Fragmentation, Engel's Law, and Learning

This paper outlines the conditions under which trade is beneficial for a developing country's growth. A developing country suffers from two disadvantages: low income and a comparative disadvantage in the production of modern manufactured goods—goods which allow a high rate of human capital accumulation through learning by doing. Low income together with Engel's law imply that developing countries consume and produce very few modern goods in autarky and hence grow slowly. With international fragmentation of production, a developing country may find comparative advantage in the production of some stages of modern goods despite an absence of comparative advantage in the production of modern goods under “100% local content.” More resources can then be allocated to the modern goods sector leading to greater learning externalities and hence growth under free trade than in autarky.     

A Critique of the Legal and Philosophical Case for Rent Control

Rent control is an economic abomination. It diverts investments away from residential rent units, it leads to their deterioration, it is responsible for urban decay such as in the South Bronx, it does not help poor tenants, it is a horrendous means of income redistribution. Yet this economic regulation is beloved of intellectuals (hot beds of pro rent control sentiment are Berkeley, Ann Arbor and Cambridge) particularly in the legal and philosophical communities. The present article is dedicated to an exploration and rejection of the arguments in behalf of rent control which emanate from this source.     

The Evolution of the Social Contract

Two transitions in the evolution of the social contract are considered, the first from the dominance hierarchies of the great apes (used as a proxy for our prehuman ancestors) to the egalitarian political structure of non-sedentary hunter-gatherer bands, and the second, to the reintroduction of hierarchical institutions of governance, primarily a result of living in fixed settlements after the inception of agriculture. The first transition was a product of biological and cultural evolution, which brought about big brains, language, higher consciousness, and a lower rate of time preference that enabled early man to sustain an egalitarian social contract and thereby escape the domination that confronted his prehuman ancestors. The second transition was a product of cultural evolution alone. The high costs of enforcing the hunter-gatherer social contract caused it to break down and be replaced by hierarchy when the domestication of plants and animals gave rise to a sedentary existence and increased populations. However, it is shown that the very biological and cultural adaptations that made hunter-gatherer egalitarianism possible were a necessary foundation for the spontaneous creation of complex culture and the evolution of institutions that would once again eventually make freedom possible and economic prosperity possible.     

Teaching New Product Development To Employed Adults

The purpose of this article is to report the lessons derived from broad practical experience in teaching new product development (NPD) to employed adults. My observations are importantly augmented by diverse comments from nine other service providers who also conduct and participate in similar NPD education. Our combined lessons summarize what works and what to be forewarned about. (“Those who cannot remember the past are condemned to repeat it.”– George Santayana.) We believe that what we have learned from our very different and extensive involvement can help several audiences: (1) others who offer or plan to offer and deliver NPD education – educators, service providers, or practitioners; (2) organizations that may wish to sponsor NPD training in any form; and (3) those who expect to participate as students in NPD seminars or courses. The article has four main sections, all of which are intended to provide pointers and helpful suggestions based on our collective experience. First is a discussion of issues concerning program set‐up and acceptance. Both sponsors and participants have important responsibilities for this, which are explained. Second is a discussion of practical issues specific to NPD education. The varieties of subject matter and support materials, format options, techniques to sustain interest, instructor characteristics, and client confidentiality are covered. Third is a discussion of practical logistic issues that apply to all adult education but with an emphasis on NPD. Advance warning of what can be and has been encountered may help you circumvent many avoidable problems. Fourth is a brief discussion about the future for NPD education. In this we speculate that the emergence of broadband Internet may provide a new modality, the effectiveness of which is still uncertain. An important insight for you to note is that we do not always do the same thing or approach teaching situations in the same way. What has worked for one of us may not have been effective for another or in another situation. In summary, the experiences we record should help you improve the delivery of NPD education or more efficiently benefit from participation in such training. © 2002 Elsevier Science Inc. All rights reserved.     

A Nonstandard Approach to Option Pricing

Nonstandard probability theory and stochastic analysis, as developed by Loeb, Anderson, and Keisler, has the attractive feature that it allows one to exploit combinatorial aspects of a well-understood discrete theory in a continuous setting. We illustrate this with an example taken from financial economics: a nonstandard construction of the well-known Black-Scholes option pricing model allows us to view the resulting object at the same time as both (the hyperfinite version of) the binomial Cox-Ross-Rubinstein model (that is, a hyperfinite geometric random walk) and the continuous model introduced by Black and Scholes (a geometric Brownian motion). Nonstandard methods provide a means of moving freely back and forth between the discrete and continuous points of view. This enables us to give an elementary derivation of the Black-Scholes option pricing formula from the corresponding formula for the binomial model. We also devise an intuitive but rigorous method for constructing self-financing hedge portfolios for various contingent claims, again using the explicit constructions available in the hyperfinite binomial model, to give the portfolio appropriate to the Black-Scholes model. Thus, nonstandard analysis provides a rigorous basis for the economists' intuitive notion that the Black-Scholes model contains a built-in version of the Cox-Ross-Rubinstein model.     

Stock Market Reactions to SFAS No. 96: Evidence from Early Bank Adopters

Statement of Financial Accounting Standards (SFAS) No. 96, “Accounting for Income Taxes,” issued by the Financial Accounting Standards Board (FASB) in December 1987 changed accounting for income tax recognition and accrual. The original deadline for implementation of SFAS No. 96 was December 15, 1988, and earlier adoption was encouraged. This study examines empirically the stock price impact of four pertinent announcement dates regarding SFAS No. 96 for 19 banks that adopted the statement in late 1987 and early 1988. Our results suggest that these early bank adopters have different characteristics from other banks that cause them to benefit from the changes in accounting for deferred taxes and explain their voluntary adoption of the standard.     

Food Safety Through Food Irradiation: Should it be Adopted More by the EU?

Food Safety Through Food Irradiation: Should it be Adopted More by the EU? Food Irradiation is a food safety technology that can eliminate disease‐causing germs from foods. Faut il encourager ?irradiation pour améliorer la sécurité des aliments en Europe? ?irradiation des aliments est une technique de sécurité alimentaire, qui permet ?en éliminer les germes pathogènes. De même que la pasteurisation du lait, le traitement par des radiations ionisantes permet de tuer les bactéries susceptibles de causer des infections ?origine alimentaire. Celles‐ci sont toujours présentes, et ont de graves conséquences tant pour la santé que pour ?économie. Aux Etats‐Unis, ?irradiation est une technique autorisée pour beaucoup de produits alimentaires. Dans ce pays, le nombre de restaurants et de supermarchés vendant des produits irradiés a augmenté de façon considérable au cours des trois dernières années. Des expérimentations économiques montrent que les consommateurs américains sont disposés à dépenser pour le b?uf irradié des sommes sensiblement supérieures aux suppléments de coûts associés à?irradiation. En Europe, ?utilisation de ?irradiation comme technique de conservation des aliments, susceptible de s'insérer dans des programmes de sécurité alimentaire rigoureux, est beaucoup plus limitée. Jusqu'ici, laliste des produits dont ?irradiation est autorisée dans ?ensemble de la Communauté Européenne ne contient qu'une seule catégorie de produits alimentaires:les herbes aromatiques, épices, et assaisonnements ?origine végétale. Avec la globalisation des circuits commerciaux et le renforcement, exigé par les agences de régulation, des normes de sécurité du champ à la fourchette, la généralisation de l0'irradiation des produits alimentaires devrait profiter à?ensemble des producteurs et des consommateurs européens. Nahrungsmittelsicherheit durch Bestrahlung von Nahrungsmitteln: Sollte dies in der EU verstärkt angewandt werden? Bei der Bestrahlung von Nahrungsmitteln handelt es sich um ein Verfahren zur Gewährleistung der Nahrungsmittelsicherheit, bei der krankheitsverursachende Keime in den Nahrungsmitteln abgetötet werden. Wie bei der Pasteurisierung von Milch können Bakterien mit Hilfe von ionisierenden Strahlen in Nahrungsmitteln abgetötet werden, die anderenfalls durch Nahrungsmittel übertragbare Erkrankungen hervorrufen würden. Diese Erkrankungen stellen eine permanente Bedrohung dar und Ziehen ernstzunehmende Konsequenzen für Gesundheit und Wirtschaft nach sich. In den USA dürfen verschiedene Nahrungsmittelarten bestrahlt werden. In den vergangenen drei Jahren hat die Anzahl der Supermärkte und Restaurants in den USA, die strahlungsbehandelte Produkte anbieten, enorm zugenommen. Erste ökonomische Versuche in den USA legen es nahe, dass die Bereitschaft der Verbraucher, einen höheren Preis für bestrahltes Rinderhackfleisch zu zahlen, sehr viel höher ist als die mit der Bestrahlung verbundenen zusätzlichen Kosten. Die Anwendung der Bestrahlung von Nahrungsmitteln als Werkzeug zur Gewährleistung der Nahrungsmittelsicherheit, welches die strengenNahrungsmittelsicherheitspro‐gramme ergänzen könnte, ist in Europa eher begrenzt. Bislang handelt es sich bei den Produkten, die für die Bestrahlung innerhalb der gesamten EU zugelassen sind, nur um eine einzige Nahrungsmittelklasse: getrocknete aromatische Kräuter und Gewürze. Durch die zunehmende Nachfrage der Aufsichtsbehörden nach Nahrungsmittelsicherheit ?vom Stall bis zum Teller? und die Globalisierung des Nahrungsmittelhandels könnten die Produzenten und Verbraucher in der EU von einer verstärkten Anwendung der Bestrahlung von Nahrungsmitteln profitieren. Like pasteurization of milk, treating food with ionizing radiation can kill bacteria that would otherwise cause foodborne disease. Foodborne illnesses are ever present and have serious health and economic consequences. In the US, food irradiation is approved for use in various foods. The number of supermarkets and restaurants in the US that offer irradiated products has increased dramatically in the last three years. Preliminary economic experiments in the US suggest that consumer willingness to pay for irradiated ground beef is substantially greater than the additional costs associated with irradiation. The use of food irradiation as a food safety tool that could complement rigorous food safety programmes is rather limited in Europe. So far, the list of products authorized for irradiation within the whole EU contains only a single food category: dried aromatic herbs, spices, and vegetable seasonings. With increasing demand by regulatory authorities on food safety from ‘farm to fork’ and the globalization of food trade, EU producers and consumers may benefit from wider adoption of irradiation of food products.