A NOTE ON SELECTION EFFECTS OF THE HAND RULE

The famous Hand rule weighs the burden of precaution against the reduction in expected harm. The burden may be type‐specific, implying different standards of care for different injurer types. We show that this fact may be exploited by principals in their search for minimized individual costs. Principals may hire agents with high cost of care‐taking although other agents are available. This is shown in a unilateral‐care setting either with perfect or with asymmetric information. We therefore highlight a neglected downside of the negligence rule.     

Environmental Regulations Under Simple Negligence or Strict Liability

We use negligence and strict liability as the basis for environmentalregulations and show that, when jurisdictions compete for firms that engagein environmentally risky behaviour, strict liability implements the sociallyoptimal outcome while simple negligence does not, even if the jurisdictionsfully cooperate in setting standards of care. Consequently, we argue that,even if jurisdictions delegate standard setting to a central authority, likein the European Union, this would not implement the socially optimaloutcome. We also demonstrate that harmonization of environmental regulationsmakes more sense if strict liability is used rather than simple negligence.     

A Complete Characterization of Efficient Liability Rules: Comment

In a recent article, Jain and Singh (2002) prove that a condition they call negligence liability is necessary and sufficient for any liability rule to be efficient. In this note I criticize their result on two accounts: First, their result crucially depends on implicit restrictions they impose on the liability assignment function. If we drop the assumption that the liability apportionment between two non-negligent parties is constant for all combinations of non-negligent care levels, the equivalence between the condition of negligence liability and the efficiency of liability rules breaks down. Second, their attempt to drop the assumption of uniqueness for the social optimum improves the generality of the model at a substantial cost, since it must be accompanied by a new assumption that is possibly even more unrealistic. The importance of the uniqueness assumption is shown in a simple discrete care model, in which comparative negligence may lead to an inefficient outcome when the existence of two social optima leads us to interpret due care as a varying standard based on the other partys actual choice.     

Compensating for unforeseeable damages in torts

The doctrine regarding unforeseeable damages in a contract was established in the well known case of Hadley vs. Baxendale. According to the judgement, a plaintiff cannot be compensated for unforeseeable damages in an incomplete contract unless he informs the defendant of the possible unforeseen contingency beforehand. In this paper, I extend the argument to the tort case in which it is hardly possible to communicate between a plaintiff and a defendant before an accident occurs. In the case of the sequential bilateral accident in which the victim’s care level is observable to the injurer, the victim’s care level can be a signal of the unforeseen contingency. I mainly discuss the implementability of the social optimum by the contributory negligence with dual standard of care enabling the communication between the parties.     

Product liability and the virtues of asymmetric information

This paper analyzes a two-period setup in which firms differ with respect to costs of care and may use care-taking to signal type to consumers, who are able to observe precaution taken only ex post. Applying the refinement of the intuitive criterion to the concept of the perfect Bayesian equilibrium, we establish a unique separating equilibrium for every share of harm borne by firms. For low levels of victim compensation, we show that (i) firms choose weakly higher care in a setting in which customers do not know the firms’ type than in a setting in which they do, and (ii) the deviation in precaution taken due to asymmetric information on firm type is welfare-improving.     

The power of incrementalism: environmental regulation and technological change in pulp and paper bleaching in the US

This article explores environmental regulation as a driver of technological change through a case study ofthe US pulp and paper industry. It analyses two sets of variables that influence the pace and direction of environmentally oriented technological change: industry structure and regulatory design. As would be expecded from a mature productive unit, when confronted with environmental challenges, the US pull, and paper industry demonstrates a strong preference for incremental technological change. The case suggests that the traditional approaches to standard-setting in the US have not challenged this preference. For the pulp and paper industry, there is considerable uncertainty regarding the strategic advantages of alternative technologies, due to uncertainly in further environmental regulation and the relatively small difference in cost between incremental and radical innovations for may mills. This case suggests that an alternative approach for promoting the diffusion of environmental enhancing radical innovations in mature productive units is to long-term goals for environmental improvement.     

The power of incrementalism: environmental regulation and technological change in pulp and paper bleaching in the US

This article explores environmental regulation as a driver of technological change through a case study ofthe US pulp and paper industry. It analyses two sets of variables that influence the pace and direction of environmentally oriented technological change: industry structure and regulatory design. As would be expecded from a mature productive unit, when confronted with environmental challenges, the US pull, and paper industry demonstrates a strong preference for incremental technological change. The case suggests that the traditional approaches to standard-setting in the US have not challenged this preference. For the pulp and paper industry, there is considerable uncertainty regarding the strategic advantages of alternative technologies, due to uncertainly in further environmental regulation and the relatively small difference in cost between incremental and radical innovations for may mills. This case suggests that an alternative approach for promoting the diffusion of environmental enhancing radical innovations in mature productive units is to long-term goals for environmental improvement.     

Preponderance of evidence

This paper investigates the incentive properties of the standard of proof for a finding of negligence when evidence about injurers’ behavior is imperfect. We show that a “more-likely-than-not” decision rule provides maximal incentives for potential tort-feasors to exert care. An injurer is then held liable whenever inadequate care appears more likely than due care, and not liable otherwise. Our analysis provides a deterrence rationale for the exclusionary rules of evidence found in common law and the preponderance of evidence standard of proof.     

Failures and Coping Strategies in Indigenous Technology Capability Process

This paper reports on a theory building effort aimed at understanding persistent difficulties with efforts at developing plant-level indigenous technology in a developing country. The firms, having obtained the technology from a donor firm or a laboratory find that implementation and adaptation issues are difficult due to tacit technology knowledge and lack of technical or managerial or market-related systems and experiences. These lead to technological failures referring to situations where serious deviations from expected opportunities and outcomes occur. The failures include loss of entry opportunities, or rejection of technology by the market, or failure at improving processes. With insights offered from 92 organizations in India we identify the different technological failures that occur and ways used to overcome these problems. Exploratory results suggest four major technological failures. (1) Failure due to inappropriate choice of technology leading to longer-than-expected time for establishing production, or inefficient production process, and/or market losses due to poor image of the poorly calibrated product. (2) Failure due to inadequate planning and support for innovation occurs when firms do not invest sufficiently in plant level data collection and analysis, thus missing important avenues for incremental innovation. (3) Failures due to inappropriate processes reveal how short-term orientation and low integration amongst different functional groups thwart the firm’s adaptive and innovative abilities. (4) Finally, failure due to product‐market mismatch and inadequate market survey occurs when market desired features are not maintained, or the incorporated changes are not cost effective. The coping strategies adopted by the firms are also discussed.     

How justified is abandoning money in the conduct of monetary policy in Australia on the grounds of instability in the money‐demand function?

The role of money in the design and conduct of monetary policy has reemerged as an important issue in both advanced and developing economies, especially since the 2007 global financial crisis. A growing body of recent literature suggests that the causal relationship between money supply growth and inflation remains intact across countries and over time and that this relation is not conditional on the stability of the money‐demand function or whether money is endogenous or exogenous. Moreover, critical for a rule‐based monetary policy is the presence of a long‐run stable money‐demand function, rather than a short‐run money‐demand model that may exhibit instability for many reasons, including problems with estimating a money‐demand model with high‐frequency data. Provided that a stable money‐demand function exists, it could be useful to establish long‐run equilibrium relations among money, output, prices, and exchange rates, as the classical monetary theory suggests. Within this analytical framework, this paper addresses the question of whether money has any role in the conduct of monetary policy in Australia. The conventional wisdom is that the money‐demand function in Australia has been unstable since the mid‐1980s due to financial deregulation and reforms; this led to a change in the strategy of monetary policy for price stability in the form of inflation targeting that ignores money insofar as inflation and its control are concerned. This paper reports empirical findings for Australia, obtained from a longer quarterly data series over the period 1960Q1–2015Q1, which suggest that instability in the narrow‐money‐demand function in Australia was primarily due to the exclusion of variables which have become important in the deregulated environment since the 1980s. These findings are confirmed by an expanded form of the narrow‐money‐demand function that was found stable over the past two decades, although it experienced multiple structural breaks over the study period. The paper draws the conclusion that abandoning the monetary aggregate as an instrument of monetary policy in Australia, under a rule‐based monetary policy such as inflation targeting, cannot be justified by instability in the money‐demand function or even by lack of a causal link between money supply growth and inflation.     

Environmental Liability Law and Induced Technical Change – The Role of Discounting

We analyse the incentives of environmental liability law for inducing progress to emission abatement technology. We consider three liability rules: strict liability, a negligence rule with an emission norm as the due care standard, and a double negligence rule which combines the emission standard with an abatement technology norm. In the case of distortive discounting, i.e. where the private discount rate deviates from the social one, we show, how the level of distortion influences the ranking of liability rules, according to the criterion of generated social cost.     

Should monetary policy lean against the wind? Simulations based on a DSGE model with an occasionally binding credit constraint

In this research paper, we extend the model constructed by Gambacorta and Signoretti (2014) by introducing an occasionally binding credit constraint based on a penalty function approach in line with Brzoza-Brzezina, Kolasa, and Makarski (2015) to study the performance of the Taylor rule augmented with asset prices. First, we compare the properties of the baseline model and its modified version. Then, we use both models to study the performance of the basic and extended Taylor rule. The performance of Taylor rules is examined under the optimisation of a central bank's loss function and the welfare maximisation of economic agents. The analysis delivers the following results. The model with an occasionally binding credit constraint has more favourable properties regarding the hump-shaped and asymmetric impulse responses compared to an eternally binding credit constraint model. The best rule regarding the lowest value of the central banks' loss function proves to be the rule augmented with asset prices. The optimal reactions are, however, shock- and model-dependent, and therefore, any rule-like behaviour does not seem to be appropriate. The welfare maximisation under the occasionally binding credit constraint model reveals that reacting to asset prices might not be welfare-improving for both types of economic agents – households and entrepreneurs. This result is in contradiction with the implications achieved under the eternally binding credit constraint model.     

Resource Management and the Mayor's Guarantee in French Water Allocation

This paper uses standard methods in stochastic calculus tomeasure the cost of the agency conflict that pits electedofficials of French municipalities against the communities theyrepresent in the management of the water supply. Under the Frenchlegal code, the municipalities are responsible for the watersupply and the elected officials are personally liable for anydamage due to negligence on their part. Uncertainty regardingexactly how negligence will be defined by the courts puts theelected officials in a precarious position. By delegatingauthority to an oligopoly of private firms, however, electedofficials can eliminate their personal liability, which istransferred to the delegated firm. Many studies argue thatdelegation locks communities into long-term contracts that areagainst their better interests. Thus, the agency conflict mayaffect the delegation decision to the detriment of the community.To determine whether or not this is true it is necessary to knowthe economic cost of the mayor's personal liability.     

Public regulation of private accident risk: The moral hazard of technological improvements

This paper discusses individual agents' incentives to take precautions to prevent accidents when the prevention technology facing the agents is changed due to regulation. It is shown that private prevention activities vary greatly with different attitudes towards risk. This is a great potential problem for the implementation of several types of legal regulation of individuals' precautionary level, like negligence rules. In this case, regulators need to observe the true preferences of the regulated agents to implement the optimal program. One novel feature of the present analysis is that only simple properties of the prevention technology need to be known to identify potential incentive problems, regardless of the underlying preferences.     

On and Off the Liability Bandwagon: Explaining State Adoptions of Strict Liability in Hazardous Waste Programs

We test a model of states' adoption of the hazardous waste liability regime (negligence, strict liability) providing greater net benefits. The likelihood of adopting strict liability increases in a state's number of chemical-intensive manufacturing plants, decreases in the number of large mining establishments. Also predictive: severity of state's hazardous waste problem, effectiveness of other state environmental programs, and political climate. States may view strict liability as better for industrial than mining pollution, and may be partly motivated by "precaution targeting" and "deep pockets" mentality. Non-adopters may wish not to discourage business or have other programs that substitute for strict liability.     

Ambiguity and Accident Law

Environmental accidents often involve ambiguous risks, i.e., the relevant probabilities are unknown. This paper studies how liability rules are affected by ambiguity. The injurer and the victim choose a level of care, which is observable, and an unobservable action. Both actions may affect the size and/or likelihood of loss. We analyze the welfare implications of tort rules. First, we show that with ambiguity, negligence is likely to perform better than strict liability. Second, we propose a tort rule of negligence and punitive damages, which gives the efficient levels of both care and unobserved actions.     

Failures and Coping Strategies in Indigenous Technology Capability Process

This paper reports on a theory building effort aimed at understanding persistent difficulties with efforts at developing plant-level indigenous technology in a developing country. The firms, having obtained the technology from a donor firm or a laboratory find that implementation and adaptation issues are difficult due to tacit technology knowledge and lack of technical or managerial or market-related systems and experiences. These lead to technological failures referring to situations where serious deviations from expected opportunities and outcomes occur. The failures include loss of entry opportunities, or rejection of technology by the market, or failure at improving processes. With insights offered from 92 organizations in India we identify the different technological failures that occur and ways used to overcome these problems. Exploratory results suggest four major technological failures. (1) Failure due to inappropriate choice of technology leading to longer-than-expected time for establishing production, or inefficient production process, and/or market losses due to poor image of the poorly calibrated product. (2) Failure due to inadequate planning and support for innovation occurs when firms do not invest sufficiently in plant level data collection and analysis, thus missing important avenues for incremental innovation. (3) Failures due to inappropriate processes reveal how short-term orientation and low integration amongst different functional groups thwart the firm's adaptive and innovative abilities. (4) Finally, failure due to product-market mismatch and inadequate market survey occurs when market desired features are not maintained, or the incorporated changes are not cost effective. The coping strategies adopted by the firms are also discussed.     

Parametric Lorenz Curves and the Modality of the Income Density Function

Similar looking Lorenz curves can imply very different income density functions and potentially lead to wrong policy implications regarding inequality. This paper derives a relation between a Lorenz curve and the modality of its underlying income density: given a parametric Lorenz curve, it is the sign of its third derivative which indicates whether the density is unimodal or zeromodal (i.e., downward‐sloping). The density modality of several important Lorenz curves such as the Pareto, Weibull, Singh–Maddala parametrizations and hierarchical families of Lorenz curves are discussed. A Lorenz curve performance comparison with Monte Carlo simulations and data from the UNU–WIDER World Income Inequality Database underlines the relevance of the theoretical result: curve‐fitting based on criteria such as mean squared error or the Gini difference might lead to a Lorenz curve implying an incorrectly‐shaped density function. It is therefore important to take into account the modality when selecting a parametric Lorenz curve.     

Price and quantity in international comparisons of health care expenditure

An important omission from earlier cross-national comparisons of health care expenditure has been the failure to distinguish between price and quantity. Using recent data on purchasing power parities, the purpose of this article is to report some preliminary results regarding health care expenditure and quantity across 22 OECD countries. The article concludes that, contrary to what has been suggested in some recent articles, the relative price of health care is not correlated to the aggregate per capita income. The fraction of the national income that is devoted to health care provision increases with the per capita income regardless of whether health care is measured in terms of expenditure or quantity. The relative price of health care has a rationing effect on the quantity of health care that is offered, with a price alasticity close to minus one. The latter finding means that the health care expenditure is not greater in countries with higherprices. Furthermore, the differences in health care expenditure or quantity between countries persist after correction for the relative price and the income level. Part of these differences can be explained by differences in the definition of health care in the various countries.     

The Temporary Leave Dilemma: Lone and Partnered Mothers in Sweden

Abstract

Lone mothers have to take care of a sick child with little or no help from the child's other parent and have to carry all costs connected to leave-taking. This paper empirically tests whether lone mothers take more temporary parental leave to care for sick children than partnered mothers and whether parental leave is associated with a signaling cost. The results from this study of Swedish mothers show that lone mothers use more temporary parental leave than partnered mothers. Further, within the group of lone mothers, those with higher socioeconomic status take less temporary parental leave than those with lower socioeconomic status, whereas no such differences are found within the group of partnered mothers. One possible interpretation is that signaling costs negatively influence the utilization of temporary parental leave for lone mothers.