Monday, June 22, 2015

An alternative European map


I had missed this funny article by The Economist, redrawing Europe's map.

Funny, but with one big mistake! As all Tintin fans know, Syldavia and Borduria do have a common border, in the mountains:





The European map is outdated and illogical. Here's how it should look




PEOPLE who find their neighbours tiresome can move to another neighbourhood, whereas countries can't. But suppose they could. Rejigging the map of Europe would make life more logical and friendlier.

Britain, which after its general election will have to confront its dire public finances, should move closer to the southern-European countries that find themselves in a similar position. It could be towed to a new position near the Azores. (If the journey proves a bumpy one, it might be a good opportunity to make Wales and Scotland into separate islands).

In Britain's place should come Poland, which has suffered quite enough in its location between Russia and Germany and deserves a chance to enjoy the bracing winds of the North Atlantic and the security of sea water between it and any potential invaders.

Belgium's incomprehensible Flemish-French language squabbles (which have just brought down a government) are redolent of central Europe at its worst, especially the nonsenses Slovakia thinks up for its Hungarian-speaking ethnic minority. So Belgium should swap places with the Czech Republic. The stolid, well-organised Czechs would get on splendidly with their new Dutch neighbours, and vice versa.



Belarus, currently landlocked and trying to wriggle out from under Russia's thumb, would benefit greatly from exposure to the Nordic region, whose influence played a big role in helping the Baltics shed their Soviet legacy. So it should move northwards to the Baltic, taking the place of Estonia, Latvia and Lithuania. These three countries should move to a new location somewhere near Ireland. Like the Emerald Isle, they have bitten the bullet of “internal devaluation”, regaining competitiveness by cutting wages and prices, rather than taking the easy option of depreciating the currency, or borrowing recklessly as Greece has. The Baltics would also be glad to be farther away from Russia and closer to America. Amid the other moves, Kaliningrad could shift up the coast towards Russia, ending its anomalous status as a legacy exclave of the second world war and removing any possibility of future Russian mischief-making about rail transit.

Into the slots vacated by Poland and Belarus should come the western and central parts of Ukraine. Germany, with the Ukrainian border now only 100km from Berlin, would start having to take the country's European integration seriously. The Ukrainian shift would allow Russia to move west and south too, thus vacating Siberia for the Chinese, who will take it sooner or later anyway.

Next comes some reordering of the Balkans. Macedonia, Albania and Kosovo should rotate places, with Macedonia taking Kosovo's place next to Serbia, Kosovo moving to Albania's slot on the coast, and Albania shifting inland. Paranoid Greek fantasies about territorial claims from the deluded Slav irredentists from the north would evaporate. Bosnia is too fragile to move and will have to stay where it is.

Switzerland and Sweden are often confused. So it would make sense to move Switzerland north, where it would fit neatly into the Nordic countries. Its neutrality would go down well with the Finns and Swedes; Norway would be glad to have another non-EU country next door.

Germany can stay where it is, as can France. But Austria could shift westwards into Switzerland's place, making room for Slovenia and Croatia to move north-west too.* They could join northern Italy in a new regional alliance (ideally it would run by a Doge, from Venice). The rest of Italy, from Rome downwards, would separate and join with Sicily to form a new country, officially called the Kingdom of Two Sicilies (but nicknamed Bordello). It could form a currency union with Greece, but nobody else.




* A welcome side-effect of these changes will be to make space for previously fictional creations such as Anthony Hope's Ruritania, HergĂ©'s Syldavia and Borduria, and Vulgaria, the backdrop for “Chitty Chitty Bang Bang”.

Friday, June 5, 2015

3 new working papers (and 2 slightly older ones)

This sabbatical year at UQAM (Montreal) has been most productive ;-)

Here are 3 working papers just recently out. Comments most welcome!

1.      “The dynamics of capital accumulation in the US: Simulations after Piketty”, with J. Roemer. TSE WP2015/568, CESifo WP2015/5329.

Abstract:
We calibrate a sequence of four nested models to study the dynamics of wealth accumulation. Individuals maximize a utility function whose arguments are consumption and investment. They desire to accumulate wealth for its own sake – this is not a life-cycle model. A competitive firm produces a single good from labor and capital; the rate of return to capital and the wage rate are market-clearing. The second model introduces political lobbying by the wealthy, whose purpose is to reduce the tax rate on capital income. The third model introduces differential rates of return to capitals of different sizes. The fourth model introduces inheritance and intergenerational mobility.

2.      “The political choice of social long term care transfers when family gives time and money”, with Marie-Louise Leroux. TSE WP2015/569, CESifo WP2015/5384


Abstract:
We develop a model where families consist of one parent and one child, with children differing in income and all agents having the same probability of becoming dependent when old. Young and old individuals vote over the size of a social long term care transfer program, which children complement with help in time or money to their dependent parent. Dependent parents have an intrinsic preference for help in time by family members. We first show that low (resp., high) income children provide help in time (resp. in money), whose amount is decreasing (resp. increasing) with the child’s income. The middle income class may give no family help at all, and its elderly members would be the main beneficiaries of the introduction of social LTC transfers. We then provide several reasons for the stylized fact that there are little social LTC transfers in most countries. First, social transfers are dominated by help in time by the family when the intrinsic preference of dependent parents for the latter is large enough. Second, when the probability of becoming dependent is lower than one third, the children of autonomous parents are numerous enough to oppose democratically the introduction of social LTC transfers. Third, even when none of the first two conditions is satisfied, the majority voting equilibrium may entail no social transfers, especially if the probability of becoming dependent when old is not far above one third. This equilibrium may be local (meaning that it would be defeated by the introduction of a sufficiently large social program). This local majority equilibrium may be empirically relevant whenever new programs have to be introduced at a low scale before being eventually ramped up.



3.   “On the Political Economy of University Admission Standards”, with Francisco Martinez-Mora. TSE WP2015/582, CESifo WP2015/5382

Abstract:
We study the political determination of the proportion of students attending university when access to higher education is rationed by admission tests. Parents differ in income and in the ability of their unique child. They vote over the minimum ability level required to attend public universities, which are tuition-free and financed by proportional income taxation. University graduates become high skilled, while the other children attend vocational school and become low skilled. Even though individual preferences are neither single-peaked nor single-crossing, we obtain a unique majority voting equilibrium, which can be either classical (with 50% of the population attending university) or "ends-against-the-middle", with less than 50% attending university (and parents of low and high ability children favoring a smaller university system). The majority chosen university size is smaller than the Pareto efficient level in an ends-against-the-middle equilibrium. Higher income inequality decreases the majority chosen size of the university. A larger positive correlation between parents'income and child's ability leads to a larger university populated by a larger fraction of rich students, in line with the so-called participation gap. Our results are robust to the introduction of private schooling alternatives, financed with fees.



And, finally, two working papers, out last fall, which I forgot to mention here previously

4.      “Adverse Selection vs Discrimination Risk with Genetic Testing. An Experimental Approach”, with D. Bardey and C. Mantilla. CESifo WP2014/5080.

Abstract:
We develop a theoretical analysis of two widely used regulations of genetic tests, disclosure duty and consent law, and we run several experiments in order to shed light on both the takeup rate of genetic testing and on the comparison of policyholders’ welfare under the two regulations. Disclosure Duty forces individuals to reveal their test results to their insurers, exposing them to the risk of having to pay a large premium in case they are discovered to have a high probability of developing a disease (a discrimination risk). Differently, Consent Law allows them to hide this detrimental information, creating asymmetric information and adverse selection. We obtain that the take-up rate of the genetic test is low under Disclosure Duty, larger and increasing with adverse selection under Consent Law. Also, the fraction of individuals who are prefer Disclosure Duty to Consent Law increases with the amount of adverse selection under the latter. These results are obtained for exogenous values of adverse selection under Consent Law, and the repeated interactions experiment devised has not resulted in convergence towards an equilibrium level of adverse selection.

5. “Politically Sustainable Probabilistic Minority Targeting” with E. Peluso. CESifo WP 2014/4915. Under revision for the Journal of Public Economics.

Abstract:
We show that a transfer targeting a minority of the population is sustained by majority voting, however small the minority targeted, when the probability to receive the transfer is decreasing and concave in income. We apply our framework to the French social housing program and obtain that empirically observed departures from these assumptions are small enough that a majority of French voters should support a positive size of this program. We also provide a sufficient condition on this probability function under which more targeting results in a lower equilibrium size of the transfer system.



Tuesday, June 2, 2015

3 recent publications

Time to tidy up before leaving UQAM for Toulouse...

1. « Lobbying, family concerns and the lack of political support for estate taxation »Economics & Politics2015, forthcoming (with Pierre Pestieau)

Abstract
We provide an explanation for why estate taxation is surprisingly little used, given the skewness of the estate distribution. Taxing estates implies meddling with intra-family decisions, which is frown upon by many. At the same time, given the concentration of estates a small proportion of the population stands to gain a lot by decreasing estate taxation. We provide an analytical model, together with numerical simulations, where agents bequeathing large estates make monetary contributions in order to play up the salience of the encroachment aspects of estate taxation on family decisions and to decrease its political support.

Paper available here

2. « Private, social and self insurance for long-term care in the presence of family help »Journal of Public Economic Theory2015, forthcoming (with Pierre Pestieau)

Abstract
We study the political determination of the level of social long-term care insurance when voters can top up with private insurance, saving and family help. Agents differ in income, probability of becoming dependent and of receiving family help, and amount of family help received. Social insurance redistributes across income and risk levels, while private insurance is actuarially fair. The income-to-dependency probability ratio of agents determines whether they prefer social or private insurance. Family support crowds out the demand for both social and, especially, private insurance, as strong prospects of family help drive the demand for private insurance to zero. The availability of private insurance decreases the demand for social insurance but need not decrease its majority chosen level. A majority of voters would oppose banning private insurance.

Paper available here


3. « Life expectancy heterogeneity and the political support for collective annuities »The Scandinavian Journal of Economics2015, forthcoming (with Helmuth Cremer). 

Abstract
Individuals, differing in productivity and life expectancy, vote over the size and type of a collective annuity. Its type is represented by the fraction of the contributive (Bismarckian) component (based on the worker's past earnings) as opposed to the noncontributive (Beveridgean) part (based on average contribution). The equilibrium collective annuity is either a large mostly Bismarckian program, a smaller pure Beveridgean one (in accordance with empirical evidence), or nil. A larger correlation between longevity and productivity, or a larger average life expectancy, both make the equilibrium collective annuity program more Beveridgean, although at the expense of its size.

Paper available here.