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Chameleons: The misuse of theoretical models in finance and economics
Paul Pfleiderer [pdf][html]

[Keywords: theoretical models, finance, economics; JEL: A20, B41,C18]

In this essay I discuss how theoretical models in finance and economics are used in ways that make them “chameleons” and that chameleons devalue intellectual currency and obscure policy debates. A model becomes a chameleon when it is based on assumptions with dubious connections with the real world but draws conclusions that are uncritically (or not critically enough) applied to understand our economy. I discuss how chameleons are created and nurtured by the mistaken notion that a model should not be judged by its assumptions, by the unfounded argument that models should have equal standing until definitive empirical tests are conducted; and by misplaced appeals to “as-if ” arguments, by mathematical elegance, by subtlety, by references to assumptions that are “standard in the literature,” and by the need for manageability.

Theoretical notes on the relationship between collective knowledge and institutions
Mario Alberto Morales Sánchez

[Keywords: institutional structure, incentives, common knowledge; JEL: B41, B52]

This paper discusses the role of common knowledge in the formation of stable institutional equilibria and establishes the theoretical bases to analyze its formation and evolution. It takes contributions from Ostrom Elinor and complements them with contributions from institutionalist authors. The questions that I will attempt to answer are the following: what is the importance of common knowledge in shaping stable institutional arrangements? How is common knowledge generated among individuals with different cognitive capacities What institutional mechanisms allow the emergence and maintenance of common knowledge?

Institutionalism and economic theory: from “Neoclassicism” back to the classical theory
Enrico Sergio Levrero

[Key words: American institutionalism, method and analytical structure of classical theory, competition in the labor market; JEL: B12, J21]

This article seeks to explain why institutionalism did not become the benchmark in economic theory, and shows that unlike neoclassical theory, the classical theory of Smith and Ricardo can incorporate many of its contributions. It also presents an example of this capability and outlines the essential role of social and institutional factors in the theory of Smith and Ricardo in regard to the labor market.

A Growth, inequality and poverty: State of affairs
Alfredo Macías Vázquez [pdf][html]

[Key words: economic growth, poverty, structural approach; JEL: B12, J21]

In recent decades there has been an increase in the literarure on the relationship between economic growth and its social impact. The successive failures in the fight against poverty have led to new strategies to combat it, an example of which is “pro-poor growth”. This paper critiques these strategies from theoretical and methodological perspectives. It also lays out the need for a structural and institutional approach to improve results.

Vertical integration and managerial contracts: strategic tools in imperfect markets.
Flavio Jácome Liévano, Andrés Mejía Villa y Karen Mendoza Manjarrés [pdf][Appendix][html]

[Key words: Bertrand competition, differentiated goods, vertical integration, managerial contracts, Nash Equilibrium; JEL: C72, D43, D86, L13, L22]

This paper analyzes a Bertrand competition model with differentiated goods, in order to determine optimal decisions when the owners can use vertical integration and managerial contracts as strategic tools. The equilibrium results are: i) the owners always delegate control to a manager who is encouraged to be less aggressive in sales; ii) there is no vertical integration when goods are highly homogeneous. iii) social welfare is never the highest that can be achieved.

High income and income tax in Colombia, 1993-2010
Facundo Alvaredo y Juliana Londoño Vélez [pdf][Appendix][html]

[Key words: income distribution, inequality, personal income tax, Latin America; JEL: D31, H24, O54]

We present a series of the distribution of income accruing to the top income groups in Colombia between 1993 and 2010, based on individual income tax data. We obtain four main empirical results. 1) Income in Colombia is highly concentrated, the top 1% of the income distribution accounting for over 20% of total income in 2010. This is at the highest level of inequality in any recent year in the entire WTID sample. 2) High-income individuals in Colombia are, in essence, rentiers and capital owners. 3) While household surveys show that inequality has been decreasing since 2006, tax-based results offer a different picture, where concentration at the top has remained stable; when a survey based on Gini coefficients are adjusted to take into account higher incomes reported in tax returns, inequality levels are higher, and the recent reduction in inequality is less pronounced. 4) Income taxation does little to reduce the high levels of inequality.

Political and economic growth in Colombia, 1906-2009
Carlos Humberto Ortiz [pdf][html]

[Keywords: Productive asset, economic growth, industrial diversification, progressive government, political pact; JEL: D62, F43, G28, H41, H54, O11]

The most important public asset for economic growth in Colombia has been the diversification of domestic manufacturing. Governments that have promoted this and other productive assets (especially transport infrastructure, property rights and capital accumulation) have boosted national economic growth, and it has been diminished by those governments that have spurned or neglected the supply of productive assets.

Characterization and comparison of the OTC security market in Colombia
Carlos León y Jhonatan Pérez [pdf][html]

[Keywords: market over the counter, OTC, public debt, network analysis, minimum spanning tree; JEL: D85, G2, E42]

This article analyzes some distinctive features of the Colombian OTC securities market. Based on network analysis’ statistics and a database of sovereign securities’ transactions, this article compares the OTC market with the corresponding organized markets. Results show a structural similarity between OTC and MEC networks, which tends to be robust to random shocks –yet fragile to targeted attacks. Despite SEN determining the hierarchical structure of the sovereign securities market and contributing the most to the value of operations, the overall sovereign securities network’s resembles that of OTC and MEC.

Determinants of innovation in products or processes: the Colombian case
Germán Daniel Lambardi y Jhon James Mora [pdf][html]

[Keywords: product innovation, innovation in processes, bivariate probit; JEL: C35, L24, L25]

This paper empirically analyzes the determinants of innovative decisions of Colombian manufacturing firms. In particular, it explores the possibility of some degree of dependence between innovation in products and processes. It estimates a bivariate probit model using data from the second Survey of Development and Technological Innovation. The results indicate that there is a strong connection between innovation in products and processes.

Proposed regionalization of the national system of industrial property
Dennis Sánchez Navarro, Natalia Cantor Varga, Juan Pablo Herrera Saavedra, Jacobo Campo Robledo, Miguel de Quinto Arrendonda [pdf][Appendix][html]

[Keywords: Industrial property, principal components analysis, regionalization, science technology and innovation; JEL: C5, L5, O4, O32, O34]

With a principal components methodology, this article describes the dynamics of knowledge generation and use of industrial property systems at the regional level, and proposes an index regionalization that offers objective criteria to advance in the location of regional IP offices in Colombia. Results from the index were complemented by a comparative analysis of transportation costs, which allowed ranking the different departments based on their socioeconomic characteristics and generation of technological innovation activities.

Will there be a second opportunity on earth? Colonial institutions and regional economic disparities in Colombia
Laura Cepeda Emiliani y Adolfo Meisel Roca [pdf][html]

[Keywords: geography, institutions, human capital, economic inequality, economic development; JEL: N16, N35, O18, R11]

In this paper we analyze the colonial origins of the current economic inequalities among the regions of Colombia. The major geographical aspects of the Colombian territory are discussed, since together with institutions geography is considered to be a key determinant of economic prosperity in the long run. A simple model relating prosperity with a proxy for institutions and geographical variables was estimated for the cities with more than 100.000 inhabitants. We also discuss one of the main options for the advancement of regions with a history of extractive colonial institutions investment in human capital.


Revista de Economía Institucional
Universidad Externado de Colombia
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