Drugs: Drugs, economics and policy

There is no necessary link between drug consumption, addiction and social disintegration. Empirical evidence suggests that a considerable share of the population has consumed illegal drugs during some period of their lives. A substantial proportion of drug users have a job and home. Many 'mature out' of drug consumption in their thirties. Most drug users are normal consumers responding systematically to relative prices.
After the failure of a repressive drugs policy, Switzerland allows cities to pursue a 'third way' between repression and liberalization. The state allows carefully screened heavy addicts to inject heroin at a nominal price, while at the same time raising the cost to potential entrants. The 'experiment' has produced encouraging results. The health of heroin users has improved and crime has been reduced. A homogenized drugs policy in the European Union would probably disallow such promising programmes.     

Economic and political determinants of foreign direct investment

Four models explaining the flow of foreign direct investment in 80 less developed countries are econometrically estimated and compared by ex post forecasts. A politico-economic model which simultaneously includes economic and political determinants performs best. The higher the real per capita GNP and the lower the balance of payments deficit are, the more foreign direct investment is attracted. Among the political determinants the amount of bilateral aid coming from Western countries and multilateral aid has a stimulating effect, while help from communist countries has a negative effect. Political instability significantly reduces the inflow of foreign direct investment.     

To harmonize or to compete? That's not the question

Neoclassical public economists stress economic distortions induced by differential taxation and therefore favour harmonization; political economists focus on political distortions and therefore reject harmonization. However, policy choices on the possibility frontier between economic and political distortions tend to be biased: economic advisers, politicians and interest groups typically favour harmonization. Harmonization is, moreover, undermined by incentives to re-establish tax differences. Both activities prevent the possibility frontier from being simply a menu of choice. Popular referenda and functional, overlapping, competing jurisdictions (FOCJs) are institutions able to reduce political distortions and to shift the possibility frontier.     

A directly democratic and Federal Europe

This paper endeavors to take up the neglected aspects of federalism and direct democracy. It emphasizes the mutual dependence of the two for reaching the goals of efficiency and trust. Direct democracy is seen to preserve federalism, but even more importantly, federalism is taken to enable and to preserve effective direct democracy. Empirical evidence is adduced showing in particular that direct democracy leads to higher efficiency in the sense of lowering transaction costs. A proposal for a novel combination of federalism and direct democracy—which is called FOCJ (the acronym for Functional Overlapping Competing Jurisdictions)—is suggested for Europe.Financial Supported by the Swiss National Fund (Project No. 12-42480-9) is greatefully acknowledge.     

Pricing and regulating affect environmental ethics

Effluent charges and tradeable permits are economically efficient but rarely used. A new explanation for this discrepancy is offered. Pricing may crowd out environmental ethics in the pricing, and via spillovers, also in non-pricing sectors. Pricing may therefore increase pollution, providing a reason why decision-makers tend to reject environmental pricing. Five propositions showing the conditions for counterproductive effects are advanced. They are consistent with available empirical evidence. Regulation by setting standards and subsidies damage environmental ethics less than pricing, because pollution is condoned. Damaging environmental ethics may prevent political action in favor of the environment.     

ECONOMETRIC MODELS OF ASYMMETRIC PRICE TRANSMISSION

Abstract In this paper, we review the existing empirical literature on price asymmetries in commodities, providing a way to classify and compare different studies that are highly heterogeneous in terms of econometric models, type of asymmetries and empirical findings. Relative to the previous literature, this paper is novel in several respects. First, it presents a detailed and updated survey of the existing empirical contributions on price asymmetries in the transmission mechanism linking input prices to output prices. Second, this paper presents an extension of the traditional distinction between long‐run and short‐run asymmetries to new categories of asymmetries, such as: contemporaneous impact, distributed lag effect, cumulated impact, reaction time, equilibrium and momentum equilibrium adjustment path, regime effect, regime equilibrium adjustment path. Each empirical study is then critically discussed in the light of this new classification of asymmetries. Third, this paper evaluates the relative merits of the most popular econometric models for price asymmetries, namely autoregressive distributed lags, partial adjustments, error correction models, regime switching and vector autoregressive models. Finally, we use the meta‐regression analysis to investigate whether the results of asymmetry tests are not model‐invariant and find which additional factors systematically influence the rejection of the null hypothesis of symmetric price adjustment. The main results of our survey can be summarized as follows: (i) each econometric model is specialized to capture a subset of asymmetries; (ii) each asymmetry is better investigated by a subset of econometric models; (iii) the general significance of the F test for asymmetric price transmission depends mainly on characteristics of the data, dynamic specification of the econometric model, and market characteristics. Overall, our empirical findings confirm that asymmetry, in all its forms, is very likely to occur in a wide range of markets and econometric models.