Preference Anomalies,Preference Elicitation and the Discovered Preference Hypothesis

There is wide-ranging evidence, much of it deriving from economics experiments, of ‘anomalies’ in behaviour that challenge standard preference theories. This paper explores the implications of these anomalies for preference elicitation methods. Because methods that are used to inform public policy, such as contingent valuation, are based on standard preference theories, their validity may be called into question by the anomaly data. However, on a new interpretation, these anomalies do not contradict standard theory but are errors in stated preference that can be expected to disappear as people become more experienced in relevant decision environments. We explore the evidence for this interpretation and what implications follow for preference elicitation methodology. JEL classifications: C91, D01, D60, D81, D83, H40     

Managing Permit Markets to Stabilize Prices

The political economy of environmental policy favors the use of quantity-based instruments over price-based instruments (e.g., tradable permits over green taxes), at least in the United States. With cost uncertainty, however, there are clear efficiency advantages to prices in cases where the marginal damages of emissions are relatively flat, such as with greenhouse gases. The question arises, therefore, of whether one can design flexible quantity policies that mimic the behavior of price policies, namely stable permit prices and abatement costs. We explore a number of “quantity-plus” policies that replicate the behavior of a price policy through rules that adjust the effective permit cap for unexpectedly low or high costs. They do so without necessitating any monetary exchanges between the government and the regulated firms, which can be a significant political barrier to the use of price instruments.     

Is Cost–Benefit Analysis Anomaly-Proof?

In this paper we examine whether cost–benefit analysis is anomaly-susceptible or anomaly-proof. To do this, we address four questions. These are, which anomalies, or problems seem most troublesome for CBA? What coping strategies does the analyst adopt to address these problems? Do these adaptation strategies create new problems? And finally, does adopting these strategies invalidate the results of CBA, or reduce the power of its advice? The anomalies we consider are (i) the observed differences between willingness to pay and willingness to accept compensation measures of value; (ii) valuation given information limits, preference uncertainty and preference construction; (iii) hypothetical market bias; (iv) risk perceptions; and (v) risk and preference reversals. We focus our discussion on the estimation of non-market environmental benefits and costs.     

Efficiency and Equity in Natural Resources Pricing: A Proposal for Urban Water Distribution Service

This paper focuses on the design of optimal prices for urban water distribution service. In this context, pricing should be aimed at achieving efficiency, equity, financial aspects, and/or public acceptability and transparency. The proposed tariffs are based on the theoretical frameworks suggested by Ramsey (1927) and Feldstein (1972). As a prior step, estimations of urban water demands and water costs are carried out for the Spanish municipality of Seville. Finally, an empirical comparison, in welfare terms, is conducted between the proposed tariffs and those applicable in the year 2000.     

Uncertainty and Amenity Values in Renewable Resource Economics

In this paper, we study the effects of amenities and uncertainty on the optimal exploitation of a renewable resource. First, if society displays a protection motive (in the presence of amenities), its optimal harvesting strategy will be more conservative. Second, we show that ecological uncertainty leads society to develop the opposite behavior, thus reducing its exposition towards risk. A stationary analysis is undertaken to analytically quantify and compare these two effects. With a Gompertz natural regeneration function and a proportional risk, the amenity effect is proved to prevail if and only if stochastic fluctuations on the resource stock are not too large.     

Cooperation in a Stochastic Transboundary Fishery: The Effects of Implementation Uncertainty Versus Recruitment Uncertainty

This paper examines how non-binding cooperative agreements on fisheries management can be sustained when the management plans in participating countries are implemented imperfectly, and compares the effects of implementation uncertainty and of recruitment uncertainty on the potential for cooperation. The model developed assumes two countries that share a fish stock. Reproduction depends on how much fish each country leaves behind after harvesting and hence on random variation in each country’s achieved abandonment level. A self-enforcing agreement is proposed that accounts for the random variation. The agreement is illustrated with a numerical example. A self-enforcing cooperative solution can only be sustained when uncertainty is not pronounced and when the two countries control close to equal shares of the fishery. Even when a cooperative agreement can be achieved, frequent phases of reversion to non-cooperative harvest levels are needed to support the agreement. A comparison of the effects of recruitment and implementation uncertainty on implicit cooperation indicates that implementation uncertainty is more likely to hamper cooperation.     

Growing Silicon Valley on a landscape: an agent-based approach to high-tech industrial clusters

We propose a Nelson-Winter model with an explicitly defined landscape to study the formation of high-tech industrial clusters such as those in Silicon Valley. The existing literature treats clusters as the result of location choices and focuses on how firms may benefit from locating in a cluster. We deviate from this tradition by emphasizing that high-tech industrial clusters are characterized by concentrated entrepreneurship. We argue that the emergence of clusters can be explained by the social effect through which the appearance of one or a few entrepreneurs inspire many followers locally. Agent-based simulation is employed to show the dynamics of the model. Data from the simulation and the properties of the model are discussed in light of empirical regularities. Variations of the model are simulated to study policies that are favorable to the high-tech economy.JEL Classification: L11, R12This paper has been presented at the 9th International Schumpeter Society Conference in Gainesville, Florida, the Western Economic Associations 77th Annual Conference in Seattle, Washington, the 24th Annual Research Conference of the Association for Public Policy Analysis and Management in Dallas, Texas, and the Workshop on Industry and Labor Dynamics: The Agent-Based Computational Economics Approach in Turin, Italy. I would like to thank Rob Axtell, Giovanni Dosi, Olav Sorenson, and an anonymous referee for their comments, suggestions, and encouragement. I am grateful to Nikesh Patel for his superb assistance.     

Entrepreneurship and regional growth: an evolutionary interpretation

While the neoclassical growth theory considered economic growth as a process of mere accumulation of production capital, the endogenous growth theory shifted the lens to the importance of knowledge in the production process and its potential to create spillovers. We argue in this paper that there is a gap between knowledge and exploitable knowledge or economic knowledge. Economic knowledge emerges from a selection process across the generally available body of knowledge, actively driven by economic agents. This paper suggests that entrepreneurship is an important mechanism in driving that selection process hence in creating diversity of knowledge, which in turn serves as a mechanism facilitating the spillover of knowledge. We provide empirical evidence that regions with higher levels of entrepreneurship indeed exhibit stronger growth in labor productivity.JEL Classification: M13, O32, O47 Correspondence to: David B. AudretschWe are grateful to the ZEW in Mannheim for research support and to the German Science Foundation (DFG) for financial support under research grant number STA 169/10-2. We are indebted to two anonymous referees and the editor of the special issue for their helpful comments.