Small departures from rationality magnify fluctuations

This note shows that introducing into the economy a few number of agents who do not support sunspots theories magnifies endogenous business cycles fluctuations when the current state of the economic system is sensitive enough to traders' forecasts, or equivalently, in presence of indeterminacy.

Growth and labor supply in the presence of habit formation in consumption

This paper examines a model with habit formation in consumption. The model leads to higher equilibrium values in consumption, output, capital accumulation and labor supply than the neoclassical growth model with elastic labor supply. Comparative static analysis shows that an increase in the importance of consumption in the recent past in habit formation is associated with a decrease in growth and labor supply. On the other hand, an increase of the importance of habit stock relatively to present consumption, is found to stimulate growth and labor supply.Consumption behavior

Illegal Immigration and Migrant Networks: Is There an Optimal Immigration Quota Policy?

High-skill immigrants form networks that facilitate subsequent low-skill immigration. To minimize the effects of low-skill immigration on unemployment, a strict lean-against-the-wind strategy or a flexible lean-against-the-wind strategy that is supported by, and takes into account the effect of, border control, are considered. None of these policies is necessarily better than the other as regards leniency toward low-skill immigration as well as the number of illegal immigrants. High-skill immigration increases illegal immigration when the effect of migrant networks on the supply of low-skill immigrants is greater than the job-creation effect of these networks.Migrant networks, immigration dynamics, low-skill immigration, illegal immigration, unemployment, lean-against-the-wind policy rules

A Lean-Against-the-Wind Rule for Controlling Low-Skill and Illegal Immigration

This paper develops a lean-against-the-wind rule for setting low-skill immigration quota. The construction of this rule takes into account the factors governing the supply of and demand for low-skill immigrants, illegal immigration, border enforcement and the host-country's level of unemployment.Economics, low-skill immigration, immigration quota, illegal immigration, unemployment, lean-against-the-wind policy rules

Employment and Fertility Choice: A Differential Game Approach

For OECD countries there is an intriguing variety of combinations between total fertility rate (TFR) and female labor force participation rate (FPR) suggesting the existence of multiple equilibria. This paper provides a differential game framework where the employment choices by husband and wife affect a family's fertility. The model has multiple open-loop equilibria characterized by different combinations of FPR and TFR that are consistent with the empirical cross-country evidence. The dynamic trajectory from one equilibrium point to another also sheds lights on possible demographic transition of individual countries as displayed in their time series data. The model stresses that the husband's employment decisions are as important as wife's in determining family size.

The Sephardim Diaspora: A Model of Forced Migration and Confiscation

This paper studies the expulsion of Jews from Spain in 1492. This forced migration process is addressed with a model that blends demographic, religious and macroeconomic features. The optimal migration path is derived. It is shown that a large portion of the Sephardim community fled the country and, given the confiscation process they suffered, their final income was smaller than the income just before the expulsion. The model provides several predictions: (1) the rate of growth of the country falls with the migration; (ii) an increase in the inflation rate decreases the final income of the Jews; (iii) the government has an incentive to denerate inflation since this minimises the negative impact of the diaspora on the rate of growth; and (iv) the decision to reduce the activities of the Spanish Inquisition diminished the migration

Why Business Schools Do So Much Research: A Signaling Explanation

Criticism is mounting on business schools for their excessive focus on research and for neglecting teaching. We show that if students have imperfect information about a school’s overall capabilities and if business schools differ in their research productivity, the least productive schools may do as much research as the top-tier ones only to manipulate student’s expectations. In turn, the most productive schools might resort to excess research in order to signal their type in the eyes of future students. This signalling equilibrium is characterized by a relative neglect of teaching by the top-tier schools. Such a situation is socially inefficient as compared to the perfect information case.Business Schools; Research management; Research policy; Research vs. teaching; Signalling; Imperfect information

Debts on debts

This paper studies the impact of mortgages on consumer debt and on debt on durable goods. We first present a stylized model in which an outstanding debt, representing mortgages, affects positively consumer debt, and debt on durable goods. The model is empirically tested for the U.S. using PSID 2005 wave. Our results are striking. First, we find strong evidence supporting a positive association between mortgage loans and consumer debts, regardless of the measures used, the control variables used, and the methods used. Second, we find that the effects of mortgages on the debt on durable goods are in general smaller than the effects of mortgages on consumer debt. Third, our distributional analysis reveals that the effects monotonically decrease as the quantile increases. Finally, our results are also confirmed by the results using the U.K. data.Consumer expenditure, housing, credit, censored regressions