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2017, Issue 1 (33). Abstracts
Income Tax Effect on Economic Performance in Terms of Endogenous Choice between Labor and Enterprise Market The paper presents the general equilibrium model describing the interaction between heterogeneous agents, chosing between the labor market and business, and the government, which is responsible for collecting the tax on profits of private entrepreneurs and the redistribution of funds received. Each agent has one unit of labor, and he is a neutral to the risk and indifferent to the individual leisure. An agent have two variants of behavior: he can become wage-worker in a perfectly competitive labor market and receive at the same time the equilibrium wage. Another option - he can open his own company (which he devoted all his time), and hire workers in the labor market. Every entrepreneur has a production function depending on his managerial ability. Businessman chooses the optimal amount of hired labor that maximizes his profit. It is shown that the introduction of an extremely small tax does not affect the aggregate output in the economy, and increases the supply of labor and reduces wages. A further increase in the tax rate leads to a growing negative impact on the total supply of the product. It is shown that these conclusions are correct in the case where the tax base is an accounting rather than economic profit. The introduction of the tax on economic profit in fact coincide with the simultaneous introduction of tax on accounting profit and wages, with the result that the parameters do not change the balance in the economy. Consequences of imposition of a income tax on the basic parameters of equilibrium are estimated. Key words: general equilibrium, self-employment, income tax, labor supply
Nash Equilibria in the the Facility Location Problem with Externalities We consider a situation in which the municipal government has to open n cultural centres in a city. The task is to subdivide efficiently the city into n districts Di , and open a centre at the geometric median m(Di) of each district. We assume that the density of the population ρ in the city is constant ρ=1. If each inhabitant of district Di living at point x follows the prescriptions of the government and visits the centre m(Di ), his profit is λi/area(Di) - d(x,m(Di)) where area(Di) — is the area of Di, that coincides with its population, and λi is a positive weight representing the utility of the centre. We show that the government can subdivide the city into a prescribed number of districts so that the optimal strategy of each inhabitant is to visit the centre of his own district. Such a subdivision is called balanced. It turns out that the borders shared by neighbouring districts of a balanced subdivision are pieces of hyperbolae. In order to find a balanced partition we use the potential techniques. Namely, we introduce a functional on all length n partitions that attains it minimum on a balanced partition. The proof of existence of the minimum is quite involved and is attained by a reduction of the continuous problem to a discreet one. The continuous domain is replaced by a discreet subset formed by an ε-net and the continuous functional is replaced by a functional defined on partitions of the discreet set. To get back to the continuous case one takes the limit ε→0. In the process of the proof we investigate properties of the geometric median of finite subset Sε contained in the unit disk. Here the main role is played by A-massive Sε sets, i.e, the sets satisfying |Sε| > A /ε2. Key words: facility location, k-medians, Nash equilibrium
The Regulation of Banks’ Access to Credit Market under Imperfect Competition: the Effects on Banking System Stability Estimated This paper analyzes those potential opportunities that the Russian government could use over the recent years for the regulation of the banks’ access to credit market, namely, the privatization or nationalization of banks, facilitating increases in their size, and the variation of deposit insurance coverage. For each option of government regulation we conduct an empirical estimation of the influence that this exact option could have on the stability of banking system, taking into account the imperfection of competition on credit market. Special attention was paid on the estimation of thresholds that could separate positive and negative influence of each regulating option on system stability. Estimates were made on the basis of panel dataset covering balance sheets and profit and loss accounts of all Russian banks that disclosed these data through the Bank of Russia’s web-site during 2004 Q1 — 2012 Q4, i.e. before the change of the Head of the Bank of Russia. Our estimations have shown that in order to support stability of banking system during the period analyzed (in-sample) and in 2013—2016 (out-of-sample, in case no internal or external shocks heat the economy) the Russian government, the Bank of Russia and the Deposit Insurance Agency could — taking the levels of banks’ market power and credit risk distribution as exogenous — first of all increase the government investments in capital of state-owned banks. Second, they could raise the minimal capital requirements on already operating banks (on RUB 50—100 ml annually during 2013—2016). Third, they could allow decreasing the minimal deposit insurance coverage. Key words: banks, regulation, stability, competition, market power, ownership, minimal capital, deposit insurance
Two-Dimensional Monetary Policy Shocks in DSGE-Model Estimated for Russia In the paper DSGE model is estimated with two independent monetary instruments and limited ability to perform intertemporal optimization of households’ consumption. The model is estimated on the Russian data of 2001— 2014 for revealing two-dimensional monetary policy shocks: foreign exchange rate shocks and interest rate shocks. The estimation takes into account structural break in parameters of monetary policy rules happened at the end of 2008. Decomposing key macroeconomic variables on structural shocks allows to conclude that Bank of Russia had used its discretionary monetary power to struggle inflation and Ruble devaluation at the expense of recession deepening in the period of world financial crises of 2008-2009. Analyzing transmission mechanisms for two monetary policy instruments the conclusion was made that discretionary foreign exchange market interventions should be used in a situation of stagflation caused by strong negative balance of payments shocks. Key words: DSGE, monetary policy shocks, balance of payments shocks, discretionary monetary power, foreign exchange market interventions, two monetary policy instruments, inflation stabilization, Russia
Young and Older Workers in the Russian Labor Market: Are They Competitors? This article explores possible competition between the young and older workers in Russia. For the last 15 years, the employment level of 60—64 year old people rose while the employment level of 20—24 year old people fell and their unemployment was near constant. In the article, we show that this trends were independent. First, because of the peculiar properties of supply and demand of young and older people’s labor force, direct competition between two groups is limited. By the supply side young and older workers have significant differences in qualifications they have. By the demand side even though their wages are almost equal, workplaces they occupy are also different if we compare them with the jobs occupied by 30—49 year old workers. Second, we used regional characteristics of the labor market and showed that there is no effect of the one of the groups’ employment on the employment and unemployment of the other group. Therefore, the young and the older workers are not competitors on Russian labor market. On the contrary specialization of each group on their own professions and sectors creates the possibility for interaction in Russia. That is why we can expect position of young people in labor market wouldn’t change after rising of pension age in Russia. Key words: labor market, competition on labor market, employment rate, regional labor markets, pension reform
Constant or Variable Rationality As an Assumption of Economic Theory The article deals with evolution of rationality assumption as component of the model of man in economic science. In classical political economy this assumption didn’t play the key role separating the scope of economic science — this role was performed by the assumption of self-interest. The rationality assumption became important as a result of the Marginal revolution and began to be an object of special research only in the context of expected utility maximization hypothesis of von Neuman and Morgenstern. These developments made it remote from everyday human behavior. In order to make economics a bit more realistic various strategies are used which are briefly surveyed. Within the constant rationality approach we could choose a model of a representative agent characterized by full or bounded rationality. Within the variable rationality approach an additional economic agent may be introduced who will be responsible for observed deviations from rational behaviour, while all the other agents could be described by the familiar rational model. The second variant consists in splitting the economic agent into different subpersonalities, having different, and moreover, conflicting goals. Still another option is to make rationality not only variable but also continuous. In this case it is possible to reach the optimal rationality which differs from the maximum one. Key words: rationality, model of man, classical political economy, marginal revolution, behavioral economics
Rationality & Irrationality: Evolution of the Senses The author analyses a principle of rational behavior and the changes in the meaning of "rationality" and "irrationality" in a number of economic theories — behavioral economics, Margolis model, the concepts of merit goods and a new paternalism, the theory of patronized goods. The author comes to a conclusion, that behavior may be considered irrational only from the point of outside observer — from the point of his preferences, the notions about what "it should be". Key words: rationality, irrationality, behavioral economics, meritorik, new paternalism, theory patronized goods
On Rational Irrationality The article reviews the theory of rational irrationality according to which people might retain irrational beliefs indefinitely if the material costs of error are minimal. Irrational beliefs mean systematic rather than random errors. Voters frequently vote according to their embedded prejudices because the private costs of their errors are equal to zero. Zero costs are the result of practically zero chance to be decisive voter: the single vote has no effect on the election outcome. In this case it is rational to receive psychological benefits from manifestation of beliefs taking any devastating decisions at the poll station. As a result political irrationality may be compared with environment pollution. In both cases, the private benefits of self-restraints are absent. The burden of welfare state in the West and massive support of counter-sanctions in Russia reveal voter’s rational irrationality. For the welfare state vote and those for whom tax increase is expensive: in fact, each of the losers know that his personal choice in the voting does not affect the result. Instead they satisfy their sense of justice. The situation with the popular support of counter-sanctions in Russia is rather similar. Psychological benefits as the result of symbolic counter-sanctions support are clearly not zero in contrast to the costs of personal choice at the national elections where the weight of single vote means nothing, An analysis of voter behavior clearly shows that universal and unrestricted suffrage allows irrational beliefs of the masses to form an ineffective policy. From the standpoint of economic theory, it is equivalent to negative externalities. Key words: rational irrationality, decisive voter, prejudices, psychological benefits, welfare state, countersanctions
Homo Oeconomicus and Homo Postoeconomicus In this paper the author considers recent extensions of the concept of economic rationality and of the model of economic agent. These extensions are primarily due to contemporary achievement of economics and related disciplines, notably congitive psychology and neuroscience. These results allow economists to bypass the limits of the standard model of homo oeconomicus, which has been subject to critiques of many social scientists (including economists), who rightly argued that its view of human cognition and decision capabilities has been exceedingly restricted and narrow. The author surveys and describes key ingredients of a newly emerging model of economic agent — homo postoeconomicus, who extends the neoclassical model of rational action to account for prosocial preferences, cognitive constraints, as well as neurobiological mechanisms of decision-making. In sum, this new model has its advantages over the conventional homo oeconomicus, but also is not free of substantive drawbacks, which so far has failed to contribute to genuine advancement of our knowledge about the nature and causes of human action. Key words: rationality, behavioral economics, experiments, prosocial preferences, neuroeconomics
Status of Rationality Principle in Economics: Past and Present The paper provides a short overview of different applications of rationality principle in economics. Author argues that although in the last decades the role of rationality principle was substantially undermined in both empirical and theoretical studies. It is likely to preserve its traditional status as a basic methodological guide for economic analysis. Key words: behavioral economics, methodology, rational choice, rationality principle Back | ||
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