Optimal Sharing of Foodborne Illness Prevention between Consumers and Industry: The Effect of Regulation and Liability

Consumers and the food industry can both prevent foodborne illness. Two questions are explored: what is the socially optimal level of preventative effort by each and can tort and regulatory instruments induce such behavior? Analysis is complicated by two aspects of food safety technology: one party's effort can affect the marginal effectiveness of the other party's effort and damage functions can be nonconvex. Previous analysis of accidents under torts and regulation fails to consider these generalizations. Indeed, results concerning the ability of tort and regulatory instruments to induce first-best and second-best behavior often contradict previous results in the literature.     

Additionality When REDD Contracts Must be Self-Enforcing

This paper examines self-enforcing contracts as a financial mechanism for reducing carbon emissions from deforestation and forest degradation when the opportunity cost of the land (i.e., landholder type) is private information and is imperfectly correlated over time (i.e., partially persistent types). Because self-enforcement limits the feasible incentives, the conservation levels are constrained by the surplus created. Regardless of the degree of persistence of such opportunity costs across contracting periods, a first-best self-enforcing contract can deliver “additional” carbon sequestration beyond the business as usual scenario only if the value of forest conservation is sufficiently high. Otherwise, self-enforcing contracts can induce some, suboptimal level of carbon sequestration. The degree of persistence of opportunity costs across periods does not affect the amount of total payments provided in the optimal menu of contracts, but greater persistence of opportunity cost types leads to contracts that feature more of the total payment as a bonus in contracts for landholders with a high opportunity cost for their land and more of the total payment as an upfront fixed payment for landholders with a low opportunity cost.     

Optimal design of pro-conservation incentives

Payments for environmental services (PES) schemes have become an increasingly accepted and popular mode for governmental and non-governmental agencies to use in addressing local and regional declines in ecosystem services. In PES schemes, payments can either be tied to indicators of actions for service provision or to indicators of the generated service itself. Performance payments are synonymous for this second group, i.e. payments are completely contingent on the procurement of an environmental good or service. Such a focus raises several practical issues during implementation. We review and translate key aspects of the economic theory of incentives into the context of performance payment schemes with special attention paid to two practical issues: risks outside the individual's control and distortion in the measurement of environmental services. Four different incentive payment approaches are presented and the effects of risk and distortion on optimal incentives are discussed. The investigation of each payment approach is accompanied by a discussion of examples from the field.     

Modeling inter-sectoral growth linkages: An application to U.S. agriculture

General equilibrium and open economy trade theory are used along with time series data on the U.S. agricultural sector to provide insights into the structure of agricultural supply, factor returns and linkages to the rest of the economy. Output expansion and factor returns are found to vary depending on relative factor intensities, which we refer to as Rybczynski and Stolper-Samuelson like effects. The effect of the rest of the economy, particularly the increase in price of services, is found to have relatively large negative impacts on agriculture. The short-run effects of prices and factor endowments on growth in agricultural supply and factor returns are dominated by the long-run effects of technological change.     

Public and private enforcement of securities laws: Resource-based evidence

Ascertaining which enforcement mechanisms work to protect investors has been both a focus of recent work in academic finance and an issue for policy-making at international development agencies. According to recent academic work, private enforcement of investor protection via both disclosure and private liability rules goes hand in hand with financial market development, but public enforcement fails to correlate with financial development and, hence, is unlikely to facilitate it. Our results confirm the disclosure result but reverse the results on both liability standards and public enforcement. We use securities regulators’ resources to proxy for regulatory intensity of the securities regulator. When we do, financial depth regularly, significantly, and robustly correlates with stronger public enforcement. In horse races between these resource-based measures of public enforcement intensity and the most common measures of private enforcement, public enforcement is overall as important as disclosure in explaining financial market outcomes around the world and more important than private liability rules. Hence, policymakers who reject public enforcement as useful for financial market development are ignoring the best currently available evidence.