OPTIONS TO THE REALM: A COST NEUTRAL PROPOSAL TO IMPROVE POLITICAL INCENTIVES

In this article, we draw on the literature on political property rights, political accountability, and strategic management and entrepreneurship to propose a cost neutral reform aimed at promoting long‐run economic prosperity. We propose replacing politicians' defined benefit pensions with a financial contract that is tied to economic performance. In particular, we propose a contract that pays out a lump sum to a politician 30 years after their election if real gross domestic product per capita is above some preset benchmark. Furthermore, we show that the contract can be priced such that it is cost neutral in terms of present value with a defined‐benefit pension. We argue that this contract provides a net benefit to society. (JEL D70, D72)     

Multi-equation modelling of desirable and undesirable outputs satisfying the materials balance

The key feature when modelling joint production of intended outputs and unintended residuals is that the latter stem from the use of material inputs. A multi-equation model building on the factorially determined multi-output model of classical production theory satisfies the materials balance that tells us that the mass contained in inputs cannot disappear, but must turn up in the desirable outputs or end up as residuals. In this model, potentially complex technical relationships are simplified to express each of the intended outputs and the residuals as functions of the same set of inputs. Serious problems with the single-equation models most often found in the literature are demonstrated. Abatement activity in the form of end of pipe is added, and an optimal planning solution is derived using the concept of an environmental damage function for the impact of discharge of residuals into the natural environment. It is shown that the traditional environmental policy instruments, like direct regulation restricting the amount of undesirable residuals discharged to the environment, a Pigou tax on pollutants, and cap and trade, all function well. Extending the multi-equation model to allow for inefficiency, three efficiency measures are introduced: desirable output efficiency, residuals efficiency, and abatement efficiency. It is conjectured that these measures can be estimated independently using the DEA model.     

Spatial econometric Monte Carlo studies: raising the bar

We discuss Monte Carlo methodology that can be used to explore alternative approaches to estimating spatial regression models. Our focus is on models that include spatial lags of the dependent variable, e.g., the SAR specification. A major point is that practitioners rely on scalar summary measures of direct and indirect effects estimates to interpret the impact of changes in explanatory variables on the dependent variable of interest. We argue that these should be the focus of Monte Carlo experiments. Since effects estimates reflect a nonlinear function of both \(\beta \) and \(\rho \), past studies’ focus exclusively on \(\beta \) and \(\rho \) parameter estimates may not provide useful information regarding statistical properties of effects estimates produced by alternative estimators. Since effects estimates have recently become the focus of inference regarding the significance of (scalar summary) direct and indirect impacts arising from changes in the explanatory variables, empirical measures of dispersion produced by simulating draws from the (estimated) variance–covariance matrix of the parameters \(\beta \) and \(\rho \) should be part of the Monte Carlo study. An implication is that differences in the quality of estimated variance–covariance matrices arising from alternative estimators also plays a role in determining the accuracy of inference. An applied illustration is used to demonstrate how these issues can impact conclusions regarding the performance of alternative estimators.     

Taxation and the sustainability of collusion: ad valorem versus specific taxes

Assuming constant marginal cost, it is shown that a switch from specific to ad valorem taxation that results in the same collusive price has no effect on the critical discount factor required to sustain collusion. This result is shown to hold for Cournot oligopoly when collusion is sustained with Nash-reversion strategies or optimal-punishment strategies. In a Cournot duopoly model with linear demand and quadratic costs, it is shown that the critical discount factor is lower with an ad valorem tax than with a specific tax that results in the same collusive price. However, in contrast to Colombo and Labrecciosa (J Public Econ 97:196–205, 2013) it is shown that the revenue is always higher with an ad valorem tax than with a specific tax.     

SOCIAL SECURITY DEPENDENT BENEFITS,NET PAYROLL TAX,AND MARRIED WOMEN'S LABOR SUPPLY

This paper examines how Social Security dependent benefits impact the labor supply of married women aged 25–54. Specifically, I investigate whether the decrease in the rate of return to women's work discourages them from participating in the labor force by simulating expected net payroll tax rates and dependent benefits. Dependent benefits may reduce the net return to women's work, as they usually pay the full payroll tax without receiving marginal benefits for additional earnings if they claim benefits based on their husbands' earnings records. The results show that high net payroll tax rates reduce married women's work incentives, particularly those near retirement age. (JEL H24, H55, J22)     

THE SHORT‐RUN EMPLOYMENT EFFECTS OF RECENT MINIMUM WAGE CHANGES: EVIDENCE FROM THE AMERICAN COMMUNITY SURVEY

This paper presents early evidence on the employment effects of state minimum wage increases enacted between January 2013 and January 2015. As of 2015, we estimate that relatively large minimum wage increases (defined as those exceeding $1) reduced employment among low‐skilled population groups by just over 1 percentage point. Smaller minimum wage increases, as well as increases linked to inflation indexation provisions, appear to have had much smaller (and possibly positive) effects on employment over our sample period. The estimates thus raise the potential importance of nonlinearities in the minimum wage's effects, which are consistent with standard models of the labor market. (JEL H11, J08, J23)     

Fractional Integration Versus Structural Change: Testing the Convergence of $$\hbox {CO}_{2}$$ Emissions

This paper assesses the stochastic convergence of relative \(\hbox {CO}_{2}\) emissions within 28 OECD countries over the period 1950–2013. Using the local Whittle estimator and some of its variants we assess whether relative per capita \(\hbox {CO}_{2}\) emissions are long memory processes which, although highly persistent, may revert to their mean/trend in the long run thereby indicating evidence of stochastic convergence. Furthermore, we test whether (possibly) slow convergence or the complete lack of it may be the result of structural changes to the deterministics of each of the relative per-capita emissions series by means of the tests of Berkes et al. (Ann Stat 1140–1165, 2006) and Mayoral (Oxford Bull Econ Stat 74(2):278–305, 2012). Our results show relatively weak support for stochastic convergence of \(\hbox {CO}_2\) emissions, indicating that only between 30 and 40% of the countries converge to the OECD average in a stochastic sense. This weak evidence disappears if we enlarge the sample to include 4 out of the 5 BRICS, indicating that our results are not robust to the inclusion of countries which are experiencing rates of growth which are far larger than those of the OECD members. Our results also decisively indicate that a slow or lack of convergence is not the results of a structural break in the relative \(\hbox {CO}_{2}\) emissions series.     

Distance and trade: Disentangling unfamiliarity effects and transport cost effects

This paper provides evidence supporting Grossman's (Comments on Alan V. Deardorff, Determinants of bilateral trade: Does gravity work in a neoclassical world?. In: Jeffrey A. Frankel (Ed.), The regionalization of the world economy. Chicago: University of Chicago for NBER; 1996) claim that not only transport costs but also unfamiliarity can explain the negative correlation between geographic distances and bilateral trade volumes. A gravity model that controls for as many natural causes of trade as possible reveals that countries high in uncertainty-aversion (based on Hofstede's survey) export disproportionately less to distant countries (with which they are presumably less familiar). More important, this result is mainly driven by differentiated products, not by products with international organized exchanges or with reference prices. For transport costs alone to explain such a trade pattern, one would have to assume that distance-related ad valorem transport costs are higher when a trade route originates from a high uncertainty-aversion country, which is unlikely. This trade pattern is easy to explain, however, if one accepts that geographic distance is a proxy for unfamiliarity and that exporters in high uncertainty-aversion countries are more sensitive to informational ambiguity. A further result is that high uncertainty-aversion countries trade less and thus grow poorer in the long run, which suggests that cultural factors are as important as geographic ones in determining trade openness and prosperity.     

Global influences on UK manufacturing prices: 1970-2000

We introduce the first consistent series of domestic-product and related import price indices at the industry level for the UK, using the data to analyse both domestic and international determinants of UK manufactured product prices. Foreign influences on UK prices in domestic markets are always present, but domestic cost movements dominate. We show that the pass-through of world-price, tariff and exchange rate changes into product prices is partial in general and varies markedly between product categories. Standard tariff and exchange rate theories overstate price responses to global pricing determinants and fail to allow for variation between industrial sectors. Such theories can mislead when used for policy analysis and prediction.