Business cycles, economic crises, and the poor : testing for asymmetric effects

The author examines whether output contraction associated with cyclical output fluctuations and economic crises have an asymmetric effect on poverty. He identifies four potential sources of asymmetry: expectations and cofident factors, credit rationing at the firm level (induced by either adeverse selection problems or negative shocks to net worth), borrowing constraints at the household level, and the"labor hoarding"hypothesis. He also identifies some testable implications of these alternative explanations. The author then proposes a vector autoregression technique (involving the detrended components of real output, the unemployment rate, real wages, and the poverty rate) to test whether the initial cyclical position of the economy, and the size of the initial drop in the output gap in a downturn, matter in assessing the extent to which output shocks affect poverty. He applies the technique to Brazil, using annual data for 1981-99. The results indicate that poverty responds asymmetrically to output shocks, showing less sensitivity when the economy is initially in a downturn.Economic Theory&Research,Environmental Economics&Policies,Labor Policies,Health Economics&Finance,Public Health Promotion,Environmental Economics&Policies,Economic Theory&Research,Health Economics&Finance,Achieving Shared Growth,Health Monitoring&Evaluation

Informational Barriers to Energy Efficiency – Theory and European Policies

This BEER addresses informational barriers to energy efficiency. It is a widely acknowledged result that an energy efficiency gap exists implying that the level of energy efficiency is at an inefficiently low level. Several barriers to energy efficiency create this gap and the presence of asymmetric information is likely to be one such barrier. In this article a theoretical framework is presented addressing the issues of moral hazard and adverse selection related to energy efficiency. Based on the theoretical framework, European policies on energy efficiency are evaluated. The article is divided into two main parts. The first part presents the theory on information asymmetries and its consequences on energy efficiency focusing on the problems of moral hazard and adverse selection. Having established a theoretical framework to understand the agency barriers to energy efficiency, the second part evaluates the policies of the European Union on energy efficiency. The BEER finds that problems of moral hazard and adverse selection indeed can help explain the seemingly low levels of energy. In both presented models the cost to the principal from implementing high energy efficiency outcome is increased with the informational asymmetries. The theory reveals two implications to policies on energy efficiency. First, the development of measures to enable contractual parties to base remuneration on energy performance must be enhanced, and second, the information on technologies and the education of consumers and installers on energy efficiency must be increased. This could be complemented with certification of installers and energy efficiency advisors to enable consumers to select good agents. Finally, it is found that the preferred EU policy instrument on energy efficiency, so far, seems to be the use of minimum requirements. Less used in EU legislation is the use of measuring and verification as well as the use of certifications. Therefore, it is concluded that the EU should consider an increased use of these instruments, and in particular focus on a further development of standards on measurability and verification as well as an increased focus on education of consumers as well as installers and advisors on energy efficiency.Energy efficiency, Informational barriers, European policies

The Changing Public Role in Services to Agriculture: The Case of Information

The paper analyzes the changes that have taken place in the nature of agriculture information and their consequences on the public role of related public services with specific regard to process undergoing in the European Union. Increased interest in food quality and food safety issues in a global consumer driven society, together with major attention to environmental and ethical issues related to food production, enlarge both the object of agricultural information and the audience of stakeholders in the food chain and in the general public. Information policy with regard to a multifunctional approach to agriculture, can be finalized to correct three main sources of market failures as access to information, quality and adverse selection and externalities and provision of public goods. The privatization of agricultural research and extension, although useful from the point of view of economic efficiency, poses a number of threats to the development of knowledge for sustainable agriculture. If the public sector decides to move away from the delivering of services, public action can still be relevant in orienting, targeting, regulating and funding in win-win solutions where the advantages of public extension, as open access and evaluation of social priorities, join efficiency and market orientation of the private sector.information, public goods, food quality, externalities, public services, extension, Public Economics,

Social security and subsidiarity

In this paper we deal with the design of three social insurance schemes (old age social security, health insurance an child benefits) in a federal setting such as the Belgian one. We argue that these three programs need to be reformed to be more efficient and more equitable. In none of these cases regional decentralization would be the most important element of the reform. Yet, in all three cases, some inefficiencies can be removed by a careful design of the relative competencies of the regions and the federal state. An open discussion over these issues is urgently needed to avoid a stalemate in which the necessary reforms are blocked.

Public Economics and Startup Entrepreneurs

This paper surveys the various forms of market failure that can arise when innovating entrepreneurs consider entering an industry, and outlines possible implications for public policy. Externalities can arise from entrepreneurial activities such as spillover benefits from new innovations and spillover costs on incumbent firms. New entrepreneurs can also face various barriers to entry, either natural ones or those created by incumbent firms or government policy. They may also face problems in obtaining credit at efficient terms if there are information asymmetries in markets for either loan or equity finance. Finally, asymmetric information may also plague new firms in the hiring of workers. These various inefficiencies are of contradictory sign, some calling for an incentive to startup firms and other for the opposite. Thus, public policy is ambiguous and depends on the circumstances at hand.

Missing Market in Labor Quality: The Role of Quality Markets in Transition

This paper characterizes a key feature of the classic socialist economy and state-owned enterprise, namely that of missing markets in labor quality. Under the socialist regime in which students and workers were assigned to work units, the rights of managers to monitor and reward workers were limited. The exchange of labor services was based more on measures of quantity rather than quality. Workers who performed functions broadly consistent with that of their assigned occupations for the duration of the designated workweek received the standard wage. With the reassignment of property rights, this situation has changed. Students and workers have resumed control over the accumulation of their human capital the trade of skill and effort. Managers have acquired greater authority to monitor labor - to discriminate in setting wages and bonuses and to hire and fire - as well as stronger incentives to use this authority to raise efficiency and profits. The result is an emerging market in labor quality.A 1995 cross section of enterprise data spanning 10 ownership types is used to test the hypothesis of an emerging labor quality market. The results show that certain non-state forms of ownership, in which the rights of managers to monitor and reward skill and effort are presumed to be relatively well developed, encourage labor quality, most notably training, which raises productivity. The relative inability of state enterprises to monitor and reward high quality labor is likely to create an adverse selection problem in which the most skilled and motivated workers exit from the state sector, so as to cause a "hollowing" of skilled workers and weakened enterprise performance. The theoretical contribution of this paper is to generalize Coase's analysis of the critical role of property rights in creating resource markets to the creation and exchange of quality in all goods. Analytically, the conditions for a missing market in labor quality are equivalent to those for a missing market in pollution abatement and water quality. The analysis underscores the importance of property rights in creating the conditions for the accumulation and efficient exchange of human capital.http://deepblue.lib.umich.edu/bitstream/2027.42/39645/3/wp260.pd

Learning Strategies in Coopetitive Environments

The objective of this chapter is to explore the learning strategies that can be deployed by firms in coopetitive configurations with no other choice than deploying an “adverse learning” mechanism to reach their customers through cooperation with their competitors. After exploring the mechanisms of asymmetric learning in a first section, the chapter adopts an ecological perspective (Hawley, 1950) in drawing parallels between animal organization and groups of firms in gaining a strategic advantage through asymmetric learning.coopetition; Learning Behavior; Learning Strategy.

Do Credit Constraints Matter more for College Dropout Entrepreneurs?

Start-ups and their respective market partners are faced with severe problems of asymmetric information due to their lack of prior production history and reputation. Given this situation, it is most likely that outside financiers will not be informed about the potential gains, losses, and risks of the new venture. In our paper, we study how banks screen the abilities of the entrepreneurs. We argue that specific characteristics of the educational history of individuals signal their quality as founders. Namely, we expect banks to also use “college dropout” as an indicator when deciding to extend credit to a founder. We empirically test our hypotheses using a dataset of 189 German start-ups collected in 1998/99. Our hypothesis is borne out by the data. Applying ordered probit techniques we find that college dropouts have more difficulties to obtain the credit they need in the beginning of their start-up than those without college dropout experience.adverse selection, financial constraints, entrepreneurship, education

Risky Activities and Strict Liability Rules: Delegating Safety

This paper studies the delegation of activities that pose serious risks to health and the environment in an economy regulated by strict liability schemes. Strict liability induces judgment-proof possibilities. Two civil liability regimes are then compared: a strict liability scheme and a capped strict liability one. The argument is led under a twofold asymmetric information assumption between the principal and the agent: the efficiency level in effort for safety and the agent’s level of wealth. The paper shows that standard strict liability under information asymmetries deters the efficient agent to compete and favors adverse selection. Then, under conditions, a capped strict liability regime is a better regime than a standard strict liability one because it induces the efficient agent to supply the level of safety effort equivalent to the first best solution. The counterpart is the perception of an informational rent by the efficient agent. At the optimum, this rent is minimized by the efficient contract supplied by the principal.Environment, Strict Liability, Ex-Ante Regulation, Ex-Post Liability, Judgment-Proof, Environment Law, CERCLA, Environmental Liability