DOES SOCIAL TRUST INCREASE INDIVIDUAL HAPPINESS IN JAPAN?*

Economists are mainly interested in trust as being growth enhancing, but whether trust is well‐being enhancing is underexplored. This paper examines if trust is intrinsically valuable by using individual happiness data from Japan. I attempt to mitigate the problem of non‐random selection of residents by restricting the sample to non‐movers. I also address reverse causality by instrumenting trust with residential stability, as trust should be higher for a more stable community. I find that trust has positive and significant effects on individual happiness. The instrumental variables approach suggests that social trust has a causal effect on individual happiness.     

POLLUTION PERMIT SYSTEMS AND FIRM DYNAMICS: HOW DOES THE ALLOCATION SCHEME MATTER?*

I use a firm dynamics model to compare two permit allocation schemes commonly used in pollution permit systems. In the first, closing plants keep their permits, and new entrants do not get them, whereas in the second, closing plants lose their permits, and new entrants get free allowances. Calibrating the model with data from power plants participating in the U.S. program, I find that, compared to the first scheme, in the second arrangement, (i) plants stay, on average, 3.6 years longer and (ii) although the aggregate emission rate is lower, the plant distribution displays more dirty and low‐productivity plants.     

PEER TRANSPARENCY IN TEAMS: DOES IT HELP OR HINDER INCENTIVES?*

In a joint project involving two players of a two‐round effort investment game with complementary efforts, transparency, by allowing players to observe each other’s efforts, achieves at least as much, and sometimes more, collective and individual efforts relative to a nontransparent environment. Without transparency multiple equilibria can arise, and transparency eliminates the inferior equilibria. When full cooperation arises only under transparency, it occurs gradually: No worker sinks in the maximum amount of effort in the first round, preferring instead to smooth out contributions over time. If the players’ efforts are substitutes, transparency makes no difference to equilibrium efforts.