Accession to the European Union and the Process of Accounting and Auditing Reform

The paper sets out to analyse the effects of the financial crisis on the international standard-setter in 2008 and the attempts made to shoot the messenger – to blame IAS 39 for creating the crisis for reporting unrealised losses, rather than the cause being bankers making bad investment decisions. It first provides a brief analysis of IAS 39 and fair value accounting for financial instruments. It then sets out the relationship with the Basel II banking regulatory regime. The main part of the paper is a chronological presentation of the events of 2008 as they impact upon the international standard-setting institution. In particular, we analyse the impact of the G20 requirements and the blunt intervention of the European Commission that led to amendments to IAS 39. The final part of the paper looks at the consequences as they are so far discernible and the damage done to the IASB by shooting the messenger.     

Rational Delays: The Case of Real Estate

Real estate markets, for both commercial real estate and single family homes, typically respond to a large negative demand shock with a period during which the volume of transactions and liquidity of real estate declines. Explanations for these periods have focused on overly optimistic owners, imperfections in real estate markets and/or minimum down payment requirements. These are important characteristics of real estate markets, but they do not provide a satisfying explanation for the long-term declines in the number of transactions and liquidity of real estate that frequently follow negative demand shocks. This paper presents estimates, for a specific real estate market (Los Angeles single family dwellings), of the option-like value of an owners interest in a property. Our estimates imply that when an owner has little or negative equity, the value of waiting to sell is likely to exceed the net carrying cost. Consequently, the option value of a potential sellers interest may eliminate the possibility of an otherwise mutually advantageous transaction.     

Soil,water and crop management alternatives in rainfed agriculture in the Sahel: an economic analysis

Most agriculture in the Sahel Region is carried out under rainfed conditions where low and uncertain soil moisture levels limit productivity. Improved soil, water and crop management practices are required to reverse the steady decline in per capita food production and sustain output over the long term. Several technological innovations and related farm management practices are evaluated in a case study of a typical farm in Mali. Through use of a soil-water balance model and a whole-farm economic model an optimal mix of these measures is identified. Compared to a base case where no modern inputs are utilized, the combination of animal traction (oxen team), low levels of NPK fertilizer, tied-ridges, traditional long-season food grain crops and early planting was most effective: food grain output was 35% higher than with the traditional base case; soil erosion was reduced by 72%; and even with residual future soil erosion damage capitalized into current income, net farm income was larger by a factor of almost 45.     

An assessment of travel/communications substitutability

The potential of new communications systems to substitute for travel is a frequent topic of scenarios of the future. The author outlines several futures research projects underway in the Business Planning Group at Bell Canada that address the substitution issue. Forces creating interest in substitution are new computer and communications technologies and the exponential growth in information generation and transfer activities in the central institutions of modern society. The application of economic cost/benefit analysis to the substitution question is examined. The author argues that this form of analysis ignores far too many other relevant issues that should also be studied. These issues include a behavioural analysis of the reasons underlying travel and communications decisions and a consideration of the secondary environmental costs associated with these two activities.     

Initial margin policy and stochastic volatility in the crude oil futures market

This article examines the relationship between the volatilityof the crude oil futures market and changes in initial marginrequirements. To closely match changes in futures market volatilitywith the corresponding changes in margin requirements, we inferthe volatility of the futures market from the prices of crudeoil futures options contracts. Using a mean-reverting diffusionprocess for volatility, we show that changes in margin policydo not affect subsequent market volatility.     

Beyond implicit prices: recovering theoretically consistent and transferable values for noise avoidance from a hedonic property price model

Using a two-stage hedonic pricing methodology we estimate a system of structural demand equations for different sources of transport-related noise. In the first stage, we identify market segments using model-based clustering techniques and estimate separate hedonic price functions (HPFs) for each segment. In so doing, we show how a semiparametric spatial smoothing estimator outperforms other standard specifications of the HPF. In the second stage, we control for non-linearity of the budget constraint and identify demand relationships using techniques that account for problems of endogeneity and censoring of the dependent variable. Our estimated demand functions provide welfare estimates for peace and quiet that we believe to be the first derived from property market data in a theoretically consistent manner.      

Slowing Fossil Fuel Extraction: A Role for Taxation of Exports,Capital Gains and Interest Income

This paper develops a model of a growing open economy rich in non‐renewable resources, the extraction of which negatively impacts domestic productivity and whose sector competes with final production for capital. We analyse how tax rates on capital gains and interest income and the time trend of an export revenue tax rate could slow the extraction of resources for export. We find that taxing capital gains and interest income at the same rate and setting an export revenue tax rate to decline at the marginal social cost of extraction would defer extraction. An export revenue tax rate need not fall over time to curb depletion if capital gains are taxed at a lower rate than interest income, which is second best to taxing asset returns at the same rate when the resources sector competes for capital.     

Non‐Scale Endogenous Growth with R&D and Human Capital

This paper examines the conditions under which increasing knowledge, encapsulated in ideas for new technology through R&D and embodied in human capital through education, sustains economic growth. A general model is developed where, consistent with recent literature, growth is non‐scale (not increasing in population size) and endogenous (generated by factors within R&D and education). Recent models feature the counterfactual assumption of constant returns to existing knowledge and restrict the substitutability of inputs within R&D and education. We find that non‐scale endogenous growth is possible under less stringent conditions. The findings reconcile sustained economic growth with evidence of diminishing marginal returns in education and R&D, which suggests an ambiguous role for R&D policy.     

Policy-induced internal migration: An empirical investigation of the Canadian case

We investigate the influence of public policy on interprovincial migration in Canada using new aggregated migration data for 1974–1996, the longest period studied so far. We consider the consequences of regional variation in a variety of policies, and also investigate the effects of certain extraordinary events in Quebec and in the Atlantic provinces. The results indicate that while the changing bias in the unemployment insurance system may have induced some people to move to the relatively high unemployment Atlantic region, the resulting flows are likely too small to have altered regional unemployment rates. In contrast, political events in Quebec in the 1970's and the closing of the cod fishery in 1992 appear to be associated with large changes in migration patterns. JEL Classification H0 · H7 · J41 · J65 · R23 · R58