Constitutional Choice and Prosperity: A Factor Analysis

Forempirical purposes most studies on the influence of freedom on prosperity across nations use either aggregate measuresof economic freedom combined with a measure of political liberty,or single components of these aggregates to describe the freedom-variable.For a scholar of constitutional economics, both these approachesdo not seem to be satisfactory. From his theoretical viewpointhe would favor an approach that focuses on properties of thepolitico-economic order that can be interpreted as appropriateconstraints for preferred outcomes. Factor analysis is the methodused in this paper to extract from a pool of components thatdescribe freedom two main factors, namely (1) the appropriatenessof the framework in which the market operates, and (2) the degreeof political interventions into the market process. It is shownthat these two factors have great influence on the prosperityof nations.     

On systematic mortality risk and risk-minimization with survivor swaps

A new market for so-called mortality derivatives is now appearing with survivor swaps (also called mortality swaps), longevity bonds and other specialized solutions. The development of these new financial instruments is triggered by the increased focus on the systematic mortality risk inherent in life insurance contracts, and their main focus is thus to allow the life insurance companies to hedge their systematic mortality risk. At the same time, this new class of financial contract is interesting from an investor's point of view, since it increases the possibility for an investor to diversify the investment portfolio. The systematic mortality risk stems from the uncertainty related to the future development of the mortality intensities. Mathematically, this uncertainty is described by modeling the underlying mortality intensities via stochastic processes. We consider two different portfolios of insured lives, where the underlying mortality intensities are correlated, and study the combined financial and mortality risk inherent in a portfolio of general life insurance contracts. In order to hedge this risk, we allow for investments in survivor swaps and derive risk-minimizing strategies in markets where such contracts are available. The strategies are evaluated numerically.     

Challenges and Options for the UK Agri‐Environment: Presidential Address

After fifteen years of agri‐environment policy it is now appropriate to take stock of these policies. This is important because these policies are scheduled to expand in the coming decade, their benefits are likely to continue growing and the demand for benefits is also likely to expand. This paper therefore reviews the current agri‐environmental situation, isolating some of the current challenges to the schemes implemented in the UK, and compares main options for their amelioration. Finally it focuses particularly on the “end of contract problem” arising from the weak sustainability of the policy benefits from short‐term voluntary contracts.     

International Trade,Budget Deficits,and the Interest Rate

In a keynote address to the Joint Council on Economic Education, the author pointed out that a tight money policy, budget deficits, and greater after-tax profitability of investment in the United States have contributed to the strength of the dollar and to the flow of funds into this country. The consequence and implication of this are examined, both with respect to the past and the near future.     

The impact of different fibre access network technologies on cost,competition and welfare

Using a novel approach to the evaluation of new network technologies that combines an engineering cost model with a differentiated multi-player oligopoly model with wholesale access regulation this article evaluates the choice among different Fibre-to-the-Home (FTTH) architectures. The cost modelling relies upon an engineering bottom-up approach that feeds into a competition model. For addressing competition the pyramid model was chosen, which is an extension of the Hotelling model to multiple firms/services. The paper solves for price setting Nash equilibria between an incumbent, wholesale-access-based entrants and cable as an additional fully integrated network competitor. Welfare tradeoffs are highlighted with respect to cost differences and QoS differences between the various FTTH architectures and between the modes of regulation. According to the analysis architectures that can be unbundled (and that allow for greater speeds) outperform, from a social welfare perspective, architectures that (realistically) allow only for bitstream access.     

Constitutions as Commitment or Coordination Device? Comment on C. Azariadis and V. Galasso: Constitutional “Rules” and Intergenerational Fiscal Policy

In a recentcontribution to Constitutional Political Economy, Azariadis andGalasso argued that due to the fact that constitutions allowfor a partial precommitment of the individuals, constitutionalrules are a good means to guarantee an efficient level of redistributionbetween generations. I argue that constitutional rules have noinherent advantage with respect to commitment compared to otherrules. However, the beneficial role of constitutions stems fromtheir ability to create a focal point that helps to solve theequilibrium selection problem.     

Global stability and the “turnpike” in optimal unbounded growth models

This study proves various global stability results for unbounded optimal growth models. The main theorem states that any optimal path will eventually be in the neighborhood of a balanced growth path if future utility is sufficiently weakly discounted. The assumptions allow for non-smooth technologies, joint production, and production in independent sectors. Hence, the results form the integration of new growth and turnpike theory sought by McKenzie (1998) [31] in his Ely lecture. The applicability of the results is exemplified by means of a number of cases from growth theory and other areas of economics.     

Arbeitsmarkt: Rückenwind auch für Ältere

Durch den aktuellen Aufschwung ist es zu einem deutlichen Rückgang der Arbeitslosigkeit gekommen. Profitieren davon auch die ?lteren Arbeitnehmer? Wie lang sind ?ltere im Durchschnitt arbeitslos? Welche Probleme hat diese Gruppe bei der Wiedereingliederung in den Arbeitsmarkt? Wie sollte die Arbeitsmarktpolitik auf diese Probleme reagieren? Dr. Martin Dietz, 37, ist wissenschaftlicher Referent am Institut für Arbeitsmarkt- und Berufsforschung in Nürnberg.