The Optimal Provision of Curative Goods

We analyze the optimal contract between a risk neutral regulator providing a curative goods and a risk averse patient who learns the realized value of his/her health status after the contracting stage. Consumption of a curative good (healthcare) reduces the disutility associated with a disease. We show that the consumption of curative goods is larger than in the complete information case, that this overprovision increases with the degree of patients’ risk‐aversion and the marginal cost of treatment. Ceilings on the amount of healthcare are part of the optimal contract when risk aversion is important.     

The Determinants of Long‐Term Corporate Debt Issuances

A significant proportion of the debt issued by investment‐grade firms has maturities greater than 20 years. In this paper we provide evidence that gap‐filling behavior is an important determinant of these very long‐term issues. Using data on individual corporate debt issues between 1987 and 2009, we find that gap‐filling behavior is more prominent in the very long end of the maturity spectrum where the required risk capital makes arbitrage costly. In addition, changes in the supply of long‐term government bonds affect not just the choice of maturity but also the overall level of corporate borrowing.     

ASSET PRICE CHANGES AND MACROECONOMIC MEASUREMENT OF PROFITABILITY

On the basis of national accounts data, this article compares two different measures for the profitability of non‐financial corporations, between France and the United States over the last two decades. The two measures differ in the way they evaluate the various elements that are integrated in the profitability calculation. The first measure corresponds to the usual practice which ignores the holding gains and losses on assets concerning some components of the profit measurements. In contrast, the second takes full account of these holding gains and losses on assets in corporations' returns. The analysis highlights in particular the effects on profitability measures of the huge variations in asset prices observed in recent years in the two countries. The main finding is that taking holding gains and losses into account actually matters for the measurement of corporate profitability over time, this result being particularly clear over the recent period.     

Ratings Quality and Borrowing Choice

Past studies document that incentive conflicts may lead issuer‐paid credit rating agencies to provide optimistically biased ratings. In this paper, we present evidence that investors question the quality of issuer‐paid ratings and raise corporate bond yields where the issuer‐paid rating is more positive than benchmark investor‐paid ratings. We also find that some firms with favorable issuer‐paid ratings substitute public bonds with borrowings from informed intermediaries to mitigate the “lemons discount” associated with poor quality ratings. Overall, our results suggest that the quality of issuer‐paid ratings has significant effects on borrowing costs and the choice of debt.     

Genetic Information: Comparing Alternative Regulatory Approaches When Prevention Matters

We compare the alternative approaches used for regulating genetic information in the health insurance market when prevention measures are available. In the model, firms offer insurance contracts to consumers who are initially uninformed of their risk type but can obtain such information by performing a costless genetic test. A crucial ingredient of our analysis is that information has decision‐making value since it allows for the optimal choice of a self‐insurance action (secondary prevention). We focus on the welfare properties of market equilibria obtained under the different regulatory schemes and, by using an intuitive graphical analysis, we rank them unambiguously. Our results show that Disclosure Duty weakly dominates the other regulatory schemes and that Strict Prohibition represents the worst regulatory approach.     

Optimal Extraction of a Polluting Nonrenewable Resource with R&D toward a Clean Backstop Technology

We study the optimal extraction of a polluting nonrenewable resource within the following framework: environmental regulation is imposed in the form of a ceiling on the stock of pollution and a clean unlimited backstop technology can be developed by research and development. More specifically, the time taken to develop a new technology depends on the amount spent on R&D. A surprising result is that the stringency of the ceiling and the size of the initial stock of the polluting nonrenewable resource have a bearing on whether environmental regulation speeds up the optimal arrival date of this new technology. Compared to a scenario with no environmental externalities, stringent environmental regulation drives up the optimal R&D investment and brings forward the optimal backstop arrival date only in the case of a large initial resource stock. Otherwise, if the initial resource stock is small, regulation reduces optimal R&D and postpones the optimal backstop arrival date. These results are explained by the two roles played by the backstop technology. First, the backstop serves to replace oil once it has been exhausted. As extraction is slowed down by regulation, the exhaustion of the nonrenewable resource is postponed and the long‐run gains of innovation are lowered. Second, environmental regulation raises the short‐run gains of innovation by increasing the cost of consuming just oil.     

Designing a Basic Income System with a Social Welfare Function

There is an irreducible conflict between, on the one hand, the desire to allocate income in society in an equitable way and, on the other, the desire to alleviate poverty. The conflict materializes itself in the problem of designing a basic income (or negative income tax) system which requires formulating a workable compromise. This paper approaches the problem through solving a mathematical program whose utility‐based objective function explicitly embodies both considerations. The solution describes a simple basic income system and its comparative statics indicate how the specification of the objective function leads to a more, or less, pro‐poor solution.     

Urban Capitalisms: European Models in Competition

This article takes as its starting point a central issue for the urban social sciences: comparison. Local government is a theme where much is singular, contingent and idiosyncratic, and international comparison reinforces this tendency towards diversity. Therefore, the capacity to generalize becomes a real issue. The central argument of this article is that, beyond any first‐level complexity, the organization of the urban services sector in European countries basically follows three major ‘models’. These simplified forms represent ways of combining public policy principles with a market economy. As such, they may be read as specific versions of urban capitalism. All three ‘models’ are European in origin, and nowadays find themselves in competition. In order to establish the features of these models — simplified forms of more complex phenomena — it is necessary to introduce a historical reading of overall choices of institutional and policy architecture. It is necessary to trace the importance of firms and to study the momentum of crisis and tension, as these give an internal view of phenomena that are generally regarded as natural. Ce texte part d’un problème central pour les sciences sociales urbaines, celui de la comparaison. L’objet urbain pousse à la singularité; les comparaisons internationales renforcent cette tendance; se pose donc un vrai problème de généralisation. La thèse soutenue est qu’au‐delà de toute complexité de premier rang, constatée dans l’organisation de chaque service urbain dans les pays européens, ceux‐ci au fond ressortent de trois grands modèles. Ces formes simplifiées, ou modèles, représentent autant de manières de combiner des principes d’action publique à une économie de marché; on peut les lire comme autant de versions du capitalisme urbain. En étant tous les trois représentés en Europe ces ‘modèles’ se trouvent aujourd’hui en compétition. Pour parvenir à dégager ces propriétés modéliques, formes simplifiées de phénomènes plus complexes, il convient d’introduire une lecture historique des grands choix en matières d’architectures institutionnelles et politiques. Il faut accorder de l’importance aux firmes et suivre les moments de mise en tension; ils permettent de saisir ce qui semble naturel dans le fonctionnement ordinaire.