PRIVATE INCENTIVES AND SOCIAL INTERACTIONS: FERTILITY PUZZLES IN ISRAEL

This paper explores how private and social incentives for fertility may have combined to produce the complex fertility pattern observed in Israel in the past half‐century. Fertility has declined within some ethnic‐religious groups, moderately increased in others, and parts of the ultra‐Orthodox Jewish population have experienced a reverse fertility transition, in which childbearing has increased rapidly and substantially. We present a theoretical analysis of the social dynamics of fertility that shows how private preferences, preferences for conformity to social norms in childbearing, and piecewise linear child allowances could have combined to yield such a complex fertility pattern. We then explain the identification problem that makes it so difficult to infer the actual Israeli fertility process from data on completed fertility. (JEL: J13, Z13, H53)     

THE HIDDEN COSTS AND RETURNS OF INCENTIVES—TRUST AND TRUSTWORTHINESS AMONG CEOs

We examine experimentally how Chief Executive Officers (CEOs) respond to incentives and how they provide incentives in situations requiring trust and trustworthiness. As a control we compare the behavior of CEOs with the behavior of students. We find that CEOs are considerably more trusting and exhibit more trustworthiness than students—thus reaching substantially higher efficiency levels than students. Moreover, we find that, for CEOs as well as for students, incentives based on explicit threats to penalize shirking backfire by inducing less trustworthy behavior—giving rise to hidden costs of incentives. However, thxe availability of penalizing incentives also creates hidden returns: if a principal expresses trust by voluntarily refraining from implementing the punishment threat, the agent exhibits significantly more trustworthiness than if the punishment threat is not available. Thus trust seems to reinforce trustworthy behavior. Overall, trustworthiness is highest if the threat to punish is available but not used, while it is lowest if the threat to punish is used. Paradoxically, however, most CEOs and students use the punishment threat, although CEOs use it significantly less. (JEL: C91, C92, J30, J41)     

KNOWING THE RIGHT PERSON IN THE RIGHT PLACE: POLITICAL CONNECTIONS AND RESISTANCE TO CHANGE

We use a political economy model of Schumpeterian growth with entry to investigate how an incumbent politician can strategically use the level of red tape to acquire incumbency advantage. By setting sufficiently high red tape, the politician induces the incumbent firm in the intermediate sector to invest in political connections, which are valued also by voters, who recognize that bureaucratic costs can be reduced by connected firms. Within this framework, we study the Markov perfect equilibria of an infinitely repeated game among politicians, firms, and voters, and show that all equilibria are characterized by investments in political connections and the re‐election of the incumbent politician. Political connections may prevent entry of advanced competitors and cause the economy to lag behind the technological frontier. Our model provides a possible explanation for the persistence of inefficient democracies and political barriers to technology development, where these reflect shared rather than conflicting interests.     

SOME DIFFICULTIES AND IMPROVEMENTS IN APPLYING LINEAR PROGRAMMING FORMULATIONS TO THE DISCRIMINANT PROBLEM

In this paper, we discuss some disturbing features of two linear programming (LP) approaches to the discriminant problem. Specifically, we show that both approaches are sensitive to the choice of origin for the data although, intuitively, placement of origin should have no effect on the method of assigning cases to groups. In addition, we show that these LP approaches may lead to discriminant functions which assign all cases to the same group. We show that the usual statistical approach to this problem does not share these difficulties, and we make recommendations for implementing these LP approaches which help to alleviate the difficulties.     

THE APPLICABILITY OF THE MAXI–MIN PRINCIPLE TO PORTFOLIO SELECTION IN TERMS OF MEANS AND VARIANCES OF UNKNOWN DISTRIBUTIONS

This paper establishes two propositions which allow a risk-a verse decision maker to apply a maxi-min strategy in his portfolio selection. The strategy consists of selecting a portfolio in which the lower bound of the expected utility is maximized. The propositions have their greatest applicability in situations in which the investor knows the means and variances of the portfolio returns, but has no other knowledge relating to the probability distributions governing the rates of return.     

SORTING AND THE OUTPUT LOSS DUE TO SEARCH FRICTIONS

We analyze a general search model with on‐the‐job search (OJS) and sorting of heterogeneous workers into heterogeneous jobs. For given values of nonmarket time, the relative efficiency of OJS, and the amount of search frictions, we derive a simple relationship between the unemployment rate, mismatch, and wage dispersion. We estimate the latter two from standard micro data. Our methodology accounts for measurement error, which is crucial to distinguish true from spurious mismatch and wage dispersion. We find that without frictions, output would be about 9.5% higher if firms can commit to pay wages as a function of match quality and 15.5% higher if they cannot. Noncommitment leads to a business‐stealing externality which causes a 5.5% drop in output.     

A TECHNIQUE TO MINIMIZE OVERTIME IN THE CAPACITATED MRP PROBLEM

Since the development of early versions of material requirements planning (mrp) systems, it has been known that a weak link in this technique is the failure to consider the available capacity at the time the lot sizes for individual items are calculated. Ignoring the available capacity may result in infeasible production plans, i.e., those that can only be accomplished with the use of overtime. We present a technique to search for feasible production plans by means of minimizing the total overtime. The technique is based on modifying periodic-order-quantity (poq) lot sizes within a tabu search framework. Computational experiments with the largest problem structure reported in the literature show that the procedure is effective in determining lot sizes for individual items that either minimize or eliminate overtime. Additional experiments reveal that, with appropriate calibration of search parameters, the procedure is also able to deal with more general cost functions (e.g., those that include holding and setup costs).     

ESTIMATION OF MISCLASSIFICATION PROBABILITIES IN THE LINEAR PROGRAMMING APPROACHES TO THE TWO-GROUP DISCRIMINANT PROBLEM

Expressions for misclassification probabilities are derived under a contaminated multivariate normal model for the linear-programming approaches to the two-group discriminant problem.     

CORRECTING FOR THE INHERENT BIAS IN THE AVERAGE BIDDER APPROACH TO COMPETITIVE BID DEVELOPMENT

A key step in contract bid development is estimating the probabilities of winning with bids of various profit potentials. One of the most common approaches to estimating these probabilities, the average bidder approach, has an inherent bias which causes it to almost always over-estimate the actual chances of winning. This note explores the nature of this error and suggests a method to compensate for it.     

FROM SHAME TO GAME IN ONE HUNDRED YEARS: AN ECONOMIC MODEL OF THE RISE IN PREMARITAL SEX AND ITS DE‐STIGMATIZATION

Societies socialize children about sex. This is done in the presence of peer‐group effects, which may encourage undesirable behavior. Parents want the best for their children. Still, they weigh the marginal gains from socializing their children against its costs. Churches and states may stigmatize sex, both because of a concern about the welfare of their flocks and the need to control the cost of charity associated with out‐of‐wedlock births. Modern contraceptives have profoundly affected the calculus for instilling sexual mores. As contraception improves there is less need for parents, churches, and states to inculcate sexual mores. Technology affects culture.     

THE DEMAND AND SUPPLY OF QUANTITATIVE METHODS DOCTORATES IN THE SOUTH

Of critical importance to educators, students, and their colleges and universities are the demand for and supply of new Ph.D.'s in the quantitative methods field. This study examines projected academic employment conditions, over the period 1977-1981, for such doctorates in the southern region of the United States.