HETEROSCEDASTICITY OR PRODUCTION RISK? A SYNTHETIC VIEW

Two veins of literature, namely, production risk literature and stochastic frontier analysis, are examined. Both fields are concerned of output variation; the former due to exogenous shocks, the latter due inefficiency. By covering the literature from both the fields, this review suggests that the concept of heteroscedasticity can be utilized to build a synthesis between these mainly separate branches of literature. However, the synthetic approach brings a challenge how to differentiate between different sources of output variation. This challenge is identified as the main obstacle to meaningfully combine the two approaches.     

A NUCLEAR FUTURE? UK GOVERNMENT POLICY AND THE ROLE OF THE MARKET

Nuclear power should be a feasible non‐carbon option in a liberalised market for electricity generation. However, if it is to be so, there needs to be a stable carbon price and a tax system which does not treat nuclear generation in a similar way to carbon‐based electricity generation. Further major reform of the electricity generating market will also be necessary.     

WHAT HAVE WE LEARNED FROM THREE DECADES OF RESEARCH ON THE PRODUCTIVITY OF PUBLIC CAPITAL?

The last three decades have witnessed a great deal of research effort devoted to measuring the private output elasticity of public capital. The wide range of available estimates have precluded any consensus so far, however. This paper reconciles the empirical findings of the literature by quantitatively analyzing a sample of 578 estimates collected from 68 studies for the 1983–2008 period. Using meta‐regression analysis, we show how study design characteristics and publication bias can explain a large fraction of the variation across estimates. We find a short‐run output elasticity of public capital supplied at the central government level of 0.083, which increases to 0.122 in the long run. If, in addition, only core infrastructure at a regional/local level of government is considered, these estimates are almost doubled. The average output elasticity of public capital amounts to 0.106. Our results suggest that public capital is undersupplied in OECD economies.     

CONTROLLING BANKERS' BONUSES: EFFICIENT REGULATION OR POLITICS OF ENVY?

The positive relationship between bank CEO compensation and risk-taking is a well-established empirical fact. The global banking crisis has resulted in a chorus of demands to control bankers' bonuses and thereby curtail their risk-taking activities in the hope that the world can avoid a repeat in the future. However, the positive relationship is not a causative one. In this paper we argue that an implicit too-big-to-fail policy provides the incentive for banks to take excessive risks and design compensation packages to deliver high returns. A credible no-bailout policy will have a better chance of curbing excess risk-taking than controlling bankers' compensation.     

WHAT ELUDES INTERNATIONAL AGREEMENTS ON CLIMATE CHANGE? THE ECONOMICS OF GLOBAL PUBLIC GOODS

This paper provides an analysis of global warming policy as the provision of a global public good. Using a regional model composed of thirteen world regions, the paper shows how disparate incentives among the regions hinder a shift from a Business As Usual (BAU) policy to a Globally Optimal Policy (GOP). In the BAU scenario, there will be large variations in impacts from warming across the regions, meaning some countries have little incentive to participate in collective agreements. Under the GOP scenario, negative impacts from global warming will be significantly reduced in some regions resulting in strong incentives for these regions to press for action. The paper finds that an optimal regulation could save Europe, India, and Africa hundreds of billions of dollars per year by the end of this century, but would cause additional costs to China, Russia, Canada and the USA. Under the optimal regulatory framework, higher levels of abatement are required for developing countries, worsening the existing climate equity problem.     

IS UNIVERSAL SERVICE JUSTIFIED BY THE PUBLIC INTEREST? FROM THE EARLY DAYS TO THE DIGITAL AGE

It is commonly accepted that universal service is clearly justified by reference to the public interest, and this understanding stems from the natural monopoly paradigm. However, telecommunications monopolies have never been ‘natural’, and the alternative to regulation has always been a competitive marketplace. The liberalisation movement had a chance to create a genuinely competitive industry but failed to do so. This article argues that the universal service dogma has played a significant role in the formation of the ordered competition regime of modern telecommunications, and explains this phenomenon in terms of public choice theory.     

WHO REALLY WANTS TO BE A MILLIONAIRE? ESTIMATES OF RISK AVERSION FROM GAMESHOW DATA

This paper estimates the degree of risk aversion from one of the most popular TV gameshows ever. The format of the show is straightforward; it involves no strategic decision making; we have a large number of observations; and the prizes are cash, which is paid immediately and covers a large range: from £100 up to £1 million. We provide non‐parametric estimates of the utility function and then we test some parametric restrictions. We find that, although the restriction to CRRA utility is statistically rejected, a log function approximates the utility function quite well over a large range of potential winnings. Copyright © 2013 John Wiley & Sons, Ltd.     

CREDIT DEFAULT SWAPS – WEAPON OF MASS DESTRUCTION OR RELIABLE INDICATOR?

Credit Default Swaps (CDS) are said to increase systemic vulnerability, but they also serve as an ex‐ante indicator of default probabilities, more finely‐tuned and more responsive than ratings agency reports. And they provide a useful mechanism for trading risk and an incentive for good management by businesses and governments.     

LONG DARK SHADOWS OR INNOVATIVE SPIRITS? THE EFFECTS OF (SMOOTHING) BUSINESS CYCLES ON ECONOMIC GROWTH: A SURVEY OF THE LITERATURE

Abstract It is argued that fiscal policy can play a part in preventing a possible downward spiral or be instrumental in achieving a higher long‐term path of growth. Never before has this argument been advanced as frequently as in the current economic crisis. However, the economic literature – an overview of which is given here – does not provide an unambiguous answer, either theoretically or empirically, to the question of the relationship between (the smoothing of) cyclical fluctuations and long‐term growth. In this context, two main contrasting explanatory paradigms can be identified: Schumpeter’s concept of creative destruction and the learning by doing hypothesis. Even if it were possible to identify the relationship more clearly on this basis, it is important not to lose sight of the problems associated with the real‐time assessment of the current economic situation, time lags and political economic incentives even in difficult times.