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See detailImmigration, occupational choice and public employment
Marchiori, Luca; Pieretti, Patrice UL; Zou, Benteng UL

E-print/Working paper (2014)

This paper investigates the theoretical effects of immigration in an occupational choice model with three sectors: a low-skilled, a high-skilled and a public sector. The originality of our approach is to ... [more ▼]

This paper investigates the theoretical effects of immigration in an occupational choice model with three sectors: a low-skilled, a high-skilled and a public sector. The originality of our approach is to consider (i) intersectoral mobility of labor and (ii) public employment. We highlight the fact that including a public sector is crucial, since omitting it implies that low-skilled immigration unambiguously reduces wages and welfare of all workers. However, when public employment is considered, we demonstrate that immigration increases wages in the high-skilled and the public sectors, provided that the immigrant workforce is not too large and the access to public jobs is not too easy. The average wage of natives may also increase accordingly. Moreover, immigration may improve workers’ welfare in each sector. Finally, the mechanism underlying these results does not require complementarity between natives and immigrants. [less ▲]

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See detailAsymmetric Competition among Nation States: A Differential Game Approach
Han, Yutao; Pieretti, Patrice UL; Zanaj, Skerdilajda UL et al

in Journal of Public Economics (2014)

This paper analyzes the impact of foreign investments on a small country’s economy in the context of international competition. To that end, we model tax and public input competition within a differential ... [more ▼]

This paper analyzes the impact of foreign investments on a small country’s economy in the context of international competition. To that end, we model tax and public input competition within a differential game framework between two unequally sized countries. The model accounts for the widely recognized characteristic that small states are more flexible in their political decision-making than larger countries. However, we also acknowledge that small size is associated with limited institutional capacity in the provision of public services. The model shows that the long-term outcome of international competition crucially depends on the degree of capital mobility. In particular, we show that flexibility mitigates against - but does not eliminate - the likelihood of collapse in a small economy. Finally, we note that the beneficial effect of flexibility in a small state increases with its inefficiency in providing public services and with the degree of international openness. [less ▲]

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See detailCarbon capture and storage and transboundary pollution: A differential game approach
Bertinelli, Luisito UL; Camacho, Carmen; Zou, Benteng UL

in European Journal of Operational Research (2014)

We study the strategic behavior of two countries facing transboundary CO2 pollution under a differential game setting. In our model, the reduction of CO2 concentration occurs through the carbon capture ... [more ▼]

We study the strategic behavior of two countries facing transboundary CO2 pollution under a differential game setting. In our model, the reduction of CO2 concentration occurs through the carbon capture and storage process, rather than through the adoption of cleaner technologies. Furthermore, we first provide the explicit short-run dynamics for this dynamic game with symmetric open-loop and a special Markovian Nash strategy. Then, we compare these strategies at the games’ steady states and along some balanced growth paths. Our results show that if the initial level of CO2 is relatively high, state dependent emissions reductions can lead to higher overall environmental quality, hence, feedback strategy leads to less social waste. [less ▲]

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See detailDifferential Game with (A)symmetric Players and Heterogeneous Strategies
Zou, Benteng UL

E-print/Working paper (2013)

This paper presents one kind of heterogeneous strategies in some differential games where one player plays open-loop strategy and the other one plays Markovian strategy. On top of the stationary path ... [more ▼]

This paper presents one kind of heterogeneous strategies in some differential games where one player plays open-loop strategy and the other one plays Markovian strategy. On top of the stationary path, this kind of strategies enable the study of trajectory dynamics, even for asymmetric players’ with non-linear-quadratic games. [less ▲]

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See detailCONTINUOUS TIME REGIME-SWITCHING MODEL APPLIED TO FOREIGN EXCHANGE RATE
Goutte, Stephane; Zou, Benteng UL

in Mathematical Finance Letters (2013), 2013-8

The continuous time modified Cox-Ingersoll-Ross (1985) stochastic model is employed, combining with the Hamilton (1989) type Markov regime-switching framework, to study daily foreign exchange rates where ... [more ▼]

The continuous time modified Cox-Ingersoll-Ross (1985) stochastic model is employed, combining with the Hamilton (1989) type Markov regime-switching framework, to study daily foreign exchange rates where all parameter values depend on the value of a continuous time Markov chain. The generalized Expectation-Maximization algorithm is applied to a more general class of regime switching models and used to study some exchange rate data. We compare the obtained results with non regime switching models and notice that the regime switching outcomes match much better the reality than the others without Markov switching; and two regimes in most of the cases are better than more regimes. [less ▲]

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See detailThreshold Preferences and the Environment
Schumacher, Ingmar; Zou, Benteng UL

E-print/Working paper (2013)

In this article we study the implication of thresholds in preferences. To model this we extend the basic model of John and Pecchenino (1994) by allowing the current level of environmental quality to have ... [more ▼]

In this article we study the implication of thresholds in preferences. To model this we extend the basic model of John and Pecchenino (1994) by allowing the current level of environmental quality to have a discrete impact on how an agent trades o future consumption and environmental quality. In other words, we endogenize the semi-elasticity of utility based on a step function. We motivate the existence of the threshold based on research from political science, from arguments based on regulation and standards, cultural economics as well as ecological economics. Our results are that the location of the threshold determines both the potential steady states as well as the dynamics. For low (high) thresholds, environmental quality converges to a low (high) steady state. For intermediate levels it converges to a stable p-cycle, with environmental quality being asymptotically bounded below and above by the low and high steady state. We discuss implications for intergenerational equity and policy making. As policy implications we study shifts in the threshold. Our results are that, in case it is costless to shift the threshold, it is always worthwhile to do so. If it is costly to change the threshold, then it is worthwhile to change the threshold if the threshold originally was suffi ciently low. Lump-sum taxes may lead to a development trap and should be avoided if there are uncertainties about the threshold or the effectiveness of the policy. [less ▲]

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See detailOn the desirability of tax coordination when countries compete in taxes and infrastructures
Han, Yutao UL; Pieretti, Patrice UL; Zou, Benteng UL

E-print/Working paper (2013)

In our paper we show that when countries compete in taxes and infrastructures, coordination through a uniform tax rate or a minimum rate does not necessarily create the welfare effects observed under pure ... [more ▼]

In our paper we show that when countries compete in taxes and infrastructures, coordination through a uniform tax rate or a minimum rate does not necessarily create the welfare effects observed under pure tax competition. The divergence is even worse when the competing jurisdictions differ in the quality of their institutions. If tax revenue is used to gauge the desirability of coordination, our model shows that imposing a uniform tax rate is Pareto-inferior to the non cooperative equilibrium when countries compete in taxes and infrastructures. This result is completely reversed with pure tax competition if countries are not too uneven in size. If a minimum tax rate lying between those resulting from the non-cooperative equilibrium is set, the low tax country will never be better off. Finally the paper shows that the potential social welfare gains from tax harmonization crucially depend on how heterogeneous the competing countries are. [less ▲]

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See detailThe Dynamics of Firms Location: A Revisit of Home Attachment under Tax Competition
Han, Yutao UL; Pieretti, Patrice UL; Zou, Benteng UL

in Economics Letters (2013), 121

In this short note we extend the home attachment setting of Mansoorian and Myers (1993) and Ogura (2006) to allow the study of tax competition in a dynamic framework when international business relocation ... [more ▼]

In this short note we extend the home attachment setting of Mansoorian and Myers (1993) and Ogura (2006) to allow the study of tax competition in a dynamic framework when international business relocation occurs over successive periods. The dynamic framework we propose also helps to understand why tax rates may change over time. Our modified home-attachment rule is illustrated by a simple model of dynamic tax competition in discrete time. [less ▲]

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See detailThe Dynamics of the Location of Firms– A Revisit of Home-Attachment under Tax Competition
Han, Yutao UL; Pieretti, Patrice UL; Zou, Benteng UL

E-print/Working paper (2013)

We revisit the investment home-bias situation of firms and extend the home attachment setting of Mansoorian and Myers (1993) and Ogura (2006) into a dynamic framework. We locate firms based on their home ... [more ▼]

We revisit the investment home-bias situation of firms and extend the home attachment setting of Mansoorian and Myers (1993) and Ogura (2006) into a dynamic framework. We locate firms based on their home attachment preferences, which is also changing over time based on some updated spillover information. Some applications, in static and dynamic tax competition, are presented following our home-attachment principle. [less ▲]

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See detailOn the long run economic performance of small economies
Pieretti, Patrice UL; Zanaj, Skerdilajda UL; Zou, Benteng UL

E-print/Working paper (2012)

In this paper, we analyze the long run economic performance of a small economy open to foreign investments. Policy instruments used to attract investments are taxes and attractive public infrastructures ... [more ▼]

In this paper, we analyze the long run economic performance of a small economy open to foreign investments. Policy instruments used to attract investments are taxes and attractive public infrastructures, whereas the policy choices of the rest of the world are taken as given. Applying the Pontryagin’s maximum principle, we first show that there exists one long run optimal size of the small economy which is saddle-point stable. The transitional path is two-dimensional, if the small economy is patient enough. Then, we show that the share of tax income allocated to the infrastructure expenditures plays an important role in attaining such a steady state. However, a deviation from this policy path can lead to an eventual economic collapse. [less ▲]

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See detailAsymmetric Competition among Nation States: A Differential Game Approach
Han, Yutao UL; Pieretti, Patrice UL; Zanaj, Skerdilajda UL et al

E-print/Working paper (2012)

This paper analyzes the impact of foreign investments on a small country's economy in the context of international competition. To that end, we model tax and infrastructure competition within a ... [more ▼]

This paper analyzes the impact of foreign investments on a small country's economy in the context of international competition. To that end, we model tax and infrastructure competition within a differential game framework between two unequally sized countries. The model accounts for the widely recognized characteristic that small states are more flexible in their political decision making than larger countries. However, we also acknowledge that small size is associated with limited institutional capacity in the provision of public goods. The model shows that the long-term outcome of international competition crucially depends on the degree of capital mobility. In particular, we show that flexibility mitigates against - but does not eliminate - the likelihood of collapse in a small economy. Finally, we note that the beneficial effect of flexibility in a small state increases with its inefficiency in providing public infrastructure and with the degree of international openness. [less ▲]

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See detailSustainable economic development and the environment: Theory and evidence
Bertinelli, Luisito UL; Strobl, Eric; Zou, Benteng UL

in Energy Economics (2012), 34(4), 1105-1114

The relationship between growth and pollution is studied through a vintage capital model, where new technologies are more environmentally friendly. We find that once the optimal scrapping age of ... [more ▼]

The relationship between growth and pollution is studied through a vintage capital model, where new technologies are more environmentally friendly. We find that once the optimal scrapping age of technologies is reached, an economy may achieve two possible cases of sustainable development, one in which pollution falls and another in which it stabilizes, or a catastrophic outcome, where environmental quality reaches its lower bound. The outcome will depend on countries’ investment path and their propensity to innovate in environmentally clean technologies, both of which are likely to differ across economies. Empirical results using long time series for a number of developed and developing countries indeed confirm heterogenous experiences in the pollution-output relationship. [less ▲]

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See detailThe Migration of Medical Workers in Sub-Saharan Africa and Substitution Policy
Bourgain, Arnaud UL; Pieretti, Patrice UL; Zou, Benteng UL

in Revue Economique (2010), 61(6), 1011-1022

Substitution policies are strategies sometimes chosen in Sub-Saharan Africa for curtailing the shortage of health professionals especially caused by the outflow of medical personnel. The aim of our ... [more ▼]

Substitution policies are strategies sometimes chosen in Sub-Saharan Africa for curtailing the shortage of health professionals especially caused by the outflow of medical personnel. The aim of our contribution is to propose a way to assess the merits and drawbacks of substitution policies by developing a simple growth model of healthcare productivity with medical brain drain. Within this framework, we use a medical care production function of the ces type which aggregates low and high specialized health workers. We then run simulations which compare scenarios with and without substitution strategies by using data from the Ghana’s medical sector. [less ▲]

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See detailMigration and human capital in an endogenous fertility model
Pieretti, Patrice UL; Marchiori, Luca; Zou, Benteng UL

in Annales d'Economies et Statistiques (2010), 97/98

What is the impact of high-skilled migration on fertility and human capital in migrant's origin countries? This question is analyzed within an overlapping generations model where parents choose to finance ... [more ▼]

What is the impact of high-skilled migration on fertility and human capital in migrant's origin countries? This question is analyzed within an overlapping generations model where parents choose to finance higher education for a certain number of their children. It follows that families are composed of high-and low-skilled children who may both emigrate with a certain probability when they reach adulthood. It is found that a brain drain leads to a change in children's skill composition, with parents choosing to provide higher education to a larger number of their children. A calibration of the model suggests that, following a brain drain, the additional children benefiting from higher education might in the long run compensate for the loss of high-educated workers and lead to a brain gain. [less ▲]

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See detailForeign direct investment under international competition : Control of Spillover ?
Dawid, Herbert; Greiner, Alfred; Zou, Benteng UL

in Journal of Economic Dynamics and Control (2010)

In this paper we present a dynamic model of a firm which is deciding whether to outsource parts of its production to a less developed economy where wages and the level of technology are lower. Outsourcing ... [more ▼]

In this paper we present a dynamic model of a firm which is deciding whether to outsource parts of its production to a less developed economy where wages and the level of technology are lower. Outsourcing reduces production costs but is associated with spillovers to foreign potential competitors. Spillovers over time increase productivity of firms in the foreign country and make them stronger competitors on the common market. The paper analyzes the inter-temporally optimal behavior of the firm and shows that two outcomes are possible in the long-run. One outcome is that there is one steady state where the firm invests a positive amount in the foreign country and the other outcome is a continuum of steady states with no investment. The paper then derives conditions such that it is optimal for the firm to invest in the foreign country and characterizes different types of optimal dynamic investment patterns. In addition, using numerical dynamic optimization methods, the effect of the speed of technology adoption and of the wage differential on total labor income in the home country is studied taking into account the transition dynamics. [less ▲]

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See detailPolluting Technologies and Sustainable Economic Development
Bertinelli, Luisito UL; Strobl, Eric; Zou, Benteng UL

in International Journal of Global Environmental Issues (2010), 10(1/2), 63-83

The relationship between growth and pollution is studied through a vintage capital model, where new technologies are more environmentally friendly. We find that once the optimal scrapping age of ... [more ▼]

The relationship between growth and pollution is studied through a vintage capital model, where new technologies are more environmentally friendly. We find that once the optimal scrapping age of technologies is reached, an economy may achieve two possible cases of sustainable development, one in which pollution falls and another in which it stabilizes, or a catastrophic outcome, where environmental quality reaches its lower bound. The outcome will depend on countries’ investment path and their propensity to innovate in environmentally clean technologies, both of which are likely to differ across economies. Empirical results using long time series for a number of developed and developing countries indeed confirm heterogenous experiences in the pollution-output relationship. [less ▲]

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See detailBridging the gap between growth theory and the new economic geo-graphy : The spatial Ramsey model
Boucckine, Raouf; Camacho, Carmen; Zou, Benteng UL

in Macroeconomic Dynamics (2009), 13(1), 20-45

We study a Ramsey problem in in¯nite and continuous time and space. The problem is discounted both temporally and spatially. Capital flows to locations with higher marginal return. We show that the ... [more ▼]

We study a Ramsey problem in in¯nite and continuous time and space. The problem is discounted both temporally and spatially. Capital flows to locations with higher marginal return. We show that the problem amounts to optimal control of parabolic partial differential equations (PDEs). We rely on the existing related mathematical literature to derive the Pontryagin conditions. Using explicit representations of the solutions to the PDEs, we first show that the resulting dynamic system gives rise to an ill-posed problem in the sense of Hadamard (1923). We then turn to the spatial Ramsey problem with linear utility. The obtained properties are significantly different from those of the non-spatial linear Ramsey model due to the spatial dynamics induced by capital mobility. [less ▲]

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See detailBrain Drain and Factor Complementarity
Pieretti, Patrice UL; Zou, Benteng UL

in Economic Modelling (2009), 26(2), 285-548

In this paper we develop an extended Solow growth model with emigration which aggregates different types of labor skills from strict complementarity to perfect substitution. The derivation of balanced ... [more ▼]

In this paper we develop an extended Solow growth model with emigration which aggregates different types of labor skills from strict complementarity to perfect substitution. The derivation of balanced growth paths shows that the most relevant cases for studying the impact of emigration are those where these paths can only be attained asymptotically. This requires and justifies the need for using transitional dynamics. We therefore derive a complete characterization of the transitional dynamics of output and wages in the sending country for all possible values taken by the elasticity of substitution between skilled and unskilled workers. The model then serves to qualitatively study the effect of brain drain on per capita income and wages of the sending country. [less ▲]

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See detailPollution Perception: A Challenge for Intergenerational Equity
Schumacher, Ingmar; Zou, Benteng UL

in Journal of Environmental Economics and Management (2008), 55

In this article we extend the recent literature on overlapping generations and pollution by allowing generations to perceive the level of pollution differently than the actual level of pollution. We call ... [more ▼]

In this article we extend the recent literature on overlapping generations and pollution by allowing generations to perceive the level of pollution differently than the actual level of pollution. We call this pollution perception. Pollution perception can visualize itself as either a concern for the °ow of pollution only, or for the stock, or a combination of both. We derive this extension based on empirical evidence from recent advances in behavioral economics. Pollution perception has not only signifficant consequences for the steady state levels of pollution and capital, but we also and a qualitative change in the dynamics from similar models without pollution perception [23]. Specifically, we derive optimal non-linear dynamics through complex eigenvalues and Hopf or Flip bifurcations for a large set of parameters. This leads to violations of two standard criteria of sustainability, suggesting that pollution perception can be another source of intergenerational inequity. [less ▲]

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See detailBrain Drain, Remittances, and Fertility
Marchiori, Luca; Pieretti, Patrice UL; Zou, Benteng UL

in Economie Internationale (2008)

This paper analyzes the effects of skilled migration and remittances on fertility decisions at origin. We develop an overlapping generations model which accounts for endogenous fertility and education ... [more ▼]

This paper analyzes the effects of skilled migration and remittances on fertility decisions at origin. We develop an overlapping generations model which accounts for endogenous fertility and education. Parents choose the number of children they want to raise and decide upon how many children obtain higher education. Only high skilled individuals migrate with a certain probability and remit to their parents. We find that an increase in the probability to emigrate leads both high and low skilled parents to send more children to obtain higher education. However the effect on the number of children is ambiguous. In a further analysis, we calibrate the model to match different characteristics of a developing economy. When the destination country relaxes the immigration restrictions, more high skilled individuals leave the origin country. The result is that, at origin, increased high skilled emigration reduces fertility and fosters human capital accumulation. [less ▲]

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