Strategic Urban Development Under Uncertainty
-- Flavia Cortelezzi, Pierpaolo Giannoccolo and Giovanni Villani
The aim of this paper is to analyze the equilibrium strategies of two developers in the real estate market, when demands are asymmetric. In particular, the paper considers three key features of the real estate market. First, the cost of redeveloping a building is, at least partially, irreversible. Second, the rent levels for different buildings vary stochastically over time. Third, demand functions for space are interrelated and may produce positive or negative externalities. Using the method of option pricing theory, the paper addresses this issue at three levels. First, it models the investment decision of a firm as a preassigned leader as a dynamic stochastic game. Then, it solves for the non-cooperative case, and for the perfectly cooperative case, in which redevelopment of an area is coordinated between firms. Finally, it analyzes the efficiency/inefficiency of the equilibria of the game. It is found that if one firm has a significantly large comparative advantage, the preemptive threat from the rival will be negligible. In this case, short burst and overbuilding phenomena, as predicted by Grenadier (1996), will occur only as a limiting case.
© 2011 IUP. All Rights Reserved.
Foreign Aid Inflows and the Real Exchange Rate:
Are There Dutch Disease Effects in Ghana?
-- Aliyu Rafindadi Sanusi
This paper presents empirical evidence that the massive foreign aid inflows into Ghana that accompanied the 1983 reforms had some Dutch disease effects. This finding contrasts with some of the startling findings in the recent literature that aid inflows into Ghana, instead of causing real appreciation of the cedi, caused its depreciation. Using the behavioral equilibrium real exchange rate approach, it is found that foreign aid inflows do have a significantly positive effect on the real exchange rate in the long run, but not in the short run. It is argued that this is plausible when aid increases are saved to raise foreign reserves as was the case in Ghana. In the long run, however, when all aid increases were spent, real appreciation could be expected as the theory predicts. The policy implication of this finding is that Ghanaian authorities must ensure that aid increases are spent on raising Ghana's productive capacity so that supply response will offset any negative effect of the real appreciation on economic growth.
© 2011 IUP. All Rights Reserved.
Impact of Political Regime and Economic Openness
on Income Inequality: A Tale
of Low-Income and OECD Countries
-- Archana Pillai
This paper attempts to study the changing global economic and political environment and assess its impact on fundamentals like income inequality. Scholars have time and again studied the impact of globalization and intensity of the economy. But the integration of the political climate into a comprehensive framework is attempted here. The paper aims to study the process of income inequality in both the OECD and low-income countries within a framework of variables like level of democracy, FDI, trade intensity and growth in GDP per capita. It studies 54 countries for the period 1971-2000, using multiple regression analysis technique, and also checks for robustness and accuracy of the results. The variable of the political regime (level of democracy) is found to be significant. This validates the hypothesis of using the political environment in the studies on globalization or welfare.
© 2011 IUP. All Rights Reserved.
A Note on the Social Costs of Monopoly and Regulation
-- Jamal Ibrahim Haidar
The aim of this note is to discuss the economic perspective of the social costs of monopoly and regulation. First, this note sketches a well-recognized argument in the industrial organization, microeconomic theory, law practice, and various public policy perspectives. Second, it defines the three building-block assumptions for the argument and provides four remarks on them. Third, it concludes and provides a guidance to a needed correction in social cost measurement given the contemporary regulatory framework.
© 2011 IUP. All Rights Reserved.
