Equilibrium in Marine Mutual Insurance Markets with Convex Operating Costs

The article analyzes the possibility of reaching an equilibrium in a market of marine mutual insurance syndicates, called Protection and Indemnity Clubs, or P&I Clubs for short, displaying economies of scale. Our analysis rationalizes some empirically documented findings, and points out an interesting future scenario. We find an equilibrium in a market of mutual marine insurers, in which some smaller clubs, having operating costs above average, may grow larger relative to the other clubs in order to become more cost effective, and where medium to larger cost‐efficient clubs may stay unchanged or some even downsize relative to the others. Some of the very large clubs suffering from diseconomies of scale may have a motive to further increase relative to the other clubs. According to observations, most clubs have, during the last decade, expanded significantly in size measured by gross tonnage of entered ships, some clubs have merged, but very few seem to have decreased their underwriting activity, in particular none of the really large ones. The analysis points to the following future scenario: The small and the medium to large clubs converge in size, while there is a possibility for some very large clubs to be present as well.     

Unemployment insurance and incentives

In this paper we present a partial economic equilibrium model of the labor market in which we maximize the workers' expected discounted utility level, while implying a zero expected profit for the firms. The model we use for the labor market takes into consideration transitions between the various states of employment and the time periods spent in each state. The probability distribution of these time periods may be arbitrary, not restricted to being exponential, as is the case for ordinary time-continuous Markov processes. The basic principles and difficulties arising from monitoring problems and moral hazard are discussed. In order to analyze unemployment insurance schemes that include incentives for workers to avoid unemployment, we depart from the simplest form of the principle of equivalence in insurance. Several different alternatives are discussed, all giving rise to partial insurance and thus incentives. We also analyze the effects that early retirement have on unemployment. Here, we include social security benefits in the economic model. Finally, we show that the optimal solutions entail quantity rationing.     

Dynamic equilibrium and the structure of premiums in a reinsurance market

In this paper we present an economic equilibrium analysis of a reinsurance market. The continuous-time model contains the principal components of uncertainty; about the time instants at which accidents take place, and about claim sizes given that accidents have occurred. We give sufficient conditions on preferences for a general equilibrium to exist, with a Pareto optimal allocation, and derive the premium functional via a representative agent pricing theory. The marginal utility process of the reinsurance market is represented by the density process for random measures, which opens up for numerous applications to premium calculations, some of which are presented in the last section. The Hamilton-Jacobi-Bellman equations of individual dynamic optimization are established for proportional treaties, and the term structure of interest rates is found in this reinsurance syndicate. The paper attempts to reach a synthesis between the classical actuarial risk theory of insurance, in which virtually no economic reasoning takes place but where the net reserve is represented by a stochastic process, and the theory of equilibrium price formation at the heart of the economics of uncertainty.     

Patent pools,litigation, and innovation

This article analyzes patent pools and their effects on litigation incentives, overall royalty rates, and social welfare when patent rights are probabilistic and can be invalidated in court. With probabilistic patents, the license fees reflect the strength of the patents. We show that patent pools of complementary patents can be used to discourage infringement by depriving potential licensees of the ability to selectively challenge patents and making them committed to a proposition of all‐or‐nothing in patent litigation. If patents are sufficiently weak, patent pools with complementary patents reduce social welfare as they charge higher licensing fees and chill subsequent innovation incentives.     

Toward efficiency in the crude-oil market

The ‘official’ (OPEC) prices of crude oil before the collapse in the oil market in the mid-1980s can be interpreted as contract prices and analysed on the basis of the theory of futures (or forward) markets. This paper uses the generalized method of moments estimation technique to test for efficiency in the relationship between the official prices and the ex-post spot prices at the time of delivery. Efficiency is rejected for the sample period 1978–1985 as a whole, but evidence is found of improvements over time. Further, the GMM Wald and Hansen tests, although asymptotically equivalent, are shown to differ greatly when applied to a small sample of monthly oil price data.     

Office location decisions, modal split and the environment: the ineffectiveness of Norwegian land use policy

An examination of five Norwegian companies’ decisions to locate/relocate reveals that the new locations are in accordance with policy objectives of reduced car commuting and related environmental improvements. Still, most companies ended up with new locations that increase car commuting significantly, compared both to the situation before relocation and to the alternative location that was eliminated only at the last stage in the selection process. This paradox may be explained by a double policy failure: First, current policy instruments are not oriented towards the parameters that companies themselves consider as key selection criteria for office location. Second, policy instruments do not adequately address factors that determine the share of car commuting for a given location.     

Wage settlements and wage setting: results from a multi-level model

Which dimensions of wage setting differ across establishments applying collective contracts and uncovered establishments? The empirical analysis reported here utilizes German linked employer–employee data for the years 1990, 1995 and 2001 and is restricted to workers without supervisory functions in larger manufacturing firms. Results show that the expected wage of an average worker is higher in firms applying collective contracts, while returns to human capital and the gender wage gap are reduced. Moreover, during the 1990s these effects became stronger.     

Contingent valuation and actual payment for voluntarily provided passive-use values: Assessing the effect of an induced truth-telling mechanism and elicitation formats

A fundamental question about the contingent valuation (CV) method is to what degree it predicts actual payments (AP). This has particularly been an intriguing matter related to voluntary provision of public goods representing primarily passive-use values. This paper reports the results from such a CV–AP comparison. Applying a voluntary payment mechanism there exists a theoretical expectation of upward bias in CV estimates and downward bias in AP. This study applied an induced truth-telling mechanism in one treatment group to assess the hypothetical bias effect in CV. The CV estimates in this treatment group were significantly lower than in the group that did not face this mechanism. But this effect was limited to those responding/acting to dichotomous choice, not affecting those responding to open-ended questions about willingness to pay.     

Explanatory factors for participation in formal standardisation processes: Empirical evidence at firm level

In contrast to the long tradition of empirical research into the innovation activities and R&D collaboration of companies, the issue of standardisation has been analysed mostly in theoretical approaches. This paper presents an empirical analysis of the participation of German companies in formal standards development organisations. It becomes clear that company size has a significant positive effect on the probability of a participation in standardisation. We focus further on two aspects, on R&D as input and export intensity as performance indicator, in order to explain the likelihood to join formal standardisation processes. Both the R&D intensity and the export activities exhibit an inverse U relationship. Obviously, even participating in standardisation processes requires a certain absorptive capacity, but R&D and export intensive companies expect more disadvantages, like unintended knowledge spill-overs, from joining formal standardisation processes and, therefore, stay away. In addition, export activities increase the likelihood to join formal standardisation processes up to a certain level, although companies with very high export shares expect less benefit from joining formal standardisation processes. Finally, some policy conclusions are derived.     

Entrepreneurship: Origins and returns

We examine the origins and outcome of entrepreneurship on the basis of exceptionally comprehensive Norwegian matched worker-firm-owner data. In contrast to most existing studies, our notion of entrepreneurship not only comprises self-employment, but also employment in partly self-owned limited liability companies. Based on this extended entrepreneurship concept, we find that entrepreneurship tends to be profitable. It also raises income variability, but the most successful quartile gains much more than the least successful quartile loses. Key determinants of the decision to become an entrepreneur are occupational qualifications, family resources, gender, and work environments. Individual unemployment encourages, while aggregate unemployment discourages, entrepreneurship.