Stereotypes and Inequality: A ‘Signaling’ Theory of Identity Choice(Young Chul Kim·Glenn C. Loury)

We develop an identity choice model within the context of a stereotyping-cum-signaling framework. The model allows us to explore implications of the fact that, when individuals can choose identity, then the distribution of abilities within distinct identity groups becomes endogenous. This is significant because, when identity is exogenous and if the ability distributions within groups are the same, then inequality of group reputations in equilibrium can only arise if there is a positive feedback between group reputation and individual human capital investment activities (Arrow, 1973; Coate and Loury, 1993). Here we show that when group membership is endogenous then the logic of individuals’ identity choices leads there to be a positive selection of higher ability individuals into the group with a better reputation. This happens because those for whom human-capital-investment is less costly are also those who stand to gain more from joining the favored group. As a result, ability distributions within distinct groups can endogenously diverge, reinforcing incentive-feedbacks. We develop the theoretical framework that can examine the positive selection and the endogenous group formation. The model implies that inequality deriving from stereotyping of endogenously constructed social groups is at least as great as the inequality that can emerge between exogenously given groups.

Externality Cost of Capital Investment in Limited Commitment(Yili Chien·Junsang Lee)

We study externality costs of capital investment under limited commitment. We solve for the constrained efficient allocation with a limited commitment environment and find positive externality costs of capital investment provided that full-risk-sharing is not feasible. In a decentralized version of limited commitment environment, a one unit increase of capital investment by an agent increases all individuals’ autarky values in the economy and generates externality costs in the economy. This externality cost provides a rationale for positive capital taxation even in the absence of government expenditure. In order to internalize this costs, the government use a positive rate of linear capital tax in the decentralized economy.

Research Tournament and Competition Effect(Jungwook Kim)

This paper investigates the effect of competition on innovative activity. In the research contest, the foremost reason for limiting entry into tournaments is to raise the level of contestant’s effort and to make the rms compete so that high value of innovation will be procured. Thus, a sponsor (or government) needs to take account into effort-inducing effect as well as effort-reducing effect from competition when she restricts entry. In this paper, this competition effect will be analyzed for the model of procurement for innovation, and it is shown that the individual effort level is not monotonic to the number of contestants.

Consistency in the Basic Plan on Electricity Demand and Supply and Social Costs(LEE, Suil)

In Korea, energy policies are actualized through various energy-related plans. Recently, however, as high-ranking plans, which are very vision-oriented, continually set higher sector-by-sector goals, subordinate action plans, which require consistency, encounter distortions in their establishment process. Also, each subordinate action plan reveals limitations in terms of securing flexibility of the plan in responding to uncertainties of the future. These problems pose potential risks such as causing huge social costs. In this regard, with an aim to provide empirical evidence for discussions on improving the procedure for developing and executing Korea’s energy plans, this study mainly analyzes the Basic Plan on Electricity Demand and Supply―one of the most important subordinate action plans―in order to explain the problems of the Basic Plan in a logical manner, and potential problems that could occur in the process of sustaining consistency between the Basic Plan and its higher-ranking plans. Further, this paper estimates the scale of social costs caused by those problems assuming realistic conditions. According to the result, in the case of where maximum electric power is estimated to be 7% (15%) less than the actual amount in the Basic Plan on Electricity Demand and Supply, the annual generation cost will rise by 286 billion won and (1.2 trillion won) in 2020. Such social costs are found to occur even when establishing and executing the Basic plan according to the target goal set by its higher-ranking plan, the National Energy Master Plan. In addition, when another higher-ranking GHG reduction master plan requires the electricity sector to reduce emissions by additional 5% in the GHG emissions from the right mix in electricity generation with ‘zero’ cost of carbon emission, the annual generation cost will rise by approximately 915 billion won in 2020. On the other hand, the analysis finds that since economic feasibility of electric powers in Korea varies significantly depending on their type, Korea is expected to face very small potential social costs caused by uncertainties over the future price of carbon dioxide in the process of establishing the Basic Plan.

Economic Effects of Foreign Workers and Immigrants in Korea(Choi, Kyungsoo)

Inflow of foreign workers and immigrants increase the supply of unskilled labor in the economy. In measuring their impacts, an impact evaluation method produces unreliable estimates because a control group independent from their impacts is hardly found within the economy. This study adopts an aggregate factor proportions approach and measures the impacts by estimating the effects of skills proportion changes in labor supply on relative wages. The estimation uses two and three skills groups categorized by education levels. The study reveals that foreign workers and immigrants contribute to economic growth by a small margin while they significantly widen the wage gap between native skilled and unskilled workers. The result is based upon the fact that the existing foreign workers and immigrants are predominantly the least skilled groups. The estimates can be applied in predicting the impacts of labor inflow from North Korea which always remains as a possibility in Korea.

The Effect of Private Tutoring Expenditures on Academic Performance: Evidence from Middle School Students in South Korea(Changhui Kang)

This paper examines the effect of private tutoring expenditures on academic performance of middle school students in South Korea, using data from “Analysis of the Level of School Education and Its Actual condition: Middle School”. In the face of endogeneity of private tutoring expenditures, the paper employs an instrumental variable (IV) method and a nonparametric bounding method. Using both methods we show that the true effect of private tutoring on middle school students remains at most modest in Korea. The IV results suggest that a 10 percent increase in tutoring expenditure for Korean, English and math raises a student’s test score of the subject at the largest by 1.24, 1.28, and 0.75 percent, respectively. The bounding results also fail to show evidence that an increase in tutoring expenditure leads to economically and statistically significant improvements in test score.

Efficiency of the Emission Trading Scheme in Imperfectly Competitive Markets(Kyoung-soo Yoon)

This study examines the equilibrium investment on the pollution abatement when firms are facing Cournot competition in the output market while the pollution permit market is perfectly competitive. Unlike standard perfect competition scenario, the abatement investment delivers an indirect effect in which it reduces other firms' equilibrium output. Consequently, compared with the socially optimal level, overinvestment arises. I also overview the potential inefficiencies that imperfect market structure induces under the emission trading scheme, presenting policy implications.