Measuring the trade-off between economic growth and a clean environment

This article surveys various aspects of the measurement of environmental quality from the view point of national accounting and welfare economics. It focuses on the question whether GNP or NNP should be corrected for environmental change (green or eco-GNP) or whether physical accounts provide sufficient information for an assessment of the trade-off mentioned above. We conclude that valuation of (services from) environmental capital cannot be avoided for such assessment, but can only be made using a model based approach. Statistical agencies should continue to collect data on environmental quality and to value changes in environmental capital in the context of national resource accounting. However, official statisticians should refrain from correcting GNP or NNP for environmental change, as this correction implicitly contains a political judgment and cannot be based on mere technical knowledge.     

Bid Design Effects in Multiple Bounded Discrete Choice Contingent Valuation

A potential concern in multiple bounded discrete choice contingent valuation surveys – where the respondent is asked to express voting certainty, rather than a simple yes or no, on a large number of payment amounts (bids) – is whether responses are influenced by the particular position of bids in the bid-voting panel rather than solely on the respondents willingness to pay (WTP). For instance, respondents may systematically state they would pay the first few bid amounts and not pay all subsequent bids – regardless of the actual dollar values. Such systematic bid design effects would suggest that this method does not provide a valid measure of WTP. Using a split-sample survey, we compare responses to three different bid arrays that have an identical minimum bid, maximum bid, and number of bids. Using nonparametric estimation techniques, we find that estimated WTP distributions and corresponding welfare measures are not statistically different across survey samples.     

Meta-Analytic Benefit Transfer of Outdoor Recreation Economic Values: Testing Out-of-Sample Convergent Validity

A benefit transfer approach to recreationeconomic valuation using meta-analysis isexamined. Since the meta- regression modeltakes into account some of the study specificeffects on willingness to pay (WTP) estimates,benefit transfer using meta-analysis couldyield a valid WTP estimate of unstudiedrecreation resources. The convergent validityof the meta-analytic benefit transfer is testedusing out-of-sample original studies from theU.S. The analyses are performed usingpercentage difference, paired t-test,regression and correlation tests. The testsreveal mixed results on convergence betweenestimated WTP using meta-analytic benefittransfer function (BTF) and out-of-sampleoriginal WTP values. There is a fairly highpercentage difference between the estimated andoriginal WTP values (80–88%), and the meandifferences are statistically significant asshown by paired t-tests. However, correlationand regression results consistently showsignificant positive relationships betweennational BTF estimated and original WTP valuesindicating some level of convergence. Theresults show that the national BTF outperformthe regional BTF indicating a potential of thenational BTF for recreation benefit transferwhen a first best primary valuation study isnot affordable.     

Individual Decision Making in a Negative Externality Experiment

The experimental treatments analysed in this paper are simple in that there is a unique Nash equilibrium resulting in each player having a dominant strategy. However, the data show quite clearly that subjects do not always choose this strategy. In fact, when this dominant strategy is not a focal outcome it does not even describe the average decision adequately. It is shown that average individual decisions are best described by a decision error model based on a censored distribution as opposed to the truncated regression model which is typically used in similar studies. Moreover it is shown that in the treatments where the dominant strategy is not focal dynamics are important with average subject decisions initially corresponding to the focal outcome and then adjusting towards the Nash prediction. Overall, 66.7% of subjects are consistent with Payoff Maximization, 27.8% are consistent with an alternate preference maximization and 5.6% are random.     

On the strategic inconsistency of the meta-rights approach

Among many attempts to circumvent Sen's impossibility result Gibbard's theory of alienable rights has attracted attention of many researchers. Basu's (1984) theorem essentially depends on a Nash-type equilibrium concept. In this paper we introduce an alternative behavioral assumption where individuals have conjectures about the responses of others and investigate the robustness of Basu's result under this new solution concept. We also examine a possibility of coalition formation and cooperation under the meta-rights approach.For helpful discussions I would like to thank Rajat Deb, Joseph Greenberg, and Shlomo Weber. I am also indebted to an anonymous referee of this Journal for many valuable comments.     

Convention, Social Order, and the Two Coordinations

The word coordination has two meanings, and thesemeanings are often conflated. One meaning, associated with ThomasSchelling, is seen in situations like choosing whether to driveon the left or the right; the drivers must coordinate to eachother's behavior. The other meaning, associated with FriedrichHayek, means that a concatenation of activities is arranged soas to produce good results. Along with the Schelling sense ofcoordination comes the notion of convention, such as drivingon the right. Some conventions are consciously designed; othersemerge without design (or are emergent). Along with the Hayeksense of coordination comes the notion of social order. Somesocial orders, such as the skeleton of activities within thefirm or within the hypothetical socialist economy, are consciouslyplanned. Other social orders, such as the catallaxy of the freesociety, function without central planning (or are spontaneous).Distinguishing between the two coordinations (and, in parallelfashion, between convention and social order) clarifies thinkingand resolves some confusions that have arisen in discussionsof coordination and spontaneous order. The key distinctionsare discussed in the context of the thought of, on the one hand,Menger, Schelling, David Lewis, and the recent path-dependencetheorists, and, on the other hand, Smith, Hayek, Polanyi, Coase,and the modern Austrian economists. The paper concludes witha typology that encompasses the several distinctions.     

A ‘Natural Experiment’ Approach to Contingent Valuation of Private and Public UV Health Risk Reduction Strategies in Low and High Risk Countries

We present the results of a natural experiment to test how variations in exogenous risk levels affect resultant willingness to pay (WTP) for risk reduction. The case study presented considers WTP for reductions in the skin cancer risks associated with exposure to solar UV radiation. A common design contingent valuation survey is conducted in four countries, across which variation in geographical latitude and genetic mix mean that exogenous risks differ substantially. Survey respondents were presented with both a private and public good route for affecting risk reduction. In both cases, results confirm that once adjustment had been made for expected relationships with other covariates (such as income and risk averting behaviour), valuation responses for both goods conformed to expectations with the ordering of values across countries reflecting the ordering of scientifically established health risks. This suggests that links between values and objective health risks may be observed within such situations and provides a justification for continuing research into more natural representations of risk and risk reductions in order to yield consistent and robust measures of associated values.     

Coase-Paradigma versus Pigou-Paradigma: Über Information und Motivation als Grundfragen dezentralisierter Umweltkontrolle

Ohne ZusammenfassungDiese Studie wird im Rahmen des Projekts Zur politischen Ökonomie des öffentlichen Wirtschaftssektors der Kommission für Sozial- und Wirtschaftswissenschaften der Österreichischen Akademie der Wissenschaften, Wien, erstellt. Zu danken habe ich für kritische Anregungen den Mitgliedern des Workshops der Nationalökonomischen Gesellschaft Wien, insbesondere Herrn Univ.-Ass. Dr. G. Winckler (Wien) und Herrn Univ. Prof. DDr. D. Bös (Wien) für wichtige Vorschläge hinsichtlich der Gesamtkonzeption der vorliegenden Abhandlung.     

The “Dorfman Steiner” rule

Conclusion When this research was started, it was guessed that the Dorfman-Steiner rule would lose its relevance in an intertemporal setting. This belief has turned out to be false: along the optimal paths ofp (t) ands (t), and must be equal. The only difference with the Dorfman-Steiner result is that they will be different from unity.The author is chargé de cours at the Faculté Universitaire Catholique de Mons (Belgium). He has greatyl benefited from comments by M. Beuthe and J. J. Lambin.     

Electoral Balancing in Federal and Sub-national Elections: The Case of Canada

The major premise of this study is that in federal countries voters can balance and moderate national policy by dividing electoral support between different parties in federal and sub-national elections. We compare the non-concurrent federal and provincial elections in Canada to assess the balancing properties of sub-national elections. The balancing hypothesis implies that the federal incumbent party may suffer additional electoral losses in provincial elections. We use several statistical tests - ordinary OLS, fixed effect and unbalanced random effect cross-section time series - to analyze Canadian electoral data for the period of 1949-1997. All tests sustain that the incumbent party at the federal level loses votes in provincial elections.     

Economic instruments for emission abatement under appreciable technological indivisibilities

The paper explores the performance of decentralized incentives when abatement involves technological indivisibilities. Technologically, pollution abatement is often carried out as a discrete process, if pollution reduction involves relatively large-scale investments in emission abatement equipment.Consequently, the firm's response to decentralized economic incentives for pollution abatement is affected by the indivisible property of the technology. It can be shown that in such cases efficiency may not be realized. Installing an abatement device may entail too much or too little investment compared with the eficient solution.To partially remedy this problem, an incentive scheme which incorporates a fine (penalty) on pollution-induced damages is proposed in this paper. Essentially, as in the case of the command and control approach, the mechanism imposes a fine when firms do not meet an aggregate (e.g., a bubble) emission level. The fine is set as a proportion of the polluting firm's share of the total excess damage inflicted when the standard has been violated. The paper explores alternative outcomes under this scheme in the framework of a non-cooperative game.The outcomes under command and control (uniform percentage reductions), taxes, pollution permits and the fine scheme are illustrated with data from the haifa area in northern Israel. They are compared with the social planner solution in terms of efficiency (achieving a given standard at minimum cost) and the volume of transfer cost.     

On economic disequilibrium and free lunch

There is a sharp disagreement between mainstream economists and advocates of energy efficiency as regards the potential for free lunches or no regrets policies to cut greenhouse gas emissions. From an economics perspective, the critical question is whether the economic system is — or is not — close to a Pareto-optimum equilibrium state. If so, it follows that most technological systems now in place are optimum, or nearly so, from an economic perspective. If not, there may be many sub-optimal technologies in place, with corresponding opportunities for very high returns on appropriate investments. This paper presents some of the evidence supporting the latter thesis.     

Ex ante versus interim rationality and the existence of bubbles

Summary Tirole (1982) is commonly interpreted as proving that bubbles are impossible with finitely many rational traders with common priors. We study a simple variation of his model in which bubbles can occur, even though traders have common priors and common knowledge that the asset has no fundamental value. In equilibrium, agents purchase the asset at successively higher prices until the bubble bursts and no subsequent trade occurs. Each trader's initial wealth determines the last date at which he could possibly trade. The date at which the bubble bursts is a function of these finite truncation dates for the individual traders. Since initial wealth is private information, no trader knows when the bubble will burst. There are two key differences between our model and Tirole's which enable us to construct equilibrium bubbles this way. First, Tirole requires ex ante optimality, while we only require every trader's strategy to be optimal conditional on his information — i.e., interim optimal. As we argue in the text, this would seem to be the relevant definition of optimality. Second, Tirole considers competitive equilibria, while we analyze a simple bargaining game.We thank Abhijit Banerjee, James Dow, Itzhak Gilboa, Debra Holt, Fallaw Sowell, Sanjay Srivastava, Stan Zin, seminar participants at Pennsylvania State University, Indian Statistical Institute at Calcutta, Carnegie Mellon, the University of Rochester, the University of Maryland, the London Business School, the University of British Columbia, and the Sixth World Congress, and Michael Woodford and an anonymous referee for helpful comments. Both authors were at Carnegie Mellon University when this research was begun. The second author also thank the Social Sciences and Humanities Research Council of Canada for financial support.     

Power,luck and the right index

Summary We have pointed out the theoretical drawbacks of the traditional indices for measuring a priori voting power inasmuch as they are implied in considering the coalition value a private good. This criticism caused us to view the coalition outcome as a public good. From this aspect and additional considerations with respect to power, luck, and decisiveness, we obtained a story describing the characteristics of an adequate measure of a priori voting power. These characteristics were found to be fulfilled by an index presented by Holler (1978). Through the above analysis this index has received its theoretical justification. An independent view of this index was then provided by means of an axiomatic characterization. This characterization makes possible abstract comparison of the index with previously established private good indices.While we have restricted our attention to simple games, the index presented can be generalized to provide a value on games in characteristic function form. We leave this topic for future conideration.     

A Learning Design for Reducing Hypothetical Bias in the Contingent Valuation Method

Over the last few years a great deal of research has focussed on hypothetical bias in value estimates obtained with the contingent valuation (CV) method and on means for ameliorating if not eliminating such bias. To date, efforts to eliminate hypothetical bias have relied on calibration techniques or on word-smithing of one kind or another to induce subjects to provide responses to hypothetical questions that mimic responses made by subjects facing actual payments in the valuation experiment. This paper introduces a different approach for eliminating hypothetical bias. A design for a CV survey format is presented which provides subjects with the opportunity to learn how the CV institution works. Sequential referenda are conducted where respondents gain experience in CV settings by participating in both hypothetical and real referenda. The logic of this Learning Design is a straightforward application of the trials process used in experimental economics. We demonstrate that the Learning Design is effective in eliminating hypothetical bias in surveys concerning donations to two different public goods.     

Bemerkungen zur Grenzproduktivitätstheorie

Ohne ZusammenfassungMit 6 TextabbildungenDieser Aufsatz wurde als Koreferat zum Referat von Dr. E. Matzner über Beiträge der Grenzproduktivitätstheorie zur Erklärung der Einkommensverteilung im November 1965 am Institut für höhere Studien und wissenschaftliche Forschung (Ford-Institut), Wien, im Rahmen eines Seminars über Verteilungstheorie von Prof. Dr. O. Morgenstern und DDr. H. Frisch gehalten.     

Hugging Trees: Claiming de Facto Property Rights by Blockading Resource Use

This paper explores conflicts between two groups,the industry and theenvironmentalists, over whether an indivisible resource (e.g., an ancient tree) should be harvested or preserved. In a complete information war ofattrition the environmentalists' willingness to blockade harvest attemptsmay control resource use as effectively as if they held property rights. Optimal government intervention will override this ability for somebenefit/cost combinations but may augment it for other combinations.Introducing uncertainty about the environmentalists' benefits results inextended disputes and consequent lack of efficiency. Governmentintervention for welfare reasons generally reduces these efficiencylosses.     

Maturity and volatility effects on UK smiles

The smile effect is a result of an empirical observation of the options implied volatility with the same expiration date, across different exercise prices. However, its shape has been under discussion seeming to be dependent on the option underlying security. In this paper, and filling up a scarce empirical research on the topic, we used liquid equity options on 9 stocks traded on the London International Financial Futures and Options Exchange (LIFFE) between August 1990 and December 1991. We tested two different hypothesis for testing two different phenomena: (1) the increase of the smile as maturity approaches; (2) and the association between the smile and the volatility of the underlying stock. In order to estimate implied volatilities for unavailable exercise prices, we modelled the smile using cubic B-spline curves. We found empirical support for the smile intensification (the U-shape is more pronounced) as maturity approaches as well as when volatility rises. However, we found two major sources of disagreement with the literature on stochastic volatility models. First, as maturity approaches, out-of-the-money options implied volatility tends to be higher than the implied volatility of in-the-money options. Second, as the volatility of the underlying asset increases, the implied volatility of in-the-money options tends to be higher than implied volatility of out-of-the-money options.Received: September 2001, Accepted: September 2003, JEL Classification: G13Correspondence to: João L. C. DuqueWe thank Professor Dean A. Paxson (University of Manchester), António Sousa Câmara (University of Strathclyde), Ser-Huang Poon (University of Lancaster) and the attendees of the 26th EFA Annual Conference for helpful comments on previous versions of this paper. We also want to thank to two anonymous referees for their relevant comments and suggestions. Financial support granted by the Fundação para a Ciência e a Tecnologia (FCT) and the Programa Praxis XXI is gratefully acknowledged.     

How many karats is gold: Welfare effects of easing a denomination standard

Most consumers benefit from a lowering of the required amount of aurous metal which jewellers must include in products sold as gold. However, profits of producers of gold-plated adornments fall. The net welfare effect depends on whether the principal difference between consumers is their appreciation of the gold content, or their valuation of designation gold or gold-plate.     

Vertical and Horizontal Trust Networks in Bureaucracies: Evidence from the Third Reich

In a seminal contribution to the literature on bureaucracy, Breton and Wintrobe (The Logic of Bureaucratic Conduct: An Economic Analysis of Competition, Exchange, and Efficiency in Private and Public Organization. New York, NY: Cambridge University Press, 1982) develop a model wherein subordinates and superiors in a bureaucratic structure trade with each other to advance the objectives of the superiors. The success of such an organizational arrangement (for superiors) is based upon the development of vertical trust networks in a way that facilitates the promise of informal payments by superiors in return for informal services provided by their subordinates. Breton and Wintrobe [Journal of Political Economy 94 (1986) 905] also provide a theoretical application of their model by describing the Nazi bureaucracy as a conglomeration of competing agencies that zealously carried out the Final Solution to the Jewish question. As an extension, this note develops two compelling empirical examples of vertical and horizontal trust networks within the Nazi regime: Einsatzgruppen As (Special Action Detachments) attempt to liquidate all Lithuanian Jews after the German invasion of the U.S.S.R. in 1941 and the 20 July 1944 attempt to assassinate Adolf Hitler.JEL Classification: D23, D73.