Scottish Journal of Political Economy

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  • Location choices and third‐degree spatial price discrimination

    This paper studies how firms choose their product differentiation levels when they engage in third‐degree price discrimination in the following product market competition in a location‐price model. We show that firms will not choose to locate at the two endpoints if different consumer groups have similar sizes. Hence, the principle of maximum differentiation does not hold, resulting in a more intense product market price competition. Only if the size of one group of consumers is sufficiently larger than that of the other group, would firms make their products as differentiated as possible by choosing the two endpoints as their locations.

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  • Democracy, Geography and Model Uncertainty

    We analyse the nature of robust determinants of differences in democracy levels across countries taking explicitly into account uncertainty in the choice of covariates and spatial spillovers. We make use of recent developments in Bayesian model averaging to assess the effect of a large number of potential factors affecting democratisation processes and account for several specifications of spatial linkages. Our results indicate that spatial spillovers are present in the data even after controlling for a large number of geographical covariates. Addressing the determinants of democracy without modelling such spillovers may lead to flawed inference about the nature of the determinants of democratisation processes. In particular, our results emphasise the role played by Muslim religion, population size, trade volumes, English language, natural resource rents, GDP per capita, being a MENA country and the incidence of armed conflicts as factors affecting democracy robustly.

  • God save the queen, god save us all? Monarchies and institutional quality

    Until the beginning of the 20th century, monarchy was the predominant constitutional form and is still in place today in many countries. However, although a voluminous body of research is concerned with the consequences of constitutions for human development and institutional quality, research on the consequences of monarchy is almost non‐existent. This paper explores the effects of monarchy on economic institutional quality and provides evidence that monarchies are associated with significantly better institutions. Robustness checks indicate that this result cannot be explained through alternative channels such as monarchies being on average richer or smaller.

  • Long‐Term Unemployment and the Great Recession: Evidence from UK Stocks and Flows

    Long‐term unemployment more than doubled during the United Kingdom's Great Recession. Only a small fraction of this persistent increase can be accounted for by the changing composition of unemployment across personal and work history characteristics. Through extending a well‐known stocks‐flows decomposition of labour market fluctuations, the cyclical behaviour of participation flows can account for over two‐thirds of the high level of long‐term unemployment following the financial crisis, especially the procyclical flow from unemployment to inactivity. The pattern of these flows and their changing composition suggest a general shift in the labour force attachment of the unemployed during the downturn.

  • Population and house prices in the United Kingdom

    Real house prices rise in the United Kingdom amid growing concern of an impending correction. The rate of household formation has increased with strong population growth, due to elevated rates of natural increase and net migration, and lack of growth in average household size, due to a rise in single‐person households with population ageing. This paper presents an overlapping generations model of housing, endogenous labour, savings and growth to analyse the effect of an increase in the household formation rate and speculative demand under rational expectations on house prices in a general equilibrium. We find that real house prices rise over time if the rate of household formation outstrips the rate of housing supply, but do not follow a speculative bubble path in the long run. The results explain why the upward trend in real house prices reflects market fundamentals and has continued despite population ageing as the number of working and retired households grows relative to the number of older people seeking to sell.

  • Have money and credit data releases helped markets to predict the interest rate decisions of the European Central Bank?

    This paper examines whether money and credit data releases by the European Central Bank (ECB) have provided markets with additional clues about the future course of its monetary policy. It conducts a novel econometric approach, as suggested by El‐Shagi and Jung (Eur J Polit Econ 39:222–234, 2015), based on a combination of an Ordered Probit model explaining future policy rate changes (sample 2000–2014) and the Vuong test for model selection. Overall, our empirical results support the view that information contained in money and credit aggregates is used by markets when assessing forthcoming interest changes of the ECB.

  • Conservative central banks: how conservative should a central bank be?

    Using Rogoff's, 1985 model, we determine how inflation averse a central banker should be, given the level of volatility and projected output gap in the economy. We confirm a strong degree of conservatism, almost twice what society would have chosen. But, for a range of developing countries and the OECD, economies that systematically experience higher levels of output volatility would do best to hire a central banker who is more inflation averse than society, but less so than in stable developed economies. Thus, while a conservative central banker remains desirable, the trade‐off is with output volatility rather than with the output gap itself.

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  • Leadership and motivation for public goods contributions

    Results from a leader–follower public goods game are presented. An individual, when randomly selected to make a contribution knowing others will observe the selection, gives more than in the simultaneous‐move public goods game. Followers adopt a quasi‐matching strategy where they systematically donate less than the leader, but contribute more when the leader does and contribute less when the leader free rides. The net result is increased provision of a public good when contributions are sequential. The results highlight that psychological preferences, rather than solely social preferences, can explain behavior.

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