optimal supply of a depletable resource with a backstop technology heal s theorem revisited heal s theorem states that if the extraction cost of a depletable resource increases with cumulative extraction and if a backstop technology exists the user cost of the depletable resource declines to zero at the date of exhaustion in this paper we first present a simple method for proving this proposition using a social planning model that determines the optimal rates both of extraction of the depletable resource and of production of the backstop technology we then present two examples that show how this method can be used to solve more difficult problems in the theory of resource economics the first example involves learning by doing in the backstop sector that is backstop costs decline with cumulative production the second example involves uncertainty of backstop costs

preserving religious identity through education economic analysis and evidence from the us abstract this paper models the decision of religious parents to send their children to private religious schools as reflecting their desire to shield their children from external influences and thus preserve their religious identity it follows that when the share of the minority in the local population grows and outside influences become less threatening the demand for separate religious schooling among the members of the religious group decreases this pattern implies concavity in the relationship between enrollment in private and religious schooling and the share of the religious group in the population we present empirical evidence from united states county data on catholic and private school enrollment that strongly supports our theory the paper contributes to a better understanding of the demand for religious education

nonrenewable resource scarcity nonrenewable resource theory often is summarized by hotelling s rule this paper reviews theoretical extensions and empirical investigations of resource extraction models observed data are often inconsistent with the hotelling rule suggesting that other characteristics of nonrenewable resource supply including exploration heterogeneous ore quality technological progress and capital investment are important determinants of the dynamic behavior of resource prices given the persistent recurrence of concern about nonrenewable resource scarcity measures of nonrenewable resource scarcity and the empirical evidence for the time trends of those measures are reviewed finally the implications of nonrenewable resource scarcity for economic growth are examined

are church and state substitutes evidence from the 1996 welfare reform abstract churches provide community services similar to those provided by the government but there has been no convincing analysis of the extent to which church activity can substitute for government activity to address this important issue this paper uses a new panel data set of presbyterian church usa congregations to regress both church member donations and a church s community spending on a number of variables including government welfare expenditures a provision of the 1996 welfare law that decreased the availability and use of welfare services by non citizens serves as an instrument to identify the causal effect of government spending on church activity the results show that church activities substitute for government activities extrapolating the findings to all denominations the estimated crowd out effect lies between 20 and 38 cents on the dollar the results are subjected to a number of robustness tests

implementation with contingent contracts we study dominant strategy incentive compatibility in a mechanism design setting with contingent contracts where the payoff of each agent is observed by the principal and can be contracted upon our main focus is on the class of linear contracts one of the most commonly used contingent contracts which consist of a transfer and a flat rate of profit sharing we characterize outcomes implementable by linear contracts and provide a foundation for them by showing that in finite type spaces every social choice function that can be implemented using a more general nonlinear contingent contract can also be implemented using a linear contract we then qualitatively describe the set of implementable outcomes we show that a general class of social welfare criteria can be implemented this class contains social choice functions such as the rawlsian which cannot be implemented using uncontingent transfers under additional conditions we show that only social choice functions in this class are implementable

auctions with contingent payments there now exists a host of results concerning the revenue performance of various auction methods this note delves deeper into auction markets by examining the effects on sellers revenue of certain noncash means of payment the basic result that bidding mediums which include some contingent pricing feature generally yield the seller more revenue than do cash bids is intriguing by itself and also points out the limitations of received theory since what follows builds on the independent preferences framework it is useful to first note the assumptions of that model and the major results pertaining to it to model an auction in the independent preferences tradition one assumes that bidders have reservation values vi that are known only privately and that can be depicted as being drawn independently from some distribution f v the most important result for this model is the revenue equivalence theorem as given in john riley and william samuelson 1981 any auction involving risk neutral bidders for which the following four conditions hold a a buyer can make any bid above some minimum reserve price b the buyer making the highest bid is awarded the object c the auction rules are anonymous and d there is a common equilibrium bidding strategy in which each buyer makes a bid bi which is a strictly increasing function of his reservation value vi yields an expected revenue of

faith based charity and crowd out during the great depression abstract interest in religious organizations as providers of social services has increased dramatically in recent years churches in the u s were a crucial provider of social services through the early part of the twentieth century but their role shrank dramatically with the expansion in government spending under the new deal in this paper we investigate the extent to which the new deal crowded out church charitable spending in the 1930s we do so using a new nationwide data set of charitable spending for six large christian denominations matched to data on local new deal spending we instrument for new deal spending using measures of the political strength of a state s congressional delegation and confirm our findings using a different instrument based on institutional constraints on state relief spending with both instruments we find that higher government spending leads to lower church charitable activity crowd out was small as a share of total new deal spending 3 but large as a share of church spending our estimates suggest that benevolent church spending fell by 30 in response to the new deal and that government relief spending can explain virtually all of the decline in charitable church activity observed between 1933 and 1939

cycles in nonrenewable resource prices with pollution and learning by doing we study how environmental regulation in the form of a cap on aggregate emissions from a fossil fuel e g coal interacts with the arrival of a clean substitute e g solar energy the cost of the substitute is assumed to decrease with cumulative use because of learning by doing we show that optimal energy prices may initially increase because of pollution regulation but fall due to learning and rise again because of scarcity of the resource finally falling after transition to the clean substitute thus nonrenewable resource prices may exhibit cyclical behavior even in a purely deterministic setting

bidding with securities comment to feasible securities 1 their main finding concerns the role of the steepness of securities in determining the seller s revenue they show that the steeper the payment to the seller as a func tion of the realized value the higher is the seller s expected revenue a shift from a security say a debt to a steeper one say equity or call option flattens the surplus accruing to a bidder as a function of his future realized value and this levels the competitive gaps between bidders hence the competition becomes intensified 2 in this comment we wish to add to dks analysis a caveat that the adverse selection prob lem should be an important part of security and auction design consideration unlike cash bids security bids are difficult to evaluate when the seller does not know the buyer s exact type for instance a 40 percent share of an asset managed by a buyer may be less valuable than a 30 per cent share of the same asset managed by a different buyer if the latter is much more competent lacking such information a seller may fall victim to adverse selection choosing a wrong bidder this problem has been noted by several authors such as william samuelson 1987 simon board 2007 and charles zheng 2001 in the context of a fixed security design our concern here is its relevance for security design we show that the adverse selection problem may lead to rankings of alternative security designs that are quite different from and in fact opposite to those found in dks in particular under a reasonable circumstance a steeper security is more vulnerable to adverse selection and could result in a poorer revenue performance than a flatter security to illustrate suppose there are two buyers 1 and 2 buyer 1 2 has a project which gener ates a gross return of v and requires initial investment cost of x r suppose that vx v2 0 and xx x2 and also that vx xx v2 x2 that is buyer 1 s project generates a higher net return so is efficient to select but requires a higher investment than buyer 2 s project this assumption is reasonable a financially distressed or bankrupt firm will more likely turn profitable again under management willing to infuse more cash for instance or a firm that can generate a greater value from an underperforming target is more likely to have a higher opportunity cost e g of pursuing other target or standalone values the assumption is equally compelling in other contexts such as the government sale of oil leases

the political consequences of income shocks explaining the consolidation of democracy in france abstract this study analyzes the circumstances that enabled france to become in the late nineteenth century the first stable parliamentary democracy with universal male suffrage in europe it establishes a causal relationship between short term variations in local income and the electoral support for the coalition of republican parties that represented the newly established regime the results suggest the republican coalition won the parliamentary elections because most french regions did not suffer from transitory negative income shocks stemming from heavy precipitations they thus raise questions about the rationality of voters and ultimately the actual causes of the consolidation of democracy in france

the protestant fiscal ethic religious confession and euro skepticism in germany during the european sovereign debt crisis most countries that ran into fiscal trouble had catholic majorities whereas countries with protestant majorities were able to avoid fiscal problems we find that christian conservative members of the german parliament from constituencies with higher shares of protestants were more likely to vote against a third bailout for greece survey data show that views on the euro differ between german protestants and non protestants at the individual level too among protestants concerns about the euro have compared to non protestants increased during the crisis we show that this increase in concern is linked to a reduction of protestants subjective well being we use the timing of survey interviews and news events in 2011 to account for the endogeneity of euro concerns emphasis on moral hazard concerns in protestant theology may thus still shape economic preferences jel d72 e00 i31 z12

economic and security consequences of supreme values islamic societies have in contemporary times lagged western societies in income growth and human development indicators the supreme values of radical islam further de prioritize economic achievement and impose self deprivation on own populations this paper investigates the reasons for economic outcomes under islam contemporary illustrations are also provided of the self deprivation predicted from pursuit of the supreme value objectives of radical islam the self deprivation is placed in a rent seeking context

auctions with contingent payments an overview i survey a literature on auctions with contingent payments that is auctions in which payments are allowed to depend on an ex post verifiable variable such as revenues in oil lease auctions based on demarzo et al 2005 i describe a partial ranking of auction revenues for auctions that differ in terms of contract forms pricing rules and seller commitment and why the revenue equivalence theorem does not apply even in an independent private values setup i discuss models that incorporate adverse selection moral hazard competition between auctioneers common values and the sale of multiple units

optimal allocation with ex post verification and limited penalties several agents with privately known social values compete for a prize the prize is allocated based on the claims of the agents and the winner is subject to a limited penalty if he makes a false claim if the number of agents is large the optimal mechanism places all agents above a threshold onto a shortlist along with a fraction of agents below the threshold and then allocates the prize to a random agent on the shortlist when the number of agents is small the optimal mechanism allocates the prize to the agent who makes the highest claim but restricts the range of claims above and below

optimal management of a renewable and replaceable resource the case of coastal groundwater the nonrenewable with backstop model of resource management is extended to cover renewables and applied to the case of coastal groundwater in the optimal management trajectory efficiency price exceeds extraction cost by the sum of scarcity rent and drawdown cost the latter remaining large even after the backstop price is reached in the case of rising demand optimal management may call for a stage of conservation followed by a stage of drawdown

current issues in the economics of groundwater resource management the issue of groundwater management remains a practical concern in many regions throughout the world while water managers continue to grapple with the question of how to manage this resource in this article we attempt to bring the most advanced and appropriate tools to bear on the issue of resource allocation involving groundwater our objective is to demonstrate the state of the art in the literature on ways to think about this complex resource and to deal with the important economic issues emanating from its complexity we present the conceptual framework within which economists examine the elements interacting in the management of groundwater resources indicate why the role of the market is limited with respect to the price of this very complex resource and point to the mechanisms that can pull competitive groundwater price and quality graded quantity of groundwater in line with their equilibrium levels in particular we critically review economic models of groundwater use examine the potential for groundwater management discuss the difficulties encountered in the estimation of the relevant control variables of such models and identify the advantages and limitations of the instruments devised for the efficient use allocation of this resource finally we argue that devised regulatory schemes usually ignore the information and knowledge needed for their implementation and we suggest a core of conditions necessary for successful groundwater management reforms

voluntary donations and public expenditures in a federal system proponents of the new federalism argue that nonprofit organizations and local governments will fully offset federal social service expenditure cutbacks the author analyzes this proposition as a competitive game in which donations are motivated by private and public good considerations the author characterizes the response of political economic equilibrium to exogenous changes in federal expenditures when local voters are cognizant of donor reactions partial replacement is the most likely outcome though others are possible copyright 1987 by american economic association

economic growth and the separation of church and state the french case i introduction historically the decision to establish or forsake a state religion was seldom democratic it resulted from the political leaders willingness to consolidate their hold on power and did not reflect the people s attitudes toward a state religion even in a democracy like the united states the separation of church and state did not result from a popular vote but was derived from the first amendment of the u s constitution and subsequently reaffirmed by the supreme court france is actually one of the few countries where citizens had a say in the separation between church and state in 1905 the democratically elected french representatives adopted a bill that separated religion from the state the bill abolished the concordat which had been instituted by napoleon bonaparte in 1801 so as to govern the relationship between the french state and the roman catholic church under this arrangement the members of the catholic clergy were paid by the french state which in return had a say in their appointment the 1905 bill ended state subsidies for the church but also governmental interventions in the appointment of the church s personnel the passing of the 1905 bill illustrates the progressive rejection of the church in french politics it occurred at a time when france remained an agricultural country even though a growing share of the population worked in industrial activities in addition because primary education had been made compulsory in 1881 for both boys and girls illiteracy was decreasing nevertheless there remained many disparities between the different french departements 1 for instance the share of the french army s conscripts who were illiterate substantially varied between the different departements from 0 32 in haute savoie to 16 89 in morbihan in the academic literature economists have shown that religious laws have consequences on economic growth and human capital for example kuran 2003 botticini and eckstein 2005 hillman 2007 but they still debate the causal relationship between a nation s actual degree of religious observance and economic development there are indeed two major theories of religiosity the religion market model and the secularization hypothesis the religion market model developed by iannaccone 1991 iannaccone and stark 1994 iannaccone finke and stark 1994 and gill 1999 among others argues that religious participation is mainly supply driven in other words the government s intervention such as the establishment of state religion is a major determinant of religiosity however following weber 1905 proponents of the secularization hypothesis such as chaves 1994 and bruce 2001 argue that religious participation is demand driven they consider that economic development which includes industrialization an increase in literacy and wealth and a decrease in fertility rates entails a decline in religiosity this secularization process supposedly leads individuals to define themselves as less religious and decreases the influence of religion on social and political institutions as a matter of fact mccleary and barro 2006 find in a study of religiosity in 68 countries that economic development has an overall negative effect on religiosity urbanization also makes individuals less observant but education and the presence of children are positively correlated with religiosity still studies by finke and stark 1992 iannaccone and stark 1994 and stark 1999 among others argue that there is no empirical evidence to support secularization theories in particular the secularization hypothesis predicts that the separation between religion and state should become widespread as countries become richer but barro and mccleary 2005 cannot find any link between wealth measured by a country s gross domestic product gdp and the current existence of a state religion

deregulating religion the economics of church and state traditional religious research fails to recognize religion as a market phenomenon it especially overlooks supply side factors that shape the incentives and opportunities of religious firms emphasizing instead demand side shifts in the perceptions tastes and needs of consumers this paper reviews the effects of government actions that alter religious supply a longer version appears in economic inquiry 40 2 april 1997

can internal migration foster the convergence in regional fertility rates evidence from 19th century france this paper offers an explanation for the convergence of fertility rates across french departements in the second half of the nineteenth century that emphasises the diffusion of information through internal migration it tests how migration affected fertility by building a decennial bilateral migration matrix between french departements for 1861 1911 the identification strategy uses exogenous variation in transportation costs resulting from the construction of railways the results suggest that the convergence towards low birth rates can be explained by the diffusion of cultural and economic information pertaining to low fertility behaviour by migrants especially by migrants to and from paris

which countries have state religions among 188 countries 72 had no state religion in 2000 1970 and 1900 58 had a state religion throughout and 58 had 1 or 2 transitions we use a hotelling spatial competition model to analyze the likelihood that the religion market would be monopolized similar forces influence a government s decision to establish a state religion consistent with the model the probability of state religion in 1970 and 2000 is increasing with the adherence rate to the main religion has a nonlinear relation with population and has little relation with per capita gdp the probability of state religion decreases sharply under communism but lagged communism has only a weak effect with costly adjustment for institutions the probability of state religion in 1970 or 2000 depends substantially on the status in 1900 this persistence is much stronger for countries with no major regime change than for countries with such a change

the effect of the discount rate on depletion of exhaustible resources this paper argues that despite its widespread acceptance in the literature the basic proposition that a reduction an increase in the discount rate leads to greater conservation faster depletion of an exhaustible resource is not generally valid it shows that the effect of the discount rate on the rate of resource depletion depends on capital requirements for production of the substitute and extraction of the resource and on the size of the resource stock in fact it shows that there always exist at least two ranges of the resource stock size for which the effect is opposite to that conventionally believed

bidding with securities auctions and security design we study security bid auctions in which bidders compete for an asset by bidding with securities that is they offer payments that are contingent on the realized value of the asset being sold the value depends on investment by the winner thus creating the possibility of moral hazard such auctions are commonly used both formally and informally in formal auctions the seller generally restricts bids to an ordered set such as an equity share or royalty rate by restricting the bids standard auction formats such as first and second price auctions can be used in informal settings with competing buyers the seller does not commit to a mechanism upfront rather bidders offer securities and the seller chooses the most attractive bid based on his beliefs ex post we characterize equilibrium payoffs and bidding strategies in this setting and show that an informal mechanism yields the lowest possible revenues across all mechanisms we also determine the optimal formal mechanism and show that the security design is more important than the auction format we show that the revenue equivalence principle that expected revenues are independent of the auction format holds if the set of permissible securities is ordered and convex such as equity otherwise it need not hold for example when bidders offer standard debt securities a second price auction is superior on the other hand if bidders compete on the conversion ratio of convertible debt a first price auction yields higher revenues finally we examine how different forms of moral hazard impact our results

optimal equity auctions with two dimensional types abstract we analyze the design and performance of equity auctions when bidder s valuations and opportunity costs are private information distributed according to an arbitrary joint density that can differ across bidders we identify for any incentive compatible mechanism an equivalent single dimensional representation for uncertainty we then characterize the revenue maximizing and surplus maximizing equity mechanisms and compare revenues in optimal equity and cash auctions unlike in cash auctions the adverse selection arising from bidders two dimensional types in equity auctions can lead to a global violation of the regularity condition which represents a maximal mismatch between incentive compatibility and maximization of revenue or surplus such mismatch can lead a seller to exclude bidders and demand a bidder specific stake from a non excluded bidder providing insights into when a firm should employ an auction and when it should just negotiate with a single bidder

energy backstop endogeneity and the optimal use of groundwater to meet the growing demand for freshwater many regions have increased groundwater pumping in recent years resulting in declining groundwater levels worldwide a promising development to address these declines is technical change regarding groundwater substitutes such as desalination and wastewater recycling however because these technologies are energy intensive optimal implementation also depends on future energy price trends we provide an operational model for the case of reverse osmosis seawater desalination in an application to the pearl harbor aquifer in hawaii we find that allowing the cost of desalination to increase at an average annual rate of 2 4 over the next century results in a substantially steeper efficiency price path for water the higher prices decrease optimal groundwater extraction and induce a slower head drawdown over a longer period of time thereby delaying the transition to desalination by over 30 years because the rise in energy costs exacerbates efficiency losses from under pricing any delay in implementing efficiency pricing will cause either a greater future increase in prices or the need for rationing reforming prices sooner rather than later may be more politically feasible given that consumers may be more amenable to a gradual rise in prices today than a sudden doubling or tripling of prices ten years from now using this as a foundation we outline a research agenda for extending the framework to other groundwater substitutes and for adapting to climate change

pareto improving water management over space and time the honolulu case we model welfare gains from efficient allocation of groundwater over space and time relative to the status quo policy of financial cost recovery in order to promote political feasibility an intertemporal compensation plan is devised that renders the reform pareto improving gainers from the reform finance the compensation in proportion to their benefits through a block pricing scheme for the honolulu case only 7 of the 441 million in gains to winners is needed to compensate losers from the reform future winners from the reform also repay the deficit created by the compensation package much as state and local governments finance capital improvements copyright 2009 oxford university press

voluntary donations and public expenditures in a federalist system comment and extension in a recent paper richard steinberg 1987 examines the effects upon private donations of federal and local government spending for a public good unfortunately when discussing the consequences of changes in local spending he mis specifies the demand function for donations this error enables one to conclude from his model that it is a priori impossible for government to crowd out private donations one for one such a conclusion violates intuition because one for one crowding out should be at least theoretically possible and steinberg s model when corrected does allow donations to fall as much as the government increases its spending as this comment will show one can further conclude from the model presented in the body of steinberg s paper that the structure of the government s tax policy has no effect on the level of crowding out however the corrected model implies that the government can influence changes in private donations that are caused by increased government spending the degree of control depends upon the size of the donors income effects and upon the ability of the government to allocate the extra tax burden