A New Approach to Estimating Damages in Mass Torts

Damage estimation in mass torts involving hazardous or defective products is often complicated by the unknown time-profile of disease incidence or failure rate. Because these cases involve diseases with long latencies or involve products that fail after years of productive use, estimation of the defendants' future liability stream requires a model that can predict how the failure rate or the onset of the disease will change over time.This paper proposes such a model. The estimation technique allows one to compute the 'excess risk' attributable to the hazard or product defect distinct from the natural causes of failure or disease incidence and to calculate the defendants' future liability stream based on the estimates of failure or incidence rates. An application to product failure illustrates the working of the model.     

Union-oligopoly bargaining and entry deterrence: a reassessment of limit pricing

This paper introduces wage bargaining in the framework of Milgrom and Roberts (Econometrica 50(2):443–459, 1982) where the workers’ reservation wage is the private information parameter critical for entry. We show that entry threat significantly distorts the wage, which in some cases adversely affects the firm’s ability to signal through price. Consequently, the separating equilibrium (in price) does not always exist. If, however, wage agreements are made public, signalling occurs with or without distortions in wage depending on whether the union’s bargaining power is high or low. Pooling equilibrium also exists and it features similar distortions. We also examine which signal, wage or price, generates greater social welfare. We would like to thank two referees for their helpful comments and suggestions. This paper is partially based on a chapter of Pal’s PhD thesis done at Indira Gandhi Institute of Development Research (IGIDR), India. For remaining errors we are solely responsible.     

Growth of business services: A supply‐side hypothesis

This paper aims to explain why and how the service sector may grow faster than manufacturing. It develops a two‐sector, closed‐economy model, having a manufacturing sector and a service sector. Accumulation of human capital serves as the basis of growth. The analysis focuses on business services, while household services are also considered. It is argued that differences in returns to scale between the two sectors and employment frictions in manufacturing explain why the growth rate of the service sector may be higher. The model also features that within the service sector the business services sub‐sector may grow faster than household services.     

Asymmetric response of the US–India trade balance to exchange rate changes: Evidence from 68 industries

The relationship between the trade balance and the exchange rate continues to attract attention by international economists and has entered into new territory, mostly due to advances in econometric methods. The introduction of asymmetric error‐correction modelling and asymmetric cointegration using the nonlinear ARDL approach of Shin et al. (Festschrift in Honor of Peter Schmidt: Econometric methods and applications, Springer, 2014, 281) as compared to the symmetric and linear ARDL approach of Pesaran et al. (Journal of Applied Econometrics, 2001, 16, 289) has led us in a new direction to discover relatively better results. We apply these methods to the bilateral trade balance model of each of the 68 industries that trade between India and the USA. The nonlinear approach not only provides more support to the J‐curve effect, but also yields support in favour of short‐run and long‐run asymmetric effects of exchange rate changes in most of the industries.     

Harassment, corruption and tax policy: a comment on Marjit, Mukherjee and Mukherjee [Eur. J. Political Economy 16 (2000) 75–94]

This comment on Marjit, Mukherjee and Mukherjee [Eur. J. Political Economy 16 (2000) 75–94] shows that their basic model can be simplified by an alternative formulation. A corrupt auditor gives two choices to a taxpayer: pay bribe and evade tax or be overtaxed. Although harassment can be redressed through court, the taxpayer chooses to pay bribe. However, as this note discovers, the bribe–income ratio will critically depend on whether the taxpayer can afford the court fees. This may lead different income groups to have different preferences for corruption.     

Production and savings under uncertainty

This paper studies an integrated model of production and savings under uncertainty in which production inputs and the amount of savings are jointly chosen. The analysis shows that if the agent's risk preferences exhibit constant absolute risk aversion, then all results from nonintegrated or separate models of savings and production extend to the integrated framework. Under decreasing absolute risk aversion, the comparative static properties of optimal production decisions with respect to mean preserving spread and spread preserving mean parameters extend from the non-integrated to the integrated framework. However, extension of the savings model results for the same parameters requires a restriction on production technology.     

The interaction effect of economic freedom and democracy on corruption: A panel cross-country analysis

This paper examines the effects of economic freedom, democracy and its interaction term on controlling corruption. Interactive results indicate that economic freedom and democracy significantly combat corruption. Economic freedom reduces corruption in any political environment. Democracy increases corruption when economic liberalization is low.     

Schooling, Informal Experience, and Formal Sector Earnings: A Study of Indian Workers

This paper estimates an earnings function for male workers belonging to the Indian corporate sector. The model allows for differential rates of return to schooling and distinguishes tenure from total labor market experience. The rate of return to schooling is found to be low up to the junior level, increases significantly at the secondary and undergraduate levels, but sharply declines at the masters level. Seniority and firm-specific factors are found to be important determinants of earnings. When years of unemployment and informal experience are incorporated, earnings of low-education workers appear to be driven entirely by formal-sector experience.     

Estimating Nested Count Data Models

Count data models have found a wide variety of applications not only in applied economics and finance but also in diverse fields ranging from biometrics to political science. Poisson and negative binomial (NB) models have been extensively used in count data analysis. Two particular NB model specifications, NBI and NBII, have been especially popular. However, these models impose arbitrary restrictions on the relation between the conditional mean and variance of the dependent variable, limiting their generality. This study proposes tests for selection among the Poisson and NB models by formally demonstrating that the log likelihood function (LLF) of a general NB model parametrically nests the LLF of the Poisson, NBI and NBII as testable special cases. It also proposes estimation of the general NB model since it allows greater flexibility in the relationship between the mean and variance of the dependent variable than NBI and NBII. The empirical application, which uses micro-level data on recreational boating, provides support for the paper's main theme. Tests clearly reject not only the Poisson, but also NBI and NBII, in favour of a different NB model, underscoring the importance of the general model specification.