black market exchange rate and the productivity bias hypothesis abstract previous studies that tested the productivity bias hypothesis employed the official nominal exchange rate in constructing the real rate hence in testing the productivity bias hypothesis in this paper we show that if official real exchange rate does not support the productivity bias hypothesis the real black market rate does this conjecture is tested by using data from chile colombia and costa rica

truth effort and the legal battle in lawsuits relative success depends upon two main factors the true degree of fault and the efforts invested on eachside a proposed litigation success function displays thisdependence while satisfying other essential properties undertwo different protocols nash cournot and stackelberg solutions are obtained for the litigation efforts proportionate success and values of the lawsuit on each side outcomes are evaluated in terms of two normative criteria i achieving justice interpreted as equality between defendantfault and relative plaintiff success and ii minimizingaggregate litigation cost achievement of these aims isdetermined by the decisiveness of litigation effort relativeto true fault

pollution claim settlements under private information abstract the classical problem of resolving a nuisance dispute between a pollution generating firm and nearby residents is modelled here as a mechanism design problem we assume that the designer of the mechanism is the firm that it is uncertain about the actual losses suffered by residents and that the initial assignment of property rights is one where each resident is entitled to prevail we derive a profitmaximizing scheme under the individual rationality and incentive compatibility constraints and examine its properties it is shown that the outcomes it yields are sometimes inefficient moreover when many residents are affected by pollution and the degree of uncertainty with respect to the losses they suffer is large these inefficiencies become rampant

the principal agent relationship with an informed principal the case of private values we analyze the principal agent relationship when the principal has private information as a three stage noncooperative game contract proposal acceptance refusal and contract execution we assume that the information does not directly affect the agent s payoff private values equilibrium exists and is generically locally unique moreover it is pareto optimal for the different types of principal the principal generically does strictly better than when the agent knows her information equilibrium allocations are the walrasian equilibria of an economy where the traders are different types of principal and exchange the slack on the agent s individual rationality and incentive compatibility constraints

what can we learn from the grand policy experiment lessons from so2 allowance trading stable url http links jstor org sici sici 0895 3309 28199822 2912 3a3 3c69 3awcwlft 3e2 0 co 3b2 tthe journal of economic perspectives is currently published by american economic association your use of the jstor archive indicates your acceptance of jstor s terms and conditions of use available athttp www jstor org about terms html jstor s terms and conditions of use provides in part that unless you have obtainedprior permission you may not download an entire issue of a journal or multiple copies of articles and you may use content inthe jstor archive only for your personal non commercial use please contact the publisher regarding any further use of this work publisher contact information may be obtained athttp www jstor org journals aea html each copy of any part of a jstor transmission must contain the same copyright notice that appears on the screen or printedpage of such transmission the jstor archive is a trusted digital repository providing for long term preservation and access to leading academicjournals and scholarly literature from around the world the archive is supported by libraries scholarly societies publishers and foundations it is an initiative of jstor a not for profit organization with a mission to help the scholarly community takeadvantage of advances in technology for more information regarding jstor please contact support jstor org http www jstor orgtue jun 26 16 25 17 2007

purchasing power parity and unit root tests using panel data abstract this paper reports the results of unit root tests for real exchange rates using a panel framework this panel approach provides greatly improved power compared to conventional univariate time series unit root tests we obtain evidence supporting ppp over the recent flexible exchange rate period for g 6 and oecd countries we show explicitly that failure to find such evidence in previous research was due to the low power of the tests

firm siz and efficiency in inovation reply economic activity moved away from large firms to small predominantly young firms in the 1970s and 1980s acs and audretsch 1993 and carlsson 1992 show evidence of manufacturing industries in countries in varying stages of economic development carlsson mentions two explanations for this shift the first deals with fundamental changes in the world economy from the 1970s onwards these changes relate to the increase of global competition the rising degree of uncertainty and the growth in market fragmentation the second deals with changes in the character of technological progress he shows that flexible automation has various effects resulting in a shift from large to smaller firms the pervasiveness of these changes results in a structural shift which affects the economies of all industri

exchange rate forecasts at long horizons are error correction models superior the out of sample forecasting performance of error correction models of exchange rates is tested on recent monthly data and on annual data from 1900 to 1995 the results for the monthly data set strongly favor the naive model even when the series are pooled in the annual data the best model is usually a regression model of some form but there is no evidence that a researcher can pick a regression model that outpredicts a naive model more often than not either by choosing at random or by selecting the model that best fits past data

stock market development and cross country differences in relative prices abstract we document a positive correlation between stock market capitalization and price levels wages within the group of countries with poorly developed stock markets and a negative correlation between these two variables within the group of countries with more developed stock markets this paper argues that there is a causal relationship behind these correlations stock markets initially stimulate growth pushing the demand for nontradables and increasing prices and wages stock markets also promote a shift toward more capital intensive technologies in the tradable sector increasing the migration of workers to services and eventually putting downward pressure on wages and prices

cooperative solution of local externality problems a case of mechanism design applied to irrigation abstract cooperative solutions to ameliorate externalities may be pareto superior compared to noncooperative abatement strategies but such solutions may not be adopted without appropriate institutional mechanisms to achieve cooperative outcomes voluntarily there must be methods of determining cost shares and identifying preferred solutions here the design of a process and a related algorithm are proposed based on concepts of welfare economics and game theory for public goods and externalities simulation of the process for an irrigation externality problem in the central valley of california demonstrates existence of a unanimously preferred solution with improved water quality

the role of product market regulations in the process of structural change abstract the sectoral allocation of labor differs considerably across developed economies even in the presence of similar patterns of structural change a general equilibrium model that captures the stylized facts of structural change is presented in this framework economy wide product market regulations hinder the development of dynamic sectors such as service industries this is consistent with the negative cross country relationship between product market regulations and the service employment share discussed in the paper additionally the model suggests that higher service prices and rents in regulated economies reduce labor supply providing a rationale for the negative association between product market regulations and the employment rate previously found in the literature

on countervailing incentives abstract this paper extends and unifies previous work on optimal contracts under countervailing incentives shedding light in particular on the relation between countervailing incentives and pooling inflexible rules our main result is that the nature of the optimal contract depends crucially on whether the agent s utility is quasiconcave or quasiconvex in the private parameter the optimal contract is separated in the former case and it may entail pooling in the latter case journal of economic literature classification number d82

why are services cheaper in the poor countries in their important work on international comparisons of national incomes and of comparative price structure kravis heston and summers i982 p 8 have noted that services are much cheaper in the relative price structure of a typical poor country than in that of a rich country this phenonomen has been documented now fairly systematically by the data gathered under their guiding hand of the united nations international comparison icp which covers 34 countries table i reproduced from their work i982 and fig i based on rows 3 and ii 13 indeed show this tendencyfor the relationship between relative service prices and real per capita gdp in this kravis heston summers 34 country 6 group sample the tendency is strongly evident except for the intermediate groups iii and iv

small firms in economic theory this is the fourth of a series of critical survey articles the aim of the series is to report on recent developments to provide an assessment of alternative approaches and to suggest lines of future inquiry it is intended that the articles will be accessible not only to other academic researchers but also to students and others more practically involved in the economy future survey articles will include warren samuels on institutional economics and philip arestis on post keynesian

the role of common law in environmental policy comment in a recent contribution to this journal fritz sillner 1994 provides a rather harsh critic of the working of common law in environmental policy and a strict recommendation to rely on statutory law only in this field in this comment i will argue that the distinction of the small versus the large number case which is central to his argument is an oversimplification and misleading moreover i will argue that judge made law does actually play an important role as part of an environmental policy mix s6llner s line of reasoning proceeds as follows if you take a look at the state of the environment in common law countries e g usa or great britain and compare them in this respect to civil law countries e g france or germany you will not find that the former have done better on that account as should be expected following the efficiency hypothesis of common law as proposed by posner 1986 priest 1977 and others a further look will show you that opposed to their naming common law does only play a minor role in the environmental policy of the common law countries this gives according to sallner a strong indication that the alleged tendency of common law towards efficiency does not hold in this particular case he provides two explanations for this finding

a formalisation and test of the factor productivity explanation of international differences in service prices this paper extends and integrates previous models of the determinants of international differences in the prices of services relative to tradable commodities the authors provide a model capable of identifying the effects of differences in total factor productivity on service price differences separately from the effects of factor endowment differences they propose a method for measuring these factor productivity difference effects and apply this to a sample of sixty countries in 1980 the authors results provide support both for the endowment difference and productivity difference explanations suggesting that in this context at least the two hypotheses are complements rather than competitors copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the market for sulfur dioxide emissions the 1990 clean air act amendments initiated the first large scale use of the tradable permit approach to pollution control the theoretical case for this approach rests on the assumption of an efficient market for emission rights the authors empirical analysis shows that the emission rights market created by the 1990 amendments had become reasonably efficient by mid 1994 they also show that the auctions specified in the amendments to jump start trading had become a small part of the overall market finally the authors demonstrate that the strategic bidding behavior discussed in the literature has had no effect on market prices copyright 1998 by american economic association

measuring r d in small firms how much are we missing the oecd surveys on r d are considerably biased towards underestimating r d in small firms this conclusion is derived from the author s comparison between the official dutch r d survey and the findings of his own survey among 3000 firms although being based on dutch observations only the author s considerations have an impact on other oecd countries since the official dutch r d survey is fully compatible with those in other countries the findings call into question the results from a number of empirical studies bearing on subjects such as market structure and r d firm size and r d or r d and growth

structural determinants of real exchange rates and national price levels some empirical evidence contrary to the long held notion of purchasing power parity ppp economists have found systematic evidence that the general level of prices across countries at a point in time varies dramatically irving b kravis alan w heston and robert summers 1982 for example report that some countries national price levels are no more than one third the u s price level extensions of this work show that such departures from ppp have persisted for decades recently efforts have been made to explain systematically these persistent or structural departures from ppp pioneering work by kravis and robert e lipsey 1983 1987 1988 has demonstrated that a positive correlation between the price level and real per capita gross domestic product is robust across numerous cross sectional specifications for instance using data from kravis et al 1982 table 6 12 87 percent of the variation in national price levels pl of 21 countries in 1975 is explained by per capita gdp y and a constant

union rent seeking intangible capital and market value of the firm abstract this study considers the effect of unions on intangi ble capital investment and profitability within the context of a market value rather than a more traditional accounting based approach theory is provided suggesting unions are able to affect profitability by sharing in the economic returns to firm specific intangible capital in support of this hypothesis we find unionization reduces the returns to r d and produces a corresponding limiting influence on r d investment at the firm level i introduction a n extensive literature in economics has ex amined the determinants of profitability with much of the focus centering on the role of market structure only recently however have the effects of labor unions on profitability been analyzed ths is surprising since labor economists long have emphasized union influences on wages and productivity that in turn may affect profitabil ity in recent studies freeman 1983 and karier 1985 report a significant limiting influence of unions on price cost margins in high concentra tion manufacturing industries using firm level data and the market based tobin s

ex post liability for harm vs ex ante safety regulation substitutes or complements this paper concerns the regulation of hazardous economic activities economists have generally viewed ex ante regulations safety standards pigouvian fees that regulate an activity before an accident occurs as substitutes for ex post policies exposure to tort liability for correcting extemalities this paper shows that where there is uncertainty there are inefficiencies associated with the exclusive use of negligence liability and that ex ante regulation can correct the inefficiencies in such a case it is efficient to set the safety standard below the level of precaution that would be called for if the standard were used alone jel 619

litigation and settlement under the english and american rules theory and evidence in contrast to the american rule whereby each party bears its own costs the english rule requires losers at trial to pay the winner s legal fees up to a reasonable limit we develop six hypotheses regarding how these two cost allocation rules might affect settlements and litigated outcomes through changes in i the selection of cases reaching the settle versus litigate stage and ii behavior thereafter using data from florida which applied the english rule to medical malpractice claims during the period 1980 85 we examine the rules effects on the probability of plaintiffs winning at trial jury awards and out of court settlements the english rule increased plaintiff success rates at trial average jury awards and out of court settlements our interpretation of these findings emphasizes that the overall quality of the claims reaching the settle versus litigate stage must improve to generate the combination of effects observed

double sided moral hazard and the nature of share contracts contractual arrangements involving revenue profit sharing are often based on fairly simple often linear rules in addition in many contexts these contracts are not finely adjusted to the particular circumstances of individual agents or markets nor do they vary over time to the extent current theories based on optimal contracting suggest they should we develop a simple model of such revenue or profit sharing arrangements based on double sided moral hazard and show that this model can account for many of these stylized facts more specifically the model shows that linear contracts can be optimal and that benefits from customizing terms can in some cases be quite limited if not zero

entitlements missing markets and environmental uncertainty reply abstract at one level dore and ward seem intent on immunizing received doctrine they say that i did not prove that rights violated nozick s principles of justice and that i did not prove that missing markets were the problem more telling they allege i did not prove that my story was better than the particular story favored by dore and ward that is they argue that there is an alternative approach based on the theory of public economics which is indeed operational 3 they then use the bulk of their comment to explain and defend this alternative model they hope to convince the reader that the model of public economics survives intact in the face of my alternative model to the extent that their model allows one to define the problem away it is not difficult to see why they find it so compelling more seriously dore and ward fail to make a coherent argument about the concept of rights and duties and the logic of a particular rights structure that happens to prevail they seem concerned that my article was tampering with some sacred social construct the status quo rights structure and that my article threatened the received wisdom of both public economics and paretian walrasian bliss indeed theirs seems to be a genuine fear that if economists release their grip on the certitude of received orthodoxy the floodgates will be open to all manner of bumbling regulators seeking to shift rights and wealth positions across generations my article is apparently threatening because it seems to suggest that the received wisdom may at times be misleading

entitling the pollutee liability versus standard under private information this paper considers and compares two different legal means full liability and standard to reduce and to regulate pollution at a local level accounting for private information about benefits and costs the familiar polluter pays principle makes the polluter liable for any damage since the courts lack information about the true damage the pollutee can and presumably will overstate this damage nevertheless voluntary arrangements bypassing the courts exist e g for coasean reasons however such out of court arrangements fail to improve in many cases the inefficient allocation of pollution due to agency costs given these unsatisfactory consequences of the polluter pays principle even after allowing for contracts around the law we propose a modification of standards the pollutee is entitled that a certain standard is satisfied yet can trade this right for financial compensations contracts induced by this legal rule are countervailing the optimal mechanism switches between subsidies and payments and first best efficiency holds at both ends and this characteristic allows such a privatized standard to track the first best quite well and often better than the polluter pays principle this relative ranking under private information is the opposite of the one that holds under uncertainty here liability dominates the standard

status quo bias in bargaining an extension of the myerson satterthwaite theorem with an application to the coase theorem we use a generalized version of the myerson satterthwaite theorem to study inefficiencies in bilateral bargaining over trade of an indivisible good where there is two sided private information on the valuations we show that when preferences are convex and quasi linear and when the private information represents the magnitude of the utility gain or loss and follows a uniform distribution that the most efficient mechanism always exhibits a bias towards the status quo in the case that utility functions are quadratic in the amount traded we prove that for any incentive compatible direct mechanism there is an expected bias towards the disagreement point in other words for the class of preferences we study there is a strategic advantage to property rights in the coase bargaining setup in the presence of incomplete information

the polluter pays versus the pollutee pays principle under asymmetric information abstract this paper compares the pollutee pays principle with the polluter pays principle in a model of one sided externalities and asymmetric information even allowing for mitigation through contracts pollution reductions traded for subsidies or compensations will not result in the perfect information social optimum but will bias the outcome favoring the one with the property right while the pollutee pays principle allows for global incentive mechanisms such voluntary arrangements are severely restricted for the polluter pays principle indeed these conditions for an out of court settlements low damage and large benefits from pollution somehow contradict the polluter pays principle

bilateral trade flows the linder hypothesis and exchange risk bilateral trade flows are used to examine the linder hypothesis and the effect of exchange rate variability in a gra vity type trade model derived from an underlying demand and supply mo del a behavioral model is used to justify examining these issues joi ntly the model performs well empirically using a sample of seventeen countries for the period 1974 82 the authors find overwhelming supp ort for the linder hypothesis and this version of the gravity model moreover they find strong support for the hypothesis that increased exchange rate variability affects bilateral trade flows copyright 1987 by mit press

majoritarian electoral systems and consumer power price level evidence from the oecd countries a straightforward extension of the standard stigler peltzman model of regulation coupled with a taagepera shugart analysis of electoral system effects suggests a that the greater seat vote elasticities of majoritarian electoral systems will tilt policy in favor of consumers while propor tional systems should strengthen producers and b that the pro con sumer bias of majoritarian systems should be manifested in systemati cally lower prices empirical tests controlling for the structural determi nants of national price levels estab lished in the earlier law of one price literature establish majoritarian elec toral systems as a significant and robust predictor lowering national price levels in the mean oecd coun

banking on currency forecasts how predictable is change in money abstract the paper examines the predictive performance of four structural exchange rate models using both parametric and nonparametric techniques error correction versions of the models are fit so that plausible long run elasticities can be imposed on the fundamental variables of each model a variety of model evaluation statistics are reported our findings confirm that fundamental exchange rate models forecast no better than a random walk model for short term prediction horizons for longer horizons error correction terms can explain exchange rate movements significantly better than a no change forecast for a subset of the models and currencies we consider

two worlds of venture capital what happened to us and dutch early stage investment european attempts at imitation of u s venture capital have been less successful in stimulating high tech start ups our analysis of the differences between dutch and u s developments points at institutional and organizational differences as explanatory factors disappointing longer term performances of dutch ipos have caused the closure of the dutch parallelmarket indeterminate length of life of dutch vc funds contributed to a loss of trust in early stage ipos the u s in contrast benefitted from contractually fixed length of life of venture capital funds the u s share of early stage investment displayed a wave like pattern which is positively related to the number of ipos and of vc firms interconnectedness and follow on funds depress early stage investment

innovation and size at the firm level empirical studies examining the relationship between firm size and innovative activity have produced what superficially might appear to be contradictory results while some studies have found a positive relationship between firm size and technological change still others have identified no relationship or even a negative one there are two main reasons for these seemingly inconsistent findings the first is that different measures have been used to quantify technical change these measures have typically involved either some measure of inputs into the innovative process such as r d expenditures or else the number of patented inventions while neither of these are direct measures of innovative output they clearly represent different aspects of the innovative process thus it is perhaps not too surprising that different results have tended to emerge when the r d input measures are used than for the patent measures the second reason is that virtually every study examining the relationship between firm size and technical change has had to use a truncated distribution of firm sizes where either no or only a few small firms were included for example scherer s 14 234 35 conclusion that the empirical results tilt on the side of supporting the schumpeterian hypothesis that size is conducive to vigorous conduct of r d was based on the responses of 443 large corporations participating in the federal trade commission s line of business survey similarly scherer 15 used the fortune annual survey of the 500 largest u s industrial corporations and found that the number of patented inventions increases less than proportionately along with firm size soete 16 found that r d expenditures tend to increase more than proportionately along with firm size using a sample from business week consisting of the most r d intensive firms bound et al 6 were able to include a considerably wider spectrum of firm sizes in their sample of 1 492 firms from the 1976 compustat data they found that r d increases more than proportionately along with firm size for the smaller firms in their sample but that a fairly linear relationship exists for the largest firms inferences about the relationship between firm size and technical change based on a severely we thank f m scherer and an anonymous referee for helpful suggestions as well as sigrid raasch and jianping

the role of common law in environmental policy this paper discusses the role of common law in environmental policy it is shown that common law actually tends towards efficiency only under quite restrictive conditions conditions that are fulfilled only for very few less important environmental problems moreover in these cases common law need not even be efficient because an efficient solution can be negotiated once the allocation of rights is undisputed furthermore common law neglects important distributional and political questions and is biased towards the status quo therefore dealing with today s environmental problems cannot be left to the common law process but necessitates legislative action

protecting the environment when costs and benefits are privately known in this survey i analyze different approaches for protecting the environment when stakeholders are privately informed about the costs and benefits of pollution reduction the presence of asymmetric information calls for some important departures from the textbook prescriptions of marketable permits and emission taxes for controlling pollution for instance it may no longer be optimal to equate the social marginal benefits to the marginal cost of cleanup in determining appropriate abatement levels i conclude this review with some suggestions for future research in this area

countervailing incentives in agency problems abstract we analyze countervailing incentives in agency problem countervailing incentives exist when the agent has an incentive to understate his private information for some of its realizations and to overstate it for others when countervailing incentives arise pooling generally characterizes the equilibrium contract furthermore performance is distorted both above and below efficient levels in addition the agent s rents generally increase with the realization of his private information over some ranges and decrease over other ranges we demonstate that the creation of countervailing incentives can enhance aggregate welfare

some new evidence on the determinants of large and small firm innovation empirical analyses presented by acs and audretsch suggest differences in the market structure determinants of innovation between large and small firms in u s manufacturing the evidence they offer is ambiguous by using data for a different country the netherlands a different measure of innovation and a different aggregation level we offer new evidence allowing a revaluation of the findings for the u s material moreover the influence of the market structure determinants does not appear to differ between a period of sluggish growth 1983 and one of relatively high growth 1989

designing more efficient markets lessons from los angeles smog control market based approaches for environmental protection are beginning to take root around the world this article attempts to improve our understanding of the performance of environmental markets by constructing and evaluating an information base on trades in los angeles which includes the first detailed data on trading prices the analysis suggests that trading activity has been shaped by the detailed regulations governing the market in addition transaction costs have played a crucial role we argue that the move toward adopting market based approaches for environmental protection needs to be accompanied by a vigorous effort to assess the properties of these systems as they are actually implemented

using markets to allocate pollution permits and other scarce resource rights under limited information abstract we consider the design of government policy to ration such scarce resources as water or pollution permits in the presence of limited information when government policy is formulated some informed agents e g established public utilities know how highly they value the resource other uninformed agents e g potential independent power producers only learn their valuations at some later date the government allows uninformed agents to trade the resource rights they receive on a competitive market informed agents may or may not have the same privilege the optimal initial distribution of resource rights differs significantly according to whether informed agents can trade the rights they receive

equilibrium exchange rates in transition economies taking stock of the issues in this paper we present an overview of a number of issues relating to the equilibrium exchange rates of transition economies of the former soviet bloc in particular we present a critical overview of the various methods available for calculating equilibrium exchange rates and discuss how useful they are likely to be for the transition economies amongst our findings is the result that the trend appreciation usually observed for the exchange rates of these economies is affected by factors other than the usual balassa samuelson effect such as the behaviour of the real exchange rate of the open sector and regulated prices we then consider three main sources of uncertainty relating to the implementation of an equilibrium exchange rate model namely differences in the theoretical underpinnings differences in the econometric estimation techniques and differences relating to the time series and cross sectional dimensions of the data the ensuing three dimensional space of real misalignments is probably a useful tool in determining the direction of a possible misalignment rather than its precise size copyright blackwell publishers ltd 2006