Inflation and income inequality in an open-economy growth model with liquidity constraints on R&D By Ruiyang Hu, Jian Wang, Yibai Yang and Zhijie Zheng Published in Journal of International Money and Finance Abstract: This study presents a framework to understand the relationship between inflation and income inequality in an open-economy Schumpeterian growth model with heterogeneous households, firm-level innovation, and cash-in-advance constraints on R&D investment. We show that the global real interest rate channel can play a key role in defining this relationship. In smaller economies that have negligible impacts on the global interest rate, income inequality is likely to exacerbate [...]

Tests for equal forecast accuracy under heteroskedasticity By David I. Harvey, Stephen J. Leybourne and Yang Zu Published in Journal of Applied Econometrics Abstract: Heteroskedasticity is a common feature in empirical time series analysis, and in this paper, we consider the effects of heteroskedasticity on statistical tests for equal forecast accuracy. In such a context, we propose two new Diebold–Mariano-type tests for equal accuracy that employ nonparametric estimation of the loss differential variance function. We demonstrate that these tests have the potential to achieve power improvements relative to the original Diebold–Mariano test in the presence of heteroskedasticity, for a quite [...]

Political Fragmentation versus a Unified Empire in a Malthusian Economy By Angus C. Chu, Pietro Peretto and Yuichi Furukawa Published in Journal of Economic Behavior & Organization Abstract: What are the historical origins of political fragmentation and unification? This study develops a Malthusian growth model with multiple states to explore interstate competition and the endogenous emergence of political fragmentation versus a unified empire. Our model features an agricultural society with citizens and rulers in a Malthusian environment in which the expansion of one state may come at the expense of another state, depending on the intensity of interstate competition captured [...]

GENERALIZED CUMULATIVE OFFER PROCESSES By Inácio Bó, Jörgen Kratz and Makoto Shimoji Published in Review Economic Design Abstract: In the context of the matching-with-contracts model, we generalize the cumulative offer process to allow for arbitrary subsets of doctors to make proposals in each round. We show that, under a condition on the hospitals’ choice functions, the outcome of this generalized cumulative offer process is independent of the sets of doctors making proposals in each round. The flexibility of the resulting model allows it to be used to describe different dynamic processes and their final outcomes.

MONETARY POLICY IN A SCHUMPETERIAN ECONOMY WITH ENDOGENOUS FERTILITY AND HUMAN CAPITAL ACCUMULATION By Wei Song and Yibai Yang Published in Journal of Macroeconomics Abstract: This study investigates the growth and welfare effects of monetary policy in a Schumpeterian economy featuring cash-in-advance (CIA) constraints and two engines of growth: innovation from R&D and human capital accumulation from endogenous fertility. Our theoretical analysis considers the cases of various CIA constraints. When the CIA constraint is only on consumption, higher inflation retards economic growth by weakening human capital accumulation. When the CIA constraint is only on R&D, higher inflation would generate a negative [...]

Intellectual property rights, taxation, and firms’ innovation: Theory and evidence from China By Rongxin Xu, Yibai Yang, Zhijie Zheng Published in Journal of Economics Abstract: This study develops an R &D-based growth model with corporate taxation to explore the heterogeneous effects of intellectual property rights (IPR) protection on innovation of firms with different tax rates. Our theoretical analysis shows that strengthening IPR stimulates innovation, and a higher tax rate dampens the positive effect of IPR. To account for the interactive effect between IPR and taxation, we find supportive evidence for the theoretical result using firm-level data in China. Moreover, our empirical analysis [...]

Guangdong – Hong Kong – Macao Greater Bay Area (GBA): economic progress, diversification, and convergence By Vinh Q. T. Dang, Fung Kwan, Agnes I. F. Lam Published in Journal of the Asia Pacific Economy Abstract: We use principal component analysis to create three indices that measure the economic development of eleven cities in the Guangdong – Hong Kong – Macao Greater Bay Area (GBA) over 2010–2019. The indices, composed of sixteen socio-economic indicators spanning five dimensions: macro, openness, consumption, human capital, and diversification, track individual cities and the whole region’s performance. The Economic Progress Index indicates that the GBA made [...]

Confidence management in contests By Shanglyu Deng, Hanming Fang, Qiang Fu, Zenan Wu Published in Journal of Economics & Management Strategy Abstract: An incumbent employee competes against a new hire for bonuses or promotions. The incumbent's perception of the new hire's ability distribution is biased. This bias can result in overconfidence or underconfidence. We show that debiasing may be counterproductive in incentivizing efforts. We then explore whether a firm that values employees’ efforts should disclose an informative signal about the new hire's type and we characterize the conditions under which transparency or opacity is optimal for the firm. We further consider four extensions [...]

Blocking patents, rent protection and economic growth By Michael A. Klein , Yibai Yang Published in Review of Economic Dynamics Abstract: We develop a Schumpeterian growth model to analyze the interaction between patent policy and firms' internal strategies to capture value from innovations. We consider two dimensions of patent policy: backward protection against imitation and forward protection, also known as blocking patents, against subsequent innovation that builds on a patented technology. Incumbent patent holders endogenously invest resources to protect their monopoly rents by impeding market entry of innovative competitors. We show that patent policy impacts economic growth through its influence on [...]

The n-player Hirshleifer contest By Christian Ewerhart and Guang-Zhen Sun Published in Games and Economic Behavior Abstract: While the game-theoretic analysis of conflict is often based on the assumption of multiplicative noise, additive noise such as considered by Hirshleifer (1989) may be equally plausible depending on the application. In this paper, we examine the equilibrium set of the n-player difference-form contest with heterogeneous valuations. For high and intermediate levels of noise, the equilibrium is in pure strategies, with at most one player being active. For small levels of noise, however, we find a variety of equilibria in which some but not necessarily all players [...]