February 5th, 2012

Research Papers

LCERPA 2011-7
Title: "GESELL" TAX AND EFFICIENCY OF MONETARY EXCHANGE
Author(s): MARTIN MENNER
Date uploaded: NOVEMBER 2011

Abstract: A periodic "Gesell Tax" on money holdings as a way to overcome the zero-lower-bound on nominal interest rates is studied in a framework where money is essential. For this purpose, I characterize the efficiency properties of taxing money in a full-.edged macroeconomic business cycle model of the third-generation of monetary search models. Both, inflation and "Gesell taxes" maximize steady state capital stock, output, consumption, investment and welfare at moderate levels. The Friedman rule is sub-optimal, unless accompanied by a moderate Gesell tax. In a recession scenario, a Gesell tax speeds up the recovery in a similar way as a large .scale stimulus but avoids crowding out" of private consumption and investment.

Keywords: monetary search-theory, negative interest rates, Gesell tax, capital formation, DSGE model

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LCERPA 2011-06
Title: CONTRACTING INSTITUTIONS AND PRODUCT QUALITY
Author(s): AZIM ESSAJI AND KINYA FUJIWARA
Date uploaded: JULY 2011

Abstract: For many goods, quality improvements involve the use of more sophisticated, higher quality inputs. The production of these sophisticated inputs requires greater collaboration between suppliers and final good producers, with suppliers developing relationship-specific inputs, and final good producers customizing their production processes to incorporate them. In countries with poor legal institutions, the relationship-specific investments needed to achieve strong collaboration, and by extension more sophisticated inputs and higher quality outputs, will arguably be hard to achieve. As the incomplete contracts literature suggests, doubts over contract enforcement will render the return on relationship-specific investments less certain, rendering both suppliers and final good producers less willing to undertake the customization necessary to improve quality. Employing a difference-in-difference methodology on highly disaggregated US import data, this paper studies the impact of legal institutions on product quality. It finds that poor contracting institutions substantially impede a country's ability to produce high quality final goods: in industries where the potential use of customizable inputs is extensive, countries with weaker contract enforcement regimes produce lower quality final goods.

Keywords: Product Quality; International Trade; Contract Enforcement; Relationship-Specific Investments.

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LCERPA 2011-05
Title: EQUILIBRIUM EXCLUSIVE DEALING IN OLIGOPOLY
Author(s): STEFFEN ZISS
Date uploaded: JULY 2011

Abstract: This paper considers a setting in which upstream oligopolists delegate the retailing of their differentiated products to a set of undifferentiated retailing agents. The downstream market structure is assumed to consist of a set of independent agents that exclusively sell the product of a single manufacturer and a common agent that sells the product of many manufacturers. A three-stage game is considered. In the first stage the manufacturers decide whether or not to market their products using an independent agent or the common agent. In the second stage the manufacturers determine the terms of the two-part tariff contract offered to their respective agents. In the final stage the agents engage in either output or price competition with other retailing agents. If the agents engage in output competition then the model shows that it will either be the case that all manufacturers use independent agents or that they all use the common agent. Which of these two equilibria emerge depend on the degree of substitutability between products and on the number of manufacturers. If the agents engage in price competition then a third type of equilibrium also emerges in which some firms adopt the common agent and others adopt independent agents

Keywords: Oligopoly; exclusive dealing.

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LCERPA 2011-04
Title: CAN NATIONAL INFRASTRUCTURE SPENDING REDUCE LOCAL UNEMPLOYMENT? EVIDENCE FROM AN AUSTRALIAN ROADS PROGRAM
Author(s): ANDREW LEIGH AND CHRISTINE NEILL
Date uploaded: JULY 2011

Abstract: Studies of the effect of government spending on unemployment are potentially confounded by reverse causality. To address the endogeneity problem, we exploit variation in a pork-barrel road-building program, and find that higher government expenditure on road-building substantially reduces local unemployment.

Keywords: Infrastructure spending; unemployment.

For more information on this paper, please contact the author directly: cneill@wlu.ca

LCERPA 2011-03
Title: CENTRAL BANK TRANSPARENCY: ANOTHER LOOK
Author(s): PIERRE L. SIKLOS
Date uploaded: JULY 2011

Abstract: This paper extends the Dincer and Eichengreen (2007) index of central bank transparency. Improvements in transparency are notable in Central and Eastern Europe, while the index has shown much smaller rises in most other parts of the world. The pattern observed by Dincer and Eichengreen, consistent with a permanent increase in central bank transparency, is also evident in the updated results. The dramatic enhancements in central bank transparency reported earlier appear to be a feature of the late 1990s and early 2000s. Whether the subsequent data reflect limits to centralbanks transparency or, to some extent, transparency 'fatigue', is unclear.

Keywords: Central Bank Transparency; Europe.

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LCERPA 2011-02
Title: ENTER THE DRAGON: INTERACTIONS BETWEEN CHINESE, US AND ASIA-PACIFIC EQUITY MARKETS, 1995-2010
Author(s): RICHARD C. K. BURDEKIN and PIERRE L. SIKLOS
Date uploaded: JULY 2011

Abstract: This paper applies a variety of short-run and long-run time series techniques to data on a broad group of Asia-Pacific stock markets and the United States extending to 2010. Our empirical work confirms the importance of crises in affecting the persistence of equity returns in the Asia-Pacific region and offers some support for contagion effects. Post-Asian financial crisis quantile regressions yield substantial evidence of long-run linkages between the Shanghai market, the US market and many regional exchanges. Cointegration is particularly prevalent at the higher end of the distribution. Our results suggest that the enormous growth of the Shanghai market in the new millennium has been accompanied a meaningful level of integration with other regional and world markets in spite of ongoing capital controls.

Keywords: Stock returns; convergence; crises; Asia-Pacific; China

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LCERPA 2011-01
Title: INCOME INEQUALITY AMONG SENIORS IN CANADA; THE ROLE OF WOMEN'S LABOUR MARKET EXPERIENCE
Author(s): TAMMY SCHIRLE
Date uploaded: JULY 2011

Abstract: The distribution of income among seniors in Canada has changed substantiallyover the past decade, reecting an overall increase in income and an increase in income inequality. In this study I decompose the distribution of income among senior couples to determine the extent to which changes in the labour market activity and retirement experiences of women and men have contributed to this shift in the income distribution. I use data from the Canadian Survey of Labour and Income Dynamics, 1996 and 2006, and the methods of Firpo, Fortin and Lemieux (2007, 2009). Results suggest increases in women's access to pension income and employment have driven increases in income across the distribution with relatively small disequalizing e_ects. Increases in women's access to public pensions have had important equalizing e_ects, while most of the increase in senior income inequality can be attributed to increases in senior men's and women's education levels.

Keywords: Income inequality; seniors; women in the labour market.

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LCERPA 2010-10
Title: TOWARDS EFFECTIVE INTER-ORGANIZATIONAL COLLABORATION IN TRANS-BORDER SUPPLY CHAINS
Author(s): MICHAEL HAUGHTON
Date uploaded: December 2010

Abstract: If Canada's trans-border supply chains are to optimally contribute to the nation's economic performance, collaboration among key organizations is essential. This paper focuses on two categories of collaboration: (a) among governmental departments that have jurisdiction over or interest in Canada's trans-border supply chain environment and (b) between those departments and the environment's commercial organizations (e.g., freight carriers, manufacturers, customs brokers, and international freight forwarders). The central theme in this paper is that effective collaboration requires clear understanding by all parties of the goals of the other parties as well as the obligations that collaborators must meet in order for those goals to be achieved cost-effectively. This means that an integral component of those obligations is a determined focus on the business costs incurred by collaborators and on ways to eliminate unnecessary costs. This and the paper's other insights to guide collaboration initiatives are grounded in findings from a set of ongoing research projects for which the author is the principal investigator.

Keywords: Trans-border supply chains; inter-organizational collaboration.

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LCERPA 2010-9
Title: REVERSE LOGISTICS NETWORKS WITH THE GATEWAY-CORRIDOR COMPONENTS: A CASE OF WASTE ELECTRICAL AND ELECTRONIC EQUIPMENT
Author(s): CHIALIN CHEN AND FARZAM TAHAM
Date uploaded: December 2010

Abstract: The paper presents a reverse logistics network for the end-of-life management of waste electrical and electronic equipment for the province of Ontario and develops a dynamic simulation model that describes the behaviour of the presented system and incorporates distance, cost, time and quantity variables associated with the system. Using the simulation model, the paper explores different strategic decisions and potential improvements to the system by developing scenarios on the future collection loads and the structure of the network using gateway and corridor components.

Keywords: Reverse Logistics, Simulation, Gateway-Corridor Network

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LCERPA 2010-8
Title: SURFACE FREIGHT ENVIRONMENTAL FOOTPRINTS IN THE ONTARIO-QUÉBEC CONTINENTAL CORRIDOR: FOCUS ON EMISSIONS
Author(s): JOHN LAWSON
Date uploaded: December 2010

Abstract: This paper summarises and updates research, attempting to identify and compare aspects of the environmental impacts of the main competing freight modes - truck, rail and ship - within the transport networks identified in Transport Canada's Gateway initiative as the "Ontario-Quebec Continental Gateway and Trade Corridor."

Keywords: Surface freight; environmental footprints, Ontario-Quebec continental corridor.

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LCERPA 2010-7
Title: SECTORAL AND LABOUR MARKET IMPACTS OF BORDER DELAYS IN CANADA
Author(s): TRIEN T. NGUYEN AND RANDALL M. WIGLE
Date uploaded: November 2010

Abstract: Being heavily trade-dependent and small, the Canadian economy is vulnerable to external shocks ranging from market-related price shocks to nonmarket security-related shocks. In this paper, we explore the economic implications of border delays using a static regional computable general equilibrium (CGE) model for Canada. We considered two sample scenarios of border delays, namely, (a) base case with delay costs of 1% on both merchandise and service trades, and (b) high case with delay costs of 2% on merchandise trade and 1% on service trade. Simulation results showed that border delays could significantly affect the economic performance in terms of welfare, wage structure, sectoral employment and other repercussions at both provincial and national levels. More importantly, the nature and extent of impacts varies across regions and sectors. For example, some provinces were badly hurt (e.g., Machinery in Ontario and QuŽebec) while several sectors in other provinces experience expansion and growth. The findings had relevant policy implications for Canada's regional trade development not only for the traditional trade link with the United States in the south but also for the emerging trade initiatives with Asia-Pacific countries in the west.

Keywords: Border delays; computable general equilibrium (CGE) models.

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LCERPA 2010-6
Title: FREIGHT TRUCKS, MITIGATING GHG EMISSIONS AND THE DANGER OF INCREMENTALISM
Author(s): STEPHEN BLANK
Date uploaded: November 2010

Abstract: This brief paper examines several (seeminly obvious) methods to mitigate truck generated GHG emissions and some of the possible systemic implications of each. We may be asking the wrong questions, trying to fix the wrong problem. The paper also considers several broader themes often neglected in discussions of ways to mitigate truck generated GHG emissions -- scale, timing, cost and, perhaps the largest of these, infrastructure. If mitigation proposals lack sensitivity to these issues they remain abstract and academic. Similarly, if these proposals fail to include a focus on implementation - how they can be pushed through the political-legislative-regulatory pipeline - then, again, their potential utility is greatly diminished.

Keywords: Greenhouse gas emissions; Infrastructure; Trucking.

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LCERPA 2010-5
Title: THE WINDSOR-DETROIT CROSSING: ISSUES IN P3S WHEN INFRASTRUCTURE CROSSES BORDERS
Author(s): WILLIAM P. ANDERSON
Date uploaded: November 2010

Abstract: The Windsor-Detroit crossing at the Detroit River is one of the busiest international trade corridors in the world. The great majority of the trade passing through this corridor is carried by the Ambassador Bridge, which is over 80 years old and privately owned. In an attempt to address transportation deficiencies in the corridor the governments of the United States, Canada, Ontario and Michigan came together in the Detroit River International Crossing (DRIC) initiative. The paper reviews the history and progress of the DRIC, with particular emphasis on the current impasse in gaining legislative approval to begin the process of building a second Detroit River bridge under a public-private partnership (P3) model.

Keywords: Infrastructure; Detroit River Crossing Initiative; Public Private Partnerships.

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LCERPA 2010-4
Title: ACCESS TO INFORMATION, INSTITUTIONAL CAPACITY AND INEFFICIENCY IN THE MEXICAN AIR TRANSPORT SECTOR
Author(s): VÍCTOR VALDÉS
Date uploaded: November 2010

Abstract: The operational and financial problems of one of Mexico's flag carrier airlines has revealed the fragility of the air transport industry in Mexico This paper explores the structural causes that generate this and the lack of institutional capacity to reach safety and efficiency goals. The issues are important because they are the basic inputs to help design, implement and monitor public policies that foster safety and efficiency and promote growth in MexicoŽs airline industry.

Keywords: Airlines; institutional capacity; air transport policy.

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LCERPA 2010-3
Title: TAX EXPENDITURES VS. BUDGETARY EXPENDITURES FOR CANADIAN POST-SECONDARY EDUCATION
Author(s): AZIM ESSAJI AND CHRISTINE NEILL
Date uploaded: November 2010

Abstract: Tax measures that reduce the tax burden on post-secondary students are a large part of total spending on post-secondary education in Canada. These tax expenditures are, however, often forgotten when it comes to discussions of the cost of post-secondary education, may have some undesirable distributional consequences, and likely have little effect on individuals' enrolment decisions. On most dimensions they seem to be inferior to equivalent spending programs. Also of concern is that the interactions between the tax and spending programs and their different reporting standards further reduce the transparency and effectiveness of government funding to post-secondary education. Eliminating the tax credits and using the 'savings' to boost direct spending on assistance to students would improve the effectiveness of programs at a lower cost and with better distributional consequences. Unfortunately, Canadian governments at the federal and provincial level have been doing precisely the opposite, and significantly expanded these tax credits in recent years..

Keywords: Tax expenditures; budgetary expenditures; post secondary education.

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LCERPA 2010-2
Title: LONG MEMORY IN DIAMOND MARKET RETURNS AND VOLATILITY
Author(s): Lu, Chenxi, Terence Tai-Leung Chong and Wing Hong Chan.
Date uploaded: April 2010

Abstract: This paper provides a first attempt to test for long memory in the international diamond market returns and volatility. The results from Lo's modified R/S statistic suggest that diamond returns do not have long memory, while strong evidence is found for long memory in diamond volatilities. The results have important implications for the efficiency of the diamond market and predictability of the diamond return and volatility.

Keywords: Long memory, Modified R/S statistic, Diamond market

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LCERPA 2010-1
Title: LOSS AVERSION AND INTERTEMPORAL CHOICE: A LABORATORY INVESTIGATION
Author(s): R. J. Oxoby and William G. Morrison.
Date uploaded: March 2010

Abstract: We present results from a laboratory study of loss aversion in the context of intertemporal choice. We investigate whether the provision of (windfall) endowments results in different elicited discount rates relative to subjects who earn income or earn and retain the income for a period before making intertemporal decisions. We hypothesize that loss aversion in an intertemporal choice yields higher discount rates among subjects earning and retaining. Our results support this hypothesis: among subjects who earn and retain their income we elicit substantially higher discount rates relative to those experiencing a windfall gain.

Keywords: intertemporal choice, discount rates, experiments

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LCERPA 2009-11
Title: WHY DOES DIVERSITY MATTER? - AN EMPIRICAL ANALYSIS OF PIPED WATER PROVISION IN SUB-SAHARAN AFRICA
Author(s): Ken Jackson
Date uploaded: October 2009

Abstract: Ethnic diversity has been shown to have signifcant, negative efects on the provision of basic public goods, in both developed and developing countries. However, the mechanism underlying this relationship is not fully understood. Two basic theories are drawn from the literature and incorporated within a single model, allowing for the derivation of key diferences in their empirical predictions. The critical diference between models of differential demand and those of collective action problems lies in the distribution of public good provision across households. Using the DHS survey from 15 countries of Sub-Saharan Africa, covering over 100,000 households, I am able to test for the presence of aggregate effects of ethnic diversity and the distributional consequences. The results suggest that local ethnic diversity plays a critical role in limiting the provision of piped water in Sub-Saharan Africa, and that the mechanism behind this effect is ineffective local governance.

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LCERPA 2009-10
Title: Contract Enforceability and the Evolution of Social Capital
Author(s): Ken Jackson
Date uploaded: September 2009

Abstract: Social capital, in the form of generalized trust, appears to have signi cant consequences for economic development. Yet we know little about how social capital evolves, and more specifically, on the role of government institutions in promoting or hindering social capital. This paper develops a model of social capital evolution that focuses on the interaction between government institutions related to contract enforcement and the incentives for civic engagement. The key results suggest a non-linear relationship between government institutions and social capital development, with only intermediate levels of contracting institutions supporting social capital development. For countries with low-levels of social capital, there exists a social capital trap, as no level of contracting institutions can generate the incentives necessary to support the development of social capital. The presence of social divisions caused by factors such as ethnic diversity or wealth inequality may exacerbate this problem.

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LCERPA 2009-09
Title: UNDERSTANDING SOCIAL INCLUSION, SOCIAL COHESION AND SOCIAL CAPITAL
Author(s): Robert J. Oxoby
Date uploaded: Aug 2009

Abstract: The topics of social capital, social cohesion, and social inclusion are increasingly gaining interest in economics, sociology, and politics, particularly in regards to addressing poverty and designing related policies. Here, we seek to develop the connections and interdependencies between these related concepts. We offer a framework for understanding the differences between these concepts and how they fit together in individual decision making.

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LCERPA 2009-08
Title: A QUESTION OF SCALE: ETHNIC DIVERSITY AND THE PROVISION OF PUBLIC GOODS
Author(s): Ken Jackson
Date uploaded: June 2009

Abstract: Ethnic diversity has been shown to have negative consequences on the delivery of key public goods. It may be expected that the impact of ethnicity will be most critical in the diverse societies of Sub-Saharan Africa where the problems of development appear particularly in-tractable. However, given the centralized nature of African politics, the measurement of ethnic diversity is an important factor in the analysis. This paper demonstrates that ethnic diversity has a significant impact on the provision of basic public services such as water and electricity across 13 countries of Sub-Saharan Africa, when measured at local and regional scales, respectively.

Keywords - ethnic diversity, public goods, Africa JEL codes - H42, O17, H70

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LCERPA 2009-07
Title: FINANCIAL INTEGRATION, NOMINAL RIGIDITY AND MONETARY POLICY
Author(s): Ke Pang
Date uploaded: April 2009

Abstract: This paper analyzes the welfare impact of financial integration in a standard monetary open-economy model. Financial integration may reduce welfare in the presence of nominal price rigidity and constraints on the efficient use of monetary policy. The reason is that financial integration leads to an increase in the terms of trade volatility, which is already excessive from a welfare standpoint. From a policy perspective, the model implies that developing economies that are experiencing financial integration may attempt to alleviate the welfare cost of integration by stabilizing the exchange rate, which eliminates the excessive terms of trade adjustment. Hence, this paper provides a novel explanation of "fear of floating". On the other hand, for advanced economies that have the ability to operate efficient inflation targeting monetary policies, financial integration is always beneficial. Thus, the model accounts for the observed acceleration in cross-border asset trade among advanced economies in the early 1990s, as it was mainly the industrial countries that switched to an inflation targeting regime at the time.

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LCERPA 2009-06
Title: THE 1974 AND 2008 FOOD PRICE CRISES: DÉJÀ-VU?
Author(s): Sue Horton
Date uploaded: April 2009

Abstract: The most important policy lesson of the 1974 crisis - that additional investment in agricultural development is a high priority - is even more true in responding to the 2008 crisis. Climate change is bringing additional urgency to the needs in this area.

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LCERPA 2009-05
Title: IODINE STATUS AND AVAILABILITY OF IODIZED SALT: A CROSS-COUNTRY ANALYSIS
Author(s): Sue Horton and Alexander Miloff
Date uploaded: April 2009

Abstract: We use simple multivariate regression for two separate datasets, one for 30 developing countries, and one for 13 developed countries, using data on coverage of salt iodization and soil iodine levels. Results: Median urinary iodine excretion is significantly and positively related to household consumption of iodized salt (elasticity is 0.73) for developing countries, but the soil coefficient is not significant, likely because the dummy variable is not well measured. For the developed countries, there is a positive and significant effect of salt penetration rates (elasticity of 0.83), and a positive and significant effect of soil iodine(elasticity of 0.77). There is also a suggestion that countries with more serious soil deficits, are more likely to iodize salt, such that univariate regressions of urinary iodine excretion on salt consumption or penetration rates underestimate the beneficial effects of iodized salt availability on iodine nutrition. Conclusions: There are limitations to cross-section (ecologic) studies such as this, and the data are not perfect. Nevertheless, the results provide support for policies to iodize salt, given the widespread deficiency of iodine in diets worldwide.

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LCERPA 2009-04
Title: Equity Home Bias and Nominal Rigidity
Author(s): Ke Pang
Date uploaded: March 2009

Abstract: This paper examines optimal portfolio decisions in a monetary open-economy DSGE model. In a complete market environment, Engel and Matsumoto (2005) find that sticky price can generate equity home bias. However, their result is sensitive to the structure of the financial market. In an incomplete market environment, we find super home bias" in the equilibrium equity portfolio, which casts doubt on the ability of sticky price alone in describing the observed equity portfolios. We further show that introducing sticky wage helps to match the data.

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LCERPA 2009-03
Equality Through Exposure: International Trade and the Racial Wage Gap
Author(s): Azim Essaji, Gregory Sweeney and Alexandros Kotsopoulos
Date uploaded: Jan 2009

Abstract: A key implication of Becker's (1957) work on discrimination is that greater product market competition can reduce employment discrimination generally, and discriminatory wage gaps in particular. Using US data on manufacturing wages and import exposure, we explore whether increased competition, in the form of a heightened exposure to imports, reduces the racial wage gap. Our findings support Becker's contention. We find that import exposure helped narrow the racial wage gap by about 1.4 percentage points between 1983 and 1993. The effect is especially pronounced among the most disadvantaged: unskilled Southern workers. For them, import exposure helped reduce racial wage disparities by 2.2 percentage points.

This paper is published in the Journal of Economic Policy Reform, 13(4): 313-323 (December, 2010) http://www.tandf.co.uk/journals/titles/13841289.asp

LCERPA Research paper number: 2009-02
Common (Stock) Sense about Risk-Shifting and Bank Bailouts
Author(s): Linus Wilson and Wendy Wu
Date uploaded: Jan 2009

Abstract: If a bank faces potential insolvency, it will be tempted to reject good loans and accept bad loans to shift risk onto its creditors. We analyze effectiveness of buying up toxic mortgages in troubled banks, buying preferred stock, and buying common stock. If bailouts for banks that are deemed 'too-big-too-fail' involve buying assets at above market values, then these banks are encouraged ex ante to gamble on bad assets. Buying up common (preferred) stock is always the most (least) ex ante- and ex post-efficient type of capital infusion whether or not the bank volunteers for the recapitalization.

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LCERPA Research paper number: 2009-01
First Contract Arbitration: Effects on Bargaining and Work Stoppages
Author(s): Susan Johnson
Date uploaded: Jan 2009

Abstract: Newly certified unions often have a difficult time negotiating a first agreement. The Employee Free Choice Act contains a proposal to reform the National Labor Relations Act to provide for First Contract Arbitration (FCA). This article uses a panel of Canadian jurisdictions which have introduced FCA at different times over several decades, to address three questions:

(1) How does first contract arbitration (FCA) affect the incidence of first agreement work stoppages? (2) Does FCA encourage or discourage collective bargaining involving first agreements? (3) Does FCA influence the duration of first agreement work stoppages? I find that FCA reduces first agreement work stoppage incidence by at least 50 percent. Despite this, FCA is not accessed frequently and it is even rarer for a first contract (in whole or in part) to be imposed. Together these results suggest that FCA encourages collective bargaining by creating an incentive for the parties to bargain in good faith and negotiate an agreement. Finally, FCA has no statistically significant impact on the duration of first agreement work stoppages.

For a copy of this paper, please contact the author directly: sjohnson@wlu.ca

LCERPA Research paper number: 2008-04
Title: Factor adjustments after deregulation: panel evidence from Columbian plants.
Author(s): Marcela Eslava, John Haltiwanger, Adriana Kugler and Maurice Kugler
Date uploaded: Sep 2008

Abstract: We analyze employment and capital adjustments using plant data from the Colombian Annual Manufacturing Survey. We estimate adjustment functions for capital and labour as a non-linear function of the gaps between desired and actual factor levels, allowing for interdependence in adjustments of the two factors. In addition to non-linear employment and capital adjustments in response to market fundamentals, we find that capital shortages reduce hiring and labour surpluses reduce capital shedding. We also find that after factor market deregulation in Colombia in 1991, factor adjustment hazards increased on the job destruction and capital formation margins. Finally, we find that completely eliminating frictions in factor adjustment would yield a substantial increase in aggregate productivity through improved allocative efficiency. Yet, the actual impact of the Colombian deregulation on aggregate productivity through factor adjustment was modest.

LCERPA Research paper number: 2008-03
Title: Product Quality at the Plant Level: Plant Size, Exports, Output Prices and Input Prices in Colombia
Author(s): M. Kugler and E. Verhoogen
Date uploaded: Jan 2008

Abstract: This paper uses uniquely rich and representative data on the unit values of 'outputs' (products) and inputs of Colombian manufacturing plants to draw inferences about the extent of quality differentiation at the plant level. We extend the Melitz (2003) framework to include heterogeneity of inputs and a complementarity between plant productivity and input quality in producing output quality and we show that the resulting model carries distinctive implications for two simple reduced-form correlations - between output prices and plant size and between input prices and plant size - and for how those correlations vary across sectors. We then document three plant level facts: (1) output prices are positively correlated with plant size within industries, on average; (2) input prices are positively correlated with plant size within industries, on average; and (3) both correlations are more positive in industries with more scope for quality differentiation, as measured by the advertising and R & D intensity of U.S. firms. The correlations between export status and input and output prices are similar to those for plant size. These facts are consistent with our model of quality differentiation of both outputs and inputs, and difficult to reconcile with models that assume homogeneity or symmetry of either set of goods. Beyond recommending an amendment of the Melitz (2003) model, the results highlight shortcomings of standard methods of productivity estimation, generalize and provide an explanation for the well-known employer size-wage effect, and suggest new channels through which liberalization of trade in output markets may affect input markets and vice-versa.

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LCERPA Research paper number: 2008-02
Title: Revisiting the Coyne Affair: A Singular Event that Changed the Course Of Canadian Monetary History
Author(s): Pierre Siklos
Date uploaded: Aug 2008

Abstract: The Coyne Affair is the greatest institutional crisis faced by the Bank of Canada in its history. The crisis took place in 1959-1961 and led to the resignation of the Governor, once he was cleared of any wrongdoing. The crisis eventually resulted in a major reform of the Bank of Canada Act. Archival and empirical evidence is used to assess the performance of monetary policy throughout the 1950s. In doing so, a real-time dataset is constructed for both Canada and the US that permit estimation of reaction functions. I find that the case against James Coyne is 'not proven'.

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LCERPA Research paper 2008-01
Title: A model of duel-market airport operations to assess Canada's airport rent formula.
Author(s): William G. Morrison
Date uploaded: 17-09-08

Abstract: This paper develops a model in which an airport has both aviation and non-aviation activities and where demand complementarities exist between these markets. The model provides an analysis of aviation charges, and output under for-profit and non-profit governance structures, and in the case of non-profit airports, the model is used to assess the impact of Canada's recently revised airport rent formula, implemented as an ad valorem tax.

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