The measurement of entry rates: Recondiseration and resolution

This paper extends the recent analysis of Audretsch and Fritsch on entry rates, and suggests a resolution to the possible policy confusion which they discuss. British data also show very different results for the determinants of entry depending on whether the ecological or labour market entry rate is used. It is shown that, in addition to the static, size-distribution effect discussed by Audretsch and Fritsch, there are dynamic factors at work which may lead to this result. However, there need be no conflict in policy signals arising from this, because the labour market approach can be shown to be a superior measure of entry rates where spatial analysis is undertaken.     

Information processing for a finite resource allocation mechanism

Summary deal with an organization havingm individual agents (the agents) and one central agent or agency (the coordinator), and the problem of allocating a fixed supply ofn commodities among the agents. The coordinator wishes to distribute the commodities in such a way as to maximize an objective function whose arguments are functions known (implicitly) to the individual agents, but not to the coordinator. The more information the coordinator obtains about the individual agents' functions, the better the allocation decision he or she can make; however, gaining such information is costly, so that the coordinator must balance the potential gain against the cost of acquiring additional information. We find a satisficing solution to this problem which is computable and which terminates in a finite number of steps.We would like to thank Leo Hurwicz, Ken Matheny, Shailendra Mehta, Bill Novshek, Roy Radner, Stan Reiter, Vernon Smith, Mark Walker, and, especially, John Ledyard and Tom Marschak, for helpful comments and suggestions. We must, of course, however reluctantly, accept responsibility for any remaining defects.     

Some notes on trichotomous choice discrete valuation

For some respondents, the bid offered by the dichotomous choice format used in the discrete choice technique can in fact be the true optimum. In this case the correct answer is neither yes or no, but indifferent. We shall show results from a trichotomous choice format and analyse whether it produces welfare measures with narrower confidence intervals than the dichotomous technique. Another well known problem in contingent valuation (CV) studies is that the volume of the good to be purchased from hypothetical markets is not, in many cases, defined in precise terms. We show how the trichotomous choice technique can be used to test for possible vagueness in the volume of the project to be valued.     

The Regulation of Private Schools Serving Low-Income Families in Andhra Pradesh,India

This paper sets out some findings of a research project carried out in private unaided schools in low-income areas of Hyderabad, India. The part of the research project documented here was designed to examine the question: Is the regulatory regime conducive to entrepreneurial action and market discovery with particular reference to the low-income schools in Hyderabad. This paper is narrowly focused, setting out the results of pattern matching empirical data with the Austrian economic concepts of entrepreneurship, rivalry, and market discovery. The research discovered that two regulatory regimes exist, one that is set out on paper in the Education Acts and associated rules, and another that operates in practice. That is, there is a combination of regulations on paper and regulations existing in an extra-legal sector. Generally it was found that the regulations in practice are consistent with market principles. Conversely the regulations set out on paper are not conducive to entrepreneurial innovation and market discovery. Recommendations for potential policy initiatives include the possibility of legitimising the extra-legal sector by introducing self-regulation possibly via self-evaluation systems for the private unaided schools.     

Biological Adaptation in Human Societies: a ‘Basic Needs’ Approach

The groundzero premise (so to speak) of the biological sciences is that survival and reproduction is the basic, continuing, inescapable problem for all living organisms; life is at bottom a survival enterprise. It follows that survival is the paradigmatic problem for human societies as well; it is a prerequisite for any other, more exalted objectives. Although the term adaptation is also familiar to social scientists, until recently it has been used only selectively, and often very imprecisely. Here a more rigorous and systematic approach to the concept of adaptation is proposed in terms of basic needs. The concept of basic human needs has a venerable history – tracing back at least to Plato and Aristotle. Yet the development of a formal theory of basic needs has lagged far behind. The reason is that the concept of objective, measurable needs is inconsistent with the theoretical assumptions that have dominated economic and social theory for most of this century, namely, valuerelativism and cultural determinism. Nevertheless, there have been a number of efforts over the past 30 years to develop more universalistic criteria for basic needs, both for use in monitoring social wellbeing (social indicators) and for public policy formulation. Here I will advance a strictly biological approach to perationalizing the concept of basic needs. It is argued that much of our economic and social life (and the motivations behind our revealed preferences and subjective utility assessments), not to mention the actions of modern governments, are either directly or indirectly related to the meeting of our basic survival needs. Furthermore, these needs can be specified to a first approximation and supported empirically to varying degrees, with the obvious caveat that there are major individual and contextual variations in their application. Equally important, complex human societies generate an array of instrumental needs which, as the term implies, serve as intermediaries between our primary needs and the specific economic, cultural and political contexts within which these needs must be satisfied. An explicit framework of Survival Indicators, including a profile of Personal Fitness and an aggregate index of Population Fitness, is briefly elucidated. Finally, it is suggested that a basic needs paradigm could provide an analytical tool (a biologic) for examining more closely the relationship between our social, economic and political behaviors and institutions and their survival consequences, as well as providing a predictive tool of some value.     

From “tax state” to “debt state”

The paper is motivated by Joseph A. Schumpeter's The Crisis of the Tax State. It inquires whether the buildup of government debt in peacetimeprosperity is a threat to the stability, existence or creation of viable tax states. The paper begins by setting out Schumpeter's conception of the tax state and the nature of recent political-economic events which have reinvigorated the concept. Next the paper sets out some simple debt dynamics and sketches a debt-induced business cycle arising from heavy reliance on debt finance in peacetimeprosperity. Finally, the paper assesses threats to the tax state in light of recent work on path dependence and positive feedback. An attempt is made to throw some light on whether the plethora of new, and often small, states spawned by the demise of communism can be viable tax states.Essay on Government, the Tax State and Economic Dynamics submitted to the Third Schumpeter Prize Competition.     

Regulatory ‘Balancing’ and the Efficiency of Green R&D

We identify and analyse several dynamic implications of setting environmental standards such as to balance marginal costs and benefits. The adoption of such a regulatory approach is shown to effect (i) the speed of improvement of abatement technologies; (ii) the direction (in a sense to be defined) of that improvement; (iii) its source and the distribution of the rents from it; and (iv) the rate of development of defensive (averting) technologies. Existing views are thoroughly synthesised in the context of a simple diagrammatic model, several new results are derived and at least one conventional wisdom questioned. The message of the analysis for legislators and regulators is that cost–benefit balancing should be done with care.     

Institutional Evolution through Purposeful Selection: The Constitutional Economics of John R. Commons

The paper relates John. R. Commons view on the roleof human design in institutional evolution to the views thathave been advanced on this matter by F. A. Hayek, in German ordo-liberalism,and in constitutional political economy. It is argued that Commonsconcept of purposeful selection points in the direction ofa theoretical perspective that consistently integrates the notionsof institutional evolution and constitutional design.     

Giffen goods and market making

Summary. This paper shows that information effects per se are not responsible for the Giffen goods anomaly affecting traders demands in multi asset noisy, rational expectations equilibrium markets. The role that information plays in traders strategies also matters. In a market with risk averse, uninformed traders, informed agents have a dual trading motive: speculation and market making. The former entails using prices to assess the effect of error terms; the latter requires employing them to disentangle noise traders demands within aggregate orders. In a correlated environment this complicates the signal extraction problem and may generate upward sloping demand curves. Assuming (i) that competitive, risk neutral market makers price the assets or that (ii) uninformed traders risk tolerance coefficient grows unboundedly, removes the market making component from informed traders demands rendering them well behaved in prices.Received: 30 April 2002, Revised: 3 December 2003, JEL Classification Numbers: G100, G120, G140.Support from the Barcelona Economics Program of CREA and the Ente per gli Studi Monetari e Finanziari Luigi Einaudi, are gratefully acknowledged. I thank Anat Admati, Jordi Caballé, Giacinta Cestone, and Xavier Vives for useful suggestions. The comments provided by the Associate Editor and an anonymous referee greatly improved the papers exposition.     

Schumpeterian endogenous growth theory and evolutionary economics

In this paper, we aim to discuss whether Schumpeterian models of endogenous growth can accommodate Schumpeters vision of development through creative destruction. Taking a methodological approach, our focus is on individual decision-making, technology, general equilibrium and welfare, and steady state dynamics as the fundamental principles underlying endogenous growth theory. In particular, the Aghion-Howitt model of Schumpeterian growth in various extended versions is analyzed in the light of Schumpeters work. Therefore, we also try to root Schumpeters work in historical context. We find endogenous growth theory far from carrying Schumpeters idea of an evolutionary approach to change and development. Rather the emergence of numerous models of an evolutionary type can be observed to provide for the formal structure appropriate to keeping Schumpeters legacy alive.JEL Classification: B1, B2, B4, O3, O4Corespondence to: Thomas Kuhn     

Explaining Russia's Currency and Financial Crisis

The paper attempts to sketch a framework for understanding Russia's August 1998 financial and currency crises with reference to the main theories put forward so far. Our thesis is that, while not fitting easily into any pre-existing framework, the Russian crises shares many features of first-generation models inasmuch as it was largely due to inconsistencies among an overvalued peg, tight money, and an evident inability to address the fiscal deficit. In other terms, it derived from the incompatibility between standard IMF stabilisation policies and the difficulties that Russia was facing as a transition economy. On the other hand, by touching both currency markets and the banking sector, the Russian Episode shares also important features of the twin crises framework.The analysis considers the role of exchange rate movements and capital flows on Russia's rising vulnerability, fiscal problems and the building up of the public debt. It assesses the state of the Russian Banking sector and discusses the contagion effects of the Asian crisis and policy response. It shows how the core of the Russian crises lies in an unsound, IMF-backed, defence of the rouble, which in 1998 had become increasingly unsustainable.     

Conditional utility

Summary The motivation for this paper starts out with a decision situation under risk where the decision-maker has to choose among various lottery tickets. We will ask what happens to a person's lottery choice if he is given additional information in terms of probabilities on some states of nature which might affect his choice among lottery tickets. In other words, in evaluating his decision situation, a person should not only consider the probability of a certain prospect to be realized but also the problem how and to which extent some state(s) of nature modify the utility of this prospect. This problem has not been dealt with in Bernoullian utility theory.We state several conditions which are necessary and sufficient to treat conditional utility as Bernoullian utility. Then we show as a main result that it is possible to represent expected utility of decision acts (in Savage's terminology) by conditional expected utility of prospects which preserves well-known properties of expected utility with the exception of linearity.We give a potential application of the notion of conditional utility to the estimation of the value of information as a residual value of prior and posterior utility.     

Corporate Lobbying, Regulatory Conduct and the Porter Hypothesis

Michael Porter, the influential Harvard management guru, has promoted the idea that compliance with stricter environmental regulations can afford secondary benefits to firms through improved product design, innovation, corporate morale and in other ways. Once these secondary benefits are factored, the net cost of compliance is argued to be lower than conventionally thought and may even be negative. Whilst environmental economists have rejected the Porter Hypothesis as being based on excessively optimistic expectations of the likely size of such secondary benefits the underlying ideas do enjoy significant credence in the business community. In the context of a lobbying model of regulatory policy-making we argue that the EPA should change the way it conducts regulatory policy to take account of Porter's views – even if it knows those views to be misguided. The model serves to illustrate the more general point that fashions in management thinking can be expected to impact the optimal conduct of regulatory policy.     

Environmental market creation: saviour or oversell?

In recent years considerable attention has been paid to the notion of market creation for the conservation of environmental assets. Market creation establishes a market in the external benefit or cost in question (e.g. biodiversity or pollution reduction) and leaves the relevant parties to adjust their behaviour accordingly. While most attention has been paid to market creation through tradable permits and taxes (the polluter-pays), it is less easy to secure a perspective on beneficiary-pays initiatives. Both polluter-pays and beneficiary-pays initiatives are examples of modified Coaseian bargains in which governments intervene in the bargains to lower transactions costs, establish property rights, deal with public goods issues, or act on behalf of disadvantaged groups. This paper reviews four major initiatives in this respect - debt-for-nature swaps, bioprospecting and the Global Environment Facility at the global level, and the Costa Rican Forest Law at the local level. It finds that while there is much to applaud in initiatives in these new markets, serious questions remain about the modest flows of funds associated with such global bargains, and the extent to which they secure environmental improvements relative to the baseline of business-as-usual.JEL Classification: D49, D62, H41, O19, Q57, Q2I am indebted to members of the Wildlife Conservation Research Unit at Oxford University and to David Simpson of Resources for the Future and University College London for valuable comments on an earlier version of this paper. Any remaining mistakes are entirely my responsibility.     

Price-Cost Margins and Profit Rates in New Zealand Electricity Distribution Networks Since 1994: the Cost of Light Handed Regulation

From 1994 to 2003, New Zealands corporatized electricity lines networks operated with no industry regulator, but under the spotlight of mandatory information disclosure. As a result there exists a large body of detailed, audited and publicly available accounting data on the financial performance of these businesses. Using that data, this paper finds that price-cost margins have widened substantially since deregulation. We estimate the extent to which light-handed regulation has allowed profits to exceed the levels which would have been acceptable under the old rate-of-return regulatory framework, and find that the answer is about $200 million per year, on an ongoing basis.We thank colleagues at Victoria University, and two anonymous referees for this journal, for constructive comments on this paper. Any remaining errors are entirely our responsibility.JEL classification: D21; K23; L11; L43; L51     

Natural resource accounting

There is as yet no consensus on the most appropriate way to incorporate the degradation of environmental capital into national income accounting procedure. Net product is currently derived by deducting from gross product the depreciation of man-made capital only. Deducting depreciation of natural capital in a similar manner will give a figure for true net product that provides a better indicator of that level of current income which is sustainable into the future. The user cost and net price methods of calculating the value of natural resource depreciation are analysed and assessed. On the basis of this assessment, the net price method is then used to adjust the national accounts of Zimbabwe for depletion of forests, soils and mineral resources, for the period 1980 to 1989. The results suggest that economic depreciation of natural resources represents approximately 2% of annual GDP, although this is regarded as a significant underestimate. The implications for integrating natural resource depletion into policy making, within the current national political climate, are then addressed.     

Qualifications,discrimination, or assimilation? An extended framework for analysing immigrant wage gaps

In this paper, we analyze immigrant wage gaps and propose an extension of the traditional wage decomposition technique, which is a synthesis from two strains of literature on ethnic/immigrant wage differences, namely the assimilation literature and the discrimination literature. We estimate separate wage equations for natives and a number of immigrant groups using panel data sample selection models. Based on the estimations, we find that the immigrant wage gap is caused by a lack of qualifications and incomplete assimilation, and that a large fraction of that gap would disappear if only immigrants could find employment and thus accumulate work experience.First version received: June 2001 / Final version received: October 2003The project has been supported financially by the Danish Research Agency (the FREJA grant) and TSER. Furthermore, the first author received support from the Danish Social Science Research Council (SSF) while this work was undertaken. We are grateful for comments from the editor of Empirical Economics, Bernd Fitzenberger, two anonymous referees, several seminar and conference participants, and for the research assistance done by Thomas H. Jensen.     

The Economic Logic for Conditioning Bell Entry into Long Distance on the Prior Opening of Local Markets

One of the most important and most contentious issues for regulation and competition raised by the 1996 Telecommunications Act is when to authorize the regional Bell companies to offer long-distance services. The Department of Justice (DOJ) adopted a standard requiring that a Bells local market must first be irreversibly open to competition. This paper analyzes the competitive benefits and costs of authorizing Bell entry, explains the DOJs standard, and argues that the incentives created by this standard will help achieve the Acts competitive goals more efficiently and rapidly than other standards, ultimately reducing the need for intrusive regulation.     

A Survey and a Theoretical Model of Distance Education Programs

In search of a distance education programs crucial success factors, this research was conducted through a designed survey and evaluation instrument, for a predominantly doctoral program at DE University (DEU, an adopted name). Also, the survey has identified some challenging factors along with students most crucial reasons for adopting distance education programs. The author has presented a Testable theoretical model of distance education programs. The top four success factors were revealed to be program quality, general recognition and academic integrity, students satisfaction, and students progress toward the ultimate goal of graduation. Lack of time and worries about the degree recognition by prospective academic and nonacademic employers were the most crucial challenging factors.The 57th International Atlantic Economic Conference Lisbon, Portugal, March 10–14. This research is appreciably funded by a research grant from Walden University.