Overreaction to Fearsome Risks

When risks threaten, cognitive mechanisms bias people toward action or inaction. Fearsome risks are highly available. The availability bias tells us that this leads people to overestimate their frequency. Therefore, they also overreact to curtail the likelihood or consequences of such risks. More generally, fear can paralyze efforts to think clearly about risks. We draw on a range of environmental risks to show the following: (1) Fear leads us to neglect probability of occurrence; (2) As fearsome environmental risks are usually imposed by others (as externalities), indignation stirs excess reaction; (3) We often misperceive or miscalculate such risks. Two experiments demonstrate probability neglect when fearsome risks arise: (a) willingness-to-pay to eliminate the cancer risk from arsenic in water (described in vivid terms) did not vary despite a 10-fold variation in risk; (b) the willingness-to-accept price for a painful but non dangerous electric shock did not vary between a 1 and 100% chance. Possible explanations relate to the role of the amygdala in impairing cognitive brain function. Government and the law, both made by mortals and both responding to public pressures, similarly neglect probabilities for fearsome risks. Examples relating to shark attacks, Love Canal, alar and terrorism are discussed.     

The Poverty of Politics: How Income Redistribution Hurts the Poor

In spite of the significant research literature identifying a tradeoff between income redistribution and economic growth, massive public programs have been implemented to help the poor by transferring income to them. Since Lyndon Johnson's war on poverty began in 1964, over 3.5 trillion dollars have been transferred. However, the possibility that everyone, including the poor, may in fact be made worse off by the transfer has largely been ignored. With a simple algebraic model, the authors demonstrate that, over time, both high and low-income groups are harmed by redistribution. In addition, social mobility, as well as political concerns with relative poverty and international income redistribution increases the damage to all income groups produced by redistribution.     

Fixed-Term Contracts and Labor Market Duality in France

The French labor market is segmented between permanent and temporary workers. The second category has difficulty in getting an open-ended contract. This paper aims at depicting workers on short-term contracts and shows the consequences on their professional career are negative and significant. A large part of the wage gap between permanent and temporary workers remains unexplained by observable characteristics. They receive less on-the-job training and their likelihood of obtaining a stable job is lower than 30% after 1 year and a half. They have also a higher probability of being the adjustment variable in case of an economic negative shock. These different findings show the importance of using public policies to encourage transitions from fixed-term to permanent employment and reducing labor-market duality.     

The Surge in Short-Duration Contracts in Spain

Until the outbreak of the recent economic and financial crisis, Spain was leading the ranking of countries with the largest share of temporary employees. During the crisis this share has fallen to its lowest level in decades, but this does not mean that working conditions in Spain have improved. The flow of new temporary contracts is larger than ever before. A particularly striking feature is the steep growth in the volume of fixed-duration contracts lasting less than a week or a month. We document these trends and analyse how this phenomenon has affected the transition from temporary to permanent employment.     

The Diffusion of Local Differentiated Waste Disposal Taxes in the Netherlands

The diffusion of a novel taxing scheme (among Dutch municipalities over the period 1998–2005) is studied in which the waste disposal tax is increasing in the amount of waste a household produces. Inspection of the rise and spread of this tax shows that it is contagious: the probability of introduction is increasing in the number of neighboring municipalities that have already introduced this taxing scheme. A possible rationale is that the tax encourages the dumping of waste in neighboring municipalities. These municipalities may then introduce a similar tax to prevent dumping (spillover effect). Using panel data and a recently developed spatial probit approach (Elhorst et al. in J Appl Econom 32:422–439, 2017), it is possible to distinguish this spillover effect from time-specific effects. The results indicate the presence of strong spillovers.