Abstracts 2000	Department of Economics

No. 00-1 Mark Kamstra
"Winter Blues: Seasonal Affective Disorder (SAD), the January Effect and the Stock Market"
Seasonal Affective Disorder, (SAD), affects 10 to 25 million Americans and has been documented in numerous countries.  The symptoms of SAD range from anxiety to irritability, overeating, difficulty concentrating and processing information, and severe, debilitating depression, all of which recur with reductions in daylight.  This paper shows that SAD also appears to be associated with stock market returns.  Using date from numerous exchanges, stock returns are shown to be significantly related to the length of the day, with patterns in the northern and southern hemispheres providing strongly supportive evidence.  Furthermore, there is compelling evidence that SAD accounts for the January effect.
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No.00-2 Steeve Mongrain
"Experience Rating: Insurance Versus Efficiency"
When unemployment insurance is publicly provided, firms' layoff decisions can be distorted.  Unemployment insurance reduces the cost of laying off workers, thereby encouraging layoffs and leading to more unemployment.  To dampen this increase in unemployment, it has been suggested that unemployment insurance should be financed with an experience rated tax.  This paper examines the possibility that, despite that increasing the level of experience rating can reduce the level of unemployment, it can also reduce the wealth of unemployed workers.  The reason for this is that, under high levels of experience rating, firms may reduce their severance payments by more than the publicly provided unemployment insurance benefit.  We build a model where competitive firms offer long-term contracts to risk-adverse workers.  Asymmetric information about workers' productivity leads to over-unemployment and incomplete private insurance against unemployment.  This paper shows that an experience rated unemployment insurance program cannot increase the wealth of unemployed workers without increasing unemployment.
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No. 00-3 Gregory K. Dow
"Allocating Control Over Firms: Stock Markets Versus Membership Markets"
The new institutional economics regards the firm as a set of incomplete contracts among input suppliers.  The theory of the firm must therefore explain how decision-making powers are allocated.  Two leading candidates for such control rights are capital suppliers and labor suppliers.  Most large enterprises in developed economies award formal control to investors rather than workers.  I suggest here that this asymmetry can be traced in part to differences between stock markets and membership markets as institutional mechanisms for allocating control over firms.  The attractive theoretical properties of membership markets are examined, along with some factors that may account for their rarity in practice.  These practical difficulties help explain the rarity of labor-managed firms themselves, along with various facts about their design, behavior, and distribution across industries.
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No. 00-4 Horst Raff and Nicolas Schmitt
"Endogenous Vertical Restraints in International Trade"
This paper examines interbrand competition between a domestic and a foreign manufacturer who market their products through intermediaries. The contracts manufacturers offer these intermediaries are endogenous. In equilibrium, contracts may specify exclusive territories (ET), depending on the degree of substitutability between products and the level and degree of transparency of trade barriers. Trade liberalization, through lower or more transparent barriers, may lead manufacturers to use ET, thereby substituting private anti-competitive arrangements for government-imposed barriers. This substitution may decrease competition and welfare, and thus create a role for competition policy in a free trade environment.
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No. 00-5 Robin Boadway, Nicolas Marceau and Steeve Mongrain
"Tax Evasion and Trust"
Tax evasion is typically analyzed in a principal/agent framework,the government (principal) trying to provide agents with the incentives to pay their taxes.  However,evading sales,excise or trade taxes requires the cooperation of at least two taxpayers.When individuals evade taxes,they face two potential costs.  One is that tax evasion may be detected and sanctioned;the other is that their partner in crime might cheat.An increase in the sanction for tax evasion leads to a direct increase in the expected cost of a transaction in the illegal sector.  However,it may also reduce the incentive to cheat.  It may then be that a small increase in the sanction reduces the total cost of transacting in the illegal sector. Tax evasion may increase as a result.
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No. 00-6 Dominique Gross and Nicolas Schmitt
"Do Birds of a Feather Flock Together?  Immigration Flows and Cultural Clustering in Host Countries"
This paper presents a simple theoretical framework in which immigrants have a relative incentive to cluster in host countries where cultural characteristics and imperfect information sustain the segmentation of the labor market and a higher wage in foreign communities. The hypothesis is tested on a panel of immigration flows to OECD countries.  The pull effect of cultural communities is supported and it is found that the minimum size of a given cultural community is around 5% of the foreign population. It is also found that the pull effect weakens as the community grows as predicted by the theoretical framework.
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No. 00-7 Nicolas Marceau and Gordon M. Myers
"From Foraging to Agriculture"
We consider a world in which the mode of food production, foraging or agriculture, is endogenous, and in which technology grows exogenously.  Using a recent model of coalition formation, we allow individuals to rationally form cooperative communities (bands) of foragers or farmers.  At the lowest levels of technology, equilibrium entails the grand coalition of foragers, a cooperative structure which avoids over-exploitation of the environment. But at a critical state of technology, the cooperative structure breaks down through an individually rational splintering of the band.  At this stage there can be an increase in work and, through the over-exploitation of the environment, a food crisis.  In the end, technological growth leads to a one-way transition from foraging to agriculture.
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No. 00-11 Anke S. Kessler, Christoph Lulfesmann and Gordon Myers
"Redistribution, Fiscal Competition, and the Politics of Economic Integration"
The paper examines the redistributive consequences of the economic integration of factor markets.  We consider two countries that redistribute income among their residents.  The social benefits in each country are financed by a source based tax on capital which is democratically chosen by its inhabitants.  If either capital or labour is internationally mobile, the countries engage in fiscal competiton, i.e., the partial integration of capital or labour markets is detrimental to the countries' redistributive ability.  A move from partial to full integration, however, may alleviate rather than intensify fiscal competition, particularly, if the two countries face sufficiently similar economic and political conditions.  In such a situation, increased integration of labour markets will soften the incentives compete for mobile capital.  As a result, there is more redistribution in equilibrium and a majority of the population in each country is strictly better off.
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No. 00-12 Brian Krauth
"Social Interactions, Thresholds, and Unemployment in Neighborhoods"
This paper finds that the predicted unemployment rate in a community increases dramatically when the fraction of neighborhood residents with college degrees drops below twenty percent.  This threshold behavior provides empirical support for "epidemic" theories of inner-city unemployment.  Using a structural model with unobserved neighborhood heterogeneity in productivity due to sorting, I show that sorting alone cannot generate the observed thresholds without also implying a wage distribution which is inconsistent with that observed in microeconomic data.  Social interaction effects are thus a necessary element in any suitable explanation for the data.
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No. 00-13 B. Curtis Eaton, Krishna Pendakur, Clyde Reed
"Socializing, Shared Experience and Popular Culture"
We argue that socializing is an important economic activity because it is vital to our well being, and that an important input into the activity of socializing is the set of experiences that is shared by the participants.  Clearly, a person's experiences are generated, in part, by standard economic choices, and therefore the set of shared experiences in any social encounter is driven by the prior economic choices of individual participants.  One implication is that these prior choices are not purely private since the utility that individual participants derive from a social encounter is linked to them.  Our model of this link provides an explanation of a number of interesting phenomena, including certain sorts of conformity, the domination of one culture by another, and the existence of superstars.
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No. 00-15 John B. Burbridge and Gordon M. Myers
"Tariff Wars and Trade Deals With Costly Government"
We study a simple model of tariff wars and trade deals in which government revenue collection and disbursement uses resources.  The introduction of a costly government leads to lower non-cooperative tariffs, the possibility that a less costly government may win a tariff war, and fully cooperative trade deals where countries lower tariffs but do not eliminate them, even with lump-sum taxes and transfers.
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No. 00-16 Gregory K. Dow
"The Unltimate Control Group"
Empirical research on the organization of firms requires that firms be classified on the basis of their control structures.  This should be done in a way that can potentially be made operational.  It is easy to identify the ultimate controller of a hierarchical organization, and the literature has largely focused on this case.  But many organizational structures mix hierarchy with collective choice procedures such as voting, or use circular structures under which superiors are accountable to their subordinates.  I develop some analytic machinery that can be used to map the authority structures of such organizations, and show that under mild restrictions there is a well-defined ultimate control group.  The results are consistent with common intuitions about the nature of control in some familiar economic settings.
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No. 00-17 Gordon M. Myers and Yorgos Y. Papageorgiou
"Towards a Better System for Immigration Control"
We study different methods of immigration control using a simple model of a congested world.  Our main comparison involves quota, the predominant instrument of immigration control, and a proposed system of immigration tolls and emigration subsidies.  We show that the equilibrium of the proposed system is Pareto superior to the quota system.  This is consistent with the tolls and subsidies creating a market for international migrants.  When countries are price-takers the market becomes perfect and the exploitation of gains from trade complete.  From a normative perspective, an open-borders policy is preferred to both control methods but will meet political opposition because it hurts the residents of ther rich country.
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No. 00-18 J. Atsu Amegashie
"Misery loves company:  social influence and the supply/pricing decision of a popular restaurant"
In a model with social influence, Becker (1991) offers an explanation for why popular restaurants with excess demand do not raise their prices.  He also offers an explanation for why such restaurants do not increase supply but admits his explanation may be weak.  Becker does not provide a formal analysis of why supply is not increased.  In this paper, I present a formal analysis of Becker's argument based on a different kind of social influence.  I also offer an alternative explanation of why some restaurants are popular and others are not.  Finally, while Becker (1991) includes market demand and the gap between market demand and supply as separate arguements in the customers' demand function to explan why supply and price are not increased.  I only include the gap between demand and supply in the customers' utility function to explain both puzzles.
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No. 00-19 J. Atsu Amegashie
"A political economy model of immigration quotas"
The paper examines a model in which the number of immigrants allowed into a country is the outcome of a costly political lobbying process between a firm and a union.  The union and the firm bargain over the wage of natives after the number of immigrants that will be permitted is known.  I consider two contest success functions: one in which the lobbyist with the higher effort is not necessarily the winner and another in which the lobbyist with the higher effort wins with certainty (i.e., the all-pay auction).  Comparative statics results are derived to show how the reservation wage of immigrants, the size of the union, the sensitivity of the legislature to lobbying, the reservation of wage of natives, the price of the firm's product and the firm's bargaining power affect immigration quotas and the post-immigration wage of natives.  I also discuss some limitations of my results.
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No. 00-21 J. Atsu Amegashie
"The All-pay Auction When a Committee Awards the Prize"
The equilibrium of the all-day auction when the prize is awarded by two or more people has not been characterized.  In this case, I conjecture that there is no equilibrium in mixed strategies and in pure strategies if there are no caps on the bids of the contestants.  I then consider an all-pay auction under committee administration with caps on the bids of the contenstants.  I find pure and mixed strategy equilibria for some given values of the cap.  The main contribution of this paper is to show that there exists equlibria in the all-pay auction under committee administration if caps are placed on the bids of contestants.  I argue that the cap is not an artificial restriction on the game, given that there are caps on political lobbying in the real world and/or the contestants may be financially constrained.
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No. 00-22 A. Kessler, C. Lulfesmann and Gordon M.  Myers
"Economic Versus Political Symmetry and the Welfare Concern with Market Integration and Tax Competition"
The paper studies the implications of increased capital market integration and the associated increased tax competition for world welfare.   We consider a population with heterogenous endownments of capital in a model of redistributive politics.  We show that if countries have the same average capital endowments but differ with respect to the endowments of their decisive majority, autarky may be socially preferred to integration under any aversiton to inequality.  We then reverse the conclusion by assuming that the decisive majority has the same endowment but countries differ in their average capital endowments.  In proving these results we show that integration may decrease world output and increase the utility of the poorest members of the economy.
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No. 00-23  J.  Atsu Amegashie and G. Myers
"Intense Lottos and Raffles"
There is a long history of governments, private charities, and private firms using lottos or raffles to raise revenue or improve sales.  It has been estimated that governments and private charities raise over $80 billion annually.  We consider two modifications of the traditional design; a preliminary raffle is held to select contestants for a final raffle (short-listing raffles); and a one stage modification where if contestant i buys X_i tickets the raffler puts X_i^T raffle tickets into the hat for  i   (intense raffles).  As compared to the traditional design we prove that revenue is larger with either modifications.  The intuition is that these modifications intensify the competition/externalities between contestants.
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