Indexed and non-indexed insurance and the growth of group life insurance

This paper provides empirical evidence regarding the hypothesis that expectations of inflation reinforces the need for indexed insurance and decreases purchases of fixed-dollar contracts. A comparison between term life insurance and group life insurance is developed to demonstrate the positive effect of inflation on the growth of group life insurance.     

On the Consequences of Behavioral Adaptations in the Cost–Benefit Analysis of Road Safety Measures

It is sometimes argued that road safety measures or automobile safety standards fail to save lives because safer highways or safer cars induce more dangerous driving. A similar but less extreme view is that ignoring the behavioral adaptation of drivers would bias the cost–benefit analysis of a traffic safety measure. This article derives cost–benefit rules for automobile safety regulation when drivers may adapt their risk‐taking behavior in response to changes in the quality of the road network. The focus is on the financial externalities induced by accidents because of the insurance system as well as on the consequences of drivers' risk aversion. We establish that road safety measures are Pareto improving if their monetary cost is lower than the difference between their (adjusted for risk aversion) direct welfare gain with unchanged behavior and the induced variation in insured losses due to drivers' behavioral adaptation. The article also shows how this rule can be extended to take other accident external costs into account.     

Hungary's entry into the euro area: Lessons for prospective members from a monetary policy perspective

This paper evaluates the conduct of monetary policy in Hungary using standard Taylor rules as well as extended rules that incorporate real exchange rate effects. Moreover, we explicitly consider the impact of future euro area entry by estimating instrument rules that permit an influence from Maastricht Treaty inflation requirements via the estimation of Markov switching models as well as by estimating a differential rule vis-à-vis the existing euro area. Lastly, the paper also considers the impact on policy rules from the large data revision that affects real exchange rate and output estimates. I find that interest rate setting behavior in Hungary does not resemble that of the euro area. Also, counterfactual experiments reveal that the potential macroeconomic costs of entry into the euro area sooner rather than later may be lower than if membership in the single currency area is delayed beyond 2008.     

Introduction: Input–Output Analysis of Interindustry R&D Spillovers

As an introduction to this special issue on intersectoral R&D spillovers, I shall first explain what these spillovers are and how economists try to estimate them. I shall then describe the seven papers selected for this issue from the expanding literature on R&D spillovers, summarize their major results and suggest further avenues of research in this area.     

Market Orientation,Generative Learning,Innovation Strategy and Business Performance Inter‐Relationships in Bioscience Firms

We propose conceptual arguments to establish relationships between market orientation and generative learning and their respective impact on exploitative innovation strategy and explorative innovation strategy. We then consider the ambidextrous association between both forms of innovation strategy and business performance. This model is subject to an empirical test using data generated from 160 bioscience firms. Using structural equation modelling, two mutually exclusive paths are specified where market orientation leads to exploitative innovation strategy, while generative learning leads to explorative innovation strategy. We then find that the ambidexterity exhibited by firms in the form of exploitative innovation strategy and explorative innovation strategy significantly explains improvements in firms’ business performance. Discussion is given to these findings and managerial implications are presented along with avenues for further research.     

Explaining asset pricing puzzles associated with the 1987 market crash

The 1987 market crash was associated with a dramatic and permanent steepening of the implied volatility curve for equity index options, despite minimal changes in aggregate consumption. We explain these events within a general equilibrium framework in which expected endowment growth and economic uncertainty are subject to rare jumps. The arrival of a jump triggers the updating of agents' beliefs about the likelihood of future jumps, which produces a market crash and a permanent shift in option prices. Consumption and dividends remain smooth, and the model is consistent with salient features of individual stock options, equity returns, and interest rates.     

Allocative vs. technical spectrum efficiency

Achieving allocative and technically efficient spectrum management is a key aspect of deregulatory reforms in several OECD countries. However, reform legislation offers few clues as to how these objectives should rank when they conflict with one another. An ‘innocent’ prior acquisition of service-neutral spectrum at an efficiently run auction may prove allocative efficient but fail to be technically efficient if the spectrum is left fallow in the short term. Accountability for the productive usage of a public resource and pressures from short-term political cycles may induce regulators to mandate some minimal level of activity. Two plausible regulatory responses are considered: use it or lose it clauses and spectrum trading incentives. The former favours technical efficiency whilst the latter promotes allocative efficiency. The argument is formalised in a simple economic model buttressing the roles of uncertainty and transaction costs to assert the primacy of allocative efficiency over technical efficiency.     

A model of periodic job training

This paper examines conditions under which a demand-constrained, cost-minimizing firm will provide industry-specific on-the-job-training to its employees, when a flexible stock of outside labor is available for hire. The term industry-specific is used to describe training with general components valued by other firms in the industry. This definition of on-the-job-training offers the possibility that trained workers could be poached by competing firms and provides limited opportunities for newly trained workers to seek alternative employment. The firm's decisions involve whether or not to invest in on-the-job-training, and whether to use in-house labor exclusively or a mix of in-house and outside labor. The cost-minimizing strategy is crucially dependent upon the mutual loyalty of the firm and its workers.This paper has benefited from numerous comments from the participants of the 41st International Atlantic Economic Conference in Paris, March 12–19, 1996.     

A Classification of Dutch Manufacturing based on a Model of Innovation

Summary The paper studies the degree of homogeneity of innovative behavior in order to determine empirically an industry classification of Dutch manufacturing that can be used for policy purposes. Defining homogeneity in terms of an economic model distinguishes our classification from existing taxonomies such as those of the OECD, Pavitt and the various classifications based on a principal components analysis. We use a two-limit tobit model with sample selection, which explains the decisions by business enterprises to innovate and the impact these decisions have on the share of innovative sales. The model is estimated for eleven industries based on the Dutch Standard Industrial Classification (SBI 1993). A likelihood ratio (LR) test is then performed to test for equality of the parameters across industries. We find that Dutch manufacturing consists of three groups of industries in terms of innovative behavior, a high-tech group, a low-tech group and the industry of wood. The same pattern shows up in the three Dutch Community Innovation Surveys. The empirical part of this study has been carried out at the Centre for Research of Economic Microdata at Statistics Netherlands. The authors wish to thank Statistics Netherlands, and in particular Bert Diederen, for helping us in accessing and using the Micronoom data set. The views expressed in this paper are solely those of the authors. The authors also wish to thank Fran?ois Laisney, Patrick Waelbroek and participants at presentations in Maastricht, Strasbourg, Leuven and Lille for their helpful comments. The first author acknowledges financial support from METEOR.