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171. Melons as Lemons: Asymmetric Information, Consumer Learning and Seller Reputation

Author:
Jie Bai
Publication Date:
03-2021
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
There is often a lack of reliable quality provision in many markets in developing countries and firms generally lack a reputation for quality. One potential explanation is that mistrust due to past bad behavior can make reputation-building difficult. I examine this hypothesis in a setting that features typical market conditions in developing countries: the retail watermelon markets in a major Chinese city. I first demonstrate empirically that there is substantial asymmetric information between sellers and buyers on quality and a stark absence of quality premium at baseline. I then randomly introduce one of two branding technologies into 40 out of 60 markets–one sticker label that is widely used and counterfeited and one novel expensive laser-cut label. The experiment findings show that laser-branding induced sellers to provide higher quality and led to higher sales profits. However, after the intervention was withdrawn, all markets reverted back to baseline. I incorporate the experimental variation into an empirical model of consumer learning and seller reputation building. The results suggest that consumers are hesitant to upgrade their perception under stickers, which makes reputation-building a low-return investment. While the new technology enhances learning, the resulting increase in profits is not sufficient to cover the fixed cost of the technology for small individual sellers. Counterfactual analysis shows that information friction and fragmented market lead to significant under-provision of quality.
Topic:
Economics, Markets, and Developing World
Political Geography:
China, Asia, and Global Focus

172. Economic Sentiment Indicators and Foreign Direct Investment: Empirical Evidence from European Union Countries

Author:
Andrzej Cieślik and Mahdi Ghodsi
Publication Date:
07-2021
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
This paper studies the role of business sentiment in the decisions of multinational enterprises (MNEs) to undertake foreign direct investment (FDI) across European Union (EU) member states. Based on the knowledge-capital model, the study employs the Pseudo Poisson Maximum Likelihood (PPML) estimator and panel data to examine empirically the determinants of FDI across EU member states during the period 2003-2017. The empirical evidence suggests that better economic sentiment in an EU Member State induces MNEs to undertake FDI in that country, while worse economic sentiment in an EU member state motivates an MNE in that country to invest abroad.
Topic:
Economics, Markets, Foreign Direct Investment, European Union, Business, and Multinational Corporations
Political Geography:
Europe

173. El problema del coste de la defensa

Author:
Carlos Marti Sempere
Publication Date:
11-2021
Content Type:
Journal Article
Journal:
Journal on International Security Studies (RESI)
Institution:
International Security Studies Group (GESI) at the University of Granada
Abstract:
Este artículo aborda la cuestión del coste asociado ala defensa, es decir, de los recursos que la sociedad debe dedicar a proporcionar seguridad a sus miembros. En él se examina los métodos y formas de establecer y distribuir estos recursos para obtener un conjunto apropiado de capacidades militares que soporten la percepción de seguridad del ciudadano, resolviendo así el problema de la defensa y aumentando así el bienestar económico y social. Se trata de una cuestión antigua que hasido objeto de una preocupación constante del ser humano.La novedad más importante de este artículo es examina resta cuestión desde la perspectiva de la racionalidad limitada del ser humano, dela información imperfecta de la que dispone, de la existencia de preferencias sin una clara racionalidad económica y de instituciones y normas deeficacia limitada. Todo ello conducea asignaciones de recursos para la defensa que pueden encontrarse lejos delos valores que ofrecen un bienestar general mayor.
Topic:
Defense Policy, Economics, Markets, Welfare, and Efficiency
Political Geography:
Global Focus

174. The Organizational Roots of Market Design Failure: Structural Abstraction, the Limits of Hierarchy, and the California Energy Crisis of 2000/01

Author:
Georg Rilinger
Publication Date:
12-2021
Content Type:
Working Paper
Institution:
Max Planck Sciences Po Center on Coping with Instability in Market Societies (MaxPo)
Abstract:
Economic sociologists have rarely studied organizational reasons why market design processes fail. Drawing on the organizational literature on mistakes and accidents, the paper identifies such reasons for a fatal design decision during the creation of California’s first electricity markets. Designers proposed weak oversight structures even though their models called for active and permanent regulatory control. Sellers like Enron could therefore manipulate the market without fear of detection, prolonging the western energy crisis. A process of “structural abstraction” explains this mistake. Designers were split into three groups that worked in different divisions and relied on local frames to understand the oversight requirements. Each group missed information the others were aware of and arrived at the conclusion that minimal oversight would suffice. Higher levels of the hierarchy should have discovered and resolved these discrepancies. However, these levels considered the issue at a higher level of abstraction. Such structural abstraction made room for ambiguities that obscured the local disagreements.
Topic:
Economics, Markets, Sociology, Hierarchy, and Energy Crisis
Political Geography:
California, North America, and United States of America

175. The Development of Post-Apartheid South Africa in Light of the Institutionalist Perspective: A Critical Review

Author:
João Paulo Davi Constantino, Robson Dias da Silva, and Georges Flexor
Publication Date:
08-2021
Content Type:
Journal Article
Journal:
Brazilian Journal of African Studies
Institution:
Brazilian Journal of African Studies
Abstract:
This work aims to present a critical analysis of the impacts on the diffusion of new international institutional and governance standards in the economic development of South Africa (in its broad sense). The study was divided into four sections, besides the introduction and the final consider-ations. The second section addresses the association between institutions and economic development in recent academic literature. The third section presents the methodology applied to assess the development of democracy, private and intellectual property rights, financial institutions, tariffs and commercial protection in the country, as well as of welfare and labor pro-tection institutions. The fourth section briefly addresses the South African democratic transition period back in the 1990s, highlighting its institutional and political shift towards a neoliberal model capable of favoring monetary stability and "big business", despite the chronic inequalities yet observed in the country nowadays. The fifth section makes an in-depth analysis of each of these institutions in the South African context and investigates the extent to which they have resulted in economic growth, reduced inequalities and have enabled better quality of life for the South African population. It was possible concluding that the association between institutions and economic development is more complex than the one presumed by many economists and international organisms, since it does not present a simple and lin-ear correlation. Moreover, it was observed that developing countries need to implement structural transformations that are beyond the sole power of market mechanisms.
Topic:
Apartheid, International Organization, Markets, Governance, Democracy, Institutions, Economic Development, and Democratic Transitions
Political Geography:
Africa and South Africa

176. Brexit and the Union

Author:
Mary C. Murphy, Michael Keating, David Bell, Nicola McEwen, Michael Kenny, Jac Larner, Dan Wincott, and Kirsty Hughes
Publication Date:
02-2020
Content Type:
Special Report
Institution:
UK in a Changing Europe, King's College London
Abstract:
What challenges does leaving the European Union pose for the Unions of Great Britain and Northern Ireland? On 3 February the Centre on Constitutional Change launched their latest report, Brexit and the Union where their fellows discuss some of the issues Brexit presents for the UK’s territorial and constitutional future. This report looks at: Brexit and Ireland/Northern Ireland’s Constitutional Future The Internal Market Post-Brexit Regional Funds and Fisheries Arrangements Brexit: Exposing the Limits of Devolved Authority England’s Territorial Politics After Brexit Wales: Where Next? Brexit, Scotland and Europe
Topic:
Markets, European Union, Brexit, and Fishing
Political Geography:
United Kingdom, Europe, Ireland, Scotland, and Wales

177. Emerging Europe and the capital markets union

Author:
Alexander Lehmann
Publication Date:
09-2020
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The European Union’s capital markets union (CMU) plan is in urgent need of a revamp. Because of Brexit, EU capital markets and supervision need to become more integrated. The ongoing deep recession increases the need for equity finance mobilised by capital markets. The eleven EU countries in central and south-eastern Europe which joined the EU in 2004 and after (EU11) are particularly affected by the ongoing consolidation of exchanges, which has diminished liquidity in smaller markets and in the traded securities of mid-sized companies. Corporate funding remains even more bank-dependent in the EU11 than in the rest of the EU. Equity capital, whether in the form of listed shares or directly supplied by investment funds, is particularly underdeveloped. Even though the sustained and superior growth record in the region compared to the rest of the EU should be a magnet for investors, cross-border exposure to traded equity in the region remains very limited. To gain broader acceptance in all EU countries, CMU will need to support more forcefully funding for small and medium enterprises (SMEs), and foster market integration throughout the single market, including outside the euro area. The immediate priorities for the EU should be to revise market regulation and facilitate capital market access by smaller firms. Lighter standards in dedicated SME markets should be widened for newly-listed companies, but should not be available to more mature listed companies. In this way, high standards of transparency and integrity, which have been bolstered by post-financial crisis regulation, will be preserved. The EU11 countries need to embrace corporate governance rules and greater transparency of company financial data, which would facilitate equity finance. They must also attract investors who will seek disclosure of environmental, social and governance performance of issuers. Much could be done to foster liquidity on national exchanges, including by embracing the inevitable further consolidation of exchanges and other infrastructure.
Topic:
Markets, European Union, Regulation, Finance, Business, Capital, Corporate Governance, and Private Equity
Political Geography:
Europe

178. On the Origins of Entrepreneurial Alertness: Did Bauer and Yamey Precede Kirzner?

Author:
J. Robert Subrick
Publication Date:
10-2020
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
After the Second World War, the entrepreneur virtually disappeared from economic analysis (Baumol 1968). This neglect followed from the emerging models of general equilibrium that formed one aspect of the core of economic theory. By assumption, the Walrasian auctioneer knew the appropriate prices necessary to equate quantity supplied with quantity demanded in each market. In addition, the auctioneer knew when and by how much to adjust prices when an exogenous factor changed such as income or production technology. Trade only occurred at equilibrium prices so that markets cleared. No market participant chose or changed prices; it occurred exogenously. Kenneth Arrow recognized the lack of real world mechanisms to determine and adjust prices in competitive markets. He identified a logical gap in the perfectly competitive model. He wrote that “there is no place for a rational decision with respect to prices as there is with respect to quantities” (Arrow 1959: 42). Prices exist independent of consumer and firm behavior. A complete model would have to provide a solution to the conundrum.
Topic:
Markets, History, Entrepreneurship, and Economy
Political Geography:
North America and United States of America

179. Assessing State Capacity Libertarianism

Author:
Ryan H. Murphy and Colin O'Reilly
Publication Date:
10-2020
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Tyler Cowen (2020), in a controversial and widely discussed blog post, has argued that free economic institutions must be accompanied by state capacity to achieve maximal growth rates. He calls this “State Capacity Libertarianism,” which echoes positions he has posed previously (Cowen 2007, 2018). Besley and Persson (2011) can be perhaps seen as a direct predecessor. Criticisms immediately emerged, with Henderson (2020) arguing that Cowen’s specific proposals are in direct conflict with libertarianism, and with minor caveats, free economic institutions are already able to achieve the goals Cowen hopes to achieve with state capacity. Geloso and Salter (forthcoming) argue that the lack of examples of wealthy countries with weak states is due to survivorship bias, and they apply their argument to criticize Cowen (Geloso and Salter 2020). Caplan (2018), while not directly addressing State Capacity Libertarianism, argues that there is little reason to believe that the effects of state capacity are the result of strong states themselves, rather than the social and cultural factors that allowed a strong state to emerge in the first place. The purpose of this article is to put data to the question of the individual effects of state capacity and free economic institutions on economic performance, and the potential interaction between the two.
Topic:
Economics, Markets, State, and Libertarianism
Political Geography:
Global Focus

180. Levant Illicit Tobacco 2019

Author:
Oxford Economics
Publication Date:
03-2020
Content Type:
Commentary and Analysis
Institution:
Oxford Economics
Abstract:
This report provides an overview of the nature of illicit trade in cigarettes across three markets in the Levant region: Egypt, Jordan, and Lebanon. It establishes estimates of Illicit Consumption in each market and the impact it has on government tax revenue.
Topic:
Economics, Markets, Finance, and Illegal Trade
Political Geography:
Africa, Middle East, Lebanon, Egypt, and Jordan