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.     

Mutually Destructive Bidding: The FCC Auction Design Problem

In general, synergies across license valuations complicate the auction design process. Theory suggests that a simple (i.e., non-combinatorial) auction will have difficulty in assigning licenses efficiently in such an environment. This difficulty increases with increases in fitting complexity. In some environments, bidding may become mutually destructive. Experiments indicate that a properly designed combinatorial auction is superior to a simple auction in terms of economic efficiency and revenue generation in bidding environments with a low amount of fitting complexity. Concerns that a combinatorial auction will cause a threshold problem are not borne out when bidders for small packages can communicate.     

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.     

On the generic nonconvergence of Bayesian actions and beliefs

Summary SupposeY _n is a sequence of i.i.d. random variables taking values in Y, a complete, separable, non-finite metric space. The probability law indexed by, is unknown to a Bayesian statistician with prior, observing this process. Generalizing Freedman [8], we show that generically (i.e., for a residual family of (,) pairs) the posterior beliefs do not weakly converge to a point-mass at the true. Furthermore, for every open setG , generically, the Bayesian will attach probability arbitrarily close to one toG infinitely often. The above result is applied to a two-armed bandit problem with geometric discounting where armk yields an outcome in a complete, separable metric spaceY _k. If the infimum of the possible rewards from playing armk is less than the infimum from playing armk', then armk is (generically) chosen only finitely often. If the infimum of the rewards are equal, then both arms are played infinitely often.     

EU Widening and Deepening – Are these goals reconcilable?

The paper examines the compatibility between widening the EU and deepening its integration endeavors, with special emphasis on eastward enlargement. After clarifying the broad nature of the accession negotiations under way, it sketches the most critical obstacles encountered in forging ahead with EU deepening, the problems posed by the ongoing restructuring of the accession candidates, and how deepening and widening necessarily interact. Before concluding with an aside on the relationship between the accession process and the EU's designs on assisting southeastern Europe, the paper briefly reviews where the negotiations stand in mid-2001 and elaborates on what may be in store for the enlargement process in the near term.The opinions expressed here are mine and do not necessarily reflect my employer's.     

The rational regulator's pricing response to enhanced opportunities to “bypass” the public telephone network

Various technological innovations make it profitable—given regulated service prices—for large business customers of local telephone companies to invest in private equipment and reduce their reliance on the public telephone network. Such bypass possibilities reduce demands and increase demand elasticities for regulated business services. The politics of state telephone regulation motivate two specifications of regulatory objectives—specifications designed to reveal positive implications of bypass for regulated prices. One views the regulator as practicing so-called residual pricing, and a generalization assumes that the regulator balances the interests of competing pressure groups. Implications for interpretation of political rhetoric and for future modeling are discussed.     

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.     

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.     

Are Uniform Solutions Focal? – The Case of International Environmental Agreements

The application of uniform solutions has several drawbacks, notably their lack of cost efficiency and their inability to guarantee individual rationality. A proper specification of uniform solutions, however, reveals that uniform solutions that satisfy individual rationality always exist. When all countries hold private information about their own reduction costs, there only exists one solution that always satisfies individually rationality without use of side payments and the requirement of dominant strategy implementation: The solution that selects the smallest individually preferred uniform reduction which also give a theoretical explanation of the lowest common denominator effect.     

Anonymous sequential games: Existence and characterization of equilibria

Summary In this paper we consider Anonymous Sequential Games with Aggregate Uncertainty. We prove existence of equilibrium when there is a general state space representing aggregate uncertainty. When the economy is stationary and the underlying process governing aggregate uncertainty Markov, we provide Markov representations of the equilibria.Table of notation Agents' characteristics space ( ) - A Action space of each agent (aA) - Y Y = x A - Aggregate distribution on agents' characteristics - (X) Space of probability measures onX - C(X) Space of continuous functions onX - _X Family of Borel sets ofX - State space of aggregate uncertainty ( ) - x _t=1 aggregate uncertainty for the infinite game - = (₁,₂,...,_t,...) - ^{t t} (₁, ₂,..., _t) - L₁(^t,C ×A),v _t Normed space of measurable functions from ^t toC( x A) - 8o(^t,( x A)) Space of measurable functions from ^tto( x A) - X^t X^t= x _s=1 ^t X - _X ^t Borel field onX ^t - v Distribution on - v_t Marginal distribution of v on ^t - v(^t)((¦^t)) Conditional distribution on given ^t - v^t(^s)(v_t(¦^s)) Conditional distribution on ^t given ^s (wheres) - _t Periodt distributional strategy - Distributional strategy for all periods =(₁,₂,...,_t,...) - _t Transition process for agents' types - ( _t,^t,y)(P _t+1(, _t , ^t ,y)) Transition function associated with _t - u _t Utility function - V _t (, a, , ^t) Value function for each collection (, a, , ^t ) - W _t (, , ^t ) Value function given optimal action a - C() Consistency correspondence. Distributions consistent with and characteristics transition functions - B() Best response correspondence (which also satisfy consistency) - E Set of equilibrium distributional strategies - x _t=1 ( ^t , (x A)) - S Expanded state space for Markov construction - (, a, ) Value function for Markov construction - P( _t ^* , _t y)(P(, _t ^* , _t , _y )) Invariant characteristics transition function for Markov game We wish to acknowledge very helpful conversations with C. d'Aspremont, B. Lipman, A. McLennan and J-F. Mertens. The financial support of the SSHRCC and the ARC at Queen's University is gratefully acknowledged. This paper was begun while the first author visited CORE. The financial support of CORE and the excellent research environment is gratefully acknowledged. The usual disclaimer applies.     

Learning for Innovation and the Skill Premium

The computer revolution took very long to pay off in productivity growth in the computer-using sectors. The relative wage of skilled workers, however, has risen sharply from the early days of the computer revolution onward. As skilled workers wages reflect their productivity, the two observations together pose a puzzle.This paper provides a micro-based explanation for the long diffusion period of the computer revolution. The general equilibrium model of growth zooms in on the research process and provides an explanation for sluggish growth with booming relative wages of the skilled. Technological progress in firms is driven by research aimed at improving the production technology (innovation) and by assimilation of ideas or principles present outside the firm (learning). A new General Purpose Technology (GPT) like the computer revolution generates an initial slowdown in economic growth and an increase in the skill premium.Acknowledgement I am indebted to Theo van de Klundert for suggestions and encouragement. Suggestions by Jan Boone, Bas Jacobs, Patrick Francois, Henri de Groot, Lex Meijdam, Niek Nahuis Sjak Smulders, Harald Uhlig and anonymous referees have contributed to the paper.     

Privatizing Monopolies in Developing Countries: The Real Effects of Exclusivity Periods in Telecommunications

Many developing countries have given newly privatized incumbent network utilities, especially telecommunications, exclusive rights to serve particular markets. Research to date has explored privatization, competition, and to a lesser extent, regulation. We know little, however, about the effects of the privatization transactions themselves and, in particular, how these exclusivity periods matter. I use original data to investigate this approach to privatization. I find that exclusivity periods are associated with significant increases in the firms sale price. Exclusivity periods are also, however, correlated with a significant decrease in the incumbents investment in the telecommunications network, payphones, mobile telephone penetration, and international calling.JEL Classification: L1, L5, L96, O12I am grateful for the thoughtful comments and suggestions of Luke Haggarty, Tom Hazlett, Phil Keefer, Roger Noll, Russ Pittman, Greg Rosston, David Sappington, Mary Shirley, Lixin Colin Xu, and two anonymous referees. I thank Troy Kravitz for research assistance. I am solely responsible for all mistakes.     

Prosecutorial Discretion at the EPA: Some Evidence on Litigation Strategy

This paper examines the determinants of the EPAs litigation strategy between 1977 and 1996 focusing on the tenure of Ann Gorsuch. Two hypotheses about this period are tested: (1) that changes in the EPAs litigation strategy were in fact an effort to reduce the expected penalty for violating environmental laws or (2) that the changes made in litigation strategy were consistent with efforts to reduce transaction cost. Contrary to previous research, I find no conclusive evidence of an overall shift toward business interests in EPA prosecutions. There is, however, clear evidence of shifts in the EPAs litigation strategy across administrations.     

Risk Aversion, Intergenerational Equity and Climate Change

The paper investigates a climate-economy model with an iso-elastic welfare function in which one parameter measures relative risk-aversion and a distinct parameter measures resistance to intertemporal substitution.We show both theoretically and numerically that climate policy responds differently to variations in the two parameters. In particular, we show that higher but lower leads to increase emissions control. We also argue that climate-economy models based on intertemporal expected utility maximization, i.e. models where = , may misinterpret the sensitivity of the climate policy to risk-aversion.     

Political and Regulatory Risk: Beta Sensitivity in U.K. Electricity Distribution*

To establish price caps, regulators must determine appropriate returns for utilities capital employed. This paper uses the techniques of the Kalman Filter to estimate daily betas for the U.K.s regional electricity companies in the period from privatization to end-1998. The paper demonstrates that utilities risk is time-variant, and establishes significant political and regulatory influences in the systematic risk faced by shareholders. It finds beta to be mean reverting, with little evidence of cyclical variation across the regulatory review cycle. The paper confirms the prevalence of significant excess returns in U.K. privatized electricity distribution and suggests that over-estimation of the systematic risk faced by investors may imply further excess returns in the next regulatory review period.     

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.     

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.     

Managerial risk reduction, incentives and firm value

Summary. Empirical evidence suggests that managers privately alter the risk in their compensation by trading in the financial markets. This paper analyzes the implications of the managers hedging ability on her optimal compensation scheme, incentives and firm value. I allow the manager to reduce her systematic risk exposure by trading the market portfolio. I find that the managers optimal hedge depends on the liquidity of the market. Due to imperfect liquidity, the managers optimal hedge is not complete. The equilibrium pay-performance sensitivity and hence the managers equilibrium incentives and the firm value increases in the liquidity of the market.Received: 24 November 2003, Revised: 22 September 2004, JEL Classification Numbers: G30, G32.I am grateful to a referee whose comments improved the paper. I would also like to thank Gerald Garvey and Li Jin for their helpful comments on an earlier draft.     

The joint exploitation of a productive asset: a game-theoretic approach

Summary In the present paper we explore the set of equilibria in a game-theoretic model in which players can jointly exploit a productive asset. As in repeated games, we find that under certain circumstances there may be efficient as well as inefficient equilibria. In the model we study, efficient trigger-strategy equilibria may exist from some starting states (stocks of assets) but not others. More precisely, there is a stock level, sayy, such that an efficient trigger-strategy equilibrium exists from starting stocks greater than or equal toy, but not from those strictly less thany. (This statement is meant to include the cases in whichy is zero or infinite.) Under some circumstances, there may exist a new kind of equilibrium, which we call aswitching equilibrium. We show that, in our model, whenever y is positive (and finite), there is an open intervalI with upper endpoint y such that, from any starting stock inI there is an equilibrium of the dynamic game with the following structure: the players follow an inefficient but growing path until the stock reaches the levely, and then follow an (efficient) trigger strategy after that. The use of a continuous-time model enables us to conveniently decouple the delay of information from the time interval between decisions.We thank the C. V. Starr Center at New York University for research support. The views expressed here are those of the authors, and not necessarily those of AT&T Bell Laboratories.