Rapacious Resource Depletion,Excessive Investment and Insecure Property Rights: A Puzzle

For a country fractionalized in competing factions, each owning part of the stock of natural exhaustible resources, or with insecure property rights, we analyze how resources are transformed into productive capital to sustain consumption. We allow property rights to improve as the country transforms natural resources into capital. The ensuing power struggle about the control of resources is solved as a non-cooperative differential game. Prices of resources and depletion increase faster than suggested by the Hotelling rule, especially with many competing factions and less secure property rights. As a result, the country substitutes away from resources to capital too rapidly and invests more than predicted by the Hartwick rule. The theory suggests that power struggle boosts output but depresses aggregate consumption and welfare, especially in highly fractionalized countries with less secure property rights. Also, adjusted net saving estimates calculated by the World Bank using market prices over-estimate welfare-based measures of genuine saving. Since our theory suggests that genuine saving is zero while empirically they are negative in resource-rich, fractionalized countries, we suggest ways of resolving this puzzle.     

The Hartwick Rule: Myths and Facts

We shed light on the Hartwick rule for capital accumulation and resource depletion by providing semantic clarifications and investigating the implications and relevance of this rule. We extend earlier results by establishing that the Hartwick rule does not indicate sustainability and does not require substitutability between man-made and naturalcapital. We use a new class of simple counterexamples (i) to obtain the novel finding that a negative value of net investments need not entail that utility is unsustainable, and (ii) to point out deficiencies in the literature.     

Why do many resource-rich countries have negative genuine saving?: Anticipation of better times or rapacious rent seeking

We investigate the Hartwick rule for saving of a nation necessary to sustain a constant level of private consumption for a small open economy with an exhaustible stock of natural resources. The amount by which a country saves and invests less than the marginal resource rents equals the expected capital gains on reserves of natural resources plus the expected increase in interest income on net foreign assets plus the expected fall in the cost of resource extraction due to expected improvements in extraction technology. Effectively, depletion is then postponed until better times. This suggests that it is not necessarily sub-optimal for resource-rich countries to have negative genuine saving. However, in countries with different groups with imperfectly defined property rights on natural resources, political distortions induce faster resource depletion than suggested by the Hotelling rule. Fractionalised societies with imperfect property rights build up more foreign assets than their marginal resource rents, but in the long run accumulate less foreign assets than homogenous societies. Hence, such societies end up with lower sustainable consumption and are worse off, especially if seepage is strong, the number of rival groups is large and the country does not enjoy much monopoly power on the resource market. Genuine saving is zero in such societies. However, World Bank genuine saving figures based on market rather than accounting prices will be negative, albeit less so in more fractionalised societies with less secure property rights.     

Group identification

I study a model of group identification in which individuals' opinions as to the membership of a group are aggregated to form a list of group members. Potential aggregation rules are studied through the axiomatic approach. I introduce two axioms, meet separability and join separability, each of which requires the list of members generated by the aggregation rule to be independent of whether the question of membership in a group is separated into questions of membership in two other groups. I use these axioms to characterize a class of one-vote rules, in which one opinion determines whether an individual is considered to be a member of a group. I then show that the only anonymous one-vote rule is self-identification, in which each individual determines for himself whether he is a member of the group.     

Why Do Some Households Save So Little? A Rational Explanation

This paper offers an explanation for the puzzle of low wealth holdings among a significant fraction of the elderly. Instead of invoking irrational, nonrational, or nonoptimal behavior to resolve the puzzle, it is shown that widespread low wealth holdings are consistent with a rational life-cycle model of saving with uncertain lifetime and borrowing constraint. When there is uncertainty about the length of life, it is optimal for some individuals to save little and exhaust their wealth early. The characteristics of these individuals are derived. The simulation results support that the model can account for low wealth holdings as well as early terminal wealth depletion. The analysis also rejects the common perception that uncertain lifetime reduces dissaving. Journal of Economic Literature Classification Numbers: D11, D91, E21, I12, J14.     

Political aspects of the capital controversies and capitalist crises

The Cambridge controversies about the theory of capital were ultimately underpinned by a clash between two different visions of capitalism, the neoclassical view, according to which distribution depends on the supply and demand curves of capital and labor, and the post Keynesian view, according to which distribution depends on political and institutional factors instead. I shall argue that the distinction between “meritocratic capitalism” and “patrimonial capitalism,” which underpins the discussions surrounding Thomas Piketty’s Capital in the Twenty-First Century, is also connected to those two different visions of capitalism, which were behind the Cambridge controversies. These two visions of capitalism have important implications for our understanding of political power over workers, and also to our understanding of political power over land and its natural resources. The role of land and natural resources was not discussed in the Cambridge controversies, but is addressed in Piero Sraffa’s Production of Commodities, and is implied in Piketty’s inclusion of land in his definition of capital, which brings in a geographical dimension to our understanding of capitalism and capitalist crises, as I shall argue.     

Predicting FDI inflows: Exploring a nonlinear relationship between peace years,oil wealth,and the rule of law

Despite previous studies investigating the impacts of various factors such as peace years, natural resources, and the rule of law on foreign direct investment (FDI), empirical findings remain inconclusive. Therefore, this study investigates the interplay between these factors in shaping host country conditions that facilitate FDI inflows. Using generalized additive models, we examine the simultaneous effects of peace years, oil wealth, and the rule of law on FDI inflows in a sample of non-OECD countries from 1970 to 2009. Our results reveal that established peace is a critical factor in attracting FDI inflows for both oil-exporting and non-oil-exporting countries. However, the effects of the rule of law vary depending on oil wealth. Oil-exporting countries receive more FDI inflows when they have a weak rather than a strong rule of law, while non-oil-exporting countries tend to receive more foreign investments when they have a moderately strong rule of law. We argue that countries with oil wealth combined with a moderately weak rule of law provide an environment that is conducive to multinational corporations (MNCs) in extractive industries seeking monopoly rents. Conversely, countries without oil wealth should create stable yet efficient environments that protect property rights and promote labor market flexibility to appeal to non-resource-seeking MNCs.     

Resource price trends and development prospects

If natural resource prices follow exogenous paths, then future resource price changes must be reflected in current measures of resource depletion, as shown by Vincent et al. (1997). This result is extended to the measurement of income and saving in a small resource exporting economy. A precise formula for net (genuine) saving is derived when resource prices grow exogenously at the international interest rate. Empirical results are presented for over 100 countries and a dozen resource commodities, using historical real price trends to forecast future prices. Reductions in saving in excess of 1% of GNI are observed for over 20 countries.JEL Classification: F18, Q01, Q32, Q56 Correspondence to: Kirk HamiltonKatharine Bolt: The opinions expressed are those of the authors and not necessarily those of the World Bank. The financial support of the Swedish International Development Agency is gratefully acknowledged.     

Population Growth and Natural‐Resource Scarcity: Long‐Run Development under Seemingly Unfavorable Conditions

In this paper, I consider an economy that is constrained by the use of natural resources and driven by knowledge accumulation. Resources are essential inputs in all sectors. I show that population growth and poor input substitution are not detrimental but, on the contrary, are even necessary to obtain a sustainable consumption level. I find a general rule to define the conditions for a constant innovation rate. The rule does not apply to capital but to labor growth, which is the crucial input in research. Furthermore, the rule relates to the sectoral structure of the economy, and to demographic transition. The results continue to hold with a backstop technology, and are extended for the case of minimum resource constraints.     

Majority rule when voters like to win

I analyze symmetric majority rule voting equilibria when voters wish to elect the better candidate and to vote for the winner. When voters care only about the winning candidate (the standard formulation) a unique responsive equilibrium exists. The addition of a desire to win creates multiple equilibria, some with unusual properties. In most of these equilibria information is not aggregated effectively, and I uncover the novel possibility of negative information aggregation in which information aggregated in equilibrium is used to select the worse rather than the better candidate.I then characterize the efficiency of optimal equilibria as the population becomes large and show that a discontinuity arises in the information aggregation capabilities of the majority rule voting mechanism: in elections without a dominant front-running candidate the better candidate is almost surely elected, whereas in races with a front-runner information cannot be effectively aggregated in equilibrium.     

BUILDING SOCIAL CAPITAL FOR SOCIAL ENTREPRENEURSHIP

ABSTRACT: By entrepreneurial combinations of voluntary resources, project means from public and private sources, commissions on contracts and other ways of financing, the youth house Fryshuset, with a great number of social activities for primarily young people in Stockholm, Sweden, has been able to allocate resources for establishing and expanding its activities. This development would not have been possible without struggle against established norms, values, traditions and institutions, not least the ‘close to monopoly’ that the public sector in practice was having on the fields in which Fryshuset emerged. Step by step, Fryshuset has built partnerships and alliances with public, private as well as civil actors. Expressed in a general way, Fryshuset has built a new social capital and created new norms and values. The aim of the paper is to investigate how Fryshuset has managed to build social capital through, and for entrepreneurial efforts aiming to facilitate young peoples’ development.     

Arrow's Possibility Theorem for one-dimensional single-peaked preferences

In one-dimensional environments with single-peaked preferences we consider social welfare functions satisfying Arrow's requirements, i.e. weak Pareto and independence of irrelevant alternatives. When the policy space is a one-dimensional continuum such a welfare function is determined by a collection of 2^N strictly quasi-concave preferences and a tie-breaking rule. As a corollary we obtain that when the number of voters is odd, simple majority voting is transitive if and only if each voter's preference is strictly quasi-concave.     

Aggressive oil extraction and precautionary saving: Coping with volatility

The effects of stochastic oil demand on optimal oil extraction paths and tax, spending and government debt policies are analyzed when the oil demand schedule is linear and preferences quadratic. Without prudence, optimal oil extraction is governed by the Hotelling rule and optimal budgetary policies by the tax and consumption smoothing principle. Volatile oil demand brings forward oil extraction and induces a bigger government surplus. With prudence, the government depletes oil reserves even more aggressively and engages in additional precautionary saving financed by postponing spending and bringing taxes forward, especially if it has substantial monopoly power on the oil market, gives high priority to the public spending target, is very prudent, and future oil demand has high variance. Uncertain economic prospects induce even higher precautionary saving and, if non-oil revenue shocks and oil revenue shocks are positively correlated, even more aggressive oil extraction. In contrast, prudent governments deliberately underestimate oil reserves which induce less aggressive oil depletion and less government saving, but less so if uncertainty about reserves and oil demand are positively correlated.     

Do Natural Resources Depress Income Per Capita?

Most evidence for the resource curse comes from cross‐country growth regressions suffers from bias originating from the high and ever‐evolving volatility in commodity prices. These issues are addressed by providing new cross‐country empirical evidence for the effect of resources in income per capita. Natural resource dependence (resource exports) has a significant negative effect on income per capita, especially in countries with bad rule of law or bad policies, but these results weaken substantially once we allow for endogeneity. However, the more exogenous measure of resource abundance (stock of natural capital) has a significant negative effect on income per capita even after controlling for geography, rule of law and de facto or de jure trade openness. Furthermore, this effect is more severe for countries that have little de jure trade openness. These results are robust to using alternative measures of institutional quality (expropriation and corruption instead of rule of law).     

Estimation of resource utilisation difference between lithium and valproate treatment groups from the VALID study

Abstract

Objective:

To assess the difference in resource utilisation between lithium and valproate treatment groups from the VALID study.

Methods:

A modelled economic study was conducted as an appendage to the VALID study, an international, randomised, open-label, parallel-group, 12-week, equivalence study in patients with bipolar I disorder experiencing a manic/mixed episode, compared the efficacy and safety of valproate against that of lithium. The difference in health resource utilisation between the treatment groups was analysed based on information collected from a standardised questionnaire.

Results:

Efficacy and tolerability of valproate and lithium were shown to be comparable in the management of bipolar disorder in the VALID study. Cost analysis was based on information for 138 (35.5% male, mean age: 37.73 years) and 131 (45.8% male, mean age: 38.98 years) patients from lithium and valproate treatment groups, respectively. The groups differed in the number of hospital visits (503 vs. 421), outpatient visits (15 vs. 2), and number of work days lost (907 vs. 514.5) due to bipolar disorder. All differences were in favour of the valproate treatment group. In the modelled analysis and subsequent sensitivity analyses, the total cost saving was calculated to be US$199,322 (range: US$37,629–$226,903). This would translate into a cost saving of US$1444 per patient, or a cost saving of US$6278 per patient per year (range: US$1185–$7145 per patient per year).

Limitations:

The present study suffers from the limitations inherent in any economic evaluation that uses data from multicentre clinical trials with potential variations in treatment provision as well as the theoretical bias from an open-label study design. The study sample size had also limited statistical power to detect moderate differences in total medical costs, given the large variances often observed on cost variables.

Conclusions:

The use of valproate over lithium is likely to result in substantial cost savings to the healthcare system and reduce the financial burden to patients.     

The impact of the correlation between health expenditure and survival probability on the demand for insurance

This paper studies the effects of health shocks on the demand for health insurance and annuities, along with precautionary saving in a dynamic life-cycle model. I argue that when the health shock can simultaneously increase health expenses and reduce longevity, rational agents would neither fully insure their uncertain health expenses nor fully annuitize their wealth because the correlation between health expenses and longevity provides a self-insurance channel for both uncertainties. That is, when the agent is hit by a health shock (which simultaneously increases health expenses and reduces longevity), she can use the resources originally saved for consumption in the reduced period of life to pay for the increased health expenses. Since the two uncertainties partially offset each other, the precautionary saving generated in the model should be smaller than in a standard model without the correlation between health expenses and longevity. In a quantitative life-cycle model calibrated using the Medical Expenditure Panel Survey dataset, I find that the health expenses are highly correlated with the survival probabilities, and this correlation significantly reduces the demand for actuarially fair health insurance, while its impact on the demand for annuities and precautionary saving is relatively small.     

The Borda rule,Condorcet consistency and Condorcet stability

Summary. The Borda rule is known to be the least vulnerable scoring rule to Condorcet inconsistency, Saari (2000). Such inconsistency occurs when the Condorcet winner (the alternative which is preferred to any other alternative by a simple majority) is not selected by the Borda rule. This note exposes the relationship between the Borda rule and the Condorcet q-majority principle as well as the Condorcet q-majority voting rule. The main result establishes that the Borda rule is Condorcet q-majority consistent when where k is the number of alternatives. The second result establishes that is the minimal degree of majority decisiveness corresponding to the Borda rule under sincere voting. The same majority is required to ensure decisiveness under the Borda rule and to ensure that a q-rule (the generalized q-majority Condorcet rule) is a voting rule. Received: April 8, 2002; revised version: July 17, 2002 Correspondence to:S. Nitzan     

Random Price Discrimination

When a monopolist randomly sorts customers, price discrimination “concavifies” the revenue function of the firm, so that it may be optimal for a monopolist to divide customers into groups that have the same demand function and charge them different prices. It is impossible to rule out this type of result whenever the revenue function is somewhere convex in the “economically relevant” set of quantities, because there always exists a non-decreasing cost function that leads to that conclusion. It is also impossible to rule out the case where, with respect to monopoly, the firm raises or lowers price to all classes and, accordingly, the case where the social welfare decreases or increases. Received December 13, 2001; revised version received June 3, 2002 Published online: February 17, 2003 I am indebted to Carlo Beretta, Giuseppe Colangelo, Umberto Galmarini, Guido Merzoni, Gerd Weinrich and especially to Carla Peri for helpful discussions and comments. I have also benefited from insightful suggestions of three anonymous referees. Finally, I wish to thank participants to seminars at the Catholic University of Milan and University of Bologna. The usual disclaimer applies. Funds from MIUR are gratefully acknowledged.     

Social Security and personal saving: 1971 and beyond

Feldstein (1996, 1974) reported that Social Security in the U.S.A. reduced personal saving (“saving”) in 1992 (1971) by $416 ($61) billion. I reestimate his life-cycle consumption specification using data from the latest NIPA revision, correct his calculations, and find that the implied reduction in 1992 (1971) saving is now $280 ($22) billion, 48% (16%) of actual net private saving, with a standard error of $114 ($14) billion. If structural breaks around WWII and the 1972 Social Security amendments (which raised real per capita SSW by 22%) are allowed, and the market value of Treasury debt included in the specification, the reduction in 1971 and 1992 saving attributable to Social Security is at most 0.55 times its standard error, and 12% of net private saving. I then reestimate the preferred specification of Coates and Humphreys (1999), allowing for these structural breaks and relaxing other restrictions. The implied effect of Social Security on saving is again statistically zero. First version received: September 2000/Final version received: September 2001 RID="*" ID="*"  I thank Les Oxley for pointing out that correcting for AR(1) residuals is not a categorical imperative but a cultural relative, in which case common factor restrictions are crucial.     

The Role of Natural Resources in Economic Development

Economists now recognize that, along with physical and human capital, environmental resources should be viewed as important economic assets, which can be called natural capital. Three recent debates have emerged over the role of natural capital in economic development. First, as many ecological services are unique, does the environment have an “essential” role in sustaining human welfare, and if so, are special “compensation rules” required to ensure that future welfare is not worsened by natural capital depletion today? Second, the environmental Kuznets curve (EKC) hypothesis has fostered empirical estimations of an “inverted U” shaped relationship between a variety of indicators of environmental pollution or resource depletion and the level of per capita income. Does the existence of such EKC relationships suggest that environmental degradation will eventually decline with growth? Finally, recent economic theories and empirical evidence have questioned whether lower income economies that are endowed with abundant natural resources develop more rapidly than economies that are relatively resource poor. Is it possible that resource abundant economies are not reinvesting the rents generated from natural resource exploitation into productive assets, or that resource booms actually divert economic resources from more productive and innovative sectors?