health expenditure growth looking beyond the average through decomposition of the full distribution explanations of growth in health expenditures have restricted attention to the mean we explain change throughout the distribution of expenditures providing insight into how expenditure growth and its explanation differ along the distribution we analyse dutch data on actual health expenditures linked to hospital discharge and mortality registers full distribution decomposition delivers findings that would be overlooked by examination of changes in the mean alone the growth rate of hospital expenditures is greatest at the middle of the distribution and is driven mainly by changes in the distributions of determinants pharmaceutical expenditures increase most rapidly at the top of the distribution and are mainly attributable to structural changes including technological progress making treatment of the highest cost cases even more expensive changes in hospital practice styles make the largest contribution of all determinants to increased spending not only on hospital care but also on pharmaceuticals suggesting important spill over effects

overlapping generations and environmental control abstract this paper sets forth a continuous time olg model in order to analyze intertemporal trade offs in the use of environmental resources this theoretical framework proves to be particularly appropriate in examining the externalities arising from consumer heterogeneity and disconnectedness across generations we characterize the trade off between capital accumulation and the environment and derive the conditions for an optimal fiscal policy the role of government intervention is twofold first it has to achieve intergenerational equity compatibly with a time consistent social welfare criterion second it has to correct the intertemporal market failures due to the selfish behavior of each generation

unequal vulnerability to climate change and the transmission of adverse effects through international trade in this paper we consider the unequal distribution of climate change damages in the world and we examine how the underlying costs can spread from a vulnerable to a non vulnerable country through international trade to focus on such indirect effects we treat this topic in a north south trade overlapping generations model in which the south is vulnerable to the damages entailed by global pollution while the north is not we show that the impact of climate change in the south can be a source of welfare loss for northern consumers in both the short and the long run in the long run an increase in the south s vulnerability can reduce the welfare in the north economy even in the case in which it improves its terms of trade in the short run the south s vulnerability can also represent a source of intergenerational inequity in the north therefore we emphasize the strong economic incentives for non vulnerable and a fortiori less vulnerable economies to reduce the climate change damages on more vulnerable countries

time consistent public policy in this paper we study how a benevolent government that cannot commit to future policy should trade off the costs and benefits of public expenditure we characterize and solve for markov perfect equilibria of the dynamic game between successive governments the characterization consists of an inter temporal first order condition a generalized euler equation for the government and we use it both to gain insight into the nature of the equilibrium and as a basis for computations for a calibrated economy we find that when the only tax base available to the government is capital income an inelastic source of funds at any point in time the government still refrains from taxing at confiscatory rates we also find that when the only tax base is labour income the markov equilibrium features less public expenditure and lower tax rates than the ramsey equilibrium

bank monitoring and the pricing of corporate public debt1 we examine whether the existence of a bank firm relationship lowers the cost of public debt financing using a sample of first public straight debt o ers we test the crossmonitoring e ect of bank debt and diamond s 1991 journal of political economy 99 689 721 reputation building argument we find that the existence of bank debt lowers the at issue yield spreads for first public straight bond o ers by about 68 basis points on average consistent with diamond s reputation building argument we document that firm reputation is negatively related to the at issue yield spread for initial public debt o ers 1999 elsevier science s a all rights reserved

health shocks and risk aversion we empirically assess whether a health shock influences individual risk aversion we use grip strength data to obtain an objective health shock indicator in order to account for the non random nature of our data regression adjusted matching is employed risk preferences are traditionally assumed to be constant however we find that a health shock increases individual risk aversion the finding is robust to a series of sensitivity analyses and persists for at least four years after the shock income changes do not seem to be the driving mechanism

intergenerational aspects of ecotax reforms an application to germany in a model of overlapping generations and majority voting we analyze an ecotax reform consisting of the tax rate and the budgetary rule revenue can be recycled through a lump sum transfer or a reduction in pension contributions our theoretical results as well as the calibration of our model to the german economy show that the median voter s preferred tax rate may exceed the efficient rate this holds whenever income of the decisive voter is sufficiently high compared to the average income as rich individuals benefit more from a reduction in pension contributions than they are harmed by an increase in ecotaxes the calibration confirms that the median voter prefers the earmarking of tax revenue for reductions in pension contributions to the alternative lump sum transfer this is quite an accurate prediction of the situation in germany aging of society as expected for germany lowers the ecotax in the political equilibrium below its optimal level

environmental tax policy and intergenerational distribution abstract we study the effects of environmental taxation within the context of an overlapping generations model the quality of the environment is modelled as a durable consumption good introduction of the environmental tax harms old existing generations and benefits young existing generations as well as all future generations increasing the tax in a pareto improving manner is easier the higher the pre existing tax the reverse holds if tax policy is decided by majority rule a suitably designed bond policy can be used to redistribute the efficiency gains due to the internalisation of environmental externalities across the generations

adaptation and mitigation in long term climate policies the paper analytically explores the optimal allocation of investments into mitigation and environmental adaptation against climate change damages at a macroeconomic level the economic environmental model is formulated as a social planner problem where adaptation and abatement investments are separate decision variables the existence of a unique steady state is proven a comparative static analysis of optimal investments leads to essential implications for associated long term environmental policies it is shown that the optimal policy mix between adaptation and mitigation is lower for countries with higher economic efficiency for all applicable parameter ranges data calibration and numerical simulations are provided to estimate practical validity of theoretical outcomes

sustainability limited substitutability and non constant social discount rates abstract the paper shows how limited substitutability in consumption between different classes of goods affects the magnitude and time development of social discount rates it decomposes the discount rates into an absolute growth and a relative growth or substitutability effect the paper relates between good and intertemporal substitutability to the notions of weak and strong sustainability it analyzes under which circumstances low as opposed to high between good substitutability increases the weights given to long run environmental services

counterfactual decomposition of changes in wage distributions using quantile regression we propose a method to decompose the changes in the wage distribution over a period of time in several factors contributing to those changes the method is based on the estimation of marginal wage distributions consistent with a conditional distribution estimated by quantile regression as well as with any hypothesized distribution for the covariates comparing the marginal distributions implied by different distributions for the covariates one is then able to perform counterfactual exercises the proposed methodology enables the identification of the sources of the increased wage inequality observed in most countries specifically it decomposes the changes in the wage distribution over a period of time into several factors contributing to those changes namely by discriminating between changes in the characteristics of the working population and changes in the returns to these characteristics we apply this methodology to portuguese data for the period 1986 1995 and find that the observed increase in educational levels contributed decisively towards greater wage inequality copyright 2005 john wiley sons ltd

intertemporal equilibria and exhaustible resources an overlapping generations approach abstract this paper presents a general equilibrium model of an abstract intertemporal economy with overlapping generations production possibilities and capital investment under the constraint of a nonreproducible natural resource the model provides for institutionally mandated asset transfers between successive generations under the assumption that each generation has perfect foresight concerning future prices and economic conditions competitive exchange supports a multiplicity of pareto efficient equilibria that correspond to particular asset transfer regimes the achievement of a desirable distribution of welfare between present and future generations requires that the asset transfer regime be chosen according to a social welfare function or explicit distributional criterion economic efficiency per se is insufficient to ensure social optimality these results have important implications for resource planning in the real world where policy makers and the public at large are often highly concerned over the potential impacts of current resource utilization on the welfare of future generations

the social cost of carbon emissions seven propositions determining the social cost of carbon emissions scc is a crucial step in the economic analysis of climate change policy as the us government s recent decision to use a range of estimates of the scc centered at 77 tc or equivalently 21 tco2 in cost benefit analyses of proposed emission control legislation underlines this note reviews the welfare economics theory fundamental to the estimation of the scc in both static and intertemporal contexts examining the effects of assumptions about the typical agent s pure rate of time preference and elasticity of marginal felicity of consumption production and mitigation technology and the magnitude of climate change damage on estimates of the scc we high light three key conclusions i an estimate of the scc is conditional on a specific policy scenario the details of which must be made explicit for the estimate to be meaningful ii the social discount rate relevant to intertemporal allocation decisions also depends on the policy scenario and iii the scc is uniquely defined only for policy scenarios that lead to an efficient growth path because marginal costs and benefits of emission mitigation diverge on inefficient growth paths we illustrate these analytical conclusions with simulations of a growth model calibrated to the world economy authors abstract

environmental valuation under sustainable development environmentalism has evolved since the 1960 s from a concern with the preservation of wilderness in the american experience to a concern over pollution of human habitat throughout the industrialized world northern anxiety spread to the loss of tropical rainforests and biodiversity in the south where environmentalism evolved further in an encounter with indigenous interpretations conditions and priorities by the late 1980 s climate change emerged as a central issue in a now global discourse on the relationship between environment and development the principle of sustainable development that current needs are to be met as fully as possible while ensuring that the life opportunities of future generations are undiminished relative to present is now widely accepted this paper illustrates that incorporating environmental values per se in decision making will not bring about sustainability unless each generation is committed to transferring to the next sufficient natural resources and capital assets to make development sustainable 11 refs 3 figs

carbon pricing carbon sequestration and social discounting abstract this paper studies the optimal taxation of carbon emissions in a dynastic economy when the welfare function places direct pareto weights on unborn generations the social discount rate is lower than the discount rate of the current generation i show that this welfare criterion has important consequences for the structure of the optimal regulatory system in particular i show that i the optimal carbon tax does not in general equal the social cost of carbon ii a subsidy on oil reserves is sometimes optimal and iii carbon trading programs should limit the award of carbon offset allowances

the bright side of managerial over optimism human estimation and inference are subject to systematic biases such as overconfidence and over optimism in contrast to prior research that has identified multiple negative consequences of these biases we focus on positive effects we empirically examine a setting in which over optimism a is a related but different bias from overconfidence b emerges dynamically in a rational economic framework and c generates higher managerial effort importantly this additional effort improves firm profitability and market value

carbon tax subsidy policy choice and its effects in the presence of interest groups abstract interest groups such as industry organization public finance and environmental group may exert influences on policy makers when they are choosing environmental policies considering the situation that two countries where a domestic country suffers equal influence and a foreign country suffers different influences from these groups can choose carbon tax policy or carbon subsidy policy then this paper constructs a two staged game model to study how interest groups make differences to environmental policy choices and their impacts on policy level production carbon emission profit and welfare between countries results show that the domestic country will definitely choose carbon tax policy but the foreign country may make different choices furthermore if the foreign country chooses carbon subsidy policy the domestic country will set higher tax rate than the foreign country does but production carbon emission profit and welfare of the domestic country will be lower than those of the foreign country if the foreign country chooses carbon tax policy carbon tax rate production carbon emission profit and welfare are ambiguous between countries

the political economy of mitigation and adaptation abstract climate policies have very uneven effects in terms of their fiscal impact while mitigation of climate change typically raises revenues adaptation is costly to the taxpayer and the more so the more distortionary the tax system moreover the benefits and costs of mitigation and adaptation vary across generations in an olg model with majority voting we show that even in the absence of international pollution spillovers and strategic considerations neither mitigation nor adaptation can be expected to be set efficiently the reason is that voters have incentives to use climate policy as an instrument for redistribution we find that these incentives depend on the underlying tax system furthermore the chosen mitigation or adaptation level may be inefficiently high in a political equilibrium with a distortionary income tax system although not simultaneously this finding suggests that a distortionary income tax system favors one policy mitigation or adaptation at the expense of the other the calibration of our model to the german economy reveals that both mitigation and adaptation are lower than their socially optimal levels

the political economy of environmental policy with overlapping generations a two sector overlapping generations model illuminates the intergenerational effects of a tax that protects an environmental stock a traded asset capitalizes the economic returns to future tax induced environmental improvements benefiting the current asset owners the old generation absent a transfer the tax harms the young generation by decreasing their real wage future generations benefit from the tax induced improvement in environmental stock the principal intergenerational conflict arising from the tax is between generations alive at the time society imposes the policy not between generations alive at different times a pareto improving tax can be implemented under various political economy settings

earthly reward to the religious religiosity and the costs of public and private debt we document that a firm s culture specifically its religiosity affects its cost of debt firms in higher religiosity counties have higher credit ratings and lower debt costs the impact of religiosity is stronger for firms with greater information asymmetry and during recessions further religiosity has additional explanatory power for the cost of bank loans but not the cost of public bonds beyond its impact through ratings this supports the argument that banks have superior abilities in pricing soft information such as corporate culture finally the impact of religiosity is stronger when the lender is a small bank

the implications for households of environmental tax reform etr in europe abstract the paper discusses the distributional implications of environmental tax reform etr for households and presents new results from modelling the impacts of a major etr for the european union the distributional effects arise from the new environmental taxes any tax reductions made as part of the etr the wider macroeconomic impacts from the etr any special provisions in the etr and the environmental benefits from the etr the paper s literature review makes clear that while the impacts from taxes on the household use of energy are very often regressive transport taxes tend not to be although the impacts differ between urban and rural households moreover the net distributional impact is often less regressive or not at all once the wider distributional effects are taken into account residual regressive effects can in principle be removed by further adjustments in the tax or benefits system the modelling results suggest that an etr in europe will actually increase real incomes across the eu as a whole and will not be generally regressive although the results differ by country and for different socio economic groups the political acceptability of etr may depend on the worst effects on these groups being mitigated in some way

climate change mitigation and adaptation with uncertainty and learning one of the major issues in climate change policy is how to deal with the considerable uncertainty that surrounds many of the elements some of these uncertainties will be resolved through the process of further research this process of learning raises a crucial timing question should society delay taking action in anticipation of obtaining better information or should it accelerate action because we might learn that climate change is much more serious than expected much of the analysis to date has focussed on the case where the actions available to society are just the mitigation of emissions and where there is little or no role for learning we extend the analysis to allow for both mitigation and adaptation we show that including adaptation weakens the effect of the irreversibility constraint and so for this model makes it more likely that the prospect of future learning should lead to less action now to deal with climate change we review the empirical literature on climate change policy with uncertainty learning and irreversibility and show that to date the effects on current policy are rather small though this may reflect the particular choice of models employed

religiosity and the cost of debt abstract in a cross country setting we document that stronger religiosity is associated with lower loan interest spread in addition we show that this negative association is more pronounced in countries with weaker creditor rights suggesting that religious values play a more significant role in constraining opportunistic behavior in a weaker legal environment our analysis reveals that stronger religiosity is also related to other favorable terms in loan contracting such as larger facility amount use of accounting based performance pricing and lower upfront fee corroborating our cross country findings we also show that in the u s setting firms in regions with stronger religiosity enjoy lower loan interest spread our study contributes to understanding the important role religiosity plays in debt financing

inefficiency in legislative policymaking a dynamic analysis this paper develops an infinite horizon model of public spending and taxation in which policy decisions are determined by legislative bargaining the policy space incorporates both productive and distributive public spending and distortionary taxation the productive spending is investing in a public good that benefits all citizens e g national defense and the distributive spending is district specific transfers e g pork barrel spending investment in the public good creates a dynamic linkage across policymaking periods the analysis explores the dynamics of legislative policy choices focusing on the efficiency of the steady state level of

balanced budget redistribution as the outcome of political competition this paper models balanced budget redistribution between socio economic groups as the outcome of electoral competition between two political parties equilibrium is unique in the present model and a sufficient condition for existence is given requiring that there be enough stochastic heterogeneity with respect to party preferences in the electorate the validity of hotelling s principle of minimum differentiation and of director s law are examined under alternative hypotheses concerning administrative costs of redistributions and voter s possibilities both of abstaining from voting and of becoming campaign activists for one of the parties the policy strategy of expected plurality maximization is contrasted with the strategy of maximizing the probability of gaining a plurality incomes are fixed and known so lump sum taxation is feasible however constraints on tax transfer differentiation between individuals are permitted in the analysis

generational welfare under a climate change policy with induced innovation we develop a climate economy model with generational heterogeneity and the potential for climate policy induced technological change we use the model to assess the distributional implications of climate policies and of policy designs which recycle generated revenues to finance research and development r d we model only innovation in the energy generated per unit of fossil fuels so the quantitative results we derive are small our emphasis is on the distributional impacts of redistributing climate policy rents to enhance r d we show that while investments of climate policy rents to accelerate innovation are likely to be welfare improving as long as significant market failures exist they are also likely to exacerbate the distributional inequities created across generations by climate change policies the political feasibility of climate policies may be harmed by rent transfers to r d as these transfers can increase the costs borne by agents alive today while increasing benefits to generations born far into the future

political competition within and between parties an application to environmental policy this paper presents a political economy model that explains the low rate of emission taxes in the u s as well as the fact that neither democrats nor republicans propose to increase them the voters differ according to their wage and capital incomes which are assumed to have a bivariate lognormal distribution they vote over the emission tax rate and a budgetary rule that specifies how to redistribute the tax proceeds the political competition is modeled a la roemer 2001 where the two parties care for the policies they propose as well as the probability of winning the equilibrium solution concept is the party unanimity nash equilibrium pune we calibrate the model using u s data and compute the punes numerically two main results emerge all viable punes entail subsidies on emissions as opposed to taxes this indicates the importance of distributional concerns in garnering political support for environmental policies second parties always propose an interior value for the budgetary rule even though all citizens prefer extreme values this illustrates the emergence of political compromise to attract voters

medical care costs how much welfare loss hardly a week goes by without a front page newspaper article on rising health care costs and the uninsured in this article i focus mainly on costs arguing that the issue has been somewhat misconceived while the level of medical care spending in the u s is a cause for concern the welfare losses associated with rises in that level of spending may not be as large as the public rhetoric can make them seem in fact cost containment may not be as urgent as is widely supposed and some proposed cost containment policies may result in welfare losses for the insured and even increase the number of uninsured

the marginal cost of public funds hours of work versus labor force participation this paper extends the theory and measurement of the marginal cost of public funds mcf to account for labor force participation responses our work is motivated by the emerging consensus in the empirical literature that extensive participation responses are more important than intensive hours of work responses in the modelling of extensive responses we argue that it is crucial to account for the presence of non convexities created by fixed work costs in a non convex framework tax and transfer reforms give rise to discrete participation responses generating first order effects on government revenue these revenue effects make the marginal cost of funds higher and we show numerically that the implications for mcf tend to be substantial

political sustainability and the design of social insurance this paper examines how the issue of political support affects the design of social insurance it distinguishes between redistributive character and size of social protection three main results emerge first it may be appropriate to adopt a system which is less redistributive than otherwise optimal in order to ensure political support for an adequate level of coverage in the second voting stage second supplementary private insurance may increase the welfare of the poor even if it is effectively bought only by the rich third the case for prohibiting supplementary private insurance may become stronger when the efficiency of private insurance markets increases

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

the timing and strategic role of self protection self protection has private goods characteristics as it reduces own exposure to pollution given a certain level of pollution we study the effect of timing self protection before after or simultaneously with abatement we find that self protection when timed before abatements has strategic effects in this case self protection shifts the second stage subgame perfect nash equilibrium of abatements such that own contributions of abatement are decreased and those of the other country are increased thereby shifting future abatement costs to the other country when countries cooperate only on abatement the incentives to shift future abatement costs are greater contrary to intention cooperation on abatement may in fact worsen environmental quality if it does not include self protection

competitive equilibria and sustainable growth in a life cycle model with natural resources the purpose of this note is to consider interactions between capital accumulation and natural resource exploitation in diamond s 1965 overlapping generations olg model the presumption in the literature on economic growth under resource constraints e g solow 1974 or stiglitz 1974 is that constant standards of living are possible in the presence of nonreproducible natural resources even in the absence of technical progress provided only that capital and resources are good substitutes in production and society makes sufficient investments in reproducible capital to offset the optimally declining stock of natural resources this literature ignores generation overlap and treats society in each period as a single generation which cares about and also discounts the welfare of its immediate descendants and which has complete control over the rate of resource use and the saving rate whether a sequence of selfish finite lived and interdependent generations interacting via competitive markets will implement these paths is an open question this note introduces a stationary population log linear version of diamond s model in which natural resources are selfreproducible and essential in production and capital depreciates completely after one period in this environment it is technically feasible to achieve growth paths in which the input and the stock of natural resources are constant and in which capital accumulation leads to growth in living standards these paths of resource use can be interpreted as emanating from the normative concept of sustainable development now advocated

optimal taxes on fossil fuel in general equilibrium we analyze a dynamic stochastic general equilibrium dsge model with an externality through climate change from using fossil energy our central result is a simple formula for the marginal externality damage of emissions or equivalently for the optimal carbon tax this formula which holds under quite plausible assumptions reveals that the damage is proportional to current gdp with the proportion depending only on three factors i discounting ii the expected damage elasticity how many percent of the output flow is lost from an extra unit of carbon in the atmosphere and iii the structure of carbon depreciation in the atmosphere thus the stochastic values of future output consumption and the atmospheric co2 concentration as well as the paths of technology whether endogenous or exogenous and population and so on all disappear from the formula we find that the optimal tax should be a bit higher than the median or most well known estimates in the literature we also formulate a parsimonious yet comprehensive and easily solved model allowing us to compute the optimal and market paths for the use of different sources of energy and the corresponding climate change we find coal rather than oil to be the main threat to economic welfare largely due to its abundance we also find that the costs of inaction are particularly sensitive to the assumptions regarding the substitutability of different energy sources and technological progress

renewable resources in an overlapping generations economy without capital abstract we incorporate a renewable resource into an overlapping generations model without capital and with quasi linear preferences besides being an input for production the resource serves as a store of value we characterize the dynamics efficiency and stability of the steady state equilibria the stability properties are sensitive to the type of resource growth for constant growth there is only one steady state equilibrium which is stable and efficient in the general case of the concave growth function there are usually at least two steady state equilibria one of which is stable and the other one unstable the unstable steady state is efficient but the stable one may or may not be we study the robustness of our results by assuming a logarithmic utility function we show that for the cobb douglas production function the steady state is unique and stable regardless of whether the equilibrium is efficient or inefficient our analytical results are illustrated by numerical calculations

instrument choice and stranded assets in the transition to clean capital abstract this paper compares the impact of different climate mitigation policies mandates feebates performance standards and carbon pricing in a ramsey model with clean and polluting capital irreversible investment and a climate constraint these policy instruments imply different transitions to the same balanced growth path the optimal carbon price minimizes the discounted social cost of the transition to clean capital but may prompt premature retirement of existing polluting capacities and significant private costs in the form of stranded assets second best mandates and feebates affect new investment decisions without providing incentives to under use existing polluting equipment these instruments lead to higher discounted social costs but smoother abatement costs and do not result in premature retirement or stranded assets a phased in carbon price can avoid premature retirement but still result in stranded assets that is in a drop of wealth for the owners of polluting capital we discuss a potential trade off between the political feasibility and cost effectiveness of climate mitigation policies

investment and adaptation as commitment devices in climate politics the strategic roles of adaptation and technological investment in international climate politics have been analyzed within various approaches what makes this paper unique is that we investigate the combined impact of adaptation and investment on global mitigation and we compare the subgame perfect equilibria for different sequences of decisions considering a purely non cooperative game theoretic framework we find that by investment countries commit to lower national contributions to the global public good of mitigation moreover the order of adaptation before mitigation might reinforce this strategic effect of technological investments as a consequence the subgame perfect equilibrium for symmetric countries yields a globally lower level of mitigation and higher global costs of climate change when countries engage in advanced adaptation besides this theoretical contribution the paper proposes some strategies to combat the unfortunate rush to adaptation which can be currently observed in climate politics

does religion matter in corporate decision making in america abstract we examine how corporate culture influences firm behavior prior research suggests a link between individual religiosity and risk aversion we find that this relationship also influences organizational behavior firms located in counties with higher levels of religiosity display lower degrees of risk exposure as measured by variances in equity returns or returns on assets they exhibit a lower investment rate and less growth but generate a more positive market reaction when they announce new investments finally chief executive officers are more likely to join a firm with a similar religious environment as in their previous firm when they switch employers

positive arithmetic of the welfare state abstract this paper argues that social security enjoys wider political support than other welfare programs because i retirees constitute the most homogeneous voting group and ii the intragenerational redistribution component of social security induces low income young to support this system in a dynamically efficient overlapping generation economy with earnings heterogeneity we show that for sufficient income inequality and enough elderly in the population a welfare system composed of a within cohort redistribution scheme and an unfunded social security system represents the political equilibrium of a two dimensional majoritarian election social security is sustained by retirees and low income young while intragenerational redistribution by low income young unlike unidimensional voting model our model suggests that to assess how changes in inequality affect the welfare state the income distribution should be decomposed by age groups

the survival of the welfare state this paper provides an analytical characterization of markov perfect equilibria in a model with repeated voting where agents vote over distortionary income redistribution a key result is that the future constituency for redistributive policies depends positively on current redistribution since this affects both private investments and the future distribution of voters the model features multiple equilibria in some equilibria positive redistribution persists forever in other equilibria even a majority of beneficiaries of redistribution vote strategically so as to induce the end of the welfare state next period skill biased technical change makes the survival of the welfare state less likely

health care is an individual necessity and a national luxury applying multilevel decision models to the analysis of health care expenditures health care is neither a necessity or a luxury it is both since the income elasticity varies with the level of analysis with insurance individual income elasticities are typically near zero while national health expenditure elasticities are commonly greater than 1 0 the debate over whether health care is or is not a luxury good arises primarily from the failure to specify levels of analysis clearly so as to distinguish variation within groups from variation between groups apparently contradictory empirical results are shown to be consistent with a simple nested multilevel model of health care spending

an econometric analysis of health care expenditure a cross section study of the oecd countries this paper is an empirical examination of the determinants of aggregate health care expenditure the paper presents a systematic analysis of relationships across 19 oecd countries showing the effects of aggregate income institutional and socio demographic factors on health care expenditure the results indicate that institutional factors of the health systems in addition to per capita gross domestic product gdp contribute significantly to the explanation of the health care expenditure variation between countries for example the way physicians in outpatient care are paid and the mixture of public private funding and inpatient outpatient care

an overlapping generations model of climate economy interactions a numerically calibrated overlapping generations model of climate change and the world economy is examined in this paper in the absence of intergenerational transfers efficient rates of greenhouse gas emissions abatement rise from 16 in the present to 25 in the long run while mean global temperature increases by 7 40c relative to the preindustrial norm a utilitarian optimum which attaches equal weight to each generation s life cycle utility yields abatement rates that rise from 48 to 89 with a long run temperature increase of 3 40c a second best utilitarian path in which intergenerational transfers are by assumption institutionally infeasible also supports stringent abatement measures i introduction the infinitely lived agent framework pioneered by frank ramsey 1928 has emerged as a central structure in the economics of climate change as characterized by ipcc 1996 working group iii climate change occurs when anthropogenic emissions of greenhouse gases principally carbon dioxide but also chlorofluorocarbons methane nitrous oxide and water vapor contribute to long term increases in mean global temperature potentially disrupting ecological systems and climate dependent production activities the best known study on the economics of this subject is nordhaus 1994 dynamic model of climate and the economy dice which incorporates assumptions regarding the costs and benefits of greenhouse gas emissions in a standard one sector growth model in nordhaus analysis a 50 reduction in greenhouse gas emissions would reduce gross world output by 0 93 a doubling of greenhouse gas concentrations relative to the preindustrial norm which is expected to occur by the middle of the twenty first century would reduce output by

adaptation mitigation and risk an analytic approach abstract the adaptation vs mitigation dilemma is considered by analyzing a simple dynamic model of managing a polluting process subject to the risk of abrupt occurrences of harmful events the occurrence hazard can be mitigated by reducing the polluting emissions while the occurrence damage can be controlled via investments in adaptation activities a full dynamic characterization of the optimal mitigation adaptation processes is presented the adaptation and mitigation policies interact strongly and the evolution in time of each is affected by the option to implement the other the conditions under which adaptation investments should begin promptly take place after some delay or be avoided altogether are derived in terms of some key model parameters

democratic public good provision this paper analyzes an overlapping generation model of redistribution and public good provision under repeated voting expenditures are financed through age dependent taxation that distorts human capital investment taxes redistribute income both across skill groups and across generations we focus on politico economic markov equilibria and contrast these with the ramsey allocation under commitment the model features indeterminate equilibria with a key role of forward looking strategic voting due to the lack of commitment to future policies the tax burden may be on the wrong side of the dynamic laffer curve moreover restrictions on government policies can in some cases be welfare improving

top management compensation and capital structure the interrelationship between top management compensation and the design and mix of external claims issued by a firm is studied the optimal managerial compensation structures depend on not only the agency relationship between shareholders and management but also the conflicts of interests which arise in the other contracting relationships for which the firm serves as a nexus we analyze in detail the optimal management compensation for the cases when the external claims are 1 equity and risky debt and 2 equity and convertible debt in addition to the role of aligning managerial incentives with shareholder interests managerial compensation in a levered firm also serves as a precommitment device to minimize the agency costs of debt the optimal management compensation derived has low pay performance sensitivity with convertible debt instead of straight debt the corresponding optimal managerial compensation has high pay to performance sensitivity a negative relationship between pay performance sensitivity and leverage is derived our results provide a reconciliation of the puzzling evidence of jensen and murphy 1990 with agency theory other testable implications include 1 a relationship between the risk premium in corporate bond yields and top management compensation structures and 2 the announcement effect of adoption of executive stock option plans on bond prices the model yields implications for management compensation in banks and federal deposit insurance reform our results explain the dynamics of top management compensation in firms going through financial distress and reorganization

correcting the climate externality pareto improvements across generations and regions many argue that the present generation must reduce consumption to mitigate future climate change however as significant climate change is due to market failure the correction of market failures by definition gives rise to the possibility of pareto improvements in this paper we examine the implications of pareto improvements both within and across generations we employ the representative consumer model rice 10 a global model including different regions to see how we could potentially distribute any benefits across and within generations such that nobody loses the model shows that different combinations of present and future consumption along the pareto improving frontier yield different combinations of capital investment and emissions we also calculate a conventional social optimum while the social optimum by definition is on the pareto efficiency frontier it is not necessarily on the pareto improving segment of this frontier total emissions and hence temperature change vary significantly across different pareto improving scenarios it obviously matters which generations get the utility gain and one of our results is that for pareto improvements where none of the gain goes to the distant future and allowing transfers total emissions will be higher than in the social optimum even without any welfare gain to the distant future total emissions may be lower in the pareto improving scenarios we have considered than under the social optimum if transfers are not permitted moreover in this case carbon taxes differ substantially across regions for all pareto improvements

environmental abatement and intergenerational distribution this paper employs an overlapping generations model to explore the impact of public abatement on private investment and the intergenerational distribution of welfare whereas public abatement benefits old generations in terms of non environmental welfare future generations gain most in terms of environmental welfare the overall benefits tend to be smallest for generations born at the time of the unanticipated policy shock public debt policy however can be employed to ensure that welfare gains are distributed more equally across the various generations such a policy implies that natural capital crowds out man made capital

reference health and the demand for medical care we propose that health in prior periods termed reference health is theoretically and empirically relevant to the demand for medical care to address non normality in the distributions of medical care spending consumption and health we use a conditional density estimator nested in a finite mixture framework we find that reference health can help explain the variation in spending among individuals with the same contemporaneous health particularly in the top tail of the spending distribution we demonstrate that omitting reference health understates the potential cost savings of healthy aging initiatives by 50 percent this article is protected by copyright all rights reserved

the price response to s p 500 index additions and deletions evidence of asymmetry and a new explanation we study the price effects of changes to the s p 500 index and document an asymmetric price response there is a permanent increase in the price of added firms but no permanent decline for deleted firms these results are at odds with extant explanations of the effects of index changes that imply a symmetric price response to additions and deletions a possible explanation for asymmetric price effects arises from the changes in investor awareness results from our empirical tests support the thesis that changes in investor awareness contribute to the asymmetric price effects of s p 500 index additions and deletions the long held assumption that stocks have perfect substitutes and the perfect elasticity of demand that follows from it is central to modern finance theory if securities have almost perfectly elastic demand then any supply or demand shocks that are devoid of information should have no effect on the prevailing price early empirical research on whether price changes occur in the absence of new information focused on block trades equity issues and stock splits but was unable to exclude information effects around these events since there is no obvious reason to believe ex ante that index changes contain new information they constitute a natural framework for testing whether stocks have almost perfectly elastic or horizontal demand curves a stock s excess return around such changes could be consistent with a downward sloping demand curve with the advent of indexed mutual funds in 1976 and the public announcement of s p index changes in the same year there is much evidence that such announcements are accompanied by an increase in price for firms added to the index if stocks have a short term downward sloping demand curve the price should be momentarily affected by a demand shock due to indexing but that effect

the dynamics of government abstract we model income redistribution with dynamic distortions as determined by rational voting without commitment among individuals of different types and income realizations we find that redistribution is too persistent relative to that chosen by a planner with commitment the difference is larger the lower is the political influence of young agents the lower is the altruistic concern for future generations and the lower is risk aversion furthermore there tends to be too much redistribution in the political equilibrium finally smooth preference aggregation as under probabilistic voting produces less persistence and does not admit multiple equilibria which occur under majority voting aggregation

conservationist government policies and intergenerational equity in an overlapping generations model with renewable resources abstract this paper shows that in overlapping generations models incorporating renewable natural resources competition may lead to perpetually declining living standards in environments in which it is technically feasible to achieve intergenerationally equitable distributions of consumption first and second best conservationist government policies are examined these include forced nationalization of the entire stock of natural capital government open market purchases and sales of natural capital taxation of industrial use of resources and subsidies to private investments in natural capital

a review of the stern review on the economics of climate change how much and how fast should we react to the threat of global warming the stern review argues that the damages from climate change are large and that nations should undertake sharp and immediate reductions in greenhouse gas emissions an examination of the review s radical revision of the economics of climate change finds however that it depends decisively on the assumption of a near zero time discount rate combined with a specific utility function the review s unambiguous conclusions about the need for extreme immediate action will not survive the substitution of assumptions that are consistent with today s marketplace real interest rates and savings rates

culture openness and finance abstract differences in culture proxied by differences in religion and language cannot be ignored when examining why investor protection differs across countries we show that a country s principal religion predicts the cross sectional variation in creditor rights better than a country s natural openness to international trade its language its income per capita or the origin of its legal system catholic countries protect the rights of creditors less well than protestant countries a country s natural openness to international trade mitigates the influence of religion on creditor rights culture proxies are also helpful in understanding how investor rights are enforced across countries

an overlapping generations model of growth and the environment this article analyzes the potential conflict between economic growth and the maintenance of environmental quality in an overlapping generations model short lived individuals make decisions which have long lasting effects on both factor productivity and the environment the model provides a theoretical explanation of observed correlations between environmental quality and income whereby economic growth is associated first with declines then improvements in environmental quality it suggests circumstances in which multiple pareto ranked steady state equilibria may arise and in which sustained growth of both capital and environmental quality may occur overmaintenance of the environment analogous to dynamically inefficient overaccumulation of capital may emerge copyright 1994 by royal economic society

intergenerational resource rights efficiency and social optimality the discipline of economics is generally defined as the science of the allocation of scarce resources between competing social objectives given an initial distribution of resources between economic agents how would they behave so as to improve their welfare according to the pareto criterion the agents would exchange commodities until the opportunities for fruitful exchange were fully exhausted and no agent could be made better off without rendering at least one other agent worse off pareto efficiency is a powerful concept in microeconomic analysis provided that the initial distribution of property rights is equitable allocative efficiency gives rise to the best of all possible worlds acknowledging that the assumptions of perfect competition are often violated firms are monopolistic information is incomplete and externalities exist economists have argued for the modification of institutions so that economic reality will conform more closely to the assumptions of the model that yields such gratifying results but microeconomic theory has always maintained that allocative efficiency is in itself insufficient to maximize social welfare bator 1957 a social welfare function is required to discriminate a social optimum among the array of efficient allocations that correspond to alternative assignments of property rights though economists have posited alternative functional forms for the sake of pursuing conceptual arguments welfare functions have remained elusive constructs for well known theoretical and practical reasons consequently a sharp line of demarcation has been drawn between questions of efficiency the province of economics and equity the principal focus of ethical and political discourse in resource economics however the line demarcating efficiency and equity is often crossed the term optimal depletion appears regularly where only efficient depletion is meant while political debates about resource exploitation over time are laden with questions of the proper distribution of our natural patrimony between generations resource economists have predominantly espoused particular use rules that guarantee efficiency but overlook potential improvements in social welfare achievable through the reassignment of property rights across generations we document the evolution and current status of the misuse of the term optimal depletion in section ii we develop a simple two generation three period general equilibrium model in section iii to illustrate how alternative distributions of resource rights between generations relate to alternative pareto efficient solutions in section iv we demonstrate how different social welfare functions affect the optimal solution and associated assignment of resource rights between generations

the changing distribution of male wages in the uk this paper uses microeconomic data from the u k family expenditure surveys fes and the general household surveys ghs to describe and explain changes in the distribution of male wages since the late 1970s wage inequality has risen very fast in the u k and this rise is characterized both by increasing education and age differentials we show that a large part of the changes in the u k can be summarized quite simply as increases in eduction differentials and a decline of growth of entry level wages which persist subsequently this fact we interpret as cohort effects we also show that like in the u s an important aspect of rising wage inequality is increased within group wage dispersion finally we use the ghs to evaluate the role of alternative education measures

trade tragedy and the commons we develop a theory of resource management where the degree to which coun tries escape the tragedy of the commons and hence the de facto property rights regime is endogenously determined three forces determine success or failure in resource management the regulator s enforcement power the extent of har vesting capacity and the ability of the resource to generate competitive returns without being extinguished the model can explain heterogeneity across coun tries and resources in the effectiveness of resource management and it predicts that changes in prices population and technology can cause transitions to better or worse management regimes jel p14 q21 q22 q23 q32 many of the world s major renewable resource stocks are in a state of decline this is true for capture fisheries for forests in developing countries and for many measures of the biosphere s health other renewable resources including many species of wildlife marine mammals and coral reefs are also under threat while poverty and government corruption are surely respon sible for some of this record particular emphasis is often placed on the potentially damaging role played by international trade this emphasis is not surprising given that natural resource products are a key export for much of the developing world and property rights over renewable resources are both difficult to define and poorly enforced but property rights are not an immutable country characteristic such as weather mineral deposits or topography they are instead market institutions developed to facilitate transactions and protect scarce resources consequently changes in prices technology and other effects of market integration may alter the de facto property rights regime and lead to impacts quite dif ferent from those predicted by existing analyses the purpose of this paper is to examine renew able resource use within a framework where the enforcement of property rights and hence the efficacy of resource management is endogenously determined we develop a theory where an existing government regulates the use of a renewable resource by a set of agents who have a right to harvest the resource could be a fishery forest stock aquifer etc and we assume it is local and therefore contained within one country the govern ment sets rules limiting harvests but agents may cheat on these allocations and risk punishment property rights are endogenous in this framework because the government must account for agents incentive to cheat as a result the effective protection for the resource or what we refer to as the de facto property rights regime may be far from perfect even though property rights would be perfectly enforced if there was no monitoring problem

self enforcing intergenerational social contracts for pareto improving pollution mitigation we consider in an overlapping generations model with an environmental externality a scheme of contracts between any two successive generations under each contract agents of the young generation invest a share of their labor income in pollution mitigation in exchange for a transfer in the second period of their lives the transfer is financed in a pay as you go manner by the next young generation different from previous work we assume that the transfer is granted as a subsidy to capital income rather than lump sum we show that the existence of a contract which is pareto improving over the situation without contract for any two generations requires a sufficiently high level of income in a steady state with social contracts in each period the pollution stock is lower compared to a steady state without contracts analytical and numerical analysis of the dynamics under nash bargaining suggests that under reasonable conditions also steady state income and welfare are higher delaying the implementation of a social contract for too long or imposing a contract with too low mitigation can be costly net income may inevitably fall below the threshold in finite time so that pareto improving mitigation is no longer possible and the economy converges to a steady state with high pollution stock and low income and welfare in the second part of the paper we study a game theoretic setup taking into account that credibly committing to a contract might not be possible we show that with transfers granted as a subsidy to capital income there exist mitigation transfer schemes which are both pareto improving and give no generation an incentive to deviate from any of its contracts even in a dynamically efficient economy social contracts coexist with private savings

trading off generations equity discounting and climate change the prevailing literature discusses intergenerational trade offs in climate change predominantly in terms of the ramsey equation relying on the infinitely lived agent model we discuss these trade offs in a continuous time olg framework and relate our results to the infinitely lived agent setting we identify three shortcomings of the latter first underlying normative assumptions about social preferences cannot be deduced unambiguously second the distribution among generations living at the same time cannot be captured third the optimal solution may not be implementable in overlapping generations market economies