THE PROBLEM OF GLOBAL ENVIRONMENTAL PROTECTION

Suppose that land is communally owned. Every person has theright to hunt, till, or mine the land. This form of ownershipfails to concentrate the cost associated with any person's exerciseof his communal right on that person. If a person seeks to maximizethe value of his communal rights, he will tend to overhunt andoverwork the land because some of the costs of his doing soare borne by others. The stock of game and the richness of thesoil will be diminished too quickly. It is conceivable thatthose who own these rights, i.e. every member of the community,can agree to curtail the rate at which they work the lands ifnegotiating and policing costs are zero... [However,] negotiatingcosts will be large because it is difficult for many personsto reach a mutually satisfactory agreement, especially wheneach hold-out has the right to work the land as fast as he pleases.[Furthermore,] even if an agreement among all can be reached,we must yet take account of the costs of policing the agreement,and these may be large, also. Footnotes ¹ I have benefited greatly from comments made by David Pearceon an earlier draft of this paper.     

Pension disclosures under SFAS No. 87: Theory and evidence*

Abstract. This study analyzes the choices made by 279 firms in response to the opportunity to adopt the new pension accounting standard. Statement of Financial Accounting Standard No. 87, in 1986 rather than 1987. It tests the influence of political and agency variables and three income-related variables on this accounting choice. The political variables, management compensation contracts, the magnitude of the income effect of adoption, whether the firm was a “bath” firm, and the earnings position of the firm relative to the prior year are all associated with the adoption choice. These results are analyzed further by considering specific debt covenants and by exploring alternate interpretations of the meaning of the change in earnings variable by assessing interactions between it and the political and agency variables. Résumé. L'auteur analyse les choix faits par 279 entreprises par suite de l'option qui leur était offerte d'adopter la nouvelle norme de comptabilisation des régimes de retraite. Statement of Financial Accounting Standard No. 87, en 1986 plutôt qu'en 1987. Il vérifie l'influence des variables politiques et des variables mandant-mandataire, ainsi que de trois variables se rattachant aux bénéfices, sur ce choix comptable. Chacun des facteurs suivants est associé à l'option d'adoption: variables politiques, contrats de rénumération des cadres, ampleur des conséquences de l'adoption sur les bénéfices, occasion de flambée des bénéfices et bénéfices de l'entreprise par rapport aux bénéfices de l'exercice précédent. Ces résultats font l'objet d'une analyse plus poussée dans laquelle l'auteur tient compte de clauses restrictives particulières et explore d'autres interprétations de la signification de la fluctuation de la variable des bénéfices en évaluant les interactions entre cette fluctuation et les variables politiques ainsi que les variables mandant-mandataire.     

THE DEFECTIVE DESIGN OF FEDERAL DEPOSIT INSURANCE

Deposit insurance funds, especially the Federal Savings and Loan Insurance Corporation, are currently in visible trouble. Two central defects of the existing deposit insurance system are identified: (1) mispricing of the insurance premiums and (2) incentives for both the industry and the insurance agencies to postpone recognizing and realizing losses.
Insurance premiums are mispriced because they are assessed at the same rate for all institutions, which creates a bias for banks to take greater risks. Practical difficulties of setting an appropriate risk-based premium for each bank are real but not necessarily insurmountable. In particular, the sale by the bank of unsecured and uninsured debt could provide a market measure of default risk, under a given failure rule.
The choice of a failure rule is also a critical matter. Current failure rules are poorly defined and permit insolvent institutions to continue in operation. Specifying a market value test of insolvency in the statutes would be helpful, but it would have to be supported by market-value accounting requirements and stronger pressures on banking authorities not to defer action.