Where are the rent seekers?

In a remarkably simple and yet one of the most original and insightful observations of 20th century economics, Gordon Tullock pointed out that there are efficiency losses when public policies and political behavior create contestable rents. Tullock also observed that social losses from contesting rents appeared smaller than might be expected, so raising the question ‘where are the rent seekers?’ Tullock proposed that political accountability and ‘free-riding’ incentives in interest groups limit social losses from rent seeking. We affirm Tullock’s explanations, which apply differently under different political institutions. We compare Tullock with Gary Becker, who focused on deadweight losses from redistribution and concluded, in contrast to Tullock, that political redistribution is efficient. The comparison with Becker highlights the significance of the recognition of Tullock’s concept of rent seeking. By excluding rent-seeking losses from the social costs of redistribution, Becker could arrive at a conclusion more favorable than Tullock to an ideology that sees merit in extensive redistribution. Tullock’s model, although more encompassing of actual social costs of redistribution, would have been less welcome in the social democratic welfare state.     

WHAT IS “INSURANCE”? LESSONS FROM THE CAPTIVE INSURANCE TAX CONTROVERSY

Abstract: Over the past 30 years, the tax treatment of insurance premiums paid to captive (i.e., subsidiary) insurance companies has generated considerable controversy and litigation. In this article, we propose a new definition of insurance that is motivated by a careful analysis of the issues raised in the captive insurance tax controversy. Emphasizing the fundamental roles played by market forces and the efficiency of risk transfers, this new definition both broadens and refines traditional definitions of insurance.     

Portfolio Choice and Life Insurance: The CRRA Case

We solve a portfolio choice problem that includes life insurance and labor income under constant relative risk aversion (CRRA) preferences. We focus on the correlation between the dynamics of human capital and financial capital and model the utility of the family as opposed to separating consumption and bequest. We simplify the underlying Hamilton–Jacobi–Bellman equation using a similarity reduction technique that leads to an efficient numerical solution. Households for whom shocks to human capital are negatively correlated with shocks to financial capital should own more life insurance with greater equity/stock exposure. Life insurance hedges human capital and is insensitive to the family's risk aversion, consistent with practitioner guidance.     

The King Never Emigrates

This paper uses a locational model of rent-seeking to describe incentives to emigrate. A country is considered in which how a person fares in privileged income redistribution is determined by proximity to a king. Contests for privilege determine whether the more or the less productive in the population are located closer to the king. A distinction is drawn between contests for privilege that are "easy" and "difficult." When contests are "easy," the more productive are furthest from the king and emigrate first. When contests are "difficult," the least productive emigrate first. In either case, the population begins to unravel.     

The Implied Longevity Yield: A Note on Developing an Index for Life Annuities

I develop an index for tracking the dynamic behavior of life (pension) annuity payouts over time, based on the concept of self‐annuitization. Our implied longevity yield (ILY) value is defined equal to the internal rate of return (IRR) over a fixed deferral period that an individual would have to earn on their investable wealth if they decided to self‐annuitize using a systematic withdrawal plan. A larger ILY number indicates a greater relative benefit from immediate annuitization. I use age 65—with a 10‐year period certain—compared against the same annuity at age 75 as the standard benchmark for the index, and calibrate to a comprehensive time series of weekly (Canadian) life annuity quotes from 2000 through 2004. I find that during this period the ILY varied from 5.45 percent to 6.90 percent for males and from 5.00 percent to 6.42 percent for females and was highly correlated with a duration‐weighted average yield of 10‐year and long‐term Government of Canada bonds. I believe our ILY metric can help promote and explain the benefits of acquiring lifetime payout annuities by translating the abstract‐sounding longevity insurance into more concrete and measurable financial rates of return.     

Corruption and public finance: an IMF perspective

Public finance should be a means whereby governments in low-income countries are able to increase economic growth and end poverty. Corruption, however, reduces tax revenue and makes public expenditure policies ineffective for achieving social objectives. The papers in this volume, which is sponsored by the Fiscal Affairs Department of the International Monetary Fund (IMF), describe how corruption makes public finance ineffective in promoting economic development.     

An interdisciplinary research approach to manpower planning and development-an Israeli case study

The purpose of this paper is to describe a model for interdisciplinary research and to analyze the problems inherent in the application of this methodology. The discussion is illustrated by an analysis of a case study of the seafaring occupations in Israel.