parents discount rates for child quality contemporary discussions of economic growth make human capital or knowledge accumulation its primary engine 25 human capital as the lead component of the stock of wealth defines a developed economy becker and murphy 4 show that human capital both increases and is increased by the scope of the market its rate of return rises with the size of its stock 5 human capital also plays significant roles in models of human fertility choice 40 population and environmental degradation 11 34 capital mobility 3 and endogenous technological progress 33 a substantial portion of an adult s human capital is accumulated during childhood children as children however cannot independently contract for the resources required to support investments in this human capital though nearly every society grants parents wide discretion about the nurture they provide their children little is understood about what motivates investment by one generation in another the relative importance of different investment modes or the discount rates which parents apply whatever the motivation and the mode because of the long time span between birth and adulthood parents discount rates potentially exert great leverage upon the investment decisions they make for their children knowledge of these discount rates is a prerequisite to acquiring an improved understanding of the internal decision processes of the household a collective decision unit which economics mostly treats as a black box 1 important policy questions as well as scientific accuracy and logical consistency demand knowledge of the discount rates parents apply to investments in their children healthier better educated and wealthier children have a better chance in life but there is no evident reason to suppose that intrafamily discount rates are socially optimal 2 many of the private reactions and behaviors which reinforce or temper the intended effects of public policies are internal to the household when these intended effects have a substantial temporal dimension parental discount rates will be influential for example increased public investments in children can be neutralized

telephone demand over the atlantic evidence from country pair data international calls include consumption and financial externalities theoretical analysis predicts that the volume of outbound and inbound calls is a function of originating country price own price and terminating country price cross price analysis of annual data for minutes of calling between the u s and seventeen west european countries from 1979 to 1986 reveals negative own price effects in both directions with inbound calls more elastic cross price effects are generally not statistically significant the findings are consistent with arbitrage and call externality motivation that cancel each other level of gdp number of telephones and telex prices are statistically significant copyright 1992 by blackwell publishing ltd

stabilizing non fundamental asset price movements under discretion and limited information abstract inflation output and interest rate stabilization are all potential central bank objectives we explore whether monetary policy should respond to asset price fluctuations when they are driven by irrational expectational shocks to the future returns to capital in our model an optimistic shock to future returns generates both an increase in equity prices and physical investment the increased investment is inefficient and thus a central bank optimally responds to this expectations shocks this induces a trade off between stabilizing nominal prices and non fundamental asset price movements we compare the optimal policy under different assumptions full versus limited information and commitment versus discretion if the central bank has limited information about whether an asset price movement has a fundamental or non fundamental origin then the central bank responds less aggressively to the non fundamental exuberance shocks than under full information without commitment a central bank responds more aggressively to non fundamental exuberance shocks

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

measuring benefits from air pollution control where do we stand measuring the benefits from reduced morbidity this paper presents a simple model of preventive health care similar to that of grossman 1972 and uses the model to define what a person would pay for a change in air quality the model assumes that one can build up resistance to acute illnes by increasing his stock of health capital however health capital decays at a rate which depends on air pollution for acute illness willingness to pay as derived from the model is greater than the benefit estimate computed using the damage function approach to illustrate the size of this discrepancy estimates of willingness to pay are computed using data from the michigan panel study of income dynamics the case for government providing information about risks rests secure in the theory of public goods informational scale economies and problems of dissemination conceivably call for a principal agent relationship in which certain types of decisions are delegated to the agency however the setting of standards and prohibitions is too simplistic it seldom recognizes that personal action tends to interact with and partially offset them 8 references

the advantages of contingent valuation methods for benefit cost analysis the preceding is a taxonomic discussion of some reasons why contingent market methods may often be a superior means of generating data with which to value non market commodities we have argued that economists have erred in viewing the situations these methods posit as necessarily fictional that the data generated by the methods may for non marketed goods and the activities with which they are associated accord more closely with the conditions of received economic theory that the methods can make it easier to remove the difficulties of estimation and interpretation introduced by confounding variables and that they often permit one to deal more readily with phenomena that have not been in the range of historical experience nevertheless whatever the advantages a major disadvantage remains until detailed analytical knowledge is acquired of the manner in which expectations are formed there exists no way to refute empirical propositions established from contingent markets nevertheless the previously mentioned south coast air basin experiment where the bids obtained for clean air conformed fairly closely to the values implied in a residential property value study suggest that contingent valuations have a basis in the real decision processes of consumers

an economic analysis of air pollution and health the case of st louis a health oriented choice model is developed in which individuals are viewed as producers of health and good health is desired for both consumption and investment purposes individuals are able to adjust their consumption of medical care in order to defend against reductions in air quality a compensating variation type marginal willingness to pay expression is derived for improved air quality and the model is tested using cross sectional data on employed adult residents of st louis missouri estimates of marginal willingness to pay for the average employed person are derived for a 30 reduction in ozone these values range from 18 45 to 24 48 per year

intrinsic bubbles and regime switching abstract froot and obstfeld 1991 allow for an intrinsic bubble in stock prices using approximately a century of annual data for the us in an attempt to model the widely documented deviations from the prices predicted by present values or fundamentals however they assume that the log of real dividends follows a constant random walk with drift over the whole period we show that this assumption is invalid and that a markov switching model is a more appropriate representation of dividends we then generalise the formulation of stock prices including the intrinsic bubble to allow for this and show that regime switching provides a better explanation for stock prices than the bubble we show that when allowance is made both for the bubble and for regime switching in the dividend process the incremental explanatory contribution of the bubble is low

estimation of price elasticities for an international telephone demand model the demand for international telephone calls in australia is comprised of three s ervices with three distinct prices in order to estimate elasticities for both tariffs and surcharges an econometric model is developed t hat has two submodels each of which consists of an aggregate equatio n and an allocation system one model determines how the total number of telephone calls is allocated among the three services while the second allocates the total number of minutes called between directly dialed and operator connected services the model is estimated using aggregate data for telephone traffic emanating from australia copyright 1988 by blackwell publishing ltd

averting expenditure and the cost of pollution the paper considers the relationship between the willingness to pay for environmental quality and averting expenditures that is the costs of measures undertaken in efforts to counteract the consequences of pollution the models used assume perfect mobility among locations with different levels of environmental quality the major results are i averting expenditures are not in general a good measure of willingness to pay 2 averting expenditures are not always even a lower bound on willingness to pay 3 even when averting expenditures are a lower bound the difference between the level of such expenditures and willingness to pay carmot be attributed to the unavertible aesthetic consequences of pollution for almost every kind of environmental unpleasantness we face there are averting expenditures we can make to reduce and sometimes completely remove the damage for air pollution house paint air conditioners soap for water pollution wells bottled water purifiers for noise pollution storm windows thicker walls economists have long been aware that averting behavior is both possible and practiced and they have often suggested that expenditures on such behavior can be used as a measure of the costs imposed on society by various forms of pollution the literature on this subject is difficult to characterize but to the extent that a consensus has been reached it is that averting expenditures provide a lower bound estimate of the total costs imposed by pollution and the divergence between averting expenditures and the total costs of pollution arises from the fact that some consequences of pollution e g the simple unpleasantness of breathing dirty air cannot be averted 2 3 in this note we develop two simple models of the response of utility maximizing consumers to small changes in the level of pollution which they face in the first model we assume that environmental quality is desired solely because it reduces the need for averting expenditure we show that 1 the level of averting expenditure may be either a lower bound or an upper bound estimate of the consumer s

parallel imports demand dispersion and international price discrimination parallel imports goods imported by unauthorized resellers are advocated worldwide for undermining international price discrimination for a continuum of markets we find that uniform pricing by a monopolist yields lower global welfare than third degree discrimination if demand dispersion across markets is large though uniform pricing avoids output misallocation too many markets go unserved mixed systems permitting discrimination across but not within designated groups of markets yield significantly higher welfare than uniform pricing or unrestricted multimarket discrimination and can pareto dominate uniform pricing thus while parallel imports might benefit some countries our results weaken the multilateral case for allowing them

valuing public goods a comparison of survey and hedonic approaches although the theory of public goods has progressed rapidly since paul samuelson s seminal article the empirical measurement of the value of demand for public goods only recently has received increased attention perhaps the best known and most widely accepted empirical approach has been the use of hedonic prices wherein for example it is assumed that either wages or housing values reflect spatial variation in public good characteristics of different communities this indirect approach based on theoretical work of charles tiebout kelvin lancaster sherwin rosen and others has proven quite successful among public goods or bads which have been valued using the hedonic approach are climate i hoch air pollution robert anderson and thomas crocker d harrison and d rubinfeld social infrastructure r cummings et al and other community characteristics such as noise level j nelson and ethnic composition ann schnare an alternative approach is to directly ask households or individuals to state their willingness to pay for public goods using survey techniques despite arguments that strategic bias will invalidate survey results there exists the need for an alternative to the hedonic approach as an example consider the case of a remote and unique scenic vista valuable to recreators which is threatened by air pollution from a proposed coal fired plant a typical situation in the western united states although it is possible in principle to impute the value of clean air and visibility from the relative decline in local visitation which might follow construction of a power plant information on the value of visibility at the site is needed prior to construction for socially optimal decision making on plant location and pollution control equipment the hedonic approach is unavailable both because the scarcity of local population as opposed to recreators makes use of wage or property value data impossible and because scenic vistas may themselves be unique for these reasons a randall et al first applied survey methods for valuing visibility and other environmental effects of large coal fired power plants in the four corners region of new mexico since this initial application the survey approach has been widely used to value environmental commodities where market data for hedonic analysis is difficult to acquire see for example brookshire ives and schulze rowe et al brookshire et al other early attempts to value public goods using the survey approach include r davis peter bohm and j hammack and g brown although results of using the survey approach for estimating the value of public goods appear to be internally consistent replicable and consistent with demand theory see schulze et al little work on external validation has been reported thus the purpose of this paper is to report on an experiment designed to validate the survey approach by direct comparison to a hedonic property value study the los angeles metropolitan area was chosen for the experiment because of the well defined air pollution problem and be assistant professor university of wyoming assistant professor university of missouri rolla associate professor university of wyoming and professor university of wyoming respectively the research reported here was funded under a grant methods development for assessing air pollution control benefits from the u s environmental protection agency we would like to give special thanks to alan carlin and shelby gerking for their helpful suggestions and contributions additional helpful comments were received from a myrick freeman iii john tschirhart and james murdoch all conclusions are of course our sole responsibility

cooperative and noncooperative protection against transferable and filterable externalities given self protection from an undesirable environmental externality we examine under several conditions the efficiency properties of cooperative and noncooperative behavior we demonstrate that if self protection can transfer the externality to another agent then noncooperative behavior will lead to overprotection if self protection filters or dilutes the externality then noncooperation leads to underprotection in addition overprotection will worsen if an agent with more relative power is allowed a first mover advantage or if the damage function is elastic and transferability is uncertain finally a reduction in uncertainty about transferability will accentuate overprotection if the damage function is inelastic our results suggest that coordination of protection activities among agents will enhance the overall gains from environmental policy in the european single internal market of 1992 coordination minimizes the costs of environmental protection thereby reducing the public credibility of its foes

soft landing in a markov switching economy abstract we analyse the monetary policy implications of boom bust cycles in asset prices using a markov switching rational expectations model in our simulations when a bubble bursts the taylor rule fails to achieve a soft landing contrary to the optimal policy

valuing changes in health risks a comparison of alternative measures essential to efficient provision of health safety and the environment is correct valuation of risks to human health in a world of scarcity difficult decisions concerning tradeoffs between health and other desirables are unavoidable in this paper we develop a model of health investment under uncertainty which yields a general expression for values of changes in risks to human health the preference based values of morbidity risks and mortality risks are ex ante dollar equivalents of changes in expected utility associated with risk changes the preference based values are related to two alternative measures costs of illness and preventive expenditures which are thought to be lower bounds on the value of risk reductions we demonstrate that these alternative measures are not even special cases of the more general measure and that the size relationships among the three measures are complex also we derive the relationship between the willingness to pay for risk changes and the consumer surpluses associated with health changes which occur with certainty the next section contains a brief review of the approaches to valuing changes in health

the lulling effect the impact of child resistant packaging on aspirin and analgesic ingestions in 1972 the food and drug administration imposed a protective bottlecap requirement on aspirin and other selected drugs this regulation epitomizes the technological approach to social regulation the strategy for reducing children s poisoning risks was to design caps that would make opening containers of hazardous substances more difficult this engineering approach will be effective provided that children s exposure to hazardous products does not increase if however parents leave protective caps off bottles because they are difficult to open or increase children s access to these bottles because they are supposedly child proof the regulation may not have a beneficial effect indeed in this case there was no significant impact of the regulation on aspirin poisoning rates but there has been an alarming upward shift in the trend of analgesic ingestion rates since 1972 the source of this pattern appears to be attributable to a general reduction in parental caution with respect to such medicines which has had an adverse spillover effect on unregulated products the economic mechanisms involved can be best understood by considering the nature of individuals response to regulatory protection

public good valuation and intra family allocation i derive values of marginal changes in a public good for two person households measured alternatively by household member i s willingness to pay wtp for the good on behalf of the household wtp i h or by the sum of individual wtp values across family members wtp c households are assumed to allocate their resources in efficient nash bargains over private and common household goods wtp i h is then defined by trade offs between the public good and the household good and wtp c by trade offs of between the public good and private goods wtp i h is found to be higher lower than wtp c when member i has a relatively high low marginal valuation of the public good but tends on average to equal wtp c as a consequence individuals tend to represent households correctly on average when questioned about the household s wtp for a public good even when they are purely selfish and answer truthfully adding all members wtp answers on behalf of the household then leads to double counting pure and paternalistic altruism the latter attached to consumption of the public good move each member s wtp on behalf of the household closer to the true sum of individual wtp but only paternalistic altruism raises this sum

willingness to pay for lipid lowering a health production function approach this paper reports the results of an experiment of measuring willingness to pay wtp for lipid lowering wtp is derived from a theoretical model of health risk reductions using a health production function approach a survey of about 700 persons randomized into a lipid lowering trial in sweden is used to estimate wtp the willingness to give up time wtgt to take part in a lipid lowering programme is also measured in the survey to assess its relationship to wtp the response rates on the wtp and wtgt qusetions are 94 and 96 respectively and the patients are on average perpared to pay about skr 350 per month or devote about 5 h of leisure time per week to get normal lipid levels the correlation of wtp and wtgt is 0 45 and highly significant the results of regression of wtp and wtgt are in accordance with the theoretical predictions with a higher valuation for a greater perceived difference in health status with and without treatment the income elasticity is also positive as expected

cost shifting in international telephone calls between us and african countries abstract this paper uses a two equation model panel data from african countries during the 1992 1996 period and a dynamic panel estimator to investigate cost shifting in international telephone calls between these african countries and the us using call minutes as the dependent variable we find that callers in african countries engage in cost shifting while their us counterparts do not we also find that while us callers reciprocate call minutes from african countries to the us callers in africa do not although the price elasticities of demand are found to be inelastic african demand elasticity is slightly higher partly due to cost shifting and call reciprocity effects our results are robust to different specifications of the model including the sample size the results have important policy implications for pricing by international telephone carriers and the us s current international settlement deficits with african countries