Poor institutions as a comparative advantage

Classic theories of comparative advantage point to factor productivity and factor abundance as determinants of specialization and trade. Likewise, geography and topography can determine trade patterns. Institutions, however, are increasingly seen as important sources of comparative advantage. A global drug prohibition regime implies that institutional quality matters more than traditional sources in the drug trade. This paper theoretically models trade patterns of illicit goods and confirms the role of institutions empirically with respect to the drug trade. In particular, illicit enterprises gain force in countries where resources are scarce, drug enforcement is uncertain, and institutions are weak in absolute terms and relative to neighboring countries. I propose several policy alternatives that emphasize economic opportunity for the poor and institutional quality that complement drug prohibition.     

Who pays taxes? Liturgies and the <Emphasis Type="Italic">Antidosis</Emphasis> procedure in Ancient Athens

Ancient Athens developed a constitutional democracy. A core, time invariant political economy problem is that of providing public services when wealth is imperfectly know. I model theoretically a unique institution developed in Ancient Athens known as the Antidosis. It allowed a citizen on the list of tax-payers to challenge a citizen not contributing to replace him and make the public goods contribution. The challenged citizen, rather than allow the claim to go before a jury trial, could choose to swap wealth with the accusing tax payer. I argue this acts as a screening mechanism and improves upon the asymmetric information problem the government has in identifying who is indeed those who have the highest wealth to provide the tax revenue to finance the public services.     

Is the Income Elasticity of the Willingness to Pay for Pollution Control Constant?

How willingness to pay for environmental quality changes as incomes rise is a central question in several areas of environmental economics. This paper explores both theoretically and empirically whether or not the willingness to pay (WTP) for pollution control varies with income. Our model indicates that the income elasticity of the marginal WTP for pollution reduction is only constant under very restrictive conditions. Our empirical analysis tests the null hypothesis that the elasticity of the WTP for pollution control with respect to income is constant, employing a multi-country contingent valuation study of eutrophication reduction in the Baltic Sea. Our findings reject this hypothesis, and estimate an income elasticity of the WTP for eutrophication control of 0.1–0.2 for low-income respondents and 0.6–0.7 for high-income respondents. Thus, our empirical results suggest that the elasticity is not constant but is always less than one. This has implications for how benefits transfer exercises, and for theoretical explanations of the environmental Kuznets curve.     

Do Extrinsic Incentives Undermine Social Norms? Evidence from a Field Experiment in Energy Conservation

Policymakers use both extrinsic and intrinsic incentives to induce consumers to change behavior. This paper investigates whether the use of extrinsic financial incentives is complementary to intrinsic incentives, or whether financial incentives undermine the effect of intrinsic incentives. We conduct a randomized controlled trial that uses information interventions to residential electricity customers to test this question. We find that adding economic incentives to normative messages not only does not strengthen the effect of the latter but may reduce it. These results are consistent with recent theoretical work that suggests a tension between intrinsic motivation and extrinsic incentives.     

The predictive ability of a risk-adjusted yield spread for economic activity in Europe

This paper examines whether the pricing of risk is important for macroeconomic activity at the country level. We design a risk-adjusted yield spread and test its predictive content for economic activity on the periphery and the centre of Europe over the 1990–2012 period. This risk-adjusted bond yield spread is defined in a cross-country context and referred to as the GZ-type spread. Increases in the yield on corporate bonds issued in the countries on the periphery relative to the riskless yield (calculated using German zero-coupon term structure data) reflect increases in the risk premium that the financial market imposes on borrowers. The risk premium rises in all countries during European-wide recessions of the recent past, particularly those associated with the Global Financial and the Sovereign Debt Crisis. Our findings indicate further that this GZ-type spread acts as a reliable signal for imminent and near-term economic activity in countries where financial markets were shaken to their foundations during the Crisis period. For Germany, the GZ-spread has predictive content for industrial production but not for the unemployment rate. For GDP its predictive ability is confined to the EMU period.     

Sustainability-oriented tax-based own resources for the European Union: a European carbon-based flight ticket tax

The failed attempts of several European countries to introduce a flight ticket tax and the pressure on those European Union Member States still levying such a tax clearly demonstrate the limits of national aviation taxation. Assigning a carbon-based flight ticket tax to the EU level would reduce the tax enforcement problems inherent to mobile tax bases and put a stop to harmful tax competition between EU Member States. By replacing a part of national contributions to the EU budget a flight ticket tax can strengthen sustainability-orientation of the EU system of own resources. Using a new data set, which assigns to approximately 75 to 90% of the respective intra and extra EU routes flown in the year 2014 the corresponding carbon emissions per passenger, the paper estimates the expected revenue from implementing a carbon-based flight ticket tax at the EU level for carbon tax levels between 25 and 35€ per ton of carbon emissions.     

Does European development have Roman roots? Evidence from the German Limes

This paper contributes to the understanding of the long-run consequences of Roman rule on economic development. In ancient times, the area of contemporary Germany was divided into a Roman and a non-Roman part. The study uses this division to test whether the formerly Roman part of Germany are more developed than the non-Roman part. This is done using the Limes Germanicus wall as geographical discontinuity in a regression discontinuity design framework. The results indicate that economic development—as measured by luminosity—is indeed significantly and robustly larger in the formerly Roman part of Germany. The study identifies the persistence of the Roman road network until the present as an important factor causing this developmental advantage of the formerly Roman part of Germany both by fostering city growth and by allowing for a denser road network.     

A social morality for mortals: A review essay of <Emphasis Type="Italic">the order of public reason: A theory of freedom and morality in a diverse and bounded world</Emphasis>

This essay praises Gerald Gaus’s The Order of Public Reason as a building block for all normative explorations into the institutional foundations of human sociability. It evaluates the normative implications put forth by Gaus in terms of the Kirzner’s “finder’s keeper’s ethic.” This raises a question about the relationship between the moral order and the political order that underlies market processes. Examining the role of entrepreneurship in the market process in relation to Kirzner’s “finder’s keeper’s principle” suggests a deeper ethical foundation that underpins the institutional conditions of “social morality.”     

“Cleansing the air at the expense of waterways?” Empirical evidence from the toxic releases of coal-fired power plants in the United States

Environmental policies in the United States have primarily taken the form of media-specific regulations that emphasize end-of-pipe pollution control. This can lead to the shifting of pollution across environmental media, thereby having the potential to solve one environmental problem by creating a new problem. This study uses data from 228 coal-fired power plants that report to the Toxics Release Inventory to conduct an empirical examination of the extent to which media-specific regulation has caused power plants to shift their toxic air releases to waterways, land, or transfers for offsite recycling facilities. Controlling for plant-level fixed effects, scale of production, and environmental inspections and enforcement under air regulation, this study finds that adopting tougher air pollution regulation that designates counties as being in nonattainment status with the National Ambient Air Quality Standards significantly increased toxic releases to waterways and land.