Prevention versus Treatment under Precautionary Regulation: A Case Study of Groundwater Contamination under Uncertainty

Policy discussions on agricultural pollution problems characterize prevention as more cost effective and precautionary than ex post treatment. We derive conditions under which treatment alone is more cost effective in situations involving multiple sources of emissions, multiple sites affected, and a commonly used precautionary approach to uncertainty. We also show that a greater degree of precaution can result in less reliance on prevention. An empirical case study indicates that treatment alone is the most cost-effective means of dealing with nitrate in most Maryland community water system wells. The use of leaching prevention measures is restricted to the most intensive poultry producing areas. The incremental cost of precaution is substantial.     

The managerial response to regulation of financial reporting for segments of a business enterprise

To properly assess the performance and monitor the management of industrially diversified firms, investors and other stakeholders may want companies to report separate financial data for each of their lines of business. In the mid-1970s, following a major increase in diversification of American firms, private and public regulators began requiring firms to disclose financial data for individual industry segments. Company managers, however, were given the authority to determine the degree to which data reported to outsiders was disaggregated. This article examines the managerial response to segmented financial disclosure regulations. Analysis of longitudinal data reveals that the extent of segmentation in reporting has been both low and declining, relative to the true extent of industrial diversification. In 1985, the fraction of companies with more than one reported segment was only 29.7 percent, whereas the fraction of companies operating in more than one line of business (assigned more than one SIC code by Compustat) was 83.5 percent. In 1977, about half of the included companies reported at least two industry segments, and a third reported at least three; by 1987, these fractions had declined to about one-quarter and one-seventh, respectively. A potential explanation of these findings is that managers perceive minimal disclosure of segmented information to be in their own self-interest.     

Computer Use and Productivity Growth in US Federal Government Agencies, 1987–92

We examine the impact of information technology (IT) on productivity in the public sector econometrically, using data from the BLS Federal Productivity Measurement Program and from Computer Intelligence Infocorp, and by interviewing some government officials. We estimate a production function for government services that includes IT capital as an input, and find a strong positive relationship across federal agencies between productivity growth and computer-intensity growth during the period 1987–92, controlling for growth in compensation and other outlays per employee, and in the number of employees. Our estimates are consistent with the hypothesis that there are 'excess returns' to IT capital.     

IMPORTATION AND INNOVATION

Importation of drugs into the US may soon become legal. Since prices of drugs are lower in most other countries than they are in the US, importation would result in a decline in US drug prices. The purpose of this paper is to assess the consequences of importation for new drug development. First, the author presents a simple theoretical model of drug development which suggests that the elasticity of innovation with respect to the expected price of drugs should be at least as great as the elasticity of innovation with respect to expected market size (disease incidence). Then, the cross-sectional relationship between pharmaceutical innovation and market size among a set of diseases (different types of cancer) exhibiting substantial exogenous variation in expected market size is examined. Two different measures of pharmaceutical innovation are analysed: the number of distinct chemotherapy regimens for treating a cancer site and the number of articles published in scientific journals pertaining to drug therapy for that cancer site. Both analyses indicate that the amount of pharmaceutical innovation increases with disease incidence. The elasticity of the number of chemotherapy regimens with respect to the number of cases is 0.53. The elasticity of MEDLINE drug cites with respect to cancer incidence throughout the world is 0.60. In the long run, a 10% decline in drug prices would therefore be likely to cause at least a 5–6% decline in pharmaceutical innovation. Evidence suggests that pharmaceutical industry employment would also decline (by at least 3.5–4%) in response to an exogenous 10% decline in drug prices.     

Managerial ownership and firm performance: A re-examination using productivity measurement

The role of productivity in firm performance is of fundamental importance to the US economy. Consistent with the corporate finance approach, this paper uses the ownership stake of a firm's managers as an argument in estimating the firm's production function. Accordingly, this paper brings together the corporate finance and productivity literature. Using a large sample of randomly selected manufacturing firms that does not suffer from any survivorship or large firm size biases, we find that managerial ownership changes are positively related to changes in productivity. We also find a higher sensitivity of changes in managerial ownership to changes in productivity for firms who experience greater than the median change in managerial ownership. These results are robust to including lagged estimates of production inputs, year dummies and separate dummies for each firm to control for unobservable firm characteristics. In addition, we find that the stock market rewards firms with increases in firm value when these firms increase their level of productivity.     

The Output Contributions Of Computer Equipment And Personnel: A Firm-Level Analysis

This paper examines the output contributions of capital and labor deployed in information systems (IS) at the firm level during the period 1988–91 throughout the business sector, using two different sources of data on these inputs. Our production function estimates suggest that there are substantial excess returns to both IS capital and IS labor. Computer capital and labor jointly contribute, or account for, about 21 percent of output, although only about 10% of both capital and labor income accrue to IS factors. Although IS employees accounted for a very small share of total employment by 1986, IS employment growth is estimated to have made a larger contribution to 1976–86 output growth than non-IS employment, due to the very rapid growth (16% per annum) of IS employment. The estimated marginal rate of substitution between IS and non-IS employees is 6: one IS employee can be substituted for six non-IS employees without affecting output.     

Career Paths,Unemployment, and the Efficiency of the Labor Market: Should Youth Employment Be Subsidized?

This paper studies the implications of learning‐by‐doing on youth unemployment and market efficiency when workers benefiting from this kind of training experience search (while on the job) for a higher skill job. Firms with low‐skill jobs suffer from a poaching behavior by firms with high‐skill jobs, causing a shortage of low‐skill jobs and excessive youth unemployment. An optimal policy, consisting of taxing the output of high‐skill jobs and subsidizing the output of low‐skill jobs, restores market efficiency and reduces youth unemployment.     

“A note on soil depth,failing markets and agricultural pricing”: Comment

Bulte and van Soest [Bulte, E., van Soest, D. 1999. A note on soil depth, failing markets and agricultural pricing. Journal of Development Economics 58, 245-254.] argue that higher agricultural output prices result in greater soil conservation when labor markets function well but have ambiguous effects when labor markets are absent. The latter result is not attributable to labor market failure but rather occurs whenever labor supply is less than perfectly elastic. Consistent with the more general model presented here, empirical evidence from a number of developing countries suggests that well-functioning labor markets are associated with decreases in investment in soils.