Climate Forecasts and Flood Mitigation

There is growing evidence that flood mitigation is often inefficient because individuals misestimate flood risk. The propensity to misestimate flood risk is expected to rise because climate change ensures the past will be a poor predictor of the future. Greater reliance on downscaled climatological and hydrological forecasts has been suggested to address these information failures. This article combines stochastic dynamic programming with historical data and climate‐driven streamflow projections to determine how changes in flood risk forecasts influence optimal investments in flood mitigation infrastructure. Using upgrades in California's levee system as an example, we show that climate change is causing benefit–cost analysis to become increasingly biased in favor of flood mitigation infrastructure projects. We also show that using downscaled hydroclimate forecasts to achieve more accurate estimates of flood risk can decrease the efficiency of flood mitigation infrastructure investments, if flood risk is currently overestimated. JEL Classification: D81 Q25 Q54     

Capitalization of Flood Insurance and Risk Perceptions in Housing Prices: An Empirical Agent‐Based Model Approach

Federally regulated or insured lenders in the United States are mandated to require flood insurance on properties that are located in areas at high risk of flooding. Despite the existence of this mandatory flood insurance requirement, take‐up rates for flood insurance have been low, and the federal government's exposure to uninsured property losses from flooding remains substantial. Meanwhile, the value of capital at risk varies significantly with flood events and changing risk perceptions, which necessitates mechanisms that stabilize these dynamics. In this article we discuss how a scenario of complete insurance uptake, under various risk attitudes, affects the value of properties in the 100‐year and 500‐year flood zones. Our results indicate that an increase in flood insurance uptake may provide such a mechanism by lowering the value of capital at risk in the flood zone consistently, independent of homeowners' risk attitudes. We apply an empirical adaptive agent‐based model to examine the capitalization of insurance costs, risk premiums, and their interaction in housing prices. Our approach combines widely‐used empirical hedonic analysis with the computational economic framework. We highlight the usefulness of our method in capturing the marginal implicit price of homeowners' preferences that may change over time and separately assess the effect of various factors and policies on property values, illustrating the agent‐based modeling as a valuable complement to traditional hedonic analysis.     

Economics,Insurance, and Flood Hazards

This article introduces the Symposium Economics, Insurance, and Flood Hazards. We provide background on the magnitude of recent extreme weather events and subsequent flooding in terms of lives and property damage. After a brief background of the National Flood Insurance Program and its renewal, we describe the papers contributed to the symposium and their relationship to the challenges described by the U.S. General Accountability Office (GAO).     

Flood Risk and Salience: New Evidence from the Sunshine State

A growing literature finds evidence that flood risk salience varies over time, spiking directly following a flood and then falling off individuals' cognitive radar in the following years. In this article, we provide new evidence of salience exploiting a hurricane cluster impacting Florida that was preceded and followed by periods of unusual calm. Utilizing residential property sales across the state from 2002 through 2012, our main estimate finds a salience impact of ?8%, on average. The salience effect persists when we base estimation only on spatial variation in prices to limit confounding from other simultaneous changes due to shifting hedonic equilibria over time. These effects range from housing prices decreases of 5.4–12.3% depending on the year of sale. Understanding flood risk salience has important implications for flood insurance and disaster policy, the benefits transfer literature, and, more broadly, our understanding of natural disaster resilience. JEL Classification: Q51, Q54, R21     

Flood Fatalities in the United States: The Roles of Socioeconomic Factors and the National Flood Insurance Program

Flooding is the most frequent disaster type among all severe weather events in the United States. Over the 20‐year period from 1996 to 2015, a total of 107,743 floods resulted in 1563 fatalities and over $167 billion in damages. Climate models suggest that the risk of major flooding will increase in the coming years. In this article, we provide new analysis of the life‐saving role of the National Flood Insurance Program (NFIP) using county‐level data for the United States over the years 1996–2015. The integrated view of the physical, social, economic, and political elements of disaster vulnerability guides the empirical analysis. Our analysis indicates that people most affected by floods are those who have weaker economic and social bases; lower education levels and poor housing quality increase flood vulnerability. We also find that local government spending on public safety and welfare significantly reduces overall flood vulnerability. Importantly, our estimates present new evidence that ex ante floodplain management and mitigation efforts required for participation in the NFIP have played a vital role in reducing flood‐related fatalities.     

The Impact of Political Influence on Appointees: Evidence from the Small Business Administration Disaster Loan Program

Presidential disaster declarations provide disaster aid through the Federal Emergency Management Agency (FEMA) and are known to be motivated by political factors as well as by need. The extent to which politics influence the Small Business Administration (SBA) disaster declaration decision, made by a presidential appointee, has not been previously measured. We use new data covering 1960–2013 to show that SBA declarations are subject to the same political influences as presidential declarations. Disasters occurring during reelection years, as well as those occurring in electorally important states, are more likely to receive SBA declarations. The effect of politics is stronger in the period prior to the passage of the Stafford Act in 1988, showing that the two types of declarations are substitutes for political purposes.     

Stopping on Nine: Evidence of Heuristic Managerial Decision‐Making in Major League Baseball Pitcher Substitutions

Economic agents who exhibit left digit bias over‐emphasize round numbers. Using data on managers' pitcher substitution decisions in Major League Baseball, I find that managers remove starting pitchers more often when the next pitch will result in a pitch count ending in zero. Unlike counts ending in nine, pitch counts ending in eight do not exhibit higher substitution rates despite the fact that pitchers usually throw multiple pitches before the manager's next decision opportunity. Managers apparently use rules‐of‐thumb that emphasize leftmost digits and ignore at least some future consequences of present actions. However, these significant biases disappear when the stakes are high. I find no evidence of disproportionate substitutions on the nine's in close games, and the final digit of the pitch count does not discontinuously affect the probability of winning. Managers act in a manner consistent with rational inattention, using heuristics only when the stakes are low.     

Fear and greed: The evolution of double liability in American banking, 1865-1930

This paper examines the pattern and timing of the enactment of double liability for state banks in the United States prior to the Great Depression. Under double liability, shareholders of failing banks could lose, in addition to the initial purchase price of shares, an amount equal to the par value of shares owned. The results suggest that double liability was adopted by states subject to greater economic risks, where bank failures were more likely, or where the economy and banking sector were more advanced and bank failures would be more costly (i.e., fear), and that single liability was adopted by more rapidly growing states, where the payoff to greater risk-taking was higher (i.e., greed).     

我国城市洪水风险管理新模式:政府、市场、公众合作

文章提出了新的城市洪水风险管理模式,指出洪水风险管理是准公共产品,非市场产品,公共风险。应建立政府、市场、公众合作机制(GMPP)来管理洪水风险。政府参与是由市场失灵,产权与合约的实施等因素决定的。市场参与是希望引入私人部门的效率,提供资金以及技术等。公众参与是解决公众对洪水风险管理需求不足,增加决策的民主性以及科学性,减少政策的冲突。GMPP成功的关键在于关注各方的目标,发挥各自的优势,建立合适的协调机制。对于GMPP的特征,目标,策略以及原则也做了讨论。     

Mechanical refrigeration, seasonality, and the hog-corn cycle in the United States: 1870-1940

This paper examines the role of mechanical refrigeration in seasonality and structural change in the U.S. hog-corn cycle, 1870-1940. This period covers an era in which the widespread adoption of mechanical refrigeration greatly affected the ability to store and transport perishable commodities. These developments in turn altered the seasonal production and price structure for many commodities, including pork. We use a new class of time series models, time-varying smooth transition autoregressions (TV-STARs), to document both the structural change and the nonlinear features observed in seasonal patterns for the U.S. hog-corn price relationship during the late nineteenth and early twentieth centuries.     

Market and Welfare Effects of Mandatory Country‐of‐Origin Labeling in the U.S. Specialty Crops Sector: An Application to Fresh Market Apples

This study provides a new framework of analysis of the market and welfare effects of mandatory country‐of‐origin labeling (MCOOL) for fruits and vegetables that accounts for heterogeneous consumer preferences, differences in producer agronomic characteristics, and retailer market power. The market and welfare effects of MCOOL are shown to be case‐specific and dependent on the labeling costs at the farm and retail levels, the strength of consumer preference for domestic products, the market power of retailers, the marketing margin along the supply chain, and the relative costs of imported and domestic products. Simulation results for the U.S. market of fresh apples indicate that domestic producers are the most likely beneficiaries of MCOOL, followed by domestic consumers. Being unable to exercise market power on consumers or suppliers of fresh apples, retailers will lose if the implementation of MCOOL entails fixed costs. Imports of fresh apples decline after MCOOL introduction.     

Working hours in the European periphery: The length of the working day in Spain, 1885-1920

This paper studies the decline of the working day in Spain from 1885 to 1920. The decline was more continuous than previously thought. Differences in hours reinforce wage differentials, showing labor markets were not well integrated. Cross-sectional and time-series analysis suggests that hour reductions reflect a labor supply rather than a labor demand effect. Given the comparatively slow growth of real wages in Spain from 1870 to 1920, the Spanish case shows that international convergence in hours of work must have been stronger than convergence in wages.     

Levels and Trends in U.S. Income and its Distribution: A Crosswalk from Market Income towards a Comprehensive Haig‐Simons Income Approach

Recent research on U.S. levels and trends in income inequality varies substantially based on how these studies measure income. We crosswalk (move between standards) from a market income of tax units to a more comprehensive measure of income including realized capital gains of households using a unified data set and replicate common findings in the literature. By using a comprehensive income definition in the spirit of Haig‐Simons, considering yearly accrued capital gains rather than focusing on the delayed reporting of capital gains that appear in Internal Revenue Service tax return data, the observed growth in income inequality and top income shares since 1989 is dramatically reduced.     

The Impact of R&D Cooperations and Mergers in Pharmaceuticals on Research Activities and Drugs Offered on the Market

In the last 10 years, the pharmaceutical industry has experienced steep, unprecedented price increases which are frequently attributed to increasing drug development costs. To cope with rocketing development costs, companies engage in Research and Development (R&D) cooperations. We study the impact of R&D cooperations on firms' research activities and drugs offered on the market. Using a comprehensive dataset, we find that R&D cooperations formed at the early stage of the drug development process increase the number of R&D projects and the number of drugs offered on the market. Late stage R&D cooperations, formed among larger firms in technology and product markets, increase firms' research activities, but reduce the number of drugs launched on the product market. Results suggest that large firms cooperating in the late research stage re‐optimize their R&D pipelines and eliminate similarly aligned research projects.     

Technological Change,Job Risk,and Wage Premium: Evidence from Taiwan

The paper reports the results of analyzing the effects of technological change and job risk on wage premiums in Taiwan. Using unique individual data combined with industry‐level indices of technological change and fatality rates across industries, the empirical results show that, overall, industries characterized by a higher rate of technological change or fatality pay a higher wage. However, these positive correlations are attributed to the sorting effect in which workers with some specific features choose to find jobs in industries with rapid technological change and higher job risk. Furthermore, this paper reports a positive relationship between education and wages after controlling for individual heterogeneity, showing the existence of education premium in Taiwan.     

基本养老金市场化投资的理论依据与风险控制

文章从养老金投资与资本市场互动的视角,以全国社会保障基金和资本市场发展数据为样本,通过格兰杰因果检验和协整检验,研究养老金投资与资本市场发展两者之间的互动关系,为我国基本养老金能否进行入市投资寻求证据支撑,实证表明全国社保基金的投资是我国资本市场发展的重要原因,结果支持我国基本养老金进行市场化投资。同时,运用资产组合原理,模拟成熟市场中的风险环境,通过测算得出,我国基本养老金入市投资承受与美国养老金投资相当的风险,其资产组合中股票配置的比例应控制在30%以内。     

Dynamic Spillovers in the United States: Stock Market,Housing, Uncertainty,and the Macroeconomy

In this study, we examine dynamic spillovers among the housing market, stock market, and economic policy uncertainty (EPU) in the United States in a unified empirical framework. Applying the Diebold and Yilmaz (2012) methodology on monthly data over the period 1987M1–2014M11, our findings reveal the following features. First, the transmission of various types of shocks contributes significantly to economic fluctuations in the United States. Second, spillovers show large variations over time. Third, in the wake of the global financial crisis, spillovers have been exceptionally high in historical perspective. In particular, we find large spillovers from EPU, as well as stock market and housing returns to other variables, in particular inflation, industrial production and the federal funds rate. These results illustrate the contagion from the housing and financial crisis to the real economy and the strong policy reaction to stabilize the economy.     

Reservation Values and Regret in Laboratory First‐Price Auctions: Context and Bidding Behavior

Recent articles hypothesize that an asymmetry in regret motivates aggressive bidding in laboratory first‐price auctions. Subjects emphasize potential earnings foregone from being outbid. Proposed motivators of this asymmetry include the one‐to‐one relationship in the auction between winning and positive earnings and the ex post knowledge that bidders who do not win the auction know they earned less than the winning bidder. We design a novel implementation of the first‐price auction environment in which these characteristics are not present, while leaving unchanged the expected‐earnings maximizing bidding strategy against any fixed beliefs about the bidding behavior of others. Bidding is significantly less aggressive in this treatment. These findings support the hypothesis that aggressive bidding is motivated in part by features of the protocol for incentivizing subjects that are not essential to the auction environment.     

Asset Price Bubbles: Existence,Persistence and Migration

Econometric tests are performed for the detection and migration of asset‐price bubbles in the housing, currency and stock markets of seven countries. This set of countries includes both developed and emerging economies that have good historical data on housing prices. Our empirical results suggest that this type of exuberant behaviour in prices occurs more frequently in the housing market than in the currency and stock markets. Additionally, we find significant evidence of bubble migration across markets within some of the studied countries.