Correlation in corporate defaults: Contagion or conditional independence?

We revisit a method used by Das et al. (2007) (DDKS) who jointly test and reject a specification of firm default intensities and the doubly stochastic assumption in intensity models of default. The method relies on a time change result for counting processes. With an almost identical set of default histories recorded by Moody’s in the period from 1982 to 2006, but using a different specification of the default intensity, we cannot reject the tests based on time change used in DDKS. We then note that the method proposed by DDKS is mainly a misspecification test in that it has very limited power in detecting violations of the doubly stochastic assumption. For example, it will not detect contagion which spreads through the explanatory variables “covariates” that determine the default intensities of individual firms. Therefore, we perform a different test using a Hawkes process alternative to see if firm-specific variables are affected by occurrences of defaults, but find no evidence of default contagion.     

Trade,GMOs and Environmental Risk: Are Current Policies Likely to Improve Welfare?

Food with inputs from genetically modified organisms (GMOs) has met considerable skepticism among European Union (EU) consumers. The EU import ban on GM food has triggered a great deal of controversy and has been partly replaced by a mandatory labeling scheme. Although there is no measure in the General Agreement on Tariffs and Trade that directly addresses the use of product labeling, WTO and others have been skeptical to mandatory product labeling on the grounds that they may be used as hidden protectionism hampering global welfare. This study has two foci. First, we examine how different policies for the production and use of GMOs might influence the market outcome in consumer food markets. Second, we evaluate the welfare effects of the policy measures. We find that mandatory labeling often increases domestic welfare and, may also enhance global welfare. On the other hand, a trade ban is more likely to decrease global welfare.     

Eco-labels, Trade and Protectionism

Eco-labels are suspected to serve protectionist purposes. We analyze the choice between an environmental standard and a voluntary eco-label scheme in a partial trade model with one domestic firm and one foreign firm. The environmental standard will only apply to the domestic firm, while both firms can adopt the eco-label. Pollution is production related, and domestic consumers demand products that are produced in an “environmentally friendly” way. Our results show that it may be optimal for the domestic government to introduce an eco-label and get both firms to adopt the label, instead of setting an environmental standard. However, to what extent this policy serves protectionist purposes is ambiguous. In particular, if the willingness to pay for green products is sufficient to cover the pollution abatement costs of the foreign firm, foreign firm profit will increase while domestic firm profit will decrease compared to the outcome with a domestic environmental standard. On the other hand, if the willingness to pay for green products is insufficient, the foreign firm would be better off with a domestic environmental standard.     

Ulrich Beck: exploring and contesting risk

Abstract

While risk research normally understands risk as an entity that can be calculated using statistics and probabilities – and which therefore also can become the object of insurance technology – it is the production of new, non-calculable risks and therefore also risks that cannot be insured against, which is at the centre of Ulrich Beck’s risk society theory. The article examines Beck’s conceptualization of risk and discusses how he has clarified and further refined the concept since publishing Risk Society in 1986. The article shows, first, how Beck understands risk as an entity that is neither danger nor risk in the traditional sense but rather something in between, which he refers to as ‘man-made disasters’ and ‘new risks’. The discussion then addresses Beck’s position in relation to the ontological status of risk, which is an intermediate position between realism and constructivism. The non-calculability and non-insurability of the new risks are also examined. The article discusses what it means that the new risks are not visible and the significance of non-knowledge for how we understand them. Finally, the new conditions of existence for politics, states and individuals are outlined in the aftermath of Beck’s risk society theory. The article concludes with a discussion of the analytical potential of the theory.     

Influence of reference points in ex post evaluations of rail infrastructure projects

The paper study the effect of different reference points in time regarding the ‘before’ and ‘after’ situation and how this may influence the ex post evaluation. Four Norwegian railway projects are analysed ex post. We have found that the choice of reference points that are chosen to represent the situation before and after a project, respectively, will often have a major impact on the result of an evaluation. In fact, the studied projects can be presented as either successes or failures, depending on the choice of reference years. The parameters used in this comparison are punctuality, frequency, travel time, and number of travellers. Four projects have been studied. Four parameters for each project generate a total of 16 indicators. By selecting certain years as reference years, 11 of the 16 indicators can be presented as either an increase or decrease. Stakeholders with a biased agenda towards certain projects can actually pick reference years to present the outcome of projects in a way that that fit their agenda. It is recommended that more than one measurement approach is applied in ex post evaluations.     

Emission Trading with Fiscal Externalities: The Case for a Common Carbon Tax for the Non-ETS Emissions in the EU

A government is fiscally constrained if it is unable to raise sufficient tax revenue to finance the first-best level of public spending. When involved in emission trading, a fiscally constrained government will potentially seek to close its fiscal gap through emission permit sales. This fiscal incentive therefore generates a fiscal externality in the permit market that is endogenous to the extent of fiscal constrainedness among the participating countries. Our theory explains how, and when, fiscal externalities may be expected to arise. Moreover, we show that in a permit market equilibrium with fiscal externalities, the initial allocation of emission permits between countries will affect: (1) the price of emission permits, (2) the global distribution of abatement effort, and (3) total greenhouse gas mitigation costs. This is contrary to the textbook model of emission permit markets. Our findings are especially relevant for the EU which is about to allow for trading in emission rights between EU member countries for all emissions outside the European Emissions Trading System.     

Does Women's Preference for Highbrow Leisure Begin in the Family? Comparing Leisure Participation among Brothers and Sisters

Research shows that women are more likely than men to participate in highbrow leisure activities, but we do not know whether this gap develops within the family at an early age or is the outcome of socioeconomic differences between men and women later in life. We compare highbrow leisure participation among brothers and sisters from the same family and report three findings: (1) gender differences in highbrow leisure participation are largely unrelated to family background, (2) there is little evidence that parents engage in gender-specific cultural socialization, and (3) socioeconomic position and family obligations account for less than 20% of brother-sister differences in highbrow leisure participation. Our results suggest that gender differences in highbrow leisure participation originate in factors outside the family.     

Land Tax Changes and Full Capitalisation

We use a unique data set to examine the extent to which changes in the Danish land tax are capitalised into house prices. The Danish local government reform in 2007, which caused tax increases in some municipalities and tax decreases in others, provides plenty of exogenous variation, thus eliminating endogeneity problems. The results imply full capitalisation of the present value of future taxes under reasonable assumptions about discount rates. Consequently, the paper gives an empirical confirmation of two striking consequences of a land tax. First, it does not distort economic decisions because it does not distort the user cost of land. Second, the full incidence of a permanent land tax change lies on the owner at the time of the (announcement of the) tax change; future owners, even though they officially pay the recurrent taxes, are not affected as they are fully compensated via a corresponding change in the acquisition price of the asset.     

From natural resources and environmental accounting to construction of indicators for sustainable development

Norway has a long history in trying to develop management tools for sustainable development. From the early development of natural resources accounts in the 1980s, through discussions of the usefulness of indices like “green GDP” to efforts of developing sustainable development indicators, experiences have been gained. The paper seeks to both describe the landscape and discussions associated with the key terms, and to communicate some lessons drawn from the Norwegian experiences. The conclusion focuses on the fact that whatever information is collected and organised to support the relevant decision-making processes, the final outcome should always be judged in terms of its impacts on policy processes. Thus, we issue a warning against large-scale development of information systems, without due regard to the final utilisation of the output.