Suppose the USA had REACH: ramifications for formaldehyde

The Registration, Evaluation, and Authorization of Chemicals (REACH) legislation for regulating chemicals came into force in the EU in June 2007. This framework is stricter and more precautionary than its counterpart in the USA – the Toxic Substances Control Act – in that it requires data submissions for not only new but existing chemicals as well. This study evaluates the REACH process by assuming that the program exists in the USA and by taking formaldehyde, which is widely used yet toxic at certain doses, through the steps of REACH. We find that the attractive features of REACH are that it shifts more of the technical burdens of regulation to industry and that it may stimulate competitive pressures for safer, ‘greener’ products. Downsides include technical ambiguities in the analytical guidance, a potential for creating large amounts of paperwork, and perhaps a small risk reduction relative to the costs of the legislation. We recommend additional case studies with other existing chemicals to obtain a fuller picture of the potential ramifications of REACH‐like legislation in the USA.     

Confounding changes in averages with marginal effects: How anchoring can destroy economic value in strategic investment assessments

Profit maximization requires that decision makers assess marginal profits. We demonstrate that decision makers often confound marginal profits with changes in average profits (e.g., changes in return‐on‐investment). This results in systematic deviations from profit maximization where decision makers forgo profit‐enhancing investments that reduce average profits or engage in loss‐enhancing investments that decrease average losses. In other words, average profit becomes an anchor by which new investments are assessed. We conduct two decision‐making experiments that show this bias and demonstrate it is pronounced when average profit data are accessible or task‐relevant. Moreover, we find within‐subject effects across experiments, which helps demonstrate the mechanism that invokes the bias. Copyright © 2013 John Wiley & Sons, Ltd.     

Strategic rationale for responding to extra‐jurisdictional regulation: Evidence from firm adoption of renewable power in the US

It is well documented that firms respond to regulations in their home jurisdictions. We present hypotheses that firms also respond to regulations in jurisdictions where they do not operate. We examine renewable‐power provision in the U.S. electric utility sector between 2001 and 2006, and find that firms adopt more renewable‐power generation when their peers (i.e., firms in the same regulatory jurisdiction) face greater renewable‐power standards in other jurisdictions. The underlying mechanism is that forward‐looking firms assess when extrajurisdictional regulations foreshadow regulatory changes where they operate. Our analyses support this mechanism versus plausible alternatives. We demonstrate firms acting strategically to respond to extrajurisdictional regulations and show that the central conduit motivating this response is the extrajurisdictional footprint of firms operating in the same jurisdiction as a focal firm. Copyright © 2013 John Wiley & Sons, Ltd.     

Are Crop Yields Normally Distributed? A Reexamination

This article demonstrates that normality test procedures that include individual detrending of short-term panel data can severely reduce the power of normality tests and strongly bias normality tests in a Type II direction. An alternative error component implicit detrending procedure is suggested that demonstrates higher power for the distributions examined. Both procedures are applied to a large data set with normality of yield residuals being rejected. Assuming normality is shown to reduce potential premium rates for a large number of producers in an existing crop insurance product.     

Spatial Effects within the Agricultural Land Market in Northern Ireland

The importance of dealing properly with spatial effects, such as spatial autocorrelation, in cross‐sectional econometric estimation has become more widely recognised in recent years. Spatial autocorrelation is similar in many ways to serial correlation, but while the latter is ordered on a one‐dimensional time axis, the former is ordered in two dimensions. The multi‐directional nature of spatial dependence means that specialised techniques are needed for diagnostic testing and estimation purposes. This paper uses these specialised diagnostics to test for spatial effects within a hedonic pricing study of the agricultural land market. The tests indicate that spatial autocorrelation (in the form of spatial lag dependence) and spatially distinct sub‐markets (or spatial heterogeneity) are present. Ignoring these effects in the estimation process is likely to lead to biased parameter estimates. Consequently, we re‐specify the hedonic model to allow for these spatial effects. The presence of spatial lag dependence suggests that there is circularity of price setting within the agricultural land market. This means that agricultural land prices are not solely determined by the inherent characteristics of the land, but tend to reflect also the average local price per acre.     

Depreciation and intergenerational altruism in the private provision of public goods

The static model of the private provision of public goods is refuted by empirical and experimental evidence which shows that contributions are above the levels predicted by the theory. The model is reconsidered here in an intertemporal framework that allows the formation of a stock of public good over time and admits intergenerational altruism into preferences. Both of these factors affect the level of private provision. An intertemporal version of the Samuelson rule is derived and it is shown that, for some parameter values, the provision level determined by this is matched by private provision. For other parameter values, it is shown how a system of taxation can achieve the optimum.