MONETARY VALUATION OF INSURANCE AGAINST FLOOD RISK UNDER CLIMATE CHANGE*

Climate change is projected to increase the risk of natural disasters, such as floods and storms, in certain regions. This is likely to raise the demand for natural disaster insurance. We present a stated preference survey using choice modeling with mixed logit estimation methods in order to examine the effects of climate change and the availability of government compensation on the demand for flood insurance by Dutch homeowners. Currently, no private insurance against flood damage is offered in the Netherlands. The results indicate that there are opportunities for the development of a flood insurance market.     

The taxation of passive foreign investment: lessons from German experience

Abstract The paper evaluates the working of German CFC rules that restrict the use of foreign subsidiaries located in low‐tax countries to shelter passive investment income from home taxation. While passive investments make up a significant fraction of German outbound FDI, we find that German CFC rules are quite effective in restricting investments in low‐tax jurisdictions. We find evidence that the German 2001 tax reform, which unilaterally introduced exemption of passive income in medium‐ and high‐tax countries, has led to some shifting of passive assets into countries for which the exemption was previously limited.     

Investigating regional house price convergence in the United States: Evidence from a pair-wise approach

In this paper we examine long-run house price convergence across US states using a novel econometric approach advocated by Pesaran (2007) and Pesaran et al. (2009). Our empirical modelling strategy employs a probabilistic test statistic for convergence based on the percentage of unit root rejections among all state house price differentials. Using a sieve bootstrap procedure, we construct confidence intervals and find evidence in favour of convergence. We also conclude that speed of adjustment towards long-run equilibrium is inversely related to distance.     

REGIONAL UNEMPLOYMENT DISPARITIES: AN EVALUATION OF POLICY MEASURES*

This paper analyses the efficacy of regional and federal government policies in reducing inter‐regional unemployment disparities. We use as our framework a two‐region general equilibrium model with a given freely‐mobile supply of labour. We assume inter‐regional migration to occur in response to inter‐regional utility differentials. Each region has households, firms and a regional government. In addition to regional governments, there is a federal government. The firms in a region use a single factor, labour, to produce a single good which we assume to be different to that produced in the other region. It is supplied to households and to the regional government in the form of payroll taxes. Households consume some, trade some with households in the other region and give some up to the federal government as income tax. Firms and households bargain over wages and firms then choose employment to maximise profits. The resulting equilibrium will generally not be a full‐employment one. We simulate a linearised numerical version of the model. We examine seven alternative policies, six carried out by a regional government and one by the federal government. In the first group there are traditional tax/expenditure polices as well as policies which might be seen as attacking the natural rate of unemployment: changes in unemployment benefits, changes in union power, changes in the labour force and changes in labour productivity. The federal government policy is a regionally‐differentiated fiscal policy. Contrary to expectations, many policies which have traditionally been recommended to alleviate unemployment are found, in fact, to exacerbate the unemployment problem.     

Incremental and Average Control Costs in a Model of Water Quality Trading with Discrete Abatement Units

This paper answers three questions related to the discrete nature of pollution abatement: (i) does a source’s incremental control cost (as defined by the U.S. Environmental Protection Agency) necessarily exceed its average control cost, (ii) is incremental control cost a better approximation of a source’s willingness to pay for abatement credits than average control cost, and (iii) exactly how does trading in discrete and continuous abatement markets differ? We find that the answer to the first two questions are both “no”, suggesting that the U.S. Environmental Protection Agency needs to refine its reliance on incremental control cost as the sole measure upon which to assess the financial feasibility of water quality trading. In answer to the third question, we show that the outcome of bilateral trading in the presence of discrete abatement is determined by comparing the gains from trade associated with the full sequence of possible “sunk cost trading” scenarios. For the most common case where trading partners’ average control cost curves “cross,” the trading outcome with discrete abatement is inherently sensitive to the initial allocation of abatement responsibilities.     

Technological leadership and sectorial employment growth: A spatial econometric analysis for U.S. counties

This paper studies the determinants of technological catch‐up considering spatial and sectoral aggregation of industries. We investigate how geographical and technological proximity to the technology leader impact regional employment growth. We model technological progress by means of a hierarchical process of catch‐up to the technology leader. We also incorporate measures for knowledge spillover effects to test the roles of competition, specialisation, and diversity at the industry level. Empirical results using data at the county level for different economic sectors (2‐dig NAICS) for the United States indicate that human capital plays a crucial role in promoting sectoral employment growth. The association between technological/geographical distance to the technology leader and employment growth varies across sectors.     

Economic Aspects of Loneliness in Australia

We highlight the problem of loneliness, and argue that it is not only a public health issue but also an economic problem. We provide a brief review of findings from the key literature on the associations between loneliness, mental and physical health, and healthcare costs; and then present some evidence on its trends, the extent of socioeconomic inequalities and its links with health and healthcare usage, in Australia. We hope to encourage further economics research on loneliness, and related issues of social isolation and poor social support, to aid the design of policies and interventions to reduce loneliness.     

Short-Run and Long-Run Effects of Copper Mining on Peru’s Recent Economic Growth

Peru is the second-largest producer and exporter of copper in the world. This paper proposes a novel approach to assess short-run and long-run effects of copper on Peru’s recent economic growth. Annual data over the 2014–2018 period were used to calculate a Mining Contribution Index (MCI). An institutional quality indicator of the World Competitiveness Index of the World Economic Forum measured the dependence of Peruvian economic growth on mining and the quality of its institutions, respectively. Then, monthly data during the period 2005–2018 were used to run vector autoregressive (VAR) and vector error correction (VEC) models to measure copper’s effects on the country’s economy over time. VAR-VEC models included copper production, exports, international price, investment, taxes paid by producing companies, and Peru’s gross domestic product (GDP). Stationarity and causality of variables were verified with the Augmented Dickey-Fuller and Granger tests, respectively. Due to the presence of non-stationary variables, a VEC model was implemented to forecast short- and long-run effects. The main results show that real GDP responds to copper output and other related explanatory variables differently, depending upon the instrument applied. Peruvian GDP has increased dependence on copper mining. The quality of its institutions could explain the presence of Dutch Disease or resource curse theory. Short- and long-run effects of copper output on GDP were generally statistically non-significant. GDP was statistically significant in relation to other mining variables, such as copper exports and the international price of copper.