International Environmental Agreements under Endogenous Uncertainty

This paper explores the implications of the possibility of a shift in environmental damages on the participation in environmental treaties. Using a two‐period model where the probability of a regime shift increases in the first‐period pollution stock, we examine the issue of coalition formation under both fixed and dynamic membership. Our analysis suggests that endogenous uncertainty may increase participation. We find that full cooperation may be sustained, but only in the presence of endogenous uncertainty. Interestingly, when the shift in the environmental damage is large enough, the model provides a way to solve the “puzzle of small coalitions” found in the literature related to international environmental agreements. We also find that in period 1 (period 2) endogenous uncertainty leads to a lower (higher) pollution stock under dynamic membership as compared to the fixed membership case.     

TRADE,STRUCTURAL REFORM,AND INSTITUTIONS IN SUB‐SAHARAN AFRICA

Sub‐Saharan African countries have traditionally lagged the rest of the developing world in terms of overall trade relative to gross domestic product. But, there is growing interest among these countries to initiate trade policies and improve quality of institutions as a way to promote trade and boost foreign direct investment. This article extends the gravity model of trade to include proxies for trade reform policy and institutional quality among the 15 countries of the Economic Community of West African States (ECOWAS) for data spanning 1984–2006. Alternative methods of estimation based on ordinary least squares, Heckman two‐step procedure, and Poisson pseudo‐maximum likelihood produce predictions that are consistent with the standard gravity model. They further highlight the evidence of restrictive trade policies and weak institutions that contribute to the failure of ECOWAS countries to boost bilateral trade. (JEL F13, F15, O19, O55)     

THE DETERMINANTS OF STATE‐LEVEL CAPS ON PUNITIVE DAMAGES: THEORY AND EVIDENCE

Under the standard economic model of torts, punitive damages correct for imperfect detection. Incorporating litigation costs into the model provides a justification for punitive damage caps. At the optimum, caps balance deterrence against the cost of litigation. Empirical testing of the model is performed via Cox proportional and parametric hazard analyses, using a panel dataset from 1981 to 2007. The results reveal a positive relationship between legal services employment (a proxy for legal costs) and cap enactment, and a negative relationship between state gross state product (a proxy for damages) and cap enactment. Cap enactment is also influenced by political ideology. (JEL K13, K41, L51)     

Consumption and Income Inequality in Australia

Consumption may be a more appropriate measure of household well-being than income or earnings. Using four ABS Household Expenditures Surveys collected between 1975 and 1993, we compare trends in consumption and income inequality among Australian households. We find that consumption is much more equal than income. While there were significant increases in both income and consumption inequality, consumption inequality rose by much less. One interpretation of the results is that some income inequality in Australia reflects transitory fluctuations which households can smooth,'and that part of the growth in income inequality reflects an increase in these transitory fluctuations.     

The Information Content of Tax Expense for Firms Reporting Losses

We investigate whether management's decision regarding the recognition of the valuation allowance (VA) for deferred tax assets provides incremental information about the persistence of accounting losses. We introduce a classification scheme that assigns loss firm‐years into three categories based on whether management appears to have recognized a material change in the VA, and whether or not the firm has positive taxable income (e.g., a net operating loss). The results of our study show that our tax categories contain information about the persistence of accounting losses over the following three years beyond variables previously identified to predict loss persistence. This incremental information is consistent with management using private information about the firm's future prospects in setting the VA. Finally, we find that investors’ pricing of the VA varies with the saliency of the tax signal and the information environment of the firm.     

DOES IMPROVING SCHOOL QUALITY REDUCE THE PROBABILITY OF UNEMPLOYMENT?

The authors investigate the relationship between high school quality and the probability of extended unemployment among noncollege-bound men during three periods: the first two years, two to four years, and seven to nine years after high school. They find that larger high schools and schools with lower pupil–teacher ratios tend to decrease the probability of being unemployed for noncollege-bound men in the period shortly after high school graduation. However, no effect is found of high school quality on unemployment probabilities approximately a decade after high school completion. (JEL I21 , J64 )     

What Works at Work: Overview and Assessment

This article discusses why it is difficult to measure the effects of management practices on organizational performance. In spite of these difficulties, a collage of evidence suggests that innovative workplace practices can increase performance, primarily through the use of systems of related practices that enhance worker participation, make work design less rigid, and decentralize managerial tasks. A majority of U.S. businesses have adopted some innovative work practices. However, only a small percentage of businesses have adopted a full system of innovative practices. We outline several constraints on the diffusion of new work practices, and suggest directions for future research