recent developments in consumer credit risk assessment consumer credit risk assessment involves the use of risk assessment tools to manage a borrower s account from the time of pre screening a potential application through to the management of the account during its life and possible write off the riskiness of lending to a credit applicant is usually estimated using a logistic regression model though researchers have considered many other types of classifier and whilst preliminary evidence suggest support vector machines seem to be the most accurate data quality issues may prevent these laboratory based results from being achieved in practice the training of a classifier on a sample of accepted applicants rather than on a sample representative of the applicant population seems not to result in bias though it does result in difficulties in setting the cut off profit scoring is a promising line of research and the basel 2 accord has had profound implications for the way in which credit applicants are assessed and bank policies adopted

underestimating the real growth of gdp personal income and productivity economists have long recognized that changes in the quality of existing goods and services along with the introduction of new goods and services can raise grave difficulties in measuring changes in the real output of the economy but despite the attention to this subject in the professional literature there remains insufficient understanding of just how imperfect the existing official estimates actually are after studying the methods used by the us government statistical agencies as well as the extensive previous academic literature on this subject i have concluded that despite the various improvements to statistical methods that have been made through the years the official data understate the changes of real output and productivity the official measures provide at best a lower bound on the true real growth rate with no indication of the size of the underestimation in this essay i briefly review why national income should not be considered a measure of well being describe what government statisticians actually do in their attempt to measure improvements in the quality of goods and services consider the problem of new products and the various attempts by economists to take new products into account in measuring overall price and output changes and discuss how the mismeasurement of real output and of prices might be taken into account in considering various questions of economic policy

economic measurement progress and challenges the national income accounts together with the source data which they use form the core of our economic measurement system the development of the concepts and measurements of national income are among the most important achievements of modern economics replacing the older notions of national wealth of the physiocrats and mercantilists for example is national income and product confined to market activity the appropriate fundamental concept yes but we ask a lot of national income and product accounting it is used most importantly to gauge economic progress how much better off are we than our parents or grandparents is the economy growing adequately slowly or rapidly in recent years and are we at a cyclical turning point the information requirements of course will differ depending on the question gaps in inventory measurement may be an appropriate resource claimant to those interested in cyclical issues whereas finding identifying and incorporating new products and quality change more rapidly may be far more significant to long term economic growth we also tend to have a survivor selection bias in our concern with the speed with which new ideas and concepts are incorporated into the national accounts and other data series superlative indexes hedonic regression methods for quality change and many others were much more obvious after some years of diffusion throughout the profession than at their inculcation as a result the gap between major suggested improvements and their adoption by statistical agencies can be extensive often decades erwin diewert 1999 should national accounts be extended to nonmarket activity nonmarket work time is perhaps the most important area for supplemental information natural resources and the environment are close behind william d nordhaus and edward kokkenlenberg 1999 r d capital environmental capital human capital and other intangibles are high priority items but should be dealt with in the form of satellite accounting so i applaud the bea s recent initiatives in this direction i come to this conclusion for a variety of reasons not to suggest that technological capital and human capital are less important than tangible capital in fact perhaps quite the opposite they are all complementary boskin and lawrence lau 2000 but the issues in definition classification and measurements are still more problematic for these items than for traditional items and therefore i believe they should not be added directly to the national income and product accounts nipa in short my own view is that substantial improvements can and should be made in the traditional domain of the national accounts improvements in the core national accounts should not be sacrificed to a proliferation of satellite accounts in principle we should do both and sufficient resources should be provided to accomplish these tasks

wind insurance and mitigation in the coastal zone this paper presents the only study analyzing the decision to purchase wind coverage for individuals whose standard homeowner s policy excludes wind and one of very few analyses of the decision to undertake wind mitigation measures because these two decisions are closely related a simultaneous mixed process approach is used that allows for correlated disturbances across probit insurance and tobit mitigation equations results indicate a positive correlation between errors of the insurance and mitigation models conditioning on covariates households that hold wind insurance tend to engage in greater levels of wind mitigation

credit risk measurement developments over the last 20 years abstract this paper traces developments in the credit risk measurement literature over the last 20 years the paper is essentially divided into two parts in the first part the evolution of the literature on the credit risk measurement of individual loans and portfolios of loans is traced by way of reference to articles appearing in relevant issues of the journal of banking and finance and other publications in the second part a new approach built around a mortality risk framework to measuring the risk and returns on loans and bonds is presented this model is shown to offer some promise in analyzing the risk return structures of portfolios of credit risk exposed debt instruments

the impact of perceived background risk on behavioral health evidence from hurricane katrina i explore the hypothesis that hurricane katrina in 2005 raised perceived background risks which had spillover effects on behavioral health outcomes of mental health substance use and health insurance i explore this hypothesis using behavioral risk factor surveillance system data for 2002 2007 i use a difference in difference model to estimate the effect that hurricane katrina had in the non damaged storm surge region in 90 day intervals leading up to and after the hurricane compared to areas impervious to hurricanes within non damaged counties at risk of any storm surge i find causal evidence that katrina increased poor mental health days by 8 8 for three months after katrina and increased smoking by 10 over nine months which translates to 39 0 million extra days of poor mental health and 1 1 million extra smokers results suggest that perceived background risk increases may have important spillover effects on health for people far from the actual disaster and highlight a hidden cost of the government s failures in managing hurricane katrina

natural natural experiments in economics the recent literature exploiting natural events as natural experiment instruments is reviewed to assess to what extent it has advanced empirical knowledge a weakness of the studies that adopt this approach is that the necessary set of behavioral market and technological assumptions made by the authors in justifying their interpretations of the estimates is often absent the methodology and findings from twenty studies are summarized and simple economic models are used to elucidate the implicit assumptions made by the authors and to demonstrate the sensitivity of the interpretations of the findings to the relaxation of some of these assumptions

what drives households to buy flood insurance new evidence from georgia abstract benefiting from access to detailed data on the federally run national flood insurance program for the entire state of georgia usa we analyze residential flood insurance purchasing behavior in that state over more than three decades 1978 2010 the demand for flood insurance on an extensive margin based on take up rates is found to be relatively price inelastic aligned with the behavioral economics literature recent flood events temporarily increase purchases but this effect fades after 3 years we also find that the proportion of developed area in floodplains has a significant positive impact on insurance take up rates contrary to what is often assumed we do not find evidence that insurance purchase and mitigation efforts are substitutes educated individuals individuals over the age of 45 and african americans are all else equal more likely to purchase flood insurance

perspectives on the new architecture for the us national accounts paul samuelson once called the national income and product accounts nipas one of the great inventions of the twentieth century he was right it is difficult to imagine modern economics and even public discourse on the economy without them the nipas and related accounts provide the basic set of estimates on a wide range of economic variables of interest to economists citizens policymakers firms investors workers and consumers they enforce important economic and statistical properties and reveal at least retrospectively and historically many of the most important features of the evolution of the economy in short it would be difficult to imagine where our understanding of recent economic events and economic history would be without the nipas the nipas are based on an analytical framework and innumerable decisions on how to categorize economic activities and how to measure variables of interest doing so requires many judgments and in an economy that evolves rapidly a willingness to reconsider those judgments fortunately in most major statistical agencies around the world especially in the united states including the bureau of economic analysis bea a high level of professionalism has led to many improvements and to making most of the historical time series consistent with the new measures one important example is the reclassification of software as investment some of those judgments are large some negligible some fundamental e g the decisions

endogenous land use and the ricardian valuation of climate change the ricardian technique uses cross sectional variation in the capitalized value of climate in land to infer the agricultural costs or benefits of dynamic climate change while a practical approach for predicting the consequences of global warming with readily available data it may yield biased results when land use decisions depend on the climate attributes being valued and when land has unobserved attributes that differ with the use to which it is put this paper illustrates the conditions under which such a bias will occur describes an empirical model that corrects for it and estimates that model with agricultural census data from brazil the approach moreover allows constraints on adjustment to be explicitly incorporated into the ricardian framework relaxing one of that technique s most conspicuous assumptions

measuring environmental effects on property values without hedonic regressions abstract the effect of environmental nuisances on property values has been frequently studied using hedonic regressions yet that method has extensive data and estimation requirements the technique developed in this paper uses repeat sales on houses to substantially reduce these requirements the technique adjusts for depreciation between sales and allows for nonzero error covariance terms when a house has been sold more than twice the effect of highway noise on property values is studied using this method and the results are statistically equivalent to the results of an extensive hedonic study for the same area

risk self protection and ex ante economic value abstract we develop three propositions about the ex ante value of reduced risk if there is a continuous outcome distribution and if self protection influences outcome probability and severity then 1 unobservable utility terms cannot be eliminated from the ex ante value expressions 2 knowledge of the convexity or the nonconvexity of dose response functions is insufficient to sign changes in these expressions and 3 self protection expenditures need not be a lower bound measure of these expressions therefore many restrictions applied in recent empirical work on the economic value of risk changes are not immediately transferable to settings where endogenous risks prevail

mortgage terminations heterogeneity and the exercise of mortgage options as applied to the behavior of homeowners with mortgages option theoiy predicts that mortgage prepayment or default will be exercised if the call or put option is in the money by some specific amount our analysis tests the extent to which the option approach can explain default and prepayment behavior evaluates the practical importance of modeling both options simultaneouisly and models the unobserved heterogeneity of borrowers in the home mortgage market the paper presents a uinified model of the competing risks of mortgage termination by prepayment and default considering the two hazards as dependent competing risks that are estimated jointly it also accounts for the unobserved heterogeneity among borrowers and estimates the unobserved heterogeneity simultaneously with the parameters and baseline hazards associated with prepayment and default functions our results show that the option model in its most straightfolward version does a good job of explaininig default and prepayment but it is not enouigh by itself the simultaneity of the options is very important empirically in explaining behavior the results also show that there exists significant heterogeneity among mortgage borrowers ignoring this heterogeneity results in serious errors in estimating the prepayment behavior of homeowners

reflections on agricultural r d productivity and the data constraint unfinished business unsettled issues sixty years ago t w schultz introduced the idea of the productivity residual to agricultural economics 1956 schultz s main message was that growth in conventional inputs accounted for little of the observed growth in agricultural output and that there was work to be done by agricultural economists to understand and ultimately eliminate this unexplained residual called productivity thus was launched the economics of agricultural productivity as a sub field within agricultural economics along with the economics of agricultural r d and innovation and related government policy much progress has been made in the decades since still critical issues remain unresolved this matters because agricultural innovation and productivity matter and so do the related policies that rest to some extent on our established understanding of the economic relationships in this paper i review some unsettled issues related to economic models and measures applied to agricultural r d and productivity and some unfinished business in terms of economic and policy questions that are not yet well answered before doing that i present some evidence on agricultural productivity and why it matters next with a nod to factology i present available productivity measures from the u s department of agriculture usda and international science and technology practice and policy instepp center and compare them in the context of translog cost function models in subsequent sections i use these and other data to develop new evidence related to two contentious questions a do farmers benefit from public agricultural r d b has u s agricultural productivity growth slowed in recent decades the answers are revealed within

multiple event incidence and duration analysis for credit data incorporating non stochastic loan maturity summary applications of duration analysis in economics and finance exclusively employ methods for events of stochastic duration in application to credit data previous research incorrectly treats the time to pre determined maturity events as censored stochastic event times the medical literature has binary parametric cure rate models that deal with populations that never experienced the modelled event we propose and develop a multinomial parametric incidence and duration model incorporating such populations in the class of cure rate models this is the first fully parametric multinomial model and is the first framework to accommodate an event with pre determined duration the methodology is applied to unsecured personal loan credit data provided by one of australia s largest financial services organizations this framework is shown to be more flexible and predictive through a simulation and empirical study that reveals simulation results of estimated parameters with a large reduction in bias superior forecasting of duration explanatory variables can act in different directions upon incidence and duration and variables exist that are statistically significant in explaining only incidence or duration

the real real price of nonrenewable resources copper 1870 2000 over the past 40 years economists have devoted considerable effort to estimating long run trends in real commodity prices the results indicate that the real prices for many commodities have fallen suggesting to the surprise of many that resource scarcity is declining over time almost all of this work however uses the u s producer price index or other standard price deflators which recent research shows overestimate inflation for several reasons this article examines copper prices with adjusted deflators designed to eliminate this bias it finds that the trend over time which is significantly downward when no adjustment is made to the deflator displays no tendency in either direction or is significantly upward depending on the magnitude of the deflator adjustment employed these findings suggest that real resources prices provide less support than widely assumed for the hypothesis that resources are becoming more available or less scarce over time

flexible parametric estimation of duration and competing risk models in this paper we specify and estimate a flexible parametric proportional hazards model the model specification is flexibly parametric in the sense that the baseline hazard is non parametric while the effect of the covariates takes a particular functional form we also add parametric heterogeneity to the underlying hazard model specification we specify a flexible parametric proportional competing risks model which permits unrestricted correlation among the risks unemployment duration data are then analysed using the flexible parametric duration and competing risks specifications we find an important effect arising from the exhaustion of unemployment insurance and significantly different hazards for the two types of risks new jobs and recalls

sources of bias and solutions to bias in the consumer price index four sources of bias in the consumer prices index cpi have been identified the most discussed is substitution bias which creates a second order bias in the cpi three other changes besides prices changes create first order effects on a correctly measured cost of living index coli i explain in this paper that a pure price based approach of surveying prices to estimate a coli cannot succeed in solving the 3 problems of first order bias i discuss economic and econometric approaches to measuring the first order bias effects as well as the availability of scanner data that would permit implementation of the techniques

floodplain price impacts by property type in boulder county colorado condominiums versus standalone properties studies find various and often small or negligible impacts of floodplain designation on home sales prices in the united states calling into question the u s s national flood insurance program s nfip effectiveness at internalizing flood risk into the residential property market however studies also tend to focus only on standalone homes although a substantial portion of the u s housing market particularly within designated floodplains consists of condominiums single unit residences that are bundled with an ownership share in common property this study investigates the price impact of floodplain designation for condominiums and for standalone properties in boulder county colorado u s and finds a strong impact for condominiums but none for standalone properties results are consistent across hedonic price estimation and non parametric matching estimation numerous factors may contribute to this difference including differences in the pre transaction provision of flood insurance cost information and whether maintaining ongoing flood insurance is compulsory these results have implications for the nfip and offer insights for policy interventions for internalizing risks more generally they also caution against generalizing from the experience of the nfip without detailed consideration of the contexts and specific conditions in which it is applied

new directions in national economic accounting the national income and product accounts nipa are the most important measures of overall economic activity for a nation much as a satellite in space can survey the weather across an entire continent so can the gdp give an overall picture of the state of the economy nevertheless since their inception there have been concerns that the accounts are incomplete and misleading because they omit vast continents of nonmarket activity such as unpaid work the value of leisure time investment in human capital and most recently the environment the threshold question is why should we devote scarce intellectual resources to studying nonmarket sectors the basic insight behind nonmarket accounts is that economic and social welfare does not stop at the market s border but extends to many nonmarket activities three particular areas are worth emphasizing one important reason why we need better measures of nonmarket activity is because we spend increasingly fewer of our lifetime hours in market activities a second and more speculative reason concerns the growing importance or at least the great importance of nonmarket assets or mispriced market assets such as the environment and technology a third point is that current measures of national saving and investment are highly defective the examples later in this paper address each of these issues many of these issues were reviewed in a recent report on augmented accounting by the national academy of sciences see nordhaus and edward kokkelenberg 1999

generics and new goods in pharmaceutical price indexes drug prices and their rate of inflation are a major focus of current policy debates on u s health care in this paper we show that where patent expiration and generic entry are significant as they are for many important classes of drugs movements in the official price indexes may be poor indicators of the actual prices paid and the resulting changes in consumer welfare when a drug goes off patent those consumers who regard the branded and generic versions as more or less perfect substitutes experience a substantial price decline and concomitant welfare gain which the current methods used by the statistical agencies fail to capture we suggest a number of alternative ways of proceeding although our computations are based on a limited number of cases they imply that the overall rate of inflation in drug prices may be quite seriously overstated while generic pharmaceuticals are the topic of our calculations the problem discussed is also of wider importance generic drugs are a special and possibly easy case

can natural experiments measure behavioral responses to environmental risks efforts to measure people s responses to spatially delineated risks confront the potential for correlation between these risks and other unobserved characteristics of these locations the possibility of correlation arises in part because individuals observe other locational attributes that can be expected to influence the hedonic equilibrium one response to this problem is to use events from nature to exploit both temporal and spatial variation in the behavioral responses of interest this paper evaluates the use of hurricanes as a source of new risk information to households in coastal counties potentially subject to the effects of these storms we study the extent to which housing prices before and after hurricane andrew a hurricane with unprecedented property loss reveal how floridians responded to the risk information provided by the storm two counties are selected one without and another with damage from the hurricane to evaluate the plausibility of using quasi random experiments for locations not directly affected by natural events we compare lee county s results to those of dade county where the majority of the damage occurred our findings suggest after controlling for ex post storm damage and changes in insurance markets there is a reasonably high level of consistency in a repeat sales model s ability to estimate the effects of the risk information conveyed by the storm for both counties

changes in implicit flood risk premiums empirical evidence from the housing market abstract hedonic valuation models have shown that sales prices can capitalize property risk factors such as flood zone properties facing lower risk sell at a premium all else being equal previous research has indicated that price differentials reflecting risk of flooding become much larger in the wake of a storm we re examine these findings for pitt county north carolina using multiple storm events within a difference in differences framework and we compare flood zone price differentials for a more recent sample of property sales prior to hurricane fran in 1996 we detect no market risk premium for the presence in a flood zone but we find significant price differentials after major flooding events amounting to a 5 7 decrease after hurricane fran and 8 8 decrease after hurricane floyd results from a separate model that examines more recent data covering a period without significant storm related flood impacts indicate a significant risk premium ranging between 6 0 and 20 2 for homes sold in the flood zone but this effect is diminishing over time essentially disappearing about 5 or 6 years after hurricane floyd the lack of a persistent effect suggests that buyers and sellers risk perceptions may change with the prevalence of hazard events and that homebuyers are unaware of flood risks and insurance requirements when bidding on properties

taking the pulse of the economy measuring gdp national income and product accounts best known by one of their principle aggregates gross domestic product gdp are produced by virtually every nation in the world simon kuznets and richard stone both later to become nobel prize winners led the creation of the national accounts for the united states and the united kingdom respectively so what exactly does gdp measure how is it constructed why do the gdp and other national accounts estimates sometimes present a different picture of the economy than other economic indicators this article is intended to help answer these questions by providing a broad overview of the measurement techniques used in estimating gdp and the national accounts in the united states in the united states the gdp and the national accounts estimates are fundamentally based on detailed economic census data and other information that is available only once every five years the challenge lies in developing a framework and methods that take these economic census data and combine them using a mosaic of monthly quarterly and annual economic indicators to produce quarterly and annual gdp estimates for example one problem is that the other economic indicators that are used to extrapolate gdp in between the five year economic census data such as retail sales housing starts and manufacturers shipments of capital goods are often collected for purposes other than estimating gdp and

market failure in information the national flood insurance program the national flood insurance program nfip was established in 1968 and requires mandatory flood insurance for property owners who have federally backed mortgages krutilla 1966 noted that a compulsory national flood insurance program could greatly improve the economic efficiency of flood plain occupancy in the united states however in order to realize the efficiency gains suggested by krutilla property owners must have sufficient information about flood risk and insurance premiums to make well informed home purchase decisions using survey data from boulder colorado we find significant evidence of market failure in information in the nfip program the majority of survey respondents all of whom live in a special flood hazard area report they did not fully understand the degree of flood risk or the cost of insuring against this risk when negotiating the purchase of their property

wildfire risk salience housing demand abstract in this paper we develop a parsimonious model that links underlying changes in location specific risk perceptions to housing market dynamics given estimates of both the price and quantity effects induced by shocks to agents beliefs the model allows us to draw inferences about the underlying changes in risk perceptions that gave rise to observed housing market dynamics we apply the model s predictions to an empirical analysis of the influence of severe wildfires on housing prices and sales rates in the front range of colorado interpreted in the context of the model our empirical results suggest that natural disasters lead to significant but short lived increases in risk perceptions

forgetting the flood an analysis of the flood risk discount over time we examine whether property price differentials reflecting flood risk increase following a large flood event and whether this change is temporary or permanent we use single family residential property sales in dougherty county georgia between 1985 and 2004 in a difference in differences spatial hedonic model framework after the 1994 flood of the century prices of properties in the 100 year floodplain fell significantly this effect was however short lived in spatial hedonic models that explicitly incorporate both linear and nonlinear temporal flood zone effects we show that the flood risk discount disappeared between four and nine years after the flood depending upon the specification jel q51 q54

the assessment the new economy the remarkable economic success of the united states in the 1990s led many observers to talk about a new economy this paper provides an overview of the main issues including faster productivity growth the stability of inflation despite very low unemployment the reduction in output volatility the role of monetary policy and the boom in the stock market the paper also considers whether or not the acceleration in productivity growth can be sustained and the possible implications for the rest of the world copyright 2002 oxford university press

technical change and the von neumann coefficient of uniform expansion abstract we study technical change for multi product technologies to examine its effect on economic growth for 27 oecd organization for economic cooperation and development countries during 1951 2014 we review the malmquist index and reexamine von neumann s model of an expanding economy we estimate the coefficient of uniform expansion via dea data envelopment analysis and use it to measure technical change via a solow residual and an alternative von neumann technical change index which equals the difference between the growth rates of the slowest growing output and the fastest growing input we also exploit a property of constant returns to scale in order to examine technical change of the average technology during 2005 2014 the solow residual shows relatively fast technical change in contrast the malmquist average technology and alternative von neumann technical change indexes show negative or stagnant technical change

unemployment insurance rules joblessness and part time work developed and under general conditions an increase in the disregard is shown to increase both the part time and overall re employment hazards data from the current population survey s displaced worker supplements are used to test these predictions estimates from a competing risks model with correlated risks and time varying coefficients shows that increasing the disregard significantly increases the conditional probability of part time re employment during the first three months of joblessness

occupational pensions and job mobility in britain estimation of a random effects competing risks model we analyse transitions between pensionable jobs non pensionable jobs and other labour market states using the 1988 9 uk retirement survey we focus on the positive association between length of job tenure and pensionable status allowing for the possibility that pension scheme members are less mobile than other workers because they have persistent unobserved characteristics that predispose them towards a high degree of security in both employment and retirement we use a competing risks model with state specific random effects the model is estimated by simulated maximum likelihood