Pietro Vertova

The Deterrent Effects of Prison: Evidence from a Natural Experiment

The Collective Clemency Bill passed by the Italian Parliament in July 2006 represents a natural experiment to analyze the behavioral response of individuals to an exogenous manipulation of prison sentences. On the basis of a unique data set on the postrelease behavior of former inmates, we find that 1 month less time served in prison commuted into 1 month more in expected sentence for future crimes reduces the probability of recidivism by 0.16 percentage points. From this result we estimate an elasticity of average recidivism with respect to the expected punishment equal to −0.74 for a 7‐month period.

Public Investment and Economic Performance in Highly Indebted Poor Countries: An Empirical Assessment

Abstract Understanding how public investment affects economic performance in highly indebted low‐income countries is crucial in order to implement effective fiscal policies for adjustment with growth. In this paper we provide an empirical analysis to investigate the relationship between public investment, private investment and output. A dynamic econometric procedure is implemented on a selected group of Highly Indebted Poor Countries (HIPCs). Our results provide empirical support for the crowding‐in hypothesis and a positive relation between public investment and output.

On Foreign Debt Sustainability of Developing Countries: Towards a Long Run Approach for Development

The role of economic theory is to suggest models and indicators that allow in identifying when foreign debt of a developing country is sustainable and when it is “excessive.” The IMF and the World Bank define the external debt sustainability of a country as its ability to meet the current and future external debt service obligations in full, without recourse to debt rescheduling or accumulation of arrears. This concept of sustainability focuses on the behaviour of the borrower (the borrower’s willingness and ability to repay its debt “in full”) rather than on the behaviour of the lender (based on the lender’s liquidity and investment alternatives) and implies that countries receiving external debt relief are in a situation of “excess debt”. But when creditors have to decide for some debt relief measures, they need to establish, by a sustainability analysis, the sustainable debt level of the borrower. This reasoning is evidently circular and shows how the traditional notion of sustainability is arbitrary. This is due to the characteristics of the sovereign debt relationship (Epstein and Gintis, 1992). The aim of this paper is to redefine the concept of foreign debt sustainability. We propose a long run dynamic approach based on a flow analysis rather than a stock analysis. In this approach we try to solve the problem of arbitrariness existing in the traditional approach on foreign debt sustainability.

Technology and the environment in the history of the economic thought

This paper explores the way the man–nature relationship and the related environmental problems have been dealt along with the history of the economic thought. We discuss a number of different theoretical frameworks (classical, Marxian and neoclassical economics, Georgescu-Roegens approach and ecological economics) and organise the discussion around the following two crucial points: how the environment influences the economic activity and imposes constraints by means of the scarcity of natural resources; and how the human activity impacts the environment, according to the prevailing technology, and modifies the ecosystem. Throughout this examination, we stress from time to time the role technological progress is found to play according to the various paradigms analysed. Is technological progress always in contrast with environmental sustainability or it may be seen as a tool in the hands of the humankind to make development sustainable?

Behavioural Effects of Obligations

How formal rules affect human behaviour is a crucial issue in economics. Formal rules are defined as obligations backed by incentives. The economic literature has largely focused on the role of incentives in shaping individual behaviour, Yet, the role of obligations, i.e. what formal rules ask people to do or not to do, has been largely ignored. In this paper we run a public good game experiment to analyze the bahavioural effects of obligations. We find evidence that obligations can affect cooperative bahaviour both by coordinating conditional cooperators beliefs about others behaviour and by directly affecting preferences for cooperations. Our results shed a new light on the behavioural channels through which formal rules can affect individual behaviour. These findings suggest the opportunity to broaden the scope of analysis in order to again a better understanding of the effects of institutions on economic outcomes.

Labour Mobility, Capital-Skill Complementarity and the Redistributive Effects of Trade Integration

This paper addresses the role of mobility costs in shaping the effects of trade integration on wage inequality and welfare. We present a three-factor, two-sector model in which the production technology exhibits capital-skill complementarity and the cost of moving across sectors differs between unskilled and skilled workers. We consider a proportional tax on skilled workers’ wage that is used to finance a re-training program to reduce the mobility costs of unskilled workers. We show that if the training program is sufficiently effective, a positive tax rate can both reduce wage inequalities and reinforce the welfare-enhancing effects of trade integration. In addition we show that, even when the public programme entails some welfare losses, it can make trade integration Pareto superior with respect to autarky.