Empirical Economics

Hellström, Jörgen; Rudholm, Niklas

doi: 10.1007/s00181-009-0277-7pmid: N/A

This paper analyzes the impact of uncertainty concerning product quality of generic drugs on the substitution behavior of prescribing physicians. It is shown that uncertainty about the generic drug quality gives the physician a value of waiting for more information before switching to the generic version. In addition, it is shown that reducing the approval requirements for generic drugs, thereby increasing uncertainty about quality, may discourage physicians from prescribing such drugs. An empirical study testing the theoretical predictions is presented at the end of the paper.

Cappellari, Lorenzo; Dorsett, Richard; Haile, Getinet

doi: 10.1007/s00181-009-0278-6pmid: N/A

This paper examines employment transitions among men and women in the UK aged between 50 and the state pension age. We use a fourth order Markov model to estimate quarterly transitions while allowing for potential endogeneity of initial conditions. The results reject exogeneity of initial conditions and show the importance of state dependence. We compare the results to those obtained with a younger sample and find evidence of a sorting process over the life-cycle whereby men’s employment transitions are increasingly characterized by state dependence while, for women, unobserved heterogeneity becomes more important. We discuss some potential policy implications of the results.

Navarro, Carolina; Ayala, Luis; Labeaga, José

doi: 10.1007/s00181-009-0279-5pmid: N/A

Living in inadequate housing conditions not only supposes a failure of a basic functioning. It also has effects on other essential aspects of well-being such as health. This study questions to what extent living in poor housing conditions can determine individuals’ health status once the possible influence of other factors is controlled for. By estimating a logistic model with individual effects and a housing deprivation index based on a latent variable model, we reach a number of relevant conclusions concerning the relationship between these two different dimensions of multidimensional well-being. We find a negative effect of housing deprivation on the individuals’ health, both when housing conditions are introduced in a disaggregated manner in the model and when they are combined in a latent variable.

Melberg, Hans; Jones, Andrew; Bretteville-Jensen, Anne

doi: 10.1007/s00181-009-0280-zpmid: N/A

The gateway hypothesis proposes that use of cannabis directly increases the risk of consuming hard drugs. We test this controversial, but influential, hypothesis on a sample of cannabis users, exploiting a unique set of drug price data. A flexible approach is developed to identify the causal gateway effect using a bivariate survival model with shared frailty estimated using a latent class approach. The model suggests two distinct groups; a smaller group of “troubled youths” for whom there is a statistically significant gateway effect that more than doubles the hazard of starting to use hard drugs and a larger fraction of youths for whom previous cannabis use has less impact.

Das, Samarjit; Sarkar, Nityananda

doi: 10.1007/s00181-009-0281-ypmid: N/A

In this paper, an information matrix (IM)-based test is developed for testing the hypothesis of constant relative risk aversion parameter in the GARCH-M set up. A detailed Monte Carlo study is then carried out to evaluate the performance of this test in terms of size and power. Further, a bootstrap technique is suggested to correct the over-size problem found in small samples. The proposed test is then applied to the time series of returns on stock markets of five important countries to examine whether this important hypothesis holds or not, and it is found that the relative risk aversion parameter is not time invariant for all the five time series.

Xiao, Qin; Park, Donghyun

doi: 10.1007/s00181-009-0282-xpmid: N/A

Between June 1998 and March 2006, the price index of apartment houses in Seoul, Korea, more than doubled, while fundamentals such as GDP, wage, and population increased by less than 35%. This study examines the role of a rational speculative bubble in this price surge. We find that unobservable information explains part of the price volatility; and that a rational bubble proxy is a significant driver of prices. However, neither latent information nor rational bubble is enough to explain the recent housing price appreciation, even in conjunction with observable fundamentals.

Hartman, Laura; Liljeberg, Linus; Skans, Oskar

doi: 10.1007/s00181-009-0283-9pmid: N/A

The paper studies whether temporary jobs in the form of fixed-term replacement contracts reduce the risk of future unemployment among job-seekers. Using matching on detailed information on labour market history and personal characteristics we find positive average effects of having a replacement contract. Our second focus is on whether the duration of the contract matters. We use data on replacement contracts with information on the ex ante duration of the contract which is determined by the individual on leave and find no significant effect on the subsequent unemployment risk of the replacement worker. However, the longer the replacement contract the higher is the probability of having an open ended contract at the same site 2–2.5 years after the start of the contract. Overall, the results suggest that replacement contracts may reduce the risk of future unemployment, but that longer contracts only improve the position within the workplace and not necessarily on the labour market in general.

Tedds, Lindsay

doi: 10.1007/s00181-009-0284-8pmid: N/A

Chan, Kenneth; Dang, Vinh

doi: 10.1007/s00181-009-0285-7pmid: N/A

In this paper, we address an empirical question: is there evidence to substantiate the assumption that the post-war liberalization of world trade has actually led to a significant increase in the world GDP? In our attempt to answer that question, time series data in the Penn World Table 6.1 are aggregated across countries to obtain a measure of world trade and output, and the total number of GATT/WTO member countries is employed as an explanatory variable to account for the impact of multilateral trade agreements, such as the Kennedy Round, Tokyo Round, and the Uruguay Round, on the trade-growth nexus. We then examine the relationship between world trade and the post-war GDP per worker across the world through the multivariate cointegration and error correction modeling and the Granger causality test. The results suggest that, at the global level, the post-war liberalization of multilateral trade has promoted both GDP and trade activities. There is also evidence that supports the export-led growth hypothesis in the world economy.

He, Ling; Hu, Chenyi

doi: 10.1007/s00181-009-0286-6pmid: N/A

This study develops an alternative variability forecasting method, the midpoint method. This method, along with the interval computing and OLS lower and upper bound methods in the literature, is applied to predict variability in the stock market and mortgage rates. Results suggest that both the midpoint and interval computing methods can generate significantly higher accuracy in variability forecasts than the OLS lower and upper bound method. Nonetheless, the midpoint method requires less asymmetric distribution of input data than the interval computing.