Real-World Economics Today:The New Complexity,Co-ordination and Policy

More realistic economics has to start out from the most basic socio-economic phenomena and processes, i.e. dilemma-prone interdependencies and strong uncertainty among agents that have become ubiquitous phenomena in the world today. In the reality of the “new” economy these are represented by functional and spatial fragmentation of value-added chains, global de-regulation and disembedding of the most powerful economic agents, on one hand, and increasing complexity and high integration of goods and services and net-based tele-IC-technologies on the other hand. All these rather new phenomena entail ubiquitous actual or potential co-ordination failure, either in the form of conventional “market failure”, with a complete mutual blockage of action, or of “wrong” co-ordination, or technological “lock-in”. Both forms are indicative of an insufficient capacity of the co-ordinated action required. In contrast, capability of sustainable innovative action in a broad sense requires new forms of co-ordination beyond “market” and “hierarchy”. Economics thus has to be defined more than ever as a science of effective co-ordination and the generation of innovative and sustainable collective action capacity. The global corporate economy has developed individualist arrangements to cope with that new co-ordination problem, such as local clusters and hub&spoke networks, which all have severe shortcomings. Against this background, the paper develops a setting with ubiquitous direct interdependencies, net-externalities, “strategic” strong uncertainty and ubiquitous (latent) social-dilemma problems. It discusses the possibility of an ideal decentralized and spontaneous co-ordination through emergent institutionalized collective action, specifically of “well-governed” network co-operation. In conclusion, it is argued that only a hybrid system of networks together with a new public policy role, supporting collective learning and emergent institutional co-ordination, i.e. an “interactive” and “institutional” policy approach, is capable of solving the co-ordination problems of the “new” economy.     

Something in the water: contaminated drinking water and infant health

This paper provides estimates of the effects of in utero exposure to contaminated drinking water on fetal health. To do this, we examine the universe of birth records and drinking water testing results for the state of New Jersey from 1997 to 2007. Our data enable us to compare outcomes across siblings who were potentially exposed to differing levels of harmful contaminants from drinking water while in utero. We find small effects of drinking water contamination on all children, but large and statistically significant effects on birth weight and gestation of infants born to less educated mothers. We also show that those mothers who were most affected by contamination were the least likely to move between births in response to contamination.     

Interactions between Brands and CO Labels: The Case of “Bavarian Beer” and “Munich Beer” – Application of a Conditional Logit Model

ABSTRACT

For the past four decades ‘country-of-origin’ (CO) research has been discussing the value of designations such as ‘Made in Germany’ or ‘Made in USA.’ However, published studies have not usually investigated brand-specific effects of ‘country-of-origin’ (CO labels). This article employs a choice experiment in order to analyse the impact of a CO label applied to branded food products. For this purpose, a nationwide survey was carried out in Germany to measure the effect of the geographical indications ‘Bavarian beer’ and ‘Munich Beer’ on brand choice. The results indicate that weak unknown brands can benefit especially from the labeling of geographical indications.     

On the Joint Distributions of the Time to Ruin,the Surplus Prior to Ruin,and the Deficit at Ruin in the Classical Risk Model

Abstract

The seminal paper by Gerber and Shiu (1998) unified and extended the study of the event of ruin and related quantities, including the time at which the event of ruin occurs, the deficit at the time of ruin, and the surplus immediately prior to ruin. The first two of these quantities are fundamentally important for risk management techniques that utilize the ideas of Value-at-Risk and Tail Value-at-Risk. As is well known, calculation of these and related quantities requires knowledge of the associated probability distributions. In this paper we derive an explicit expression for the joint (defective) distribution of the time to ruin, the surplus immediately prior to ruin, and the deficit at ruin in the classical compound Poisson risk model. As a by-product, we obtain expressions for the three bivariate distributions generated by the time to ruin, the surplus prior to ruin, and the deficit at ruin. Finally, we consider mixed Erlang claim sizes and show how the joint (defective) distribution of the time to ruin, the surplus prior to ruin, and the deficit at ruin can be calculated.     

Adult Polycystic Kidney Disease and Insurance

Abstract

Adult Polycystic Kidney Disease (APKD) is a single-gene autosomal dominant genetic disorder leading to end-stage renal disease (ESRD, meaning kidney failure). It is associated with mutations in either of two genes, APKD1 and APKD2, and although diagnosis is still mostly by ultrasonography rather than DNA-based tests, this may change in the future. Recent studies have shown that the rates of onset of ESRD associated with APKD1 mutations are much greater than those associated with APKD2 mutations, a form of genetic heterogeneity that differs from, for example, familial breast cancer. In this paper we model the the impact of mutations in APKD1 or APKD2 on critical illness insurance, extending the work of Gutiérrez and Macdonald (2003), which was based on studies predating DNA-based tests. We then extend the model to life insurance and show that the financial impact is strongly dependent on the availability of treatment (dialysis and transplant), but that if it is available, extra premiums for life insurance are modest. We show that genetic heterogeneity introduces a novel problem, because carrying an APKD2 mutation is less risky than having a family history of APKD. Thus, in jurisdictions where family history may be used in underwriting but genetic tests may not, it may be illegal to use knowledge that benefits the applicant.