Information Disclosure as Environmental Regulation: A Theoretical Analysis

Governments around the world are beginning to embrace a new form of environmental regulation – mandatory disclosure of information. While information disclosure programs appear to have an impact on subsequent firm behavior – often resulting in lower levels of pollution – little is known about the costs and benefits of these programs and whether or not they enhance social welfare. This paper presents a simple bargaining model where mandatory information disclosure is used to overcome a lack of information on the part of the public. We characterize the conditions under which information disclosure will lead to a reduction in emissions, and ultimately, the conditions under which it will enhance social welfare. Several extensions of the model are briefly explored, including the effect of two sources of pollution – only one of which is subject to information disclosure. This paper was prepared while V. Santhakumar was a Visiting Scholar at the Vanderbilt Center for Environmental Management Studies, Vanderbilt University.     

The Optimal Timing of Adoption of a Green Technology

We study the optimal timing of adoption of a cleaner technology and its effects on the rate of growth of an economy in the context of an AK endogenous growth model. We show that the results depend upon the behavior of the marginal utility of environmental quality with respect to consumption. When it is increasing, we derive the capital level at the optimal timing of adoption. We show that this capital threshold is independent of the initial conditions on the stock of capital, implying that capital-poor countries tend to take longer to adopt. Also, country-specific characteristics, as the existence of high barriers to adoption, may lead to different capital thresholds for different countries. If the marginal utility of environmental quality decreases with consumption, a country should never delay adoption; the optimal policy is either to adopt immediately or, if adoption costs are “too high”, to never adopt. The policy implications of these results are discussed in the context of the international debate surrounding the environmental political agenda.      

Which Elasticity? Estimating the Responsiveness of Taxpayer Reporting Decisions

In this paper we present estimates of the responses of individuals to marginal tax rates in their reporting of income, using data from individual tax returns for the year 1995. One estimation method is ordinary least squares regression. A second method uses quantile regression, which provides evidence on behavioral responses at different points (or quantiles) in the distribution of income and so is relevant to the question of whether the responses of, say, the rich differ from those at other points in the income distribution. Our results clearly indicate that marginal tax rates affect the reporting decisions of individuals. However, there are significant differences in the marginal tax rate reporting responses for the various types of reported income, there are major differences across income classes, and there are notable differences in the estimated responses across estimation methods.

On the growth and welfare maximizing allocation of public investment

In this paper we present an endogenous growth model to analyze the growth maximizing allocation of public investment among N different types of public capital. Using this general model of public capital formation, we analyze the stability of the long-run equilibrium and we derive the growth-maximizing values of the shares of public investment allocated to the different types of public capital, as well as the growth-maximizing tax rate (amount of total public investment as a share of GDP). The empirical implication of the model is that both the effects of the shares of public investment and the tax rate on the long-run growth rate are non-linear, following an inverse U-shaped pattern. Our analysis is completed by showing that the growth-maximizing shares of public investment and the growth-maximizing tax rate also maximize welfare in the decentralized economy.     

Testing time-homogeneity of rating transitions after origination of debt

When modelling rating transitions as continuous-time Markov processes, in practice, time-homogeneity is a common assumption, yet restrictive, in order to reduce the complexity of the model. This paper investigates whether rating transition probabilities change after the origination of debt. Accordingly, we develop a likelihood-ratio test for the hypothesis of time-homogeneity. The alternative is a step function of transition intensities. The test rejects time-homogeneity for rating transitions observed over 7 years in a real corporate portfolio. Especially 1-year transition probabilities increase over the first year after origination. This time effect suggests that banks should manage their credit portfolios with respect to the age of debt.      

Testing the null hypothesis of no regime switching with an application to GDP growth rates

This paper presents tests for the null hypothesis of no regime switching in Hamilton’s (Econometrica 57:357–384, 1989) regime switching model. The test procedures exploit similarities between regime switching models, autoregressions with measurement errors, and finite mixture models. The proposed tests are computationally simple and, contrary to likelihood based tests, have a standard distribution under the null. When the methodology is applied to US GDP growth rates, no strong evidence of regime switching is found. I thank Don Andrews, Peter Phillips, Yuichi Kitamura, Anat Bracha, Patrik Guggenberger, Orit Whiteman and three anonymous referees for useful comments and suggestions.     

The Economic Value of Water Quality

Stated preference values for water quality ratings based on the US Environmental Protection Agency National Water Quality Inventory ratings provide an operational basis for benefit assessment. Iterative choice survey results for a very large, nationally representative, Web-based panel imply an average valuation of $32 for each percent increase in lakes and rivers in the region for which water quality is rated “Good.” Valuations are skewed, with the mean value more than double the median. Sources of heterogeneity in benefit values include differences in responses to average water quality information and the base level of water quality. Conjoint estimates are somewhat lower than the iterative choice values. The annual economic value of the decline in inland US water quality from 1994 to 2000 is over $20 billion.      

On the importance of matching strategic behavior and target market selection to business strategy in high-tech markets

Business strategy is fundamentally concerned with the actions required to create superior customer value in the firm’s target markets with the ultimate goal of achieving superior performance. Marketing theory suggests that two critical marketing activities required to achieve this end are: (1) the adoption of appropriate strategic behaviors (i.e., customer-oriented, competitor-oriented, technology-oriented) and (2) targeting of the appropriate market segments (i.e., innovators, early adopters, early majority, late majority, laggards). This study builds on prior research which demonstrates that the strategic behavior—firm performance relationship is contingent on the firm’s strategy by examining this relationship in high tech markets and by considering the incremental contribution of appropriate target market selection. Responses from 160 senior marketing managers in high-tech firms reveal strong support for our framework. Thus, this study provides useful guidance to executives and managers in high-tech firms regarding the steps that they should take to increase their probability of success.

Corporate social responsibility: attributions,loyalty, and the mediating role of trust

This study investigates whether consumers’ perceptions of motives influence their evaluation of corporate social responsibility (CSR) efforts. The study reveals the mediating role of consumer trust in CSR evaluation frameworks; managers should monitor consumer trust, which seems to be an important subprocess regulating the effect of consumer attributions on patronage and recommendation intentions. Further, managers may allay the negative effects of profit-motivated giving by doing well on service quality perceptions. On the other hand, appropriately motivated giving continues to positively affect trust regardless of the performance of the firm on service quality provision.