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2007 Economics Research Working Papers

  • An Agent-Based Model of Behavior in “Beauty Contest” Games [pdf]
    Authors: Nichols, M.W. and Radzicki, M.J. Abstract: Recently, computer simulation, particularly agent-based modeling, has grown in popularity as a method to uncover macro patterns and developments that emerge from simple micro behavior. The present paper combines both techniques by using protocol analysis to uncover player strategies in an experiment and encoding those strategies in an agent-based computer simulation. In particular, Keynes’ (1936) beauty contest analogy is simulated in a number-guessing context. Several researchers have conducted experiments asking subjects to play “p-beauty contest games” in order to compare the experimental results with those predicted by the game-theoretic, deductive reasoning concept of iterated dominance. Our results are compared with those found experimentally in order to demonstrate the usefulness of a combining agent-based modeling with protocol analysis.
  • Further Analysis of the Zipf's Law: Does the Rank-Size Rule Really Exist? [pdf]
    Authors: Fungisai Nota and Shunfeng Song Abstract: The widely-used Zipf’s law has two striking regularities. One is its excellent fit; the other is its close-to-one exponent. When the exponent equals to one, the Zipf’s law collapses into the rank-size rule. This paper further analyzes the Zipf exponent. By changing the sample size, the truncation point, and the mix of cities in the sample, we found that the exponent is close to one only for some selected sub-samples. Small samples of large cities alone provide higher value of the exponent whereas small cities introduce high variance and lower the value of the exponent. Using the values of estimated exponent from the rolling sample method, we obtained an elasticity of the exponent with respect to sample size. We concluded that the rank-size rule is not an economic regularity but a statistical phenomenon.
  • Gambling Policy in the European Union: Monopolies, Market Access, Economic Rents, and Competitive Pressures among Gaming Sectors in the Member States [pdf]
    Authors: Eadington, W.R. Abstract: This study examines the conflicts within the European Union regarding protected status accorded to legal commercial gaming industries and the principles of harmonization that direct EU economic policy. Member States are permitted to constrain competition for gambling services as long as the primary purpose is to protect citizens from unintended negative consequences associated with the activities. Also, because of monopoly status, high tax rates, or government ownership, many EU gaming industries have become major contributors to government coffers or for funding for “good causes.” Legal challenges by private companies trying to participate in these protected markets have led to decisions by the European Court of Justice that have questioned such protected status. A number of key economic metrics for European gaming industries are presented, and competitive dimensions of EU casino industries are examined in comparisons to trends elsewhere.
  • Impact of Trade on Productivity of Skilled and Unskilled Intensive Industries: A Cross-Country Investigation [pdf]
    Authors: Abizadeh, S., Pandey, M. and Tosun, M Abstract: This paper examines the effect of trade openness on the productivity of skilled labor intensive and unskilled labor intensive industries in the group of 20 OECD countries. Using panel data and fixed effects approach, we find that skilled workers’ relative gains in productivity exceed those of their unskilled counterpart. Given this differential impact of trade openness on the relative productivity of the skilled and unskilled intensive industries, our findings lend support to the conclusions of past studies that skilled labor is likely to be more pro trade than unskilled labor.
  • Intercept and Recall: Examining Avidity Carryover in On-Site Collected Travel Data [pdf]
    Authors: Moeltner, K. and Shonkweiler, J.S. Abstract: This study examines the proper estimation of trip demand and economic benefits for visitors to recreation sites when past-season trip information is elicited from travelers intercepted on-site. We show that the proper weighting of past season counts is different from the standard on-site correction appropriate for current-season counts. We find that for our sample of lake visitors relatively stronger preference or “avidity” for the interview site carries over across seasons. We further show that using the correct weighting of past trip counts is critical in deriving meaningful estimates of travel demand and economic benefits. A doubly-truncated count data framework to process such data. We compare this framework to past approaches based on ordered outcomes and truncated continuous densities using Bayesian estimation and model selection techniques. We find that all three frameworks (i) support the presence of unobserved heterogeneity in individual decision-making, and (ii) agree on the ranking of regulatory treatment effects. The count data framework exhibits superior efficiency and produces more informative predictive distributions for outcomes of interest. The continuous framework fails to allocate adequate probability mass to boundary outcomes, which are often of pivotal importance in these games.
  • Meta-Functional Benefit Transfer for Wetland Valuation: Making the Most of Small Samples [pdf]
    Authors: Moeltner, K. and Woodward, R. Abstract: This study applies functional Benefit Transfer via Meta-Regression Modeling to derive valuation estimates for wetlands in an actual policy setting of proposed groundwater transfers in Eastern Nevada. We illustrate how Bayesian estimation techniques can be used to overcome small sample problems notoriously present in Meta-functional Benefit Transfer. The highlights of our methodology are (i) The hierarchical modeling of heteroskedasticity, (ii) The ability to incorporate additional information via refined priors, and (ii) The derivation of measures of model performance with the corresponding option of model-averaged Benefit Transfer predictions. Our results indicate that economic losses associated with the disappearance of these wetlands can be substantial and that primary valuation studies are warranted.
  • Meta-Regression and Benefit Transfer: Data Space, Model Space, and the Quest for ‘Optimal Scope’ [pdf]
    Authors: Moeltner, K and Rosenberger, R.S. Abstract: Meta-functional Benefit Transfer, while conceptually attractive, is often plagued by the paucity of available source studies and related small sample problems. A broadening of scope of the Meta-Regression Model by adding data from “related, yet different” contexts or activities may circumvent these issues, but may not necessarily enhance the efficiency of transfer functions if the different contexts do not share policy-relevant parameters. We illustrate how different combinations of contexts can be interpreted as ‘data spaces’ which can then be explored for the most promising transfer function using Bayesian Model Search techniques. Our results indicate that for some scope-augmented data spaces model-averaged benefit predictions can be more efficient than those flowing from the baseline context and data.
  • Patience Versus Decisiveness in Decision-Making [pdf]
    Authors: W.B. MacLeod and M. Pingle. Abstract: We examine the willingness to search among alternatives. We find fixed individual differences in this temperament measure. People may be usefully typed according to how they obtain improved choices. More patient subjects obtain improvement by effectively using decision resources, performing better when the decision is more complex. More decisive subjects obtain improvement by conserving valuable decision resources, performing better when the decision problem is simple. We find that a bonus incentive frame encourages patience, while a penalty frame encourages decisiveness. These results suggest an organization can enhance its performance by matching individual temperaments and incentive frames to decision tasks at hand.
  • Population Aging, Elderly Migration and Education Spending: Intergenerational Conflict Revisited [pdf]
    Authors: Tosun, M., Williamson, C. and Yakovlev, P. Abstract: Elderly have been increasingly targeted as a group to enhance economic development and the tax base in communities. A major factor in their rise in importance is the rapid increase in the number of retired elderly through aging of the U.S. population. While recent literature on elderly migration tends to focus on how elderly migration patterns are influenced by state fiscal variables, the reverse effect from elderly population on fiscal variables is very plausible as shown to be the case for estate, inheritance, and gift taxes by Conway and Rork (2006). In this paper, we reexamine the intergenerational conflict in education financing raised by Poterba (1997) using U.S. state and county level data that allows to analyze how preferences for education might vary across different elderly age groups, which has not been explored before. Moreover, this paper uses a variety of advanced econometric techniques to estimate the impact of elderly population and elderly migration on education spending. Our state and county regression results broadly support the presence of intergenerational conflict in education financing. We also find dramatic age heterogeneity in preferences for education spending among elderly migrants.
  • Processing Data from Social Dilemma Experiments: A Bayesian Comparison of Parametric Estimators [pdf]
    Authors: Moeltner, K., Murphy, J.J., Stranlund, J.K. and Velez, M.A. Abstract: Observed choices in Social Dilemma Games usually take the form of bounded integers. We propose a doubly-truncated count data framework to process such data. We compare this framework to past approaches based on ordered outcomes and truncated continuous densities using Bayesian estimation and model selection techniques. We find that all three frameworks (i) support the presence of unobserved heterogeneity in individual decision-making, and (ii) agree on the ranking of regulatory treatment effects. The count data framework exhibits superior efficiency and produces more informative predictive distributions for outcomes of interest. The continuous framework fails to allocate adequate probability mass to boundary outcomes, which are often of pivotal importance in these games.
  • Property Tax in Urban China [pdf]
    Authors: Li, D. and Song, S. Abstract: This paper examines the urban housing sector of China and proposes a property tax reform. Over the past decade, housing price in urban China has been increasing dramatically because of strong demand for self-use, investment and speculation. The booming housing market, however, has brought several challenges for further development, such as housing affordability, inequality, and possible housing bubble. One strategy is to reform the current property tax system. Specifically, this paper proposes that China significantly reduces taxes in circulation but levies property tax during possession. Doing so will increase housing affordability because of lower transaction costs, reduce speculation because of higher cost of holding, stabilize fiscal system because of more sustainable tax revenues, and improve the efficiency and fairness of the property tax system because of the implementation of “ability-to-pay” and “who use who pay” principles.
  • The Effect of Federal Government Size on Long-Term Economic Growth in the United States, 1792-2004 [pdf]
    Authors: Guerrero, F. and Parker, E. Abstract: In this paper, we consider whether there is statistical evidence for a causal relationship between federal government expenditures and growth in real per-capita GDP in the United States, using available data going back to 1792. After studying the time-series properties of these variables for stationarity and cointegration, we investigate Granger causality in detail in the context of a Vector Error Correction Model. While we find causal evidence supporting Wagner’s Law, we find no evidence supporting the common assertion that a larger government sector leads to slower economic growth.
  • The Income Elasticity of Casino Revenues: Short-Run and Long-Run Estimates [pdf]
    Authors: Nichols, M.W. and Tosun, M.S. Abstract: In this paper we examine how casino gambling revenues differ from other major tax revenues in growth and variability. We estimate the long-run and short-run income elasticities using state-level casino revenue and state, regional and national income. Our empirical analysis includes eleven states that have significant casino gambling. To estimate income elasticities, we run separate time-series regressions for each of these states, controlling for supply-side industry effects. Our findings show that Nevada’s casino revenue base growth is more sensitive to national than state income, while such growth is more tied to state and regional income in riverboat states. Casino revenue base growth is generally faster than taxable sales, but slower than taxable income. Short-run (immediate) elasticity is, on average, lower than estimates for sales and income taxes, with an equal or more rapid adjustment to long-run equilibrium. These estimates also reveal greater variability when regional or national income changes are taken into consideration. This suggests that states that depend heavily on out-of-state visitors in their gambling operations may be more susceptible to changes in regional or national economic activity.
  • Urban Poor in China: A Case Study of Changsha [pdf]
    Authors: Zhu, E. and Song, S. Abstract: Since the late 1970s, many state-owned enterprise employees have been laid off and more and more rural people have migrated to urban areas. In this massive laying-off and migration process, many laid-off workers and migrants have become urban poor. Using data collected from a survey on 1641 relatively low-income households in Changsha in January 2007, this paper compares migrant workers with their city counterpart regarding income, employment, education, and social support. Based on qualitative and regression analysis, we found that worker’s age, Hukou status, education, enterprise ownership, and contract length are significantly affecting the annual income. There exists a big gap in the coverage of social security between urban and migrant workers. This paper provides some policy recommendations.
  • VIP-room Contractual System of Macau’s Traditional Casino Industry [pdf]
    Authors: Wang, W. and Eadington, W. Abstract: This study provides a systematic analysis of the VIP-room contractual system of Macau’s traditional casino industry. It examines the system’s historical background, its organizational structure, its operational mechanisms, and its role in Macau’s casino industry. This analysis examines the evolving and likely future changes in the VIP-room sector—as well as the mass market sector—caused by the liberalization of Macau’s gaming laws in 2001 and the Free Individual Travelers Scheme, introduced by the Chinese government in 2003. This study develops a framework to explain how the two sectors’ market shares are determined by examining the economic and cultural forces at work. The existing structure of the VIP-room contractual system in Macau’s casino industry will not likely continue in its traditional way, and will be replaced by newly evolving systems consistent with the new competitive realities. However, the VIP business will likely continue in one form or another.

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