Leadership and information in a single‐shot collective action game: An experimental study

We consider a leader–follower mechanism in a collective action game, which exhibits both free riding and coordination problems. Leaders can persuade group cooperation by making a costly commitment to a project. Followers can choose to follow their leaders. The project's return can be transparent to all or only to the leaders. We show experimentally that when free riding is the dominant strategy of an informed subject, concentrating information in the hands of the leaders improves cooperation more effectively than a regime of information dispersal. The coordination problem, however, may be reduced more effectively in a regime of information dispersal. Copyright © 2010 John Wiley & Sons, Ltd.     

A Major Environmental Tax Reform for the UK: Results for the Economy,Employment and the Environment

This paper reports the results of a major modelling exercise to gain insights into the possible economic and environmental effects of a large-scale environmental tax reform (ETR) in the UK. ETR involves a shift in the target of taxation away from labour or firms towards pollution or the use of natural resources, in such a way that overall tax revenues are unchanged. It is hoped that such a tax shift will deliver environmental improvements while having a neutral or positive effect on the economy. The modelling was set up to explore the extent to which this would be the case. The paper starts with a brief literature review identifying the theoretical hypotheses relating to ETR and summarising the results of some of the evaluations of ETRs that have been implemented. It then briefly describes the model used for the analysis in this paper. The main body of the paper then describes the scenarios set up to explore the main impacts and the results of modelling these scenarios. These results suggest that substantial reductions in greenhouse gas (GHG) emissions can be achieved with minimal impacts on output and an overall increase in employment, such that ETR emerges as a very attractive policy for GHG emission reduction.     

ASSET PRICE BUBBLES IN INCOMPLETE MARKETS*

This paper studies asset price bubbles in a continuous time model using the local martingale framework. Providing careful definitions of the asset's market and fundamental price, we characterize all possible price bubbles in an incomplete market satisfying the “no free lunch with vanishing risk (NFLVR)” and “no dominance” assumptions. We show that the two leading models for bubbles as either charges or as strict local martingales, respectively, are equivalent. We propose a new theory for bubble birth that involves a nontrivial modification of the classical martingale pricing framework. This modification involves the market exhibiting different local martingale measures across time—a possibility not previously explored within the classical theory. Finally, we investigate the pricing of derivative securities in the presence of asset price bubbles, and we show that: (i) European put options can have no bubbles; (ii) European call options and discounted forward prices have bubbles whose magnitudes are related to the asset's price bubble; (iii) with no dividends, American call options are not exercised early; (iv) European put‐call parity in market prices must always hold, regardless of bubbles; and (v) futures price bubbles can exist and they are independent of the underlying asset's price bubble. Many of these results stand in contrast to those of the classical theory. We propose, but do not implement, some new tests for the existence of asset price bubbles using derivative securities.     

Public investment,taxation, and long-run output in economies with multi-level governments

This paper examines the dynamic effects of taxation and investment on the steady state output level of an economy. A simple neoclassical growth model with different tiers of government is developed. The initial focus is on governments that aim to maximise their citizens' welfare and economic performance by providing consumption goods for private consumption and public capital for private production. It is shown that a long-run per capita output maximising tax rate can be derived and that there also exists an optimal degree of fiscal decentralisation. The analysis then extends to the case where governments attempt instead to maximise their own tax revenue to fund expenditures which do not contribute to the utility of their citizens. Three different cases of taxation arrangement are considered: tax competition, tax sharing, and tax coordination. The modeling shows that intensifying tax competition will lead to an increase in the aggregate tax rate as compared to the cases of sharing and coordination amongst governments. These tax rates are both higher than the long-run per capita output maximising rate that was implied under the welfare maximising government scenario.     

Rational drug design, the knowledge value chain and bioscience megacentres

This paper seeks to trace important shifts and cluster evolutionin the healthcare industry. Its key aim is to examine the implicationsof the rise of science-based clusters for economic geographyand related policies. A special focus is biosciences and therise of ‘biologics’ more generally at the expenseof fine chemistry in drug development. The old agglomerationsof pharmacy are no longer leaders in knowledge exploration,as universities, research laboratories and medical schools takeover research, they are beginning to lose prominence to dedicatedbiotechnology firms (DBFs) in knowledge examination, and retaintheir most important involvement as financiers and marketersof DBF exploitation knowledge. This has profound geographicalas well as industry organisation equilibrium effects. Over-concentrationof the bioscientific knowledge value chain has given rise tothe new spatial policy practice of developing regional sciencestrategies. Aspects of these are commented upon.