Do House Prices Drive Aggregate Consumption?
Marian Berneburg, Axel Lindner
Wirtschaft im Wandel,
No. 10,
2006
Abstract
In recent times increasing house prices have been credited with a stong positive influence on aggre-gate consumption. But it is questionable in how far higher prices are at all able to lift the purchasing power of the economy as whole: The seller’s profit of a high price, equals the buyer’s loss. But while a positive correlation between house prices and consumption is evident, it is not a sign of irra-tional behaviour by market participants. In fact it seems that both factors are driven by other pa-rameters: the interest rate and expectations about future interest rates and economic activity. For a selection of four developed countries, the follow-ing article tries to give an explanation for the house price developments of the past 15 years. While disregarding country specific risk as well as institutional aspects and demographic factors, a present value caluclation forms the basis for esti-mating a fundamentally justified price movement. Expectations for future rents and discount rates are being proxied by a moving average of past values. It can be observed how interest rate changes and long-run economic growth, two as-pects that clearly also drive private consumption, play a key role here.
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Measurement Matters — Alternative Input Price Proxies for Bank Efficiency Analyses
Michael Koetter
Journal of Financial Services Research,
No. 2,
2006
Abstract
Most bank efficiency studies that use stochastic frontier analysis (SFA) employ each bank’s own implicit input price when estimating efficient frontiers. But at the same time, most studies are based on cost and/or profit models that assume perfect input markets. Traditional input price proxies therefore contain at least substantial measurement error. We suggest here two alternative input market definitions to approximate exogenous input prices. We have access to Bundesbank data, which allows us to cover virtually all German universal banks between 1993 and 2003. The use of alternative input price proxies leads to mean cost efficiency that is significantly five percentage points lower compared to traditional input prices. Mean profit efficiency is hardly affected. Across models, small cooperative banks located in large western states perform best while large banks and those located in eastern states rank lowest.
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Options and Limits of the Matching Approach – An Application to Workers Participation
Birgit Schultz
IWH Discussion Papers,
No. 15,
2006
Abstract
The evaluation of economic effects of workers participation is not simple from the methodical point of view because of specific characteristics of establishments with works councils. Especially recent studies show contradictory results. In this study problems are pointed out, discussed, and options for solution are presented on the example of workers participation in East German establishments of industry and construction by the IABEstablishment Panel. An optimal matching-algorithm which supplies good matching-results for small samples to assign ‘statistical establishment-twins’ is applied. But by reason of very short primarily spells it can only calculate short time effects. Therefore, the matching method is additionally used to construct longer observation periods. By this new application establishments with recently founded works councils are matched with so called ‘proxy establishments’ with existing works councils. As a result short observation periods are prolonged and information about long-term effects can be given. The effects on productivity, profitability and qualification level of employees show neither in short-term nor in long-term a significant impact on workers’ participation.
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Revenue Boosting Instruments in Municipal Finance from a Public Choice Perspective
Peter Haug
Diamond, J. (ed.), Proceedings. 98th Annual Conference on Taxation, Miami, Florida, November 17-19, 2005 and Minutes of the Annual Meeting of the National Tax Association, Thrusday, November 17, 2005,
2006
Abstract
German municipalities are currently struggling with growing budget deficits, decreasing revenues, and rising expenditures. We argue that from a public choice perspective local politicians under financial pressure might prefer fiscal instruments that minimize the local voters' resistance and create fiscal illusion. According to Germany, suitable sources of additional revenues include the reallocation of revenues from the local business tax between the levels of government and increased profitability of local public utilities. Revenue Data from 1992 to 2004 indicate that changes in the relative significance of the net local business tax revenues are rather caused by changes in the share of the federal government in the revenues ('Gewerbesteuerumlage') than by changes in the local tax multipliers. Furthermore, we find a significant rise in profits of local public utilities in large German cities.
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Entry and Strategic Information Display in Credit Markets
Jan Bouckaert, Hans Degryse
Economic Journal,
No. 513,
2006
Abstract
In many countries, lenders voluntarily provide information about their borrowers to private credit registries. A recent World Bank survey reveals that the display of a lender's own borrower information is often not reciprocated. That is, access to these registries does not require the prior provision of proprietary data. We argue that incumbent lenders release information about a portion of their profitable borrowers for strategic reasons. The reasoning is that the pool of unreleased borrowers becomes characterised by a severe adverse selection problem. This prevents the entrants from bidding for all the incumbent's profitable borrowers and reduces their scale of entry.
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Network Investment and the Threat of Regulation – Preventing Monopoly Exploitation or Infrastructure Construction?
Ulrich Blum, Christian Growitsch, Niels Krap
IWH Discussion Papers,
No. 7,
2006
Abstract
In summer 2005, the German telecommunication incumbent Deutsche Telekom announced its plans to build a new broadband fibre optics network. Deutsche Telekom decided as precondition for this new network not to be regulated with respect to pricing and third party access. To develop a regulator's strategy that allows investments and prevents monopolistic prices at the same time, we model an incumbent's decision problem under a threat of regulation in a game-theoretical context. The decision whether to invest or not depends on the probability of regulation and its assumed impact on investment returns. Depending on the incumbent's expectation on these parameters, he will decide if the investment is favourable, and which price to best set. This price is below a non-regulated profit maximising price, since the incumbent tries to circumvent regulation. Thus, we show that the mere threat of a regulator's intervention might prevent supernormal profits without actual price regulation. The regulator, on the other hand, can influence both investment decision and the incumbent's price via his signals on regulation probability and price. These signals an be considered optimal, if they simultaneously allow investment and minimize the incumbent's price.
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A Game Theoretic Analysis of the Conditions of Knowledge Transfer by New Employees in Companies
Sidonia vonLedebur
IWH Discussion Papers,
No. 3,
2006
Abstract
The availability of knowledge is an essential factor for an economy in global competition. Companies realise innovations by creating and implementing new knowledge. Sources of innovative ideas are partners in the production network but also new employees coming from another company or academia. Based on a model by HECKATHORN (1996) the conditions of efficient knowledge transfer in a team are analysed. Offering knowledge to a colleague can not be controlled directly by the company due to information asymmetries. Thus the management has to provide incentives which motivate the employees to act in favour of the company by providing their knowledge to the rest of the team and likewise to learn from colleagues. The game theoretic analysis aims at investigating how to arrange these incentives efficiently. Several factors are relevant, especially the individual costs of participating in the transfer. These consist mainly of the existing absorptive capacity and the working atmosphere. The model is a 2x2 game but is at least partly generalised on more players. The relevance of the adequate team size is shown: more developers may increase the total profit of an innovation
(before paying the involved people) but when additional wages are paid to each person a greater team decreases the remaining company profit. A further result is
that depending on the cost structure perfect knowledge transfer is not always best for the profit of the company. These formal results are consistent with empirical studies to the absorptive capacity and the working atmosphere.
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Angewandte Industrieökonomik: Theorien, Modelle, Anwendungen
Ulrich Blum, Simone Müller, Andreas Weiske
,
2006
Abstract
Modern entrepreneurship comprises a mix of bourgeois morale and the striving for adventure: Bourgeois morale implies efficiency, reputation, the rule of the law. And adventure implies new frontiers, the spirit of competition, innovation and a pioneer’s attitude – up to the destruction of competitors. The modern entrepreneur’s social position thus is a ambiguous; the entrepreneur needs a special attitude with respect to economic activity as discussed by Werner Sombard (1913) and Max Weber (1905); society has to accept the positive ethical quality of profit seeking in order to survive. The modern theory of the enterprise promoted by neoclassic theory does not include any of these elements of real entrepreneurship. Industrial organisation theory tries to structure models closer to reality, thus allowing empirical testing. In many aspects, it is based on neoclassic theory, but also accepts the concept of strategic behaviour which includes potential reactions of other market participants in ones own activities. Elements of evolutionary economics, risk theory and modern information theory thus become important. The overarching question of the entrepreneur, who strives for a higher than normal profit in the market becomes: under which conditions should I enter the market and under which conditions will potential entrants do the same? How should I set my prizes and what reactions must I expect? How can I signal friendly behaviour to competitors? How can I differentiate myself from them? What importance do innovations and advertising have? The book roles out these questions in three large chapters on technology and market structure, on prize setting and signalling, and on research, development and innovation. An introduction explains individual behavioural patterns within the societal context – often in a historical perspective. Three methodological chapters introduce the reader into strategic thinking as the core aspect of the industrial organisation theory, the “old industrial organisation theory” and the neoclassic basic models. Each chapter is extended by exercises and tips for solutions.
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IWH construction survey East Germany at the beginning of 2006: slightly more stable profitability, expectations less pessimistic
Brigitte Loose
Wirtschaft im Wandel,
No. 2,
2006
Abstract
Aufgrund von Sonderfaktoren, wie Vorzieheffekte infolge der Kürzung der Eigenheimzulage, Restmaßnahmen zur Beseitigung der Flutschäden und einzelne Großprojekte, wurde die bis 2002 beobachtete steile Abwärtsbewegung der Baunachfrage auch im Jahr 2005 abgebremst. Die Rückgänge waren sowohl im Wohnungsbau als auch im Nichtwohnbau mit etwa 6% nahezu so hoch wie im Jahr zuvor. Laut Umfrage des IWH im Dezember 2005 hat diese Entwicklung zu einer Stabilisierung der Ertragslage im Baugewerbe geführt. Die Bauunternehmen verharren in weit geringerem Maße als im Jahr zuvor in der Verlustzone. Zugleich ist die Fluktuation innerhalb der Gruppe der Gewinnunternehmen geringer geworden. Für das laufende Jahr 2006 bleiben die befragten Unternehmen zwar in der überwiegenden Mehrheit skeptisch, die erwarteten Einbußen fallen aber mit etwa 2½ Prozent geringer aus als im Jahr zuvor.
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How do multinationals meet investment decisions: The case study of General Motors
Diemo Dietrich, Daniel Höwer
Wirtschaft im Wandel,
No. 10,
2005
Abstract
The recent events around Opel, the German subsidiary of General Motors, has attracted a great deal of attention, especially with respect to the influence of multinational corporations on the German economy. General Motors' announcement of an internal competition for production capacities in June 2004 has led some observers to the assessment that this would be a step towards more efficiency and profitability. But such internal competition for ressources may be hampered and end up in inefficiency. This is because informational frictions and enforcement problems within a corporation restrict the headquarters ability and willingness to allocate ressources efficiently. Against this background, we discuss possible problems associated with the internal capital allocation within multinational corporations and show their relevance in the case of General Motors.
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