Revistas Electrónicas

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Vol.23, No.4, June 2004

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ABSTRACTS

Computing Economic Chaos, Richard H. Day, Oleg V. Pavlov,  pp. 289-301

Existence theory in economics is usually in real domains such as the findings of chaotic trajectories in models of economic growth, tâtonnement, or overlapping generations models. Computational examples, however, sometimes converge rapidly to cyclic orbits when in theory they should be nonperiodic almost surely. We explain this anomaly as the result of digital approximation and conclude that both theoretical and numerical behavior can still illuminate essential features of the real data.

The Timing of Uncertainty and the Intensity of Policy, P. Ruben Mercado, pp. 303-313

This article analyzes the trade-off between `caution' and `intensity' in the use of the control variable in a one-state one-control dynamic stochastic quadratic linear optimization problem with discount factor. It studies the effects that changes in uncertainty of the control parameter have on the optimal first period response of the control variable, showing that the trade-off between `caution' and `intensity' depends on the timing of the uncertainty. Given an increase in current uncertainty and an equal increase in future uncertainty, caution will always prevail over intensity. Moreover, the prevalence of caution will be enlarged as the increase in future uncertainty moves farther away into the future, while this prevalence will be reduced as the increase in future uncertainty expands into the future. Finally, for the infinite horizon case, caution is the optimal policy response.

The Stochastic Permanent Break Model and the Fractional Integration Hypothesis, Luis A. Gil-Alana, pp. 315-324

In this article we show via simulations how the stochastic permanent break (STOPBREAK) model proposed by Engle and Smith (1999) is related with the fractionally integrated hypotheses. This connection was established by Diebold and Inoue (2001), showing, theoretically and analytically that stochastic regime switching is easily confused with long memory. In this paper, we use a version of the tests of Robinson (1994) for testing I(d) statistical models in the context of stochastic permanent break models, and give further evidence that both types of processes are easily confused.

A Practical Method for Explicitly Modeling Quotas and Other Complementarities, W. Jill Harrison, Mark Horridge, K.R. Pearson, Glyn Wittwer, pp. 325-341

To make CGE models realistic, inequality constraints (e.g., import quotas) or non-differentiable functions (e.g., income tax schedules) are sometimes needed. Both situations may be described using complementarity conditions, which state that either an equation is true or its complementary variable is at a boundary value. The paper describes a practical way to solve CGE models that contain such conditions. The technique, which is different from complementarity algorithms commonly used elsewhere (e.g., GAMS), has been implemented in the current version of the GEMPACK system, and has been used in a number of applications. This paper explains why the solution methods used in previous versions of GEMPACK do not handle complementarity conditions well, and describes how a two-pass procedure can overcome these difficulties. The key insight is that if we knew in advance which constraints would be binding in the accurate solution, the complementarity conditions could be reformulated in terms of smooth functions only, via a closure change which allows us to ignore the troublesome equations.

Is It Worth Refining Linear Approximations to Non-Linear Rational Expectations Models?, Alfonso Novales, Javier J. Pérez, pp. 343-377

We characterize the balanced growth path of the basic neoclassical growth economy using standard numerical solution methods which solve a linear or log-linear approximation to the economic model, as well as methods which preserve the nonlinearity in the original model. We also apply the same methods adding indivisible labor to the basic model, and to a monetary version of that economy, subject to a cash-in-advance constraint. In a unified framework, we show that log-linear approximations should generally be preferred to linear approximations. We also provide evidence that preserving the original nonlinear structure of the model when computing the numerical solution generally yields minor gains in accuracy. Methods that use either a linear or a log-linear approximation to the model can produce solutions as accurate as the parameterized expectations method. However, in extreme parametric cases, the solution may be rather sensible to small numerical errors, and even a log-linear approximation may then be inappropriate. Methods using the nonlinear structure of the original model can then perform significantly better.

The Numerical Performance of Fast Bootstrap Procedures, Jean-François Lamarche, pp. 379-389.

The numerical performance of faster ways to perform inference using the bootstrap are investigated. The bootstrap procedures are applied to tests for an unknown structural change and evaluated in a simulation environment. The simulation results indicate that these faster procedures work extremely well, and at a fraction of the computing costs. An empirical example illustrates the use of fast bootstrap procedures that, this time, can be implemented by the applied researcher.

Author Index Volume 23, pp. 391-391

Subject Index Volume 23, pp. 393-394

Volume Contents Volume 23, pp. 395-396

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Vol. 371 No.8378, 6/5/2004

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ABSTRACTS

Becoming a serious country.
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The author reports on how Argentina is recovering from a major economic collapse. Almost across the board, Argentina's economy is booming. The recovery gathered pace throughout last year: since September, GDP has expanded at an annual rate of 11%. And as the economy picked up, the government's authority seemed to revive in parallel. What makes this remarkable is that only two years ago Argentina was in chaos. In 2001 it suffered its worst economic collapse in more than a century. To a cacophony of que se vayan todos (kick them all out), the political system appeared to implode. Three stand-in presidents came and went in a week; one of them declared the biggest sovereign default in history, on public debt of $80 billion, to cheers from the Congress. A fourth, Eduardo Duhalde, a Peronist political boss, dismantled the currency-board system that had pegged the peso to the dollar at par for a decade. Despite his unpromising start, Mr Kirchner has achieved an unusual degree of political dominance, matched during Argentina's two decades of restored democracy only in Mr Menem's early years. If Argentina is to make the most of its opportunity, Mr Kirchner will have to take swift, perhaps unpopular, action to clear up the unfinished business left over from the collapse.

Crimes past, crimes present.
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The author reports on Argentine president Néstor Kirchner's efforts to restore law and order to the country. The Naval Mechanical School, built in French colonial style with tall, shuttered windows, occupies a leafy enclave in the prosperous northern residential districts of Buenos Aires. After the 1976 coup that established the dictatorship of General Jorge Videla and his successors, the school was the chief among several clandestine concentration camps where up to 30,000 people were killed, many after being kidnapped and tortured. To mark the coup's anniversary, on March 24th this year Mr Kirchner made an emotive speech before a crowd of 10,000. He apologised to the victims of state terrorism and announced the conversion of the school to a Museum of Memory. Human-rights groups are impressed. On taking office, Mr Kirchner immediately set about purging the armed forces. He backed a new law to revoke the pardons granted by Mr Menem to the junta members jailed under his predecessor, Raúl Alfonsín, and another that would declare void two laws blocking further trials. Officials argue that concern for human rights is part of a broader agenda. "Today, a politician who wants public support has to adhere to an agenda of the rule of law, fighting corruption, and promoting open government and human rights," says Roberto Saba of the Association for Civil Rights, a pressure group for reform.

The world this week.
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Presents world news briefs on politics and business. Al-Qaeda terrorist attack in Khobar, Saudi Arabia; Increase in security for 60th anniversary of D-Day observations in Normandy, France; Clampdown on smugglers in the Republic of Georgia; Other news.

Peronism and its perils.
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The author describes how Peronism continues to influence regional politics in Argentina. Salta, an attractive Spanish colonial city in a broad green valley surrounded by Andean foothills, is typical of non-metropolitan Argentina. Salta is typical, too, in its politics. Since 1995, it has been governed by Juan Carlos Romero, a Peronist who stood as Mr Menem's running-mate last year; before that, it was run by his father. The Romeros are self-made men, and the current governor prides himself on his businesslike approach. The province invests a lot in public works but has a large budget surplus, says Fernando Yarude, his finance minister. Dig a little deeper, however, and complaints well up that Mr Romero is something of an old-fashioned strongman, albeit with a modern face. What makes Salta-or any poor part of the country-different from Bolivia is that Argentina has the rudiments of a welfare state. Provincial politics and its caudillo system has had a lasting influence on national politics. Unlike Chile or Uruguay, Argentina failed to develop a stable two- or three-party system of conservatives and liberals or, later, social democrats. Instead, Argentina got two populist movements, Radicalism and Peronism.

The insouciant debtor.
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The author discusses the structural problems still crippling the economy of Argentina. Economic analysis in Argentina today is a bruisingly ideological matter, conditioned by disagreements over the causes of the collapse. Some see the current recovery as ephemeral, resulting largely from the soya boom. They accuse the government of abandoning the reform agenda of the 1990s and failing to repair the numerous breaches of contract caused by the devaluation. Others see Convertibility as a costly straitjacket that the country did well to wriggle out of. Several broad issues remain partly or wholly unresolved. One is Argentina's economic relations with the outside world, and particularly with the IMF. That includes the debt default. Another is the banking system, which remains in a state of near-paralysis. Lastly, there is the need to reverse Argentina's chronic fiscal weakness. All of these issues are linked. Argentina needs to decide, first, how big a primary fiscal surplus it can achieve and how it should be spent; and second, how the government should behave towards the private sector.

Sixty years on. (cover story)
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This article argues that the divisions over Iraq must not mark a terminal split between Europe and America. George Bush and Tony Blair, visiting the Normandy beaches to remember the day when Allied troops swarmed ashore to rescue mainland Europe from Hitler, cannot but feel bitter towards the present leaders of France and Germany for their behaviour before and after last year's war in Iraq. Whatever mistakes of tactics or judgment America and Britain may have made, Mr Bush and Mr Blair saw the liberation of Iraq from Saddam Hussein as an urgent and honourable cause. The crude version of the argument from over-excited Americans is that Europeans are happy to be saved by America when the knife is at their throat (remember Hitler, the cold war, the American-led rescue of Muslims in Bosnia and Kosovo) but have blinded themselves to the new dangers of rogue states and Islamic terrorism, and can therefore not be relied on by America, which must save the world alone. Having been let down by France and Germany in Iraq, it may prefer in future to form ad hoc alliances with other countries instead of turning instinctively, as in the past, to a Europe that spends too little on defence and seems allergic to using what little military force it has. Iraq did after all show that France and Germany cannot prevent America from going to war if it wants to.

An unloved policy.
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The author discusses the successes and failures of privatisation in Argentina. The policy perhaps most closely identified with Mr Menem's governments was wide-ranging privatisation. The oil, electricity, telecoms, water and airline companies were sold, and private companies hired to run airports, trains and roads. Its critics say that it was poorly regulated and sometimes corrupt, that the privatised firms reaped exorbitant profits, and that many jobs were lost. There were other flaws. In some industries, tariffs were fixed in dollars and indexed to inflation in the United States, even though Argentina was suffering deflation. But taken as a whole, privatisation transformed Argentina's infrastructure. That was especially true in the energy sector, which in the decade to 2001 had $70 billion invested in it. Now that progress is in jeopardy. Two years ago Mr Duhalde switched the privatised companies' tariffs to pesos and froze them, pending renegotiation of their contracts. The government has belatedly agreed to increase gas and electricity tariffs, but the energy market will take a couple of years to return to normal. Meanwhile Mr Kirchner has launched a plan for new state gas and electricity companies. That looks like a backward step.

An anti-poverty hero.
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This article discusses Richard Cobden, campaigner for the freeing-up of farm trade. Two hundred years ago, on June 3rd 1804, was born a man who led the first great campaign for free trade. His name was Richard Cobden, and he led the Anti-Corn Law League, perhaps Britain's first big NGO, which in 1839-46 fought to persuade Parliament to remove price controls and import barriers for wheat. One of the reasons, admittedly, is a selfish one: Cobden was instrumental in the launch in 1843 of a certain new weekly called The Economist, both by buying bulk subscriptions for League members and by leaving James Wilson's paper formally independent of his NGO, which helped it to survive and thrive after the Corn Laws had gone. Much more important, though, is what Cobden's background and ideas represent in today's world, where trade is far freer than 200 years ago but is still viewed with an extraordinary degree of suspicion, and where agriculture remains a bastion of protectionism. That business became prosperous without free trade in food, and promoting its interests was not his motivation in leading the League.

It takes two to tango.
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This article discusses how a new debt offer is a step forward--but probably not a final one for Argentina. In late 2001, as its fixed exchange rate collapsed and presidents came and went, it declared the largest sovereign debt default in history, on bonds worth $81 billion. So this week's new offer to the bondholders was a chance to show that Argentina is indeed trying to become "a serious country" as Néstor Kirchner, its president for the past year, has sensibly set as his aim. According to Roberto Lavagna, the economy minister, the new offer writes off 75% of the net present value of the defaulted bonds. Argentina's banks can do little lending while their portfolios are stuffed with bonds issued by a government in default. Before putting their money to work in Mr Kirchner's Argentina, investors of all stripes need a signal that it is indeed a safe and serious country.

Use your brains.
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The article discusses why business in Argentina must capitalise on its natural advantages. The Zuccardi family winery, at the foot of the Andean cordillera, embodies the strengths and weaknesses of Argentine business today. The Zuccardis were among the first to go for the export market. Argentina should be a wine giant. It has plenty of suitable and empty land, and a large local market, which has made it the world's fifth-largest producer and seventh-largest consumer of wine. But local producers such as Zuccardi can get no long-term credit; the only way they can expand is by reinvesting profits. As for wine, so for many other food products. Farming remains the vital heart of Argentine business. If farmers are doing well, it is not just because of high world prices; it is also because they spent a lot on modernisation in the 1990s. Convertibility forced businesses of all kinds to modernise or die. Many died, especially in manufacturing. Now there is a new generation of entrepreneurs. One of Argentina's biggest business advantages is that its people are better educated than the average Latin American. But the country's educational system is not what it once was.

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Volume 32, Issue 2, Pages 197-373 (June 2004)

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ABSTRACTS

Optimum choice of the exchange-rate regime for the accession-candidate countries  (editorial), Jan Fidrmuc and Mathilde Maurel, Pages 197-201
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Supply and demand shocks in accession countries to the Economic and Monetary Union (article), Julius Horvath and Attila Rátfai, Pages 202-211
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The success of the enlarged Economic and Monetary Union (EMU) depends on the relative incidence of demand and supply shocks in both the participating and the accession countries. This paper addresses the issue using bivariate vector autoregression models for current and would-be EMU member countries. While the degree of symmetry in business cycle shocks among EMU accession countries is significant, idiosyncratic shocks between current and would-be member states dominate. Our results suggest a costly process of adjustment following EMU enlargement.

Exchange rate regimes and shocks asymmetry: the case of the accession countries (article),  Ian Babetskii, Laurence Boone and Mathilde Maurel, Pages 212-229
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This paper reviews the pros and cons of an early EU enlargement that includes the Central and Eastern European countries (CEECs). The analysis of Maastricht criteria and real convergence enables us to distinguish the subset of transition countries that have succeeded in stabilizing and restoring economic growth from a second subset that failed to do so. For the former group, business cycles symmetry is an important issue. Using the Kalman filter, we compute the time varying correlation of demand and supply shocks in Ireland, Portugal, Spain and eight CEECs, namely the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia. Our results emphasize an ongoing process of convergence of demand shocks, but divergence of supply shocks.

Migration and regional adjustment to asymmetric shocks in transition economies, (article), Jan Fidrmuc
Pages 230-247
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Does migration facilitate regional adjustment to idiosyncratic shocks? The evidence from post-communist economies indicates that the efficacy of migration in reducing interregional unemployment and wage differentials is low. High wages appear to encourage and high unemployment tends to discourage overall migration, inbound and outbound, rather than induce a net flow from depressed regions to those with better economic conditions. Even when the impact of unemployment and wages on net migration is statistically significant, it is economically very small. Finally, migration flows declined during the transition, despite rising interregional disparities.

Intra-national labor market adjustment in the candidate countries, ( article), Peter Huber, Pages 248-264
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This paper analyzes the evolution of regional unemployment rates, wages, participation rates, migration and employment in seven candidate countries for accession to the European Union (EU) in the 1990s. We compare these countries to a core set of EU member states and find persistent regional disparities in both regions. However, persistence of unemployment rates is lower in the first-round candidate countries than in the member states. Furthermore, in both first-round and second-round candidate countries, persistence in participation rates is lower. Migration seems to be an ineffective labor market adjustment mechanism. Wages react more strongly to regional unemployment developments in first-round candidate countries than in member states but they are slightly less responsive to national unemployment.

EU enlargement and the internal geography of countries, (article), Matthieu Crozet and Pamina Koenig Soubeyran, Pages 265-279
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This paper focuses on the relation between economic integration and the location of economic activity in a country. We extend a new economic geography model in which trade liberalization affects both the agglomeration and dispersion forces that shape the spatial equilibrium. We show that integration generally fosters spatial concentration in the region that has a pronounced advantage in terms of its access to international markets, unless competitive pressure from foreign firms is too high. Our results shed light on the optimal currency area debate concerning the enlarged European Union.

How different is Eastern Europe? Structure and determinants of location choices by French firms in Eastern and Western Europe, (article),  Anne-Célia Disdier and Thierry Mayer, Pages 280-296
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In this paper, we investigate the determinants of location choices of French multinational firms in Eastern and Western Europe. Our sample includes 1843 location choices in 19 countries from 1980 to 1999. We find important differences between the two regions of Europe regarding these determinants. Agglomeration effects are less strong in Central and Eastern European countries (CEECs) than in European Union (EU) countries. Location decisions are influenced significantly and positively by the institutional quality of the host country. We also investigate whether investors consider Western Europe and Eastern Europe as two distinct groups of potential host countries. We confirm the relevance of an East-West structure in the country location decision and show that this relevance decreases as the transition process advances, in CEE countries.

Money, barter, and inflation in Russia, (article), Byung-Yeon Kim and Jukka Pirttilä, Pages 297-314
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This paper analyzes relationships among money, barter, and inflation in Russia during the transition period. Following the development of a theoretical framework that introduces barter into a standard macroeconomic model for a small, open economy, we estimate the model using structural cointegration and vector error-correction methods. Our findings suggest that Russian barter resulted partly from output losses, and, to a lesser extent, from the reduction in real money balances. We also find that increases in barter are affected by inefficiencies in the banking sector. Our results imply that increased barter contributed to generating persistent inflation and output decline in Russia.

The role of oil prices and the real exchange rate in Russia's economy-a cointegration approach, (article), Jouko Rautava, Pages 315-327
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Despite a lively debate on the importance of oil prices and the real exchange rate for Russia, little empirical research exists on this topic. In this paper, the impact of international oil prices and the real exchange rate on the Russian economy and its fiscal policy are analyzed using vector autoregressive (VAR) modeling and cointegration techniques. The results imply that the Russian economy is influenced significantly by fluctuations in oil prices and the real exchange rate through both long-run equilibrium conditions and short-run direct impacts. Although the underlying growth trend indicates the Russian economy has strengthened in recent years, we find no evidence that the role of oil prices has diminished.

Consumption smoothing during the economic transition in Bulgaria, (article), Emmanuel Skoufias,  Pages 328-347
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In this paper, we use monthly data from a panel of households in Bulgaria in 1994 to examine the extent to which households are able to protect their consumption from fluctuations in real income. The empirical analysis reveals that consumption is protected only partially from idiosyncratic fluctuations in income. In general, households smooth food consumption by adjusting their non-food expenditures and by borrowing through formal and informal credit markets. Overall, inter-household transfers play a limited role in insuring consumption. The extent of consumption smoothing varies across regions and across household characteristics. Food consumption also appears to be less protected from changes in food prices than it is from changes in household income.

Accounting for income inequality in rural China: a regression-based approach, (article), Guanghua Wan
Pages 348-363
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This paper proposes a framework for inequality decomposition in which inequality of the target variable, e.g., income, can be decomposed into components associated with any number of determinants or proxy variables in a regression equation. The proposed framework is general enough to be applied to any inequality measure and it imposes few restrictions on the specification of the regression model. This generality is illustrated by quantifying root sources of regional income inequality in rural China using a combined Box-Cox and Box-Tidwell income-generating function.

Financial Liberalization, How Far, How Fast?: By Gerard Caprio, Patrick Honohan, and Joseph Stiglitz, Editors. Cambridge Univ. Press, Cambridge, UK, 2001. ix + 318 pp., index, $53.00. (book review), David M. Kemme, Pages 364-366
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Living with Environmental Change: Social Vulnerability, Adaptation and Resilience in Vietnam: Edited by W. Neil Adger, P. Mick Kelly, and Nguyen Huu Ninh. Routledge, London and New York, 2002. XXI + 314 pp., index, $90.00., (book review), Jonathan Haughton, Pages 367-369
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Institutions, Transition Economies, and Economic Development: By Timothy J. Yeager. Westview Press, Boulder, Colorado, USA, 1999. xv + 166 pp., index, $28.00, paper, (book review), Ke-young Chu, Pages 370-371
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Call for Papers, (announcement), Pages 372-373
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Editors  (miscellaneous),
Page CO2
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Contents (miscellaneous),
 Pages i-ii
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Vol.74 No.1 Jun. 2004.

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ABSTRACTS

New research on education in developing economies (editorial), Mark Rosenzweig and Anjini Kochar, Pages 1-2
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Educational policy and the economics of the family (article), Abhijit V. Banerjee, Pages 3-32
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This paper analyzes the implications of alternative ways to model decision-making by families for educational policy. We show that many of the policy implications associated with credit constraints cannot be distinguished from the implications of models of the family that differ from the conventional Barro-Becker model. We then argue that it is the combination of credit constraints and non-conventional preferences that provides a robust basis for government intervention to promote educational investment.

Education in a crisis (article), Duncan Thomas , Kathleen Beegle , Elizabeth Frankenberg , Bondan Sikoki , John Strauss and Graciela Teruel, Pages 53-85
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The year 1998 saw the onset of a major economic and financial crisis in Indonesia. GDP fell by 12% that year. The effect on education of the next generation is examined. On average, household spending on education declined, most dramatically among the poorest households. Spending reductions were particularly marked in poor households with more young children, while there was a tendency to protect education spending in poor households with more older children. The evidence on school enrollments mirrors these findings. Poor households apparently sought to protect investments in the schooling of older children at the expense of the education of younger children.

Technological change and the distribution of schooling: evidence from green-revolution India (article), Andrew D. Foster and Mark R. Rosenzweig, Pages 87-111
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In this paper, we develop a two-strata general-equilibrium model of human capital acquisition with endogenous school construction that permits an assessment of the relative impacts of technological change and school availability on schooling investments in landless and landed households and illuminates how these choices interact through the adult and child labor markets. The implications of the model are tested using a unique household-level panel data set which constitutes a representative sample of rural India during the peak period of agricultural innovation associated with the green revolution, 1968-1982. The empirical results indicate that the operation of the market for child labor worsens the distributional impact of agricultural productivity on school investment across landless and landed households, as landless child labor is used to replace landed child labor lost due to increased child school attendance in landed households. The results also suggest, however, that the allocation of school construction diminishes the adverse impact of technical change on the gap between landless and landed schooling investment.

Urban influences on rural schooling in India (article), Anjini Kochar, Pages 113-136
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Many believe that low levels of schooling in rural areas of developing economies are a consequence of the low rate of return to schooling in agriculture. This belies the possibility that rural schooling decisions are undertaken in response to the possibility of employment in urban areas. This paper tests this hypothesis, using three cross sections of household data for rural India. It finds that urban rates of return do influence rural schooling, particularly amongst households who are most likely to seek urban employment, such as the landless. The results suggest that low levels of rural schooling may reflect not just conditions in the local village economy, but also the functioning and size of the relevant labor market.

Education and allocative efficiency: household income growth during rural reforms in China (article), Dennis Tao Yang, Pages 137-162
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This paper studies the contribution of schooling to rural income in China during factor market liberalization between 1986 and 1995. The relaxation of controls permitted farm households to reallocate productive inputs from agriculture to nonagricultural activities. It is hypothesized that education facilitates this adjustment. Panel data from Sichuan province suggest that schooling enhanced the ability of farmers to devote labor and capital to nonfarm production given the evidence that less-than-optimum levels of these inputs were allocated to nonagricultural uses. During the transition, the expansion of nonfarm activities contributed significantly to household income growth.

The medium run effects of educational expansion: evidence from a large school construction program in Indonesia (article), Esther Duflo, Pages 163-197
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This paper studies the medium run consequences of an increase in the rate of accumulation of human capital in a developing country. From 1974 to 1978, the Indonesian government built over 61,000 primary schools. The school construction program led to an increase in education among individuals who were young enough to attend primary school after 1974, but not among the older cohorts. 2SLS estimates suggest that an increase of 10 percentage points in the proportion of primary school graduates in the labor force reduced the wages of the older cohorts by 3.8-10% and increased their formal labor force participation by 4-7%. I propose a two-sector model as a framework to interpret these findings. The results suggest that physical capital did not adjust to the faster increase in human capital.

School subsidies for the poor: evaluating the Mexican Progresa poverty program (article), T. Paul Schultz, Pages 199-250
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This paper evaluates how the Progresa program, which provides poor mothers in rural Mexico with education grants, has affected enrollment. Poor children who reside in communities randomly selected to participate in the initial phase of the Progresa are compared to those who reside in other (control) communities. Pre-program comparisons check the randomized design, and double-difference estimators of the program's effect on the treated are calculated by grade and sex. Probit models are also estimated for the probability that a child is enrolled, controlling for additional characteristics of the child, their parents, local schools, and community, and for sample attrition, to evaluate the sensitivity of the program estimates. These estimates of program short-run effects on enrollment are extrapolated to the lifetime schooling and the earnings of adults to approximate the internal rate of return on the public schooling subsidies as they increase expected private wages.

Retrospective vs. prospective analyses of school inputs: the case of flip charts in Kenya (article), Paul Glewwe , Michael Kremer , Sylvie Moulin and Eric Zitzewitz, Pages 251-268
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This paper compares retrospective and prospective analyses of the effect of flip charts on test scores in rural Kenyan schools. Retrospective estimates suggest that flip charts raise test scores by up to 20% of a standard deviation. Yet prospective estimators based on a randomized trial provide no evidence that flip charts increase test scores. One interpretation is that the retrospective results suffered from omitted variable bias. If the direction of this bias were similar in other retrospective analyses of educational inputs in developing countries, the effects of inputs may be more modest than retrospective studies suggest. A difference-in-differences retrospective estimator seems to reduce bias, but it requires additional assumptions and is feasible for only some educational inputs.

Editorial Board (miscellaneous), Page CO2
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Elsevier announces participation in AGORA (publisher note), Pages I-II
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Instructions to Authors (miscellaneous),  Pages III-IV
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Vol.28 No.9 Julio, 2004.

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ABSTRACTS

Double auction dynamics: structural effects of non-binding price controls (article),  Dhananjay (Dan) K. Gode and Shyam Sunder, Pages 1707-1731
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In competitive equilibrium, non-binding price controls (that is, price floors below and ceilings above the equilibrium) should not affect market outcomes, but in laboratory experiments they do. We build a simple dynamic model of double auction markets with "zero-intelligence" (ZI) computer traders that accounts for many, though not all, of the discrepancies between the data and the Walrasian tatonnement predictions. The success of the model in organizing the data, and in isolating various consequences of price controls, shows that the simple ZI model is a powerful tool to gain insights into the dynamics of market institutions.

Irreversibility, uncertainty and growth (article),  Stéphanie Jamet, Pages 1733-1756
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This paper studies the aggregate implications of microeconomic investment irreversibility and idiosyncratic uncertainty. We explore the ability of irreversibility to endogenously generate differences in firms capital stocks. Therefore, we propose a dynamic general equilibrium model with heterogeneous agents. We characterize the long-run equilibrium and the steady-state distribution of intensive capital stocks. We show that irreversibility explains persistent differences in capital stocks, which provides a theoretical foundation to Gibrat's law, and obtain that the irreversible nature of investment strengthens the response of macroeconomics to microeconomic uncertainty.

Subjective temporary equilibrium (article), Shurojit Chatterji, Pages 1757-1780
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This paper introduces, within the framework of a simple example, the notion of a subjective temporary equilibrium. The underlying relation linking forecasts to equilibrium values of the state variable is linear. However, agents perceive a non-linear law that governs the rate of adjustment between successive periods and forecast using linear approximations to the non-linear law of motion. This is shown to generate a non-linear law of motion for the state variable with the feature that the agent's model describes correctly the period wise evolution of the economy. The resulting non-linear law of motion is referred to as a subjective temporary equilibrium as its specification is determined largely by the subjective beliefs of the agents regarding the dynamics of the system. In a subjective equilibrium, agents forecasts are generated by taking linear approximations to a correctly specified law of motion and the forecasts may accordingly be interpreted as being boundedly rational in a first-order sense. There exist specifications that admit the possibility of cyclical behaviour.

Dynamic Cournot-competitive harvesting of a common pool resource (article), Leif K. Sandal and Stein I. Steinshamn, Pages 1781-1799
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A variant of the classical harvesting game, where a number of competing agents simultaneously harvest a common-pool natural resource, is analysed. The harvesting at each time is a Cournot competition. The critical assumption made in the present analysis is that most (or all) individual participants maintain a perspective which is wholly myopic. Three cases are analysed: (1) The case of aggressive myopic Cournot competition, (2) co-operation and (3) competition when there is an incumbent player. The development in the number of active participants is outlined, and stability criteria for a dynamic Cournot-competitive game are given. The exact deadweight loss due to lack of co-operation is calculated.

Estimation of a generalized random-effects model: some ECME algorithms and Monte Carlo evidence (article), Robert F. Phillips, Pages 1801-1824
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This paper first derives ECME algorithms for computing maximum-likelihood estimates of a generalized random-effects model with an autoregressive remainder term, a model which nests a well-known error-components model. In addition to being easy to implement, the algorithms increase the log-likelihood with each iteration. The paper also compares various estimators with Monte Carlo experiments. Contrary to Maddala and Mount's (J. Am. Stat. Assoc. 68 (1973) 324) Monte Carlo results for estimators of an error-components model with uncorrelated remainder terms, when the remainder terms are autocorrelated, maximum-likelihood is found to be superior to two-step feasible generalized least-squares estimation.

The economic effects of immigration-a dynamic analysis (article), Michael Ben-Gad, Pages 1825-1845
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This paper examines the economic effects of immigration using a neo-classical growth model with overlapping dynasties. We demonstrate that in contrast to the predictions of the static models often used in the analysis of immigration, in a dynamic model with endogenous capital accumulation, shifts in factor prices that result from changes in immigration policy will be very modest. Consequently, benefits to natives from immigration are much smaller than previous studies have found-and smaller still if labor supply is elastic. On the other hand, the adverse effects on wages are much smaller as well-implying that in a model with only two inputs, immigration plays a much smaller role in redistribution from labor to capital than previously thought.

Dynamic bargaining with action-dependent valuations (article), Robert J. Lemke, Pages 1847-1875
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An infinite-horizon, dynamic bargaining model is presented in which actions affect the expected future value of the buyer-seller match. Because actions directly affect the future surplus to be bargained over, the model is unlike other models that tie the dynamic process to nature alone. Focusing on a subset of weak Markov equilibria, several results come about that are not found in static bargaining models using similar bargaining protocols. In particular, optimal price demands can be lower (higher) than the buyer's lowest (highest) possible valuation, and several empirical features concerning wage settlements and strike incidence from labor union contract negotiations can be explained.

Price uncertainty and consumer welfare in an intertemporal setting (article),  Shawn Ni and Neil Raymon, Pages 1877-1901
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In this paper we examine how increases in intertemporal price uncertainty affect the welfare of a consumer. In the preference structure of the consumer the coefficient of relative risk aversion and the elasticity of intertemporal substitution (EIS) are parametrically independent. We find that under some circumstances, including configurations where parameter values are consistent with much of the empirical literature, for each given degree of risk aversion an increase in price uncertainty reduces consumer welfare if the EIS is lower than a corresponding threshold value. We also find that when saving rates are sensitive to the EIS then there are important counterexamples to this intuitive case.

Sources of growth and the spectral properties of the labor market search model (article),  Julien Matheron , Tristan-Pierre Maury and Fabien Tripier, Pages 1903-1923
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This paper studies the dynamic properties of the labor market search model using three alternative sources of growth. Deterministic and stochastic exogenous growth specifications are compared with an endogenous growth specification, which is based on an external learning-by-doing mechanism. We apply Watson's (J. Political Economy 101 (6) (1993) 1011) test to assess the models' performances over different frequency ranges. It is shown that the endogenous growth specification can bring the labor market search model into closer conformity with the data than its exogenous counterparts.

Editorial Board (miscellaneous), Pages iii-iv
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