Vol. 21, No. 2

Maria Saez-Marti and Fabrizio Zilibotti:
Preferences as Human Capital: Rational Choice Theories of Endogenous Preferences and Socioeconomic Changes (pp. 81–94)


We discuss the theoretical and empirical foundations of modern economic theories of cultural transmission. The importance of cultural factors in shaping economic and social transformations has been the focus of a long-standing debate in social sciences since the XIXth Century. Neoclassical economics has remained at the marging of this debate. However, there has been a recent surge of interest among economists for cultural factors. The economic models of cultural transmission borrow the main ideas from the anthropological literature, but endogeneize the efforts parents exert to transmit specific cultural variants or preference parameters. We distinguish between paternalistic models where parents use their own values to evaluate their children’s utility, and non-paternalistic or utilitarian models in which parents choose their children’s preferences to maximize the children’s well-being. We discuss recent examples, focusing in particular on corruption, patience, and work ethic.

(JEL: D11, D64, I20, J13, N13, O12, Z13)

Mats Godenhielm and Klaus Kultti:
In a Herd? Herding with Costly Observation and an Unknown Number of Predecessors (pp. 95–103)


We consider a sequential decision to adopt/not adopt a technology in a herding environment with costly observation. The novelty compared to the previous models on herding with costly observation, such as Kultti and Miettinen (2006a), is that the agents do not know how many other agents have been in the same situation earlier. It turns out that herding no longer arises deterministically. We show that when observation costs are low there exists a unique symmetric pure strategy equilibrium where all agents observe the actions of two immediate predecessors in order to find out whether they are in a herd or not.

(JEL: D82, D83)

Paul Evans, Iftekhar Hasan and Ana Lozano-Vivas:
Deregulation and Convergence of Banking: The EU Experience (pp. 104–117)


In the last two decades, the European Union has undergone a major reduction in banking regulation. This paper investigates whether this deregulatory process was associated with increasing similarity, or convergence, of banking industries across the European Union. It reports that the deregulation at the national level and the opening of banking markets to international competition led to convergence, or greater similarity, of the banking industries’ main indicators of bank profitability or earning patterns, but not necessarily their asset-liability management practices. Overall, the deregulatory process appears to explain most of the changes that occurred in the dispersion of banking structure across the European Union.

(JEL: G21, G28, E44)

Ariane Breitfelder, Udo Broll and Kit Pong Wong:
Wages, Employment and Futures Markets (pp. 118–123)


This paper places the competitive firm under output price uncertainty in a standard efficiency wage model, wherein the work effort of labor depends on the wage rate set by the firm. Irrespective of the availability of a commodity futures market, we show that the Solow condition holds in that the equilibrium effort-wage elasticity is unity. The optimal wage rate is preference-free and independent of the underlying output price uncertainty under the efficiency wage hypothesis. Furthermore, we show that the introduction of the commodity futures market induces the firm to hire more labor and thereby produce more output if the firm is sufficiently risk averse.

(JEL: D21, J31)

Finnish Economic Papers 2/2008