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10 nouveaux Working Papers

# 2015-01 « Playing the game the others want to play : Keynes’ beauty contest revisited  », Camille Cornand, Rodolphe Dos Santos Ferreira.

Abstract : In Keynes’ beauty contest, agents have to choose actions in accordance with an expected fundamental value and with the conventional value expected to be set by the market. In doing so, agents respond to a fundamental and to a coordination motive respectively, the prevalence of either motive being set exogenously. Our contribution is to consider whether agents favor the fundamental or the coordination motive as the result of a strategic choice that generates a strong strategic complementarity of agents’ actions. We show that the coordination motive tends to prevail over the fundamental one, which yields a disconnection of activity away from the fundamental. A valuation game and a competition game are provided as illustrations of this general Framework.

# 2015-02 « Spillover effects in a monetary union : Why fiscal policy instruments matter ?  », Amélie Barbier-Gauchard, Thierry Betti, Giuseppe Diana.

Abstract : Using a two-country DSGE model, we analyze the spillover effects of fiscal policy in a monetary union. Based on a non-Walrasian labor market and a detailed fiscal sector, our analysis focuses on the relative cross-border effects of different kinds of fiscal instruments (expenditure side and revenue side). We show that different fiscal instruments produce quite different qualitative effects on the foreign economy. For instance, a public consumption expansion or a cut in social protection tax triggers a decrease in foreign GDP and an increase in foreign unemployment. On the contrary, an increase in transfers to households or a decrease in VAT leads to an increase in foreign GDP and a decrease in foreign unemployment. Moreover, we demonstrate that the choice of the fiscal instrument strongly affects the size of the spillover effects, meaning that different fiscal instruments also produce different quantitative effects on the foreign economy.

# 2015-03 « Interest Rates, Eurobonds and Intra-European Exchange Rate Misalignments : the Challenge of Sustainable Adjustments in the Eurozone », Vincent Duwicquet, Jacques Mazier, Jamel Saadaoui.

Abstract : The euro zone crisis illustrates the deficiencies of adjustment mechanisms in a monetary union characterized by a large heterogeneity. Exchange rate adjustments being impossible, they are very few alternative mechanisms. At the level of the whole euro zone the euro is close to its equilibrium parity. But the euro is strongly overvalued for Southern European countries, France included, and largely undervalued for Northern European countries, especially Germany. The paper gives a new evaluation of these exchange rate misalignments inside the euro zone, using a FEER approach, and examines the evolution of competitiveness. In a second step, we use a two-country SFC model of a monetary union with endogenous interest rates and eurobonds issuance. Three main results are obtained. Facing a competitiveness loss in southern countries due to exchange rates misalignments, increasing intra-European financing by banks of northern countries or other institutions could contribute to reduc e the debt burden and induce a partial recovery but public debt would increase. Implementation of eurobonds as a tool to partly mutualize European sovereign debt would have a rather similar positive impact, but with a public debt limited to 60% of GDP. Furthermore, eurobonds could also be used to finance large European projects which could impulse a stronger recovery in the entire euro zone with stabilized current account imbalances. However, the settlement of a European Debt Agency in charge of the issuance of the eurobonds would face strong political obstacles.

# 2015-04 « Do self-theories explain overconfidence and financial risk taking ? A field experiment  », Bertrand Koebel, André Schmitt, Sandrine Spaeter.

Abstract : How people develop beliefs about themselves (self-theories) plays an important role on motivation and achievement as shown by Carol Dweck’s life-long research. In this paper, we conduct a field experiment to investigate whether self-theories impact overconfidence and risk taking. Self-theories deal with how an individual perceives some of her attributes such as intelligence, personality or moral character. In this paper, we are interested by how people perceive their mindset (fixed or growth). All decisions taken by young Vietnamese executives were incentivized to identify their degree of overconfidence and risk taking. As in previous studies, we find that subjects exhibit significant overconfidence. We also find that fixed mindset subjects are less over-confident than growth mindset persons, the latter earning the highest incomes in our experiment. Finally, we find correlation between risk taking and overconfidence. However, contrary to the existing results in the liter ature on behavioral finance, in our experiment, the higher the degree of overconfidence, the lower the investment in risky lotteries. Gender does not seem to have any impact on neither overconfidence nor risk-taking behavior.

# 2015-05 « Environmental Kuznets Curve and Economic Growth : The Role of Institutional Quality and Distributional Heterogeneity Revisited  », Tapas Mishra, Mamata Parhi, Claude Diebolt, Prashant Gupta.

Abstract : We re-examine the frequency observed inverted U-Shaped relationship between income and environmental quality (Environmental-Kuznets-Curve, EKC) by introducing the roles of institutional quality and distributional heterogeneity. A panel quantile regression of 127 economies run over a period of four decades demonstrates that once endogeneity bias is corrected and heterogeneity in the effects of income and institutional quality is introduced, EKC tends to disappear at higher quantiles of emission but proves its existence at lower quantiles. The non-uniqueness of EKC is also confirmed by robustness checks where various instruments for institutional quality as well as an alternative measure of emission are introduced.

# 2015-06 « Stochastic Economic Growth and Volatile Population Dynamics : Past Imperfect and Future Tense  », Tapas Mishra, Claude Diebolt, Mamata Parhi.

Abstract : We build an analytical model to understand dynamic interlinkage between volatility in economic growth and stochastic demographic dynamics. The time series properties of the model are exploited to offer introspective understanding of the existence of persistence of endogenous and exogenous growth dynamics within our analytical setting. Our research shows that if the economy faces high degree of interdependence between its volatility and stochastic demographic growth in the past with the possibility of slow dissipation of shocks at present, then future economic growth will experience chaotic dynamics. We investigate two possibilities : a process with persistent shocks that can slowly wither away in future, and a jump process that would characterize how economic growth would respond to the arrival of sudden change in demographic system.

# 2015-07 « Does sector-specific experience matter ? The case of European higher education ministers », Julien Jacqmin, Mathieu Lefebvre.

Abstract : This paper looks at the relationship between higher education ministers and the performance of the sector that they govern. Using an original panel dataset with the characteristics of European higher education ministers, we find that having a past experience in the sector leads to a higher level of performance, as measured by ranking data. Making a parallel with the literature about the impact of education on the educated, we discuss potential explanations behind the impact of this on-the-job learning experience. As we find that this characteristic has no impact on the spendings of the sector, we argue that this academic experience makes them more prone to introduce adequate reforms. Furthermore, we find that this result is driven by ministers with both this sector-specific and an electoral experience, the latter measured by a succesful election at the regional or national level. This tends to show that political credibility should not be overshadowed by the importance of the sector-specific experience of ministers.

# 2015-08 « Replacing the Polluter Pays Principle by the Cheapest Cost Avoider Principle : On the Efficient Treatment of External Costs », Dieter Schmidtchen, Jenny Helstroffer, Christian Koboldt.

Abstract : Crucial to the analysis in this paper is the Coasian insight that external costs result from conflicting uses of scarce resources and that responsibility for these costs should not be attributed exclusively to polluters as required by the polluter pays principle (PPP). The paper argues that the PPP, unlike the cheapest cost avoider principle (CCAP), which requires resolving the conflicting use at the lowest possible costs, suffers from three partly related deficits that can cause avoidable welfare losses : First, focusing on polluters as the only addressees of regulatory measures ignores the role of pollutees and government ; second, the PPP is incapable of dealing with second-best problems that may arise from government as an additional investor, inefficient behavior of the pollutees or the existence of monopolies ; third, the PPP provides insufficient guidance in case of multiple equilibria, corner solutions and administration costs. In addition, the paper discusses whether
 the shortcomings of the PPP can be compensated by advantages in terms of lower administration costs.

# 2015-09 « Becoming “We” Instead of “I”, Identity Management and Incentives in the Workplace  », Jocelyn Donze, Trude Gunnes.

Abstract : In this article, we propose to view the firm as a locus of socialization in which employees with heterogeneous work attitudes can be motivated and coordinated through adherence to a social ideal of effort. We develop an agency model in which employees have both a personal and a social ideal of effort. The firm does not observe the personal ideals, but can make its workforce more sensitive to the social ideal by fostering interaction in the workplace. We show that there are two reasons why the firm invests in social bonding. First, it reinforces the effectiveness of monetary incentives. Second, strengthening the social ideal reduces the adverse selection problem and the need to devise distorted payment schemes. We also show that the firm allocates more time to social interaction when personal ideals of effort are low or heterogeneous.

# 2015-10 « Efficient and fair allocation of aid », Patrick Guillaumont, Phu Nguyen-Van, Thi Kim Cuong Pham, Laurent Wagner.

Abstract : This paper proposes a model of aid allocating which aims to equalize the opportunity between recipient countries to reduce the poverty, in particular the millennium development goal of reducing the poverty by half. The model also takes into account the natural deficit which is defined by the gap between the growth rate required to reach this millennium goal and the actual growth rate observed in the recipient country. The resulting optimal aid allocation is computed using the estimation of the growth equation. The latter takes into account effects of aid and structural handicaps which are represented by the economic vulnerability index and lack of human capital. We also perform a simulation study which show a substantial difference between the aid allocation obtained with the Collier-Dollar (2002) criterion and that obtained with our model.

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