A Model of Mortgage Default

In this paper, we solve a dynamic model of households' mortgage decisions incorporating labor income, house price, inflation, and interest rate risk. Using a zero‐profit condition for mortgage lenders, we solve for equilibrium mortgage rates given borrower characteristics and optimal decisions. The model quantifies the effects of adjustable versus fixed mortgage rates, loan‐to‐value ratios, and mortgage affordability measures on mortgage premia and default. Mortgage selection by heterogeneous borrowers helps explain the higher default rates on adjustable‐rate mortgages during the recent U.S. housing downturn, and the variation in mortgage premia with the level of interest rates.     

Consumption Externalities in a Commercial Fishery: the Queensland Beam Trawl Fishery

Demand and contingent valuation models are used to analyze survey data obtained from a sample of recreational boat and shore fishers in southern Queensland. The value of the recreational fishery to the average fisher in the sample and the value of marginal increases in catches of target species are estimated. These estimates are used to calculate the value of Pigovian taxes representing the marginal cost of catch and congestion externalities imposed by the beam trawl fishery on the recreational fishery. The results suggest that the cost of these externalities does not justify the closure of the beam trawl fishery.     

Nature as historical protagonist: environment and society in pre‐industrial England

This article compares chronologies reconstructed from historical records of prices, wages, grain harvests, and population with corresponding chronologies of growing conditions and climatic variations derived from dendrochronology and Greenland ice‐cores. It demonstrates that in pre‐industrial, and especially late medieval, England, short‐term environmental shocks and more enduring shifts in environmental conditions (sometimes acting in concert with biological agencies) exercised a powerful influence upon the balance struck between population and available resources via their effects upon the reproduction, health and life expectancy of humans, crops, and livestock. Prevailing socio‐economic conditions and institutions, in turn, shaped society's susceptibility to these environmental shocks and shifts.     

ALCOHOL PREVALENCE,ALCOHOL POLICIES,AND CHILD FATAL INJURY RATES FROM MOTOR VEHICLE CRASHES

In this study, we consider the effects of state alcohol policies on motor vehicle fatalities for children. While numerous studies have considered the effects of such policies on motor vehicle fatalities for the overall population, for teens, and for the elderly, their effects on fatalities among children in particular have not previously been studied. We use state‐level cross‐sectional time series data for 1982–2002. The dependent variable of interest is fatalities among child motor vehicle occupants (CMVO). Separate models are estimated for 0‐ to 4‐yr‐olds, 5‐ to 9‐yr‐olds, and 10‐ to 15‐yr‐olds, as well as for fatalities occurring during the day versus the night. We find that number of fatalities among CMVO is strongly correlated to alcohol use measured at the state level and that administrative license revocation policies and higher beer tax rates appear to consistently reduce such fatalities. For two of the three age groups, beer tax rates appear to reduce fatalities during the night rather than the day. However, zero tolerance and blood alcohol concentration limit laws do not seem to have any statistically significant effects on fatalities. (JEL I18, J13)     

Equity Valuation Effects of the Pension Protection Act of 2006*

We investigate the equity valuation effects of the Pension Protection Act of 2006 (PPA 2006). The PPA 2006 has two main provisions: (1) firms must fully fund their pension plans within seven years (previously allowed 30 years to fund 90 percent of the pension liability) and (2) firms receive a tax deduction for contributions up to 150 percent of the pension liability (previously 100 percent). After controlling for the effects of SFAS 158, growth opportunities, the cost of external funds, and other information released during our sample period, we examine pension firms’ abnormal returns surrounding key dates in the legislative process leading to the adoption of the PPA 2006. First, we find a mean negative abnormal return of ?4.20 percent during the period in which the PPA 2006 was first voted on by Congress. The mean (median) firm in our sample experienced a $310 million ($60 million) decline in market capitalization. Second, we find that the valuation effect was more negative for firms with larger unfunded pension liabilities and larger capital expenditure requirements, while firms with higher marginal tax rates experienced a positive effect. Third, we find no evidence of differential valuation effects for firms in different “at risk” categories as defined by the PPA 2006. Finally, we find a significant number of pension freezes occurred during our sample period. Our results are stronger when excluding these firms from our sample.