Consumption complementarities, monopolies and coordination

Price-coordination and investment coordination are analyzed in a monopolistic multi-sector general equilibrium model with consumption complementarities. Possible solutions to the investment coordination problem are consistent with historical examples of government intervention in investment, the different roles of banking sectors in different countries, and the effect of optimism on the development of new sectors. Price coordination within sectors between monopolists of complementary intermediaries lowers prices and increases welfare because the competition between the final goods of different sectors then becomes the paramount concern of each monopolist. With no price coordination, each monopolist sets infinite prices as the effect of price increases on demand is shared by all other intermediary monopolists due to the complementarities.

The mystery of the U-shaped relationship between happiness and age.

In this paper we address the puzzle of the relation between age and happiness. Whilst the majority of psychologists have concluded there is not much of a relationship at all, the economic literature has unearthed a possible U-shape relationship. In this paper we replicate the U-shape for the German SocioEconomic Panel (GSOEP), and we investigate several possible explanations for it.Happiness methodology, unobservables, latent variable

Jobs, working hours, and remuneration packages for migrants and urban residents

In this chapter we look at the working conditions and remuneration of migrants versus incumbent urban residents in China in the 2008 wave of the RUMiCI project. We find that the average hourly compensation for an urban worker is more than double that of migrants. Inequality of non-wage compensation is higher than that of hourly wages, mainly because urban workers are much more likely to benefit from various insurance schemes than migrants. Nearly three-quarters of the hourly compensation differences can be explained by observable characteristics. Returns to education and experience are lower for the migrants. They also have less education and accumulate less experience, perchance due to the temporary nature of the migration. We find strong differences between cities. For example, total compensation in Wuxi, Hefei, Ningbo and Chengdu is roughly the same for migrants as for the equivalent urban city dweller with the same characteristics. This equal treatment is also reflected in non-wage remuneration components. Yet in Chongqing and several other cities, a migrant is paid less than half the equivalent urban city dweller. This suggests that some cities ‘compete’ for migrants whilst others do not, and it also suggests that there are many city dwellers who would be better off if they move to other cities.Australian Research Council, AusAID, IZA, Ford Foundatio

Social Capital, Creative Destruction and Economic Development

This paper develops a conceptual framework for the role of social capital in the political economy of innovation, growth and reform, with illustrations from developing and transition countries. It identifies separate but related roles for the individual and communal interpretations of social capital. It argues that economic growth via innovation requires the creative destruction of individual social capital linkages and discusses the roles of communal social capital and formal market institutions in the process. A negative externality associated with creative destruction implies the possibility of growth accelerations as well as growth traps.

WELLBYs, cost-benefit analyses and the Easterlin Discount

The current practise of cost-benefit analysis in Western countries consists of a collection of various incompatible ideas and methodologies to obtain replicable numbers for the costs and benefits of major public spending plans. This paper describes the main elements of the dominant methodology, which combines consumer and producer surplus, price-taking, government-inputs-as-outputs, hedonic pricing of externalities, and the issue-specific use of partial or general equilibrium thinking. The paper then discusses how that methodology can be augmented and partially replaced by looking at how prospective policies would change the total number of WELLBYs (life satisfaction-adjusted years of life) of the population. The ability of the WELLBY methodology to address complex externalities is illustrated by the Easterlin Discount, which is a proposed reduction factor of 75% on all estimates of private consumption benefits to offset the envy caused in others