Enrico Saltari

The effects of environmental policies on the abatement investment decisions of a green firm

Enrico Saltari et al. — Sun, 20 Nov 2011 10:38:24 PST

This paper focuses on environmental policies aimed at

rising investment in pollution abatement capital. We assume that

ecological uncertainty, i.e., uncertainty over the dynamics of

pollution, affects firm investment decisions. Capital irreversibility

is not postulated but endogenized using a quadratic adjustment

cost function. Using this framework, we study the effects of

environmental policies considering taxes on polluting inputs and

subsidies to reduce the cost of abatement capital. Environmental

policies promoted to enforce abatement capital may generate the

unexpected result of reducing the abatement investment rate.

Il rallentamento della produttività del lavoro e la crescita dell'occupazione: il ruolo del progresso tecnologico e della flessibilità del lavoro 2008 XIII,1, p.3.38.

Giuseppe Travaglini et al. — Sun, 20 Nov 2011 10:19:18 PST

The productivity slowdown puzzle. Technological and non technological shocks in the labor market

Giuseppe Travaglini et al. — Sun, 20 Nov 2011 10:19:16 PST

In this paper we address the question of whether labor supply shifts are the only source of the productivity slowdown that occurred across European countries in the last 15 years. This explanation implies that labor demand shifts are irrelevant. Using a simple dynamic model of the labor market, we show that the poor economic performance of the European countries can only be accounted for by a combination of two shocks: an adverse technological shock to the labor demand and a positive non-technological shock to the labor supply resulting from changes in institutions. We use a structural VAR model to estimate the contribution of these two shocks to the dynamics of employment and productivity. Our main conclusion is that technological shocks explain the decrease of the growth rate of productivity but not the increase in employment. The non-technological shocks, on the other hand, can capture the increase of employment but not the slowdown of labor productivity. Thus, both shocks are necessary to provide a complete picture of the employment-productivity trade off in Europe during the last 15 years.

L'economia Italiana del Nuovo Millennio

Giuseppe Travaglini et al. — Sun, 20 Nov 2011 10:19:14 PST

The effects of future financing constraints on capital accumulation: some new results on the constrained investment problem

Giuseppe Travaglini et al. — Sun, 20 Nov 2011 10:19:13 PST

In this paper we study the effects of future constraints on current investment decisions. Unlike the standard literature on this optimizing problem, we present a model in which firms are neither always constrained nor always unconstrained. We are concerned with those cases where a firm is free from constraints at the current time but expects to face an upper bound at some later date. Using the "no arbitrage principle" in the constrained scenario, we show how to explicitly calculate the optimal investment path switching between regimes. The analytical result shows that the effects of future financing constraints are included in the market value of the firm, and thus are captured by marginal q.

Optimal abatement investment and environmental policies under pollution uncertainty

Giuseppe Travaglini et al. — Sun, 20 Nov 2011 10:19:12 PST

Investment, Productivity and Employment in the Italiana Economy

Giuseppe Travaglini et al. — Sun, 20 Nov 2011 10:19:11 PST

Financial Constraints and Investment decisions

Giuseppe Travaglini et al. — Sun, 20 Nov 2011 10:19:08 PST

In what follows we show that liquidity constraints can affect a firm's investment even when the constraints are not currently effective. This happens when, at any given time, the firm believes that internal finance is likely to become a constraint in the future. In these circumstances, the value of the firm becomes a non-monotonic functional form of the fundamental. Thus, in a dynamic setting, the potential barrier to internal liquidity expansion exerts a global effect on the firm's investment policy, lowering its desired investment profile.

Firing costs and labor market tightness: Is there any relationship?

Enrico Saltari et al. — Thu, 02 Jun 2011 07:39:50 PDT

Empirical evidence suggests the existence of a negative relationship between rigidities on the labor market and the level of economic activity. In this paper, we provide a background of this evidence. We build a model where the employed worker chooses the optimal level of firing costs by maximizing her human capital. Performing a comparative statics exercise, we analyze the effects of labor market tightness on the optimal choice of firing costs. Our theoretical model shows the existence of an inverse relation between labor market conditions and the level of firing cost under plausible hypothesis.

Behavioral Portfolio Choice and Disappointment Aversion

Enrico Saltari et al. — Thu, 13 Aug 2009 02:52:30 PDT

The standard portfolio model predicts a large equity position for most

households. Empirical evidence shows however that household’s wealth is

characterized by a small proportion of risky assets. To solve this paradox, we

employ the axiomatic theory of disappointment aversion (DA) and …nd an

analytical solution to the portfolio problem when risk is "small". Our solution

ha a form very similar to the well-known formula of Samuelson and Merton:

under DA the optimal share of the risky security is proportional to the ratio

between the mean and the variance of the excess return, the coe¢ cient of

proportionality being the reciprocal of the risk aversion. However, the mean

and the variance do not depend on the original probabilities but on a new

probability distribution a¤ected by the degree of DA

L'economia italiana del nuovo millennio

Enrico Saltari et al. — Thu, 13 Aug 2009 02:15:44 PDT

Do labor market conditions affect the strictness of employment protection legislation?

Enrico Saltari et al. — Thu, 13 Aug 2009 02:09:50 PDT

We provide a theoretical microfoundation for the negative relationship between firing costs and labor market tightness and its effects on labor market performance. The optimal level of firing costs is chosen by the employed worker -- i.e. the insider -- by maximizing her human capital. Performing a comparative statics exercise, we analyze the effects of labor market tightness on the optimal choice of firing costs. The results are clear cut and allow to obtain a decreasing firing costs function in the labor market tightness. Moreover, we show that this negative relationship can give rise to a labor market configuration characterized by multiple equilibria: prolonged average duration of unemployment will produce a labor market with low flows and high strictness of employment protection, and vice versa.

Financial and labor market imperfections and investment

Enrico Saltari et al. — Thu, 13 Aug 2009 02:06:07 PDT

This paper analyses how financial and labor market imperfections jointly influence investment. The contemporaneous presence of imperfections gives rise to a negative correlation between EPL and investment. Our results support the policies promoted by European institutions to reform both markets.

The role and significance of endogenous firing costs in a matching model with endogenous job destruction

Enrico Saltari et al. — Thu, 13 Aug 2009 02:01:27 PDT

Traditional models of the labor market assume fixed firing costs. This paper explores the implications of variable firing costs, building this new assumption into a matching model with endogenous job destruction. The available evidence on the outcomes of cases brought to labor courts suggests that firing costs are negatively related with labor market tightness. In such a case, we may no longer invoke “rigidities” on labor markets as the cause of their poor performance. Our model yields three interesting results. First, labor markets may have multiple equilibria that cannot be Pareto-ordered; each with its own configuration in terms of average duration of unemployment and filled jobs, as well as employment protection. Second, the variability of firing costs produces a positive externality affecting the stability properties of these equilibria. Finally, the two externalities affect the efficiency of the social optimum, modifying the Hosios [Hosios, A.J., 1990. On the efficiency of matching and related models of search and unemployment. Review of Economic Studies 57, 279–298] condition.We use these results to interpret the recent history of European unemployment.

Risk Aversion, Intertemporal Substitution, and the Aggregate Investment-uncertainty Relationship

Enrico Saltari et al. — Sun, 20 May 2007 03:27:19 PDT

We analyze the role of risk aversion and intertemporal substitution in a simple dynamic general equilibrium model of investment and savings. Our main finding is that risk aversion cannot by itself explain a negative relationship between aggregate investment and aggregate uncertainty, as the effect of increased uncertainty on investment also depends on the intertemporal elasticity of substitution. In particular, the relationship between aggregate investment and aggregate uncertainty is positive even if agents are very risk averse, as long as the elasticity of intertemporal substitution is low. A negative investment–uncertainty relationship requires that the relative risk aversion and the elasticity of intertemporal substitution are both relatively high or both relatively low. We also show that the implications of our model are consistent with the available empirical evidence.

Households' Intertemporal Choice and the Duration of Fiscal Policies: Medium Run Non-Keynesian Effects

Enrico Saltari et al. — Sun, 17 Dec 2006 02:09:32 PST

In this paper we study the effects of fiscal policies on current consumption, distinguishing between Keynesian effects (KE), due to changes in current disposable income, and non-Keynesian effects (NE), due to expected changes in future disposable income. The literature has argued that permanent changes in fiscal policies affect current consumption. We show that the size and sign of such NE effects depend crucially on the expected lifetime of the representative consumer and on the timing of policy changes. In particular we investigate the effects on current consumption of medium run changes in fiscal policy. Using a consumption function based on a perpetual youth model, formulated in discrete time, we show the possibility of reversed NE effects where sign (KE) = sign (NE). All that is required for such reversed NE effects is the satisfaction of a simple and realistic condition depending on the expected lifetime of the consumer and the starting date for the offsetting fiscal measures needed to satisfy the intertemporal public sector budget constraint. We propose a number of exercises showing the importance of the level and dynamics of public debt. The results help to explain anomalous trends in consumption during 90s, as Italy prepared to join the EMU.

Le radici del declino economico (The roots of Economic Decline)

Enrico Saltari et al. — Sun, 17 Dec 2006 02:02:04 PST

In this bookwe argue that the slowdown in labor productivity and not the low contribution of labor is at the root of the slowdown of the European economic growth in the decade 1995-2004. Using a simple dynamic model of the labor market, we show that the poor performance of the European economies can only be accounted for by a combination of two shocks: a negative supply shock to the labor demand due to the deceleration of technological progress and a positive supply shock resulting from the labor market reforms. We use a structural VAR model to estimate the contribution of these two shocks to the dynamics of employment and labor productivity.

Multiple attractors and global bifurcations in a Kaldor-type business cycle model

Enrico Saltari et al. — Fri, 15 Dec 2006 08:21:43 PST

We consider a Kaldor-type discrete-time nonlinear business cycle model in income and capital, where investment is assumed to depend both on the difference between normal and current levels of capital stock, and on the difference between the current income and its normal level, through a nonlinear S-shaped increasing function. As usual in Kaldor business cycle models, one or three steady states exist, and the standard analysis of the local stability and bifurcations suggests that endogenous oscillations occur in the presence of only one unstable equilibrium, whereas the coexistence of three equilibria is characterized by bi-stability, the central equilibrium being on the boundary which separates the basins of the two stable ones. However, a deeper analysis of the global dynamic properties of the model in the parameter ranges where three steady states exist, reveals the existence of an attracting limit cycle surrounding the three steady states, leading to a situation of multistability, with a rich and complex dynamic structure

Investment and uncertainty: is there a potential role for a common European policy?

Enrico Saltari et al. — Fri, 15 Dec 2006 08:08:40 PST

This paper contributes to the long-running debate on the relationship between uncertainty and investment. Our results show that uncertainty negatively affects investment. They are also favorable towards a common European economic policy oriented both to the support and the stabilization of aggregate demand.

Real and financial uncertainty and investment decisions

Enrico Saltari et al. — Fri, 15 Dec 2006 07:56:27 PST

This paper aims at analyzing the role of uncertainty on investment. In our analysis we will follow recent economic literature concerning stochastic models of irreversible investment and restrict our attention to the Italian economy. We show that theoretically, and in the presence of irreversibility, demand and interest rate uncertainty both reduce demand for capital. Our empirical results support the traditional interpretation according to which expected demand growth rates positively affect investment, while the interest rate level is negatively correlated to the accumulation rate. As for uncertainty, investment decisions in Italy are negatively affected by demand volatility, while interest rate volatility seems to play no significant role.