Attitudes Toward Catastrophe

In light of climate change and other global threats, policy commentators sometimes urge that society should be more concerned about catastrophes. This paper reflects on what society’s attitude toward low-probability, high-impact events is, or should be. We first argue that catastrophe risk can be conceived of as a spread in the distribution of losses. Based on this conception, we review studies from decision sciences, psychology, and behavioral economics that explore people’s attitudes toward various social risks. Contray to popular belief, we find more evidence against than in favor of catastrophe aversion—the preference for a mean-preserving contraction of the loss distribution—and discuss a number of possible behavioral explanations. Next, we turn to social choice theory and examine how various social welfare functions handle catastrophe risk. We explain why catastrophe aversion may be in conflict with equity concerns and other-regarding preferences. Finally, we discuss current approaches to evaluate and regulate catastrophe risk.     

A Note on Forecasting Emerging Market Exchange Rates: Evidence of Anti‐herding

Using survey forecasts of a large number of Asian, European, and South American emerging market exchange rates, we studied empirically whether evidence of herding or anti‐herding behavior of exchange‐rate forecasters can be detected in the cross‐section of forecasts. Emerging market exchange‐rate forecasts are consistent with herding (anti‐herding) if forecasts are biased towards (away from) the consensus forecast. Our empirical findings provide strong evidence of anti‐herding of emerging market exchange‐rate forecasters.     

Trans‐Tasman Transmission of Government Spending Shocks

This paper investigates the international transmission of fiscal shocks between two closely‐linked, open economies. We estimate impulse response functions using a semi‐structural vector auto regressive (VAR) model and quarterly data from Australia and New Zealand for the period 1973:3–2008:4. We compare our empirical results with impulse response functions from a calibrated two‐country international real business cycle model with habit formation and adjustment costs to investment. We show that a positive shock to Australian government consumption leads to an increase in Australian output initially and then to a decline in the medium term, while the New Zealand output is negatively affected both in the short and medium term. This result is in line with the recent literature that reports beggar‐thy‐neighbour effect of positive government spending shocks.     

The Refined Best Reply Correspondence and Backward Induction

Fixed points of the (most) refined best reply correspondence, introduced in Balkenborg et al. (2013), in the agent normal form of extensive form games with perfect recall have a remarkable property. They induce fixed points of the same correspondence in the agent normal form of every subgame. Furthermore, in a well‐defined sense, fixed points of this correspondence refine even trembling hand perfect equilibria, while, on the other hand, reasonable equilibria that are not weak perfect Bayesian equilibria are fixed points of this correspondence.     

MEASURING RICHNESS AND POVERTY: A MICRO DATA APPLICATION TO EUROPE AND GERMANY

In this paper, we define a new class of richness measures. In contrast to the often used headcount, these new measures are sensitive to changes in rich individuals' incomes and, therefore, allow for a more sophisticated analysis of richness. We demonstrate the application of these new measures in analyzing the development of poverty and richness over time in Germany. Moreover, we compare Germany to many other European countries and investigate the impact of tax reforms on poverty and richness. Using these examples, we show the importance of taking the intensity of changes into account and not only the number of people beyond a given richness line (headcount). We propose to use the new measures in addition to the headcount index for a more comprehensive analysis of richness.     

Europäische Klimapolitik: Zwischen Anspruch und Wirklichkeit

In order to restrict the risks of anthropogenic climate change to a ?tolerable“ extent, the fourth assessment report of the United Nations’ International Panel on Climate Change calls for a trend reversal towards globally decreasing greenhouse gas emissions within the next two decades which ultimately must lead to a reduction of carbon dioxide emissions until the mid of the century by 50 percent as compared to 2000 emission levels. The European Union claims a lead of a role in climate policy with the objective to push forward international negotiations on far-reaching emission reduction commitments with other important industrialized and developing regions. The EU’s credibility as a leading force will hinge crucially on how successfully it can fulfill its emission reduction obligations under the Kyoto Protocol by means of market-based environmental policy, in particular the exemplary operation of the EU emission trading system. Against this background, the following article provides a critical assessment of the EU’s climate policy.     

Evolutionary stability of discrimination under observability

We study the evolution of preferences under perfect and almost perfect observability in symmetric 2-player games. We demonstrate that if nature can choose from a sufficiently general preference space, which includes preferences over outcomes that may depend on the opponent's preference-type, then, in most games, only discriminating preferences (treating different types of opponents differently in the same situation) can be evolutionary stable and some discriminating types are stable in a very strong sense in all games. We use these discriminating types to show that any symmetric outcome which gives players more than their minmax value in material payoffs (fitness) can be seen as equilibrium play of a player population with such strongly stable preferences.     

Expenditure elasticities of the demand for leisure services

Although some research has already focused on the analysis of expenditure elasticities of leisure demand, some shortcomings with regard to the content and the underlying theoretical model as well as the applied methods exist. This article aims at avoiding these problems to provide consistent derivatives of leisure service expenditure elasticities. Therefore, a regular demand system is derived from microeconomic duality theory. To implement leisure specific demand factors (i.e. demand- and supply-based sports and recreational opportunities as well as sports and recreational preferences) while still being consistent with neoclassical demand theory, the basic model is extended by applying the demographic translation framework. Data of the continuous household budget survey (n?=?7724) from Germany is used for the estimation of the derived demand system. It is shown how sensitive the results are depending on the applied (censored) regression model: 16 out of 18 analysed services are indicated as luxury goods based on the findings of the Tobit model type I but as necessities based on the findings of the Tobit model type II. Possible implications are presented and discussed.