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.     

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.     

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.     

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.     

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.     

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     

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.     

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.     

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.     

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.     

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.     

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.     

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.     

Shiftable Externalities: A Market Solution

In this paper we propose a regulatory scheme for what has become known as shiftable externalities (Not In My Backyard type garbage location problemswhere the externality is characterized by the absence of jointness in supply).The scheme facilitates the establishment of a market for the externality, and it isfeasible for a wider class of regulation problems and more information efficientthan the other regulatory schemes that have been proposed for this type ofexternality. Finally, we show that it is possible to decentralize the participationdecision so as to take account of verification costs.     

Optimal Regulation of Private Production Contracts with Environmental Externalities

We address the problem of optimal regulation of an industry where the production of a polluting output is contracted with independent agents. The provision of inputs is divided between the principal and the agent such that the production externality results from their joint actions. The main result shows that in the three-tier hierarchy (regulator-firm-agent) involving a double-sided moral hazard, the equivalence across regulatory schemes generally obtains. The only task for the regulator is to determine the optimal total fiscal revenue in each state of nature because any sharing of the regulatory burden between the firm and the agent generates the same solution. The equivalence principle is upset only when the effects of regulation on the endogenous organizational choices are explicitly taken into account.JEL Classification: D82, H23, Q50We thank Bob Chambers, Emma Hutchinson, David Martimort and Katleen Segerson as well as the participants of the 2nd World Congress of Environmental and Resource Economists, Monterey, 2002; the 2nd Annual Workshop on the Economics of Contracts in Agriculture, Annapolis, 2002; and the 1st CIRANO-IDEI-LEERNA conference on Regulation, Liability and the Management of Major Industrial Environmental Risks in Toulouse, 2003 for their comments on previous versions of the paper. Support from the French Ministry of Ecology and Sustainable Development is gratefully acknowledged.     

Tax Interaction Effects,Environmental Regulation,and “Rule of Thumb” Adjustments to Social Cost

Preexisting distortions in factor markets complicate the estimation of the social welfare effects of regulatory interventions. The existence of these tax interaction effects (TIEs) suggests that general equilibrium (GE) approaches should be used to evaluate regulatory policies. However, formal GE analysis is not always feasible for the numerous environmental regulations proposed by federal, state, and local agencies. The question addressed in this paper is whether an empirically based rule of thumb upward adjustment factor is appropriate to properly scale social cost estimates in environmental policy. We argue that such rule of thumb adjustments are significantly less reliable than estimates based on a detailed general equilibrium analysis because of the uncertainty about both the magnitude and sign of the social cost distortion. In addition to addressing this question, the paper gives an overview of TIEs and their relevance to environmental policy.     

Information Cascades in the Labor Market

A model of herding behavior in the labor market is presented where employers receive signals with limited precision about the workers types, and can observe previous employers decisions. Both the employer and the worker can influence the signal probabilities. In particular, the employer tries to increase the precision of the signal about the workers type whereas the worker wants to get a good signal, independent of her type. In a two-period model, we derive conditions for an equilibrium in which only down-cascades occur, i.e., the second employer does not hire a worker with a bad history even if he receives a favorable private signal about the workers type, but he follows his own signal if the workers history is good.     

Default Service Auctions

In February 2002, New Jersey completed a market process whereby the utilities were able to purchase one-year forward contracts to ensure energy needs for their default service customers for a one-year period. The auction was the first application of the simultaneous descending clock auction to power procurement. We chose this auction format to fit the specific needs of the New Jersey Electric Discount and Energy Competition Act and the New Jersey Board of Public Utilities mandate for a competitive bidding process to procure the electricity to meet the electric utilities default service obligations.     

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     

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.