CER-ETH Research Seminar, Spring Term 2014

The CER-ETH Research Seminar takes place on Mondays during term time from 5:15 pm to 6:45 pm at ETH Zurich, Room ZUE G1 (Zürichbergstr. 18). Per term we invite 6 to 7 internationally known speakers to present and discuss their work.

Programme

Speakers

John Hassler

We estimate an aggregate production function with constant elasticity of substitution between energy and a capital/labor composite using U.S. data. The implied measure of energy-saving technical change appears to respond strongly to the oil-price shocks in the 1970s and has a negative medium-run correlation with capital/labor-saving technical change. Our findings are suggestive of a model of directed technical change, with low short-run substitutability between energy and capital/labor but significant substitutability over longer periods through technical change. We construct such a model, calibrate it based on the historical data, and use it to discuss possibilities for the future.

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Michèle Tertilt

Empirical evidence suggests that money in the hands of mothers (as opposed to fathers) increases expenditures on children. From this, should we infer that targeting transfers to women is good economic policy? In this paper, we develop a non-cooperative model of household decision making to answer this question. We show that when women have lower wages than men, they may spend more on children, even when they have exactly the same preferences as their husbands. However, this does not necessarily mean that giving money to women is a good development policy. We show that depending on the nature of the production function, targeting transfers to women may be beneficial or harmful to growth. In particular, such transfers are more likely to be beneficial when human capital, rather than physical capital or land, is the most important factor of production.

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Andreas Irmen

Does population aging and the associated increase in the old-age dependency ratio affect economic growth ? The answer is given in a novel analytical framework that allows for population aging to affect endogenous capital- and labor-saving technical change. The short-run analysis reveals that population aging induces more labor- and less capital-saving technical change as it increases the relative scarcity of labor with respect to capital. Due to external contemporaneous knowledge spill-overs across innovating firms induced technical change has a first-order effect on current aggregate income. In the long-run capitalsaving technical progress vanishes, and the economy’s growth rate reflects only labor-saving technical change. However, the mere possibility of capital-saving technical change is shown to imply that the economy’s steady-state growth rate becomes independent of its age structure: neither a higher life-expectancy nor a decline in fertility affects economic growth in the long run.

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François Salanié

Many financial markets rely on a discriminatory limit-order book to balance supply
and demand. We study these markets in a static model in which uninformed market
makers compete in nonlinear tariÆs to trade with an informed insider, as in Glosten
(1994), Biais, Martimort, and Rochet (2000), and Back and Baruch (2013). We analyze
the case where tariÆs are unconstrained and the case where tariÆs are restricted to be
convex. In both cases, we show that pure-strategy equilibrium tariÆs must be linear
and, moreover, that such equilibria only exist under exceptional circumstances. These
results stand in stark contrast with those obtained so far in the literature, reflecting
diÆerent assumptions about the richness of the insider’s information.

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Scott Taylor

The purpose of this paper is to examine how the location and productivity of avail-
able energy resources aects the spatial distribution of economic activity. More pro-
ductive (power dense) resources generate far greater energy supply, stronger incentives
for infrastructure investments, higher consumption per capita, and more population
dense agglomerations. Using county level population data from 1086 to 1801 we in-
vestigate how England's move to the very power dense energy source represented by
coal altered its economic geography. Local access to coal is responsible for over 24%
of growth in all but two coal counties; and almost 40% in others. The world's rst
energy transition created a dramatic reshuing of the economic landscape.

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Thomas Maurer

We analyze whether the timing of public information releases affects risksharing
and pricing in a pure exchange economy. First, information releases do
not matter if agents have time additive preferences, homogeneous beliefs and
access to complete markets. Second, in the case of heterogeneity in agents’ beliefs,
we show analytically that early information releases are Pareto improving
but pricing is essentially unaffected. Third, in the case of recursive preferences
we provide numerical results suggesting that early information releases
improve risk-sharing, and if the EIS is large enough, they reduce the ex-ante
equity premium.

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Alexander Ludwig

In this paper we characterize quantitatively the optimal mix of progres-
sive income taxes and education subsidies in a model with endogenous hu-
man capital formation, borrowing constraints, income risk and incomplete
financial markets. Progressive labor income taxes provide social insur-
ance against idiosyncratic income risk and redistributes after tax income
among ex-ante heterogeneous households. In addition to the standard
distortions of labor supply progressive taxes also impede the incentives to
acquire higher education, generating a non-trivial trade-off for the benevo-
lent utilitarian government. The latter distortion can potentially be miti-
gated by an education subsidy. We find that the welfare-maximizing fiscal
policy is indeed characterized by a substantially progressive labor income
tax code and a positive subsidy for college education. Both the degree of
tax progressivity and the education subsidy are larger than in the current
U.S. status quo.

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Sebastian Ebert

Abstract not available