Context matters

Eliciting the level of risk aversion of experimental subjects is of crucial concern to experimenters. In the literature there are a variety of methods used for such elicitation; the concern of the experiment reported in this paper is to compare them. The methods we investigate are the following: Holt–Laury price lists; pairwise choices, the Becker–DeGroot–Marschak method; allocation questions. Clearly their relative efficiency in measuring risk aversion depends upon the numbers of questions asked; but the method itself may well influence the estimated risk-aversion. While it is impossible to determine a ‘best’ method (as the truth is unknown) we can look at the differences between the different methods. We carried out an experiment in four parts, corresponding to the four different methods, with 96 subjects. In analysing the data our methodology involves fitting preference functionals; we use four, Expected Utility and Rank-Dependent Expected Utility, each combined with either a CRRA or a CARA utility function. Our results show that the inferred level of risk aversion is more sensitive to the elicitation method than to the assumed-true preference functional. Experimenters should worry most about context.     

A research agenda for disaster entrepreneurship

This paper addresses questions raised by Storr, Haeffele-Balch and Grube in their book Community Revival in the Wake of Disaster: Lessons in Local Entrepreneurship (2015). I review the reasons why the book is timely, especially the rising number and costs of disasters globally and the shifting norms on the role of government in disaster management. Social capital serves as a critical engine for resilience to crisis, and I move to demonstrate its importance in the mitigation and recovery stages. Then, I raise a research agenda based on their writings, focusing on building quantitative evidence to match the qualitative data already gathered by the authors. Specifically, I focus on testing claims about the definition and density of entrepreneurs, the role of polycentricity, and the public policy pools that would build entrepreneurial talent in vulnerable communities.     

The classical roots of the Austrian theory of capital and entrepreneurship

The paper deals with the continuities and discontinuities between some classical, Austrian and neo-Austrian authors with regard first to the theory of capital and then to the theory of entrepreneurship. Part I focuses on the elements of continuity between the classical and the Austrian theory of capital. These elements have been singled out by dealing first with the distinction between individual and national capital; and then with the difference between the resulting circulating-fixed capital and free-invested capital distinctions in the light, first, of the concept of roundaboutness and, then, of the method of vertical integration. Part II focuses on the elements of continuity between the Austrian theory of individual behaviour and the classical theory of national wealth. The distinctions between logical and historical time and between economics of time and economics in time are used to assess the links between the theory of capital as developed by the classics and Böhm-Bawerk, on the one hand, and the theory of entrepreneurship as developed by the neo-Austrians, on the other.     

Does a one-size-fits-all approach to financial regulations alleviate default risk? The case of dual banking systems

Financial regulations are developed to curb financial and economic fragility costs without undermining the economic contributions of banks to economic development. To understand the impact financial regulations have on reducing the financial fragility of banks we use the probability-of-default of banks as a proxy for bank failure. After analyzing data collected from 15 countries with a dual banking system for the period 2000–2015, we find convincing evidence that not all financial regulations have risk-reducing benefits for banks and the impact of financial regulations on default risk is not the same for conventional banks (CBs) and Islamic banks (IBs). The empirical evidence suggests that regulations that lessen overall default risk have a greater impact on IBs while those increasing default risk have a greater impact on CBs. Based on our findings we recommend that regulators should consider the different natures of CBs and IBs and tailor financial regulations to suit these operationally distinct financial intermediaries.     

Corporate pollution control strategies and labor demand: evidence from China’s manufacturing sector

The loss of employment is an essential issue that looms large in policy debates on pollution control. This paper estimates the impact of pollution reduction on labor demand in China’s manufacturing sector in the period 2001–2007. We conduct this research by using a sample with unbalanced panel data matched from two unique datasets of environmental statistics and an industrial economic database. Using the environmental performance of peer firms as the instrumental variable, our overall results show that improvements in environmental performance through reductions in \( SO _2\) emissions and COD emissions led to a statistically significant reduction in employment. On average, a 1% reduction in \( SO _2\) (COD) emissions causes a reduction in labor demand of approximately 0.018–0.019% (0.012–0.013%). We complement existing studies by carefully examining the impacts of firms’ different abatement strategies on labor demand. We find that pollution reduction through pollution prevention has substitutive effects on employment and that pollution reduction through pollution control at the end of the production process may require additional workers and thus has positive but not significant effects on labor demand. Finally, pollution control has heterogeneous effects on labor demand by different types of polluting firms (e.g., ownership, region, and industry).     

The effects of third party certification on voluntary self-regulation of accidents in the U.S. chemical industry

We explore whether the introduction of mandatory third party certification in 2005 under the Responsible Care program has reduced the probability and severity of accidents in participating facilities in the U.S. chemical industry. Using a sample of 10,315 observations from 1136 facilities owned by 566 RC and non-RC firms between 1996 and 2010, we estimate the average treatment effect of third party certification. We find that the difference-in-difference estimate of the average treatment effect is statistically insignificant. This result is robust to various model specifications including the potential endogeniety of third party certification due to a firm’s self-selection into RC.     

Price competition in the market for business telecommunications services

We estimate a two-step control-function model that relates incumbent prices for small-business telecommunications services to the number of facilities-based entrants, cost, demand, regulatory conditions, and a correction for endogenous market structure. Results show that the price effects from entry are understated in ordinary least squares regressions. When controlling for endogeneity, prices are negatively related to the number of entrants, indicating that markets without a competitive presence could exhibit market power. These findings should prove helpful to the Federal Communications Commission and other State regulators determining the conditions under which price and other forms of regulation may be relaxed.     

Incentive properties of coincident peak pricing

Coincident peak pricing is used in several electricity markets to recover the embedded cost of infrastructure, such as transmission. In this approach, measured consumption at the time of the peak is used to set charges for that pricing period or a subsequent period. If transmission costs are truly sunk, then such a recovery is unlikely to be efficient. However, in the context of growing peak demand, new additions must be built. We consider the incentive properties of coincident peak pricing when related investments are not considered to be sunk, finding that it can reproduce the incentive properties of an ideal time-varying price. We also consider several variations on this assumption.