KEA RESEARCH

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The Korean Economic Association was launched in Pusan on November, 30, 1952.

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Thank you all for visiting the homepage of the Korean Economic Association (KEA).

KOREAN JOURNAL OF ECONOMIC STUDIES

The Effect of Child Care Subsidies on Labor Supply of Married Women

Jong-suk Han (Korea Institute of Public Finance), Youngjae Lee (Seoul National University) and Jay H. Hong (Seoul National University)

Year 2017 / Vol 65 / No 3

We build a life-cycle model with joint labor-supply decisions of married

households, and quantitatively analyze the impact of childcare subsidy policy

on married women labor supply. We consider two types of childcare subsidy

policies: the universal subsidy, subsidizing all married women, and the

conditional subsidy, subsidizing only married women at work. The model is

calibrated to match the 2011 subsidy policy - subsidizing only low-income

households with young children regardless of women’s employment status, and

the new policies are evaluated relative to the benchmark economy. Under

universal subsidy, the female employment rate and average productivity

increase 0.23% and 0.34% respectively, and under conditional subsidy,

0.73% and 0.42%, respectively. Thus, the increase in female labor supply is

driven by the quality improvement in universal subsidy, but the female labor

supply is enlarged by the quantity change in conditional subsidy.

The Macroeconomic Effects of Cuts of Family Business Inheritance Tax: Focusing on Medium and Large-sized Enterprises

Jung Joo La (Pi-Touch Institute)

Year 2017 / Vol 65 / No 3

This study analyzes the macroeconomic effects of cuts of family business

inheritance tax through endogenous managerial ability focusing on medium and

large-sized enterprises. Managerial ability of a descendant is a combination of

inherited talents from parents and improved ability through human capital

investments. Previous studies, however, depend only on the former. The

endogenous approach of managerial ability avoids underestimating the positive

impacts of the inheritance tax cuts. According to the empirical analysis based

on Korea’s data, capital, labor, production, physical investment, and wage

increase by 7.25%, 3.67%, 8.46%, 7.25%, and 4.61%, respectively, as

the inheritance tax rates decrease from 50% to 0%.

Study on the Optimal Investment Management of Fuel Cell Power Generator Considering Stochastic Process of Input and Output

Youngsik Nam (Korea University) and Heechan Kang (Incheon National University)

Year 2017 / Vol 65 / No 3

To deal with the climate change caused by global warming, the efforts to

reduce greenhouse gases have been continued in the world. In Korea,

Renewable Portfolio Standard has been implemented in the way for the

large-scale power plants to expand the use of renewable energy. This study

analyzes an economic feasibility of an investment on a fuel cell power plant

which is widely used as a distributed resource. Specifically, this study

constructs a real option model, where a stochastic process of electricity price

and liquefied natural gas price are explicitly considered. For the empirical

analysis, we collect the data on POSCO ENERGY, which is a representative

fuel cell power company in Korea. The paper also provides a sensitivity

analysis on the discount rate and the weight of Renewable Energy Certificate.

The result shows that, when the uncertainty associated with the operation of

fuel cell power plant is considered, the investment on power generator has an

economic feasibility under the conditional circumstance.

KOREAN ECONOMIC REVIEW

Information Quality of Online Reviews in the Presence of Potentially Fake Reviews

Wonho Song (Chung-Ang University), Sangkon Park (Korea Culture & Tourism Institute) and Doojin Ryu (Sungkyunkwan University)

Year 2017 / Vol 33 / No 1

Online reviews are important in the evaluation of product quality. This paper seeks toassess information quality of online reviews using the TripAdvisor data for Korean hotels.We first estimate the review model developed by Dai, Jin, Lee, and Luca (2012) and showthat high-quality reviews contain most of the information for the quality of hotels. Second,we assess the degree of distortions caused by fake reviews through numerical experiments andshow that the distortions of fake reviews are serious. Third, we compare the simple averageand weighted average aggregation methods. Weighted average method is better than simpleaverage in finding the quality of hotels but it is more vulnerable to fake reviews. Fourth, wesuggest excluding low-quality reviews to deal with fake reviews and show that the benefit ofavoiding serious distortions from potentially fake reviews is greater than the cost of losinginformation from low-quality reviews.

First-Mover and Second-Mover Advantages in a Bilateral Duopoly

DongJoon Lee (Nagoya University of Commerce and Business), Kangsik Choi (Pusan National University) and Kyuchan Hwang (Tokai Gakuen University)

Year 2017 / Vol 33 / No 1

This study examines a first-mover and a second-mover advantage in a vertical structurein which each upstream firm trades with an exclusive retailer and downstream retailersmove sequentially. We provide two main claims. One is that, in Cournot (Bertrand)competition, the leader’s upstream firm sets the input price equal to its marginal cost (equalto its marginal cost), while the follower’s upstream firm sets the input price below itsmarginal cost (above its marginal cost). The other is that the follower’s (leader’s) upstreamfirm enjoys higher profits than the leader’s (follower’s) upstream firm in Cournot (Bertrand)competition.

Evolutionarily Stable Correlation

Chongmin Kim (Kookmin University) and Kam-Chau Wong (Chinese University of Hong Kong)

Year 2017 / Vol 33 / No 1

Most results of evolutionary games are restricted only to the Nash equilibrium. In thispaper, we introduce an analogue of the evolutionarily stable strategy (ESS) for correlatedequilibria. We introduce a new concept―the evolutionarily stable correlation (ESC)―andprove that it generalizes the ESS. We also study analogues of perfection and properness forcorrelated equilibria and discuss their relationships with the ESC.

KOREAN ECONOMIC FORUM

The Korean Economy Beyond Condensed Industrialization: Tasks and the Keynote for Reform

Jaewan Bahk (Sungkyunkwan University)

Year 2017 / Vol 10 / No 2

The Korean economy has achieved remarkably compressed industrialization,vital social mobility, and decent economic equality during the last six decades.Such a success is mainly attributed to human resource development (particularlyin science, technology and engineering) and ‘technocratic dominance’ overpolitics in policy making. Recently, however, Korea’s growth potentials aresteadily weakening and social mobility is declining. Ironically, humancompetency and policy making with minimal political distortions, two key factorsto the past success, are now converted into roadblocks. Demographic dividendsare dissipating and human competencies are trailing behind technologicalprogress. Representative democracy is malfunctioning and government failuresare growing. Reforming or upgrading out-of-date institutions, regulations,practices, and organizational culture has fallen into arrears due topopulism-prone leadership. A sweeping structural reform for productivityimprovement is an inevitable path and a shortcut to boost both growth andequality. First, welfare, education, and labor market systems must be reformedto expand human resources and enhance human competency. Second, economicliberalization must be pursued to establish market-friendly systems, fosterinnovation, and reduce government intervention. For a successful reform, tworequisites are proposed: an advocacy leadership with moral suasion, and‘statecraft’ in strategic change management.

Directions for Korea’s Tax Reform and Major Policy Issues

Joosung Jun (Ewha Womans University)

Year 2017 / Vol 10 / No 2

This paper discusses general directions for tax reform in Korea and some focalpoints related to changing the current tax structure. In order to raise revenueand reduce efficiency costs, the size of the informal sector and tax evasion in theformal sector need to be reduced. Contrary to the popular belief, the distributivefunction of the income tax would be better served not by raising the top marginalrate but by reducing cash transactions by the rich self-employed as well as theextent of income shifting by company owners and managers who leave theirpersonal income within their company to exploit the rate gap between thepersonal and corporate income tax. Considering the immobile nature ofcorporate rents and the significant share of corporate taxes in the overallrevenue, this paper suggests, the statutory corporate rates need not to belowered hastily. In addition, overly generous tax subsidies toward small andmedium-sized companies need to be streamlined in ways to provide moresupport to start-ups and R&D activities.

Corporate Governance Reform in Korea

Changmin Lee (Hanyang University Business School)

Year 2017 / Vol 10 / No 2

This paper provides policy suggestions for corporate governance in Korea. Wefocus more on self-regulations than law and government regulations. First, weargue that the firm is not an individual, but a nexus of contract based on thetheory of a firm. Secondly, Korean business groups need to transit fromcomplicated ownership structure like a pyramid to pure holding companies andstop doing inside trading between affiliated firms within the same businessgroup. Thirdly, it is important for Korean business groups to activelycommunicate with institutional investors. Lastly, Korean business groups shouldreallocate the decision-making power among controlling shareholders,professional managers and boards of directors.