KEA RESEARCH

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

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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 to assess 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 show that 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 and show that the distortions of fake reviews are serious. Third, we compare the simple average and weighted average aggregation methods. Weighted average method is better than simple average in finding the quality of hotels but it is more vulnerable to fake reviews. Fourth, we suggest excluding low-quality reviews to deal with fake reviews and show that the benefit of avoiding serious distortions from potentially fake reviews is greater than the cost of losing information 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 structure in which each upstream firm trades with an exclusive retailer and downstream retailers move 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 (equal to its marginal cost), while the follower’s upstream firm sets the input price below its marginal cost (above its marginal cost). The other is that the follower’s (leader’s) upstream firm 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 this paper, we introduce an analogue of the evolutionarily stable strategy (ESS) for correlated equilibria. We introduce a new concept―the evolutionarily stable correlation (ESC)―and prove that it generalizes the ESS. We also study analogues of perfection and properness for correlated equilibria and discuss their relationships with the ESC.

KOREAN ECONOMIC FORUM

Israeli Concentration Law’s Implications for the Chaebol Reform of Korea

Sangin Park (Seoul National University)

Year 2017 / Vol 10 / No 3

The paper analyzes the Law for the Promotion of Competition and Reduction of Economic Concentration (“Concentration Law”) of Israel enacted in December 2013, and discusses its applications to the top 10 Chaebols of Korea. In the applications, this paper takes account of differences in the ownership structure of large business groups between these two countries, which reflect different histories of formation of business groups and government regulations. The diferrences are most evident in the regulations on the holding company system and the existence of circular shareholdings (indirect cross-shareholdings). The simulation, which modifies some details of the Concentration Law in the Korean context, indicates a possible trade-off between resolving overdiversification and facilitating conversion into the holding company system. More detailed studies are invited to find out an optimal policy mix to resolve the concentration of economic power by the Korean Chaebols.

Transfiguration of Liberal Ideology and Liberty-Prosperity Relation

Daehong T. Jaang (Hallim University)

Year 2017 / Vol 10 / No 3

Liberal philosophy to this day has evolved into three distinct, often contradicting, ideologies, namely, liberalism, libertarianism, and conservatism. Originally, liberalism, now referred to as classical liberalism, traces back to the notion of personal sphere which should not be viloated by any socio-political intervention, which in turn was based on the concept of god-given or natural right. Differences among these competing ideologies are manifested by the degree of intervention or by the political disposition of ruling government, most vividly in the level of economic freedom and in the economic performance of a nation. Empirical analysis in this paper clearly indicates that economic performance is strongly influenced by such factors like the level of economic freedom, the historical experiences or the tradion espoused by original liberalism, while, on the other hand, negatively affected by the ideological disposition to restrict them.

Efficient Management of Non-tax Revenue

Deockhyun Ryu (Chung-Ang University), Jin-Yeong Kim (Konkook University), Jin Park (KDI School of Public Policy and Management), Heonjae Song (University of Seoul), Youngmin Oh (Korea Institute of Public Finance) and Jin Wook Choi (Korea University)

Year 2017 / Vol 10 / No 3

It is time to efficiently manage non-tax revenue, which means the government’s repeated revenues, excluding the national and local taxes. From 2010 to 2015, Korea’s non-tax revenue growth rate is 3.6%, which is less than the nominal GDP growth rate during the same period (4.3%). It is also less than the growth rate of national tax and domestic tax. The insufficient level of non-tax revenue may cause lack of government revenue, an instable budget formation, and raise equity and legal issues from not collecting non-tax revenue appropriately. The lack of non-tax revenue is attributable to the both of the collectors and the payer. To tackle down this problem, we suggest to reform the several aspects of the system, i.e., management system, motivation of collecting non-tax revenue, capacity of collecting agency, information asymmetry, and proper level of non-tax revenue rate. In this study, we suggest that a relevant law and regulation system be legally established and an integrated management system management system also be founded. We also suggest to introduce a solid evaluation system of non-tax revenue.