Modern macroeconomic models with a Keynesian flavour usually involve nominal rigidities in wages and commodity prices. A widely used conceptual framework is specifying a wage-setting and a price setting equation, while a more explicit microfoundation recurs to wage bargaining in the labour markets and monopolistic competition in the commodity markets; (Blanchard and Giavazzi, 2001). Characteristic for those approaches is that deregulating the labour markets (i.e. reducing the bargaining power of workers and/or reducing the unemployment benefits) and/or deregulating the commodity markets (i.e. reducing the market power of commodity suppliers) increases equilibrium employment. However, those models are typically static models which do not specify explicitly the economic process in time. In the following paper, we develop a dynamic macroeconomic model in which commodity markets are characterised by monopolistic competition and labour markets by wage bargaining. The number of firms is fixed; the incorporation of firm entry and exit is left for further research. In our analysis the equilibrium solution is a fixed point of the dynamic model which exhibits the usual comparative static properties (deregulating the labour and/or the commodity market increases employment). However, depending upon the parameters the fixed point may loose stability through a Flip-bifurcation giving rise to cyclical solutions. We show analytically that commodity and labour market deregulation may lead to instability; in numerical simulation we even found cases in which deregulation leads to lower average employment. Both results, valid in a dynamic framework, contrast with the usual comparative static properties. / Series: Department of Economics Working Paper Series

Economic theory does not always specify the functional relationship between dependent and explanatory variables, or even isolate a particular set of covariates. This means that model uncertainty is pervasive in empirical economics. In this paper, we indicate how Bayesian semi-parametric regression methods in combination with stochastic search variable selection can be used to address two model uncertainties simultaneously: (i) the uncertainty with respect to the variables which should be included in the model and (ii) the uncertainty with respect to the functional form of their effects. The presented approach enables the simultaneous identification of robust linear and nonlinear effects. The additional insights gained are illustrated on applications in empirical economics, namely willingness to pay for housing, and cross-country growth regression.

In this paper a vertically structured duopolistic market with unionized price setting firms is analyzed. The form of the contract of the transactions between upstream and downstream firms can be linear pricing, franchising or vertical integration. It is known from literature (Irmen 1997) that the price elasticity of the industry demand and the degree of product differentiation are the decisive factors in the determination of the profit maximizing form of the contract. In this paper it is shown that the bargaining power of the union is an additional factor. With a higher bargaining power linear pricing becomes less preferable. (author's abstract) / Series: Department of Economics Working Paper Series

This paper presents the first cross-country empirical evidence on the determinants of participation in Fairtrade and the impact of the export of Fairtrade certified products on agricultural growth in low- and middle-income countries. Using the number of certified producer organizations per country in 2006-2010 as a proxy for Fairtrade exports, estimation results indicate a small but significantly positive effect on the growth rate of per capita value added in agriculture that is largest in upper middle income countries. Given the particularly poverty-reducing effect of agricultural growth, we find empirical evidence that Fairtrade certification is indeed able to deliver its core values, but misses to target the very poor. (author's abstract) / Series: Department of Economics Working Paper Series

In a most recent textbook on employment theory (Landmann/Jerger 1999), there is no mention of a distinct post Keynsian employment theory. This is the more surprising as the post Keynesian employment theory offers a truly macro-economic approach to the determination of the aggregate level of employment in an economy (with sets it apart from most neo-classical labour market theories) without lacking a comprehensive micro-economic foundation (as was the case with standard Keynesian employment theory). This paper intends to give a textbook-like survey of the principals of such a post Keynesian theory of employment and derives some principles for the impact of (nominal) wage policy on employment. (author's abstract) / Series: Department of Economics Working Paper Series

A franchise contract relocates distributable rent between franchisor and franchisee. With decentralized wage bargaining this modifies the position of the union in wage bargaining. If the rent is relocated to the franchisor completely, then even a strong union is not able to raise the wage above reservation level in the franchisee's firm. If franchisor and franchisee negotiate on rent division, there is an incentive to increase franchise fee with the consequence that franchisee's wage is pushed down. Therefore the overall rent assigned to labor depends on the differences of labor intensity in the franchisor's and franchisee's firm. Firm owners may be able to transfer distributable rents from a firm with a strong union to one with a weak union. Additional a franchising contract shows up a first mover advantage. The franchising contract is placed before wage bargaining, benefiting the franchisor. (author's abstract) / Series: Working Papers Series "Growth and Employment in Europe: Sustainability and Competitiveness"

In this paper I analyze a vertically structured monopolized market with unionized firms. I compare two types of contracts: vertical integration and franchising. With franchising and wage bargaining at the firm level the union in the downstream firm is either very powerful or has no bargaining power at all, depending on the specific time structure of the model. These arguments could make integration preferable for the profit owners even if integration is accompanied by small transaction costs. (author's abstract) / Series: Department of Economics Working Paper Series

In a unionized duopoly with price setting firms market shares in different wage determination settings are analyzed. I compare decentralized, centralized and sequential wage determination. In the decentralized setting the union in the more productive firm can exploit the differences in productivity for rising local wages. The rising wages in the more productive firm result in smaller differences of unit costs, therefore the market shares are split more equally in the decentralized setting than with centralized wage determination. Sequential wage determination results in an asymmetric outcome. Compared with the simultaneous case the market share of the wage-leader firm is smaller, because the competitor is able to undercut the wage. Additionally with sequential wage determination the union representing the workers of the more productive firm cannot exploit the productivity advantage by raising the wage rate by the same extent as in the simultaneous case. (author's abstract) / Series: Department of Economics Working Paper Series

El objetivo del trabajo es cuantificar las economías de escala en el sector de agua y saneamiento urbano en Perú para evaluar la existencia de ahorro de costos derivados de la agrupación de prestadores. Los principales resultados muestran que en promedio existen economías de densidad de producto y de densidad de clientes pero no economías de tamaño. Las economías de tamaño se agotan para prestadores abasteciendo más de 16.000 conexiones en 4 localidades. Aumentar los estándares de calidad aumenta las economías de tamaño propiciando la consolidación de prestadores. Las simulaciones indican ahorros de costos de hasta 43% en consolidaciones. / The aim of this article is to estimate economies of scale in water and wastewater services in Peruvian urban areas in order to evaluate potential cost savings derived from the consolidation of utilities. The main results show scale of density of product and of clients but not economies of size for the median utility. Economies of size are extinguished for utilities attending more than 16.000 conexions in 4 towns. Increasing quality standards improves economies of size fostering consolidation among utilities. Simulations show that potential benefits of consolidation accounts for up to 43% of actual costs.

The fact that nutrition affects education outcomes is accepted by researchers and by policy makers. It is simple. Children cannot learn if they are hungry. The validity of the empirical approaches used to show a causal relationship from nutrition to education is an issue of debate. The presence of unobserved characteristics that influence both variables is the main concern of researchers. The goal of this paper is to study the possibility of overcoming these difficulties using the NHANES III (1988-1994), a cross-section data set with national representation in the US. A set of school outcomes and a dummy that accounts for the "food-insecurity" condition of each child's family are the central variables here. Based on a IVs procedure, it looks for variables that can be used as instruments for the "food-insecurity" condition. The preliminary results indicate that child's height and mother's body mass index are no good instruments to do so. Further research in needed to construct other variables that might turn to be good instruments for food-insecurity.