Cuneyt Orman

Organization of Innovation and Capital Markets

This paper develops a theory of the firm scope where not only research but also ordinary production employees can generate inventions. Separating research from production (“specialization”) solves the two-tier agency problem of inducing simultaneously research effort and managerial truthful-reporting but is costly when capital markets are imperfect. Improvements in capital markets, therefore, promote specialization, allowing a greater number of specialized firms to be established and also enabling them to undertake innovative projects with larger potential outcomes. Moreover, this capital market improvement effect is stronger for innovative activities that are less capital-intensive and that have weaker synergies with existing production activities. The model can help us understand the explosion of small company innovation in the U.S. since late 1970s and the contribution of venture capital to this change.

Religion, Income Inequality, and the Size of the Government

Recent empirical research has demonstrated that countries with higher levels of religiosity are characterized by greater income inequality. We argue that this is due to the lower level of government services demanded in more religious countries. Religion requires that individuals make financial sacrifices and this leads the religious to prefer making their contributions voluntarily rather than through mandatory means. To the extent that citizen preferences are reflected in policy outcomes, religiosity results in lower taxes, which in turn implies lower levels of spending on both public goods and redistribution. Since measures of income typically do not fully take into account the part of income coming from donations received, this increases measured income inequality. We formalize these ideas in a general equilibrium political economy model and also show that the implications of our model are supported by cross-country data.

Sustaining Growth in Emerging Markets: The Role of Structural and Monetary Policies in Turkey

The last decade witnessed an unprecedented economic growth in Emerging Market Economies (EMEs). EMEs have also been the main drivers of growth in the recovery following the global financial crisis. Nevertheless, EMEs continue to face a number of institutional and structural challenges that may pose risks to the sustainability of their recent growth performance, with potentially significant repercussions for the world economy. In this paper, we present a detailed account of Turkey’s experience in dealing with various institutional and structural challenges during the last decade and provide evidence that taking the right steps can enable EMEs materialize their full growth potential going forward. Successful institutional and structural reforms can also provide room for monetary policymakers to effectively navigate their economies through turbulent times such as the recent global financial crisis.

Fines Versus Imprisonment for the Issuance of Bad Checks: Evidence from a Natural Experiment in Turkey

We investigate whether the February 2012 amendments to the Check Law in Turkey that replaced imprisonment with monetary and administrative fines for writing bad checks were a driver of the surge in the frequency of bad checks since late 2011. As the planned amendments were announced well in advance, check issuance behavior was potentially altered before the amendments officially took effect. To capture this, we use the cumulative volume of related keyword searches on the internet as a proxy for the legal change. We find that unlike the case during the global financial crisis, the surge in bad checks around 2012 cannot be explained by the changes in the economic environment unless the February 2012 legal change is also controlled for. We also show that the surge in the incidence of bad checks was not accompanied by an increase in their average value. Finally, we provide evidence that economic agents adapt fairly rapidly to the legal change by adjusting their screening and monitoring capacities, which helps to reverse the surge in bad checks within a year. Overall, our findings suggest that sanctions need not be harsh to deter wrongful behavior as long as appropriate infrastructures that will enable efficient behavioral adjustments are in place.

The Baby Boom, Baby Busts, and the Role of Grandmothers in Childcare

Studies in family economics and anthropology suggest that grandmothers are a highly valuable source of childcare assistance. As such, the availability of grandmothers affects the cost of having children, and hence the fertility decisions of young parents. In this paper, we develop a simple model to assess the fertility implications of the fluctuations in both output (as argued by demographers) and grandmother-availability induced child-care costs over the period of 1920-1970. The model does a good job of mimicking the bust-boom-bust pattern during this period. When the child-care cost channel is shut down, the model’s performance weakens significantly; in particular, it fails altogether to capture the bust in the 1960’s.Studies in family economics and anthropology suggest that grandmothers are a highly valuable source of childcare assistance. As such, availability of grandmothers affects the cost of having children, and hence fertility decisions of young parents. In this paper, we develop a simple model to assess the fertility implications of the fluctuations in both output (as argued by demographers) and grandmother-availability induced child-care costs over the period 1920-1970. Model does a good job of mimicking the bust-boom-bust pattern during this period. When the child-care cost channel is shut down, the model’s performance weakens significantly; in particular, it fails to capture the bust in the 1960’s altogether.

Sustaining growth in emerging markets: the role of structural and monetary policies: Achieving Economic Sustainability in CESEE Countries

This topical book addresses the need for emerging economies in Central, Eastern and South-Eastern Europe to find a new, sustainable growth model that fosters continued convergence with the EU without leading to the build-up of new vulnerabilities.