a note on environmental risk and the rate of discount abstract this paper examines the use of risk adjusted discount rates to evaluate future environmental risks it is determined that the risk adjusted discount rate should be lower not higher than the risk free rate if evaluation of future environmental risks is to point toward optimality

discount rates and credit markets theory and evidence from rural india three models of credit markets 1 the permanent income model 2 upward sloping credit supply to individual borrowers and 3 constrained credit due to imperfect enforcement are tested using credit market data and an experimental study of individuals discount rates in south india the permanent income model is rejected by both the discount rate and the credit market data the discount rate data are consistent with either of the other two models while the credit market data are consistent with a combination of these two models other explanations are found to be insufficient to explain the results of this study

inserting gm products into the food chain the market and welfare effects of different labeling and regulatory regimes the purpose of this article is to examine the system wide effects of the introduction of genetically modified gm products with and without labeling and to compare these two regimes to a third regime where gm products are not present either because they have not yet been developed or because they have been banned for each regime the decisions and welfare of consumers producers and life science companies are examined the article explicitly incorporates the consumer response to the introduction of gm technology and considers different market structures of the life science sector

time preference the discounted utility model and health the constant rate discounted utility model is commonly used to represent intertemporal preferences in health care program evaluations this paper examines the appropriateness of this model and argues that the model fails both normatively and descriptively as a representation of individual intertemporal preferences for health outcomes variable rate discounted utility models are more flexible but still require restrictive assumptions and may lead to dynamically inconsistent behaviour the paper concludes by considering two ways of incorporating individual intertemporal preferences in health care program evaluations that allow for complementarity of health outcomes in different time periods

valuing the future recent advances in social discounting the perplexing issue of discounting prescriptive economics requires that unless there are very good reasons to the contrary economic policy should be based on the principle that individuals preferences should count indeed the entire body of welfare economics centres round the formal identity of the statement x prefers a to b and the statement x has higher welfare in a rather than b this combination of a seemingly innocuous and democratic value judgement preferences should count and a formal definition about the meaning of welfare improvement involves many complications the entire history of policy analysis focuses on those complications whose preferences should count over what time period what constitutes a legitimate attenuation of the basic value judgement one of the problem areas concerns timediscounting the process whereby society places a lower value on a future gain or loss than on the same gain or loss occurring now the rationale for time discounting follows logically from the basic value judgement of welfare economics if people s preferences count and if people prefer now to the future those preferences must be integrated into social policy formulation time discounting is thus universal in economic analysis but it remains as it always has controversial the controversy has a parallel in another form of discounting spatial discounting when translated into economic terms the ethical principle

the variable rate of growth effect in the life cycle saving model the rate of growth in real gnp g affects the aggregate saving rate positively in life cycle saving models this rate of growth effect is invariably estimated as the coefficient of g in the saving function we show that other determinants of the saving rate influence the rate of growth effect in other words the rate of growth effect is not constant specifically the real rate of return on financial assets and the population dependency ratio determine the timing of saving over the life cycle and hence alter the rate of growth effect the dependency ratio also has an effect on the saving rate which is independent of g because it together with the foreign saving rate determines the level of saving over the life cycle

terms of trade dynamics in asia an analysis of national saving and domestic investment responses to terms of trade changes in 14 asian ldcs abstract i estimate a three equation model of savings investment and growth on pooled time series data for 14 asian developing countries to explore terms of trade dynamic effects on the current account a terms of trade deterioration lowers aggregate saving and raises investment in the current year it also exerts a positive lagged effect on investment due to the unanticipated temporary nature of the terms of trade change the current account oscillates before returning gradually to its steady state level the model explains 65 per cent of the variance in the sample countries current accounts over the period 1962 1983

tax policy the interest elasticity of saving and capital accumulation numerical analysis of theoretical models increasing disillusionment with traditional empirical methods is having a major impact on research methodology which is increasingly turning to simulation analysis based on theoretical models and assumed parameter values in research on saving and wealth accumulation there have been several recent studies consisting of simulation of theoretical models based on the life cycle model a particular focus has been tax policy and capital formation which is the area of concentration of this paper the aim is to analyze in a theoretical simulation context the impact on saving and wealth of an increase in the after tax rate of return to saving generated by a cut in the tax rate on income from capital this paper suggests that such simulation analysis while instructive as to the behavior of the class of models examined and as to the critical channels of influence does not yield a theoretical presumption in favor of cutting taxes on income from capital as a means of stimulating capital formation the development of this literature derives in part from disillusionment with traditional empirical methods many such papers begin by listing a litany of the problems involved in the usual type of empirical analysis before proceeding to simulation of theoretical structures the implicit conclusion at times appears to be that because of the daunting problems of standard empirical methodology the results derived from it can be ignored and that empirical magnitudes can perhaps be discovered by deductive means the temptation to think of the precise numerical results derived from theoretical simulation as empirical can be rather strong it needs to be reemphasized that empirical magnitudes can only be determined by empirical studies in section i the theoretical structure of a zero bequest life cycle model2 is outlined and several numerical simulations of this model are presented these simulations highlight interesting and nontrivial interactions of theoretical parameters and also demonstrate the difficulty involved in attempts to develop robust aggregate implications from such a framework for instance it is argued that summers claim to have developed a prima facie theoretical case for a high interest elasticity of savings 1981a p 537 does not stand up to sensitivity analysis a small change in the assumed rate of pure time preference or in other parametric assumptions generate otherwise plausible cases in which the interest elasticity of aggregate saving is low the experiments conducted in section i are partial equilibrium in the sense that the interest rate is changed exogenously which changes savings and hence the capital stock but the feedback effect of the capital international monetary fund this paper derives from chs 2 and 3 of my doctoral dissertation completed during a research fellowship at the brookings institution financial support was received from brookings and the social science research council i am grateful to henry aaron barry bosworth maxim engers irwin friend laurence kotlikoff franco modigliani joseph pechman duncan ripley robert shiller patricia stack and my supervisor albert ando for comments and guidance on earlier drafts none of the above institutions or individuals is responsible for the views expressed or any remaining errors for example see james tobin and walter dolde betsy white lawrence summers 1978 1981a b g moore alan auerbach and laurence kotlikoff and auerbach kotlikoff and j skinner 2it is popular to establish a sharp dichotomy between life cycle models and bequest models this taxonomy ignores the frequent references to the potential significance of bequests in the writings of the originators of the life cycle hypothesis a distinction between zero bequest life cycle models and life cycle models incorporating bequests is more accurate in terms of doctrinal history see for example albert ando and franco modigliani and modigliani and richard brumberg

uncertain lifetimes retirement and economic welfare the effect of increased life expectancy on retirement age is ambiguous because a change in the survival probability is analogous to a change in intertemporal prices it is shown that the decision to retire earlier or later depends on the old age saving behavior early retirement could emerge if one saves in old age it is also shown that the effect of intertemporal substitutions arising from the imperfection of the annuity market could produce a tilt to the reservation wage profile which in turn makes early retirement possible copyright 1991 by the london school of economics and political science

acreage decisions under marketing quotas and yield uncertainty a conceptual model examines how quotas and yield uncertainty affect acreage decisions production in excess of a quota can occur if the price for quota production is large relative to marginal costs increasing risk aversion increases expected production further if the risk of forfeiting quota revenue is given greater weight than avoiding production risk allowing quota carryover decreases production levels simulations indicate the most important factors determining expected production levels are a the existence of a carryover provision b the price differential given to quota production relative to nonquota production and c the level of marginal costs relative to the quota price

food safety the media and the information market availability of information has increased rapidly over the past decades yet information on food safety is still considered problematic economists have extensively researched the effects of imperfect information however little attention has been paid to the institutional organization of the supply of information and the incentive schemes in the information market this paper analyzes how and when information is supplied by media organizations and what the implications are we first develop a theoretical framework and afterwards provide empirical evidence from media coverage of two recent food safety crises in europe

new ways of looking at old issues inequality and growth abstract the paper uses new cross country data on income and asset land distribution to show that i there is a strong negative relationship between initial inequality in the asset distribution and long term growth ii inequality reduces income growth for the poor but not for the rich and iii available longitudinal data provide little support for the kuznets hypothesis policies that increase aggregate investment and facilitate acquisition of assets by the poor might thus be doubly beneficial for growth and poverty reduction

the social cost of carbon and its policy implications the shadow price or social cost of carbon is an important indicator of the global incremental damage done by emitting greenhouse gases today cost benefit analysis would set the optimal amount of greenhouse gas emission reduction at the point where this social cost just equals the incremental cost of controlling emissions the higher the value for the social cost of carbon the more control is warranted this comparison assumes that cost benefit analysis is the correct way of determining climate change policy and many believe this is not the case because of the very long term irreversible and potentially catastrophic nature of global warming but in the short run at least a comparison of cost and benefits is required and in any event all decisions imply costs and benefits but what is the right figure for the social cost of carbon this paper reviews the uk government s assessment of the cost and concludes that it has been set far too high because of a misreading of the integrated assessment models used to balance costs and benefits moreover adoption of the uk government s shadow price would have formidable implications for energy policy in the uk and for policies on afforestation copyright 2003 oxford university press

zero discounting can compensate future generations for climate damage abstract in cost benefit analysis of climate policy there are two main approaches to discounting each with implications conflicting with our moral intuitions thus discounted utilitarianism implies that we hardly need to protect future generations against climate change while classical utilitarianism implies that we should reduce our consumption across the board to benefit future generations the insolubility of the debate derives from the fact that both classical and discounted utilitarianism permit only a single discount rate for all consequences occurring in the same future year while our intuitions clearly do distinguish between consequences depending on whether we cause adverse effects on other people s interests and violate their rights most people share the moral intuition that we ought to refrain from harming others and ought to compensate them if we were unable to prevent harm to regain a reflective equilibrium between such deontological intuitions and economic theory there is a need to accept different discount rates for different situations a zero consumption discount rate in the case of cost benefit analysis of measures to prevent wrongful harm to future generations and standard discounting in all other cases applying a zero consumption discount rate means that future generations are automatically largely compensated for climate damage that remains unmitigated

determinants of patent rights a cross national study abstract this paper presents an index of patent rights for 110 countries for the period 1960 1990 the index is used to examine what factors or characteristics of economies determine how strongly patent rights will be protected the evidence does indicate that more developed economies tend to provide stronger protection but the underlying factors which influence patent protection levels are the country s level of research and development r d activity market environment and international integration which are correlated with its level of development the results qualify however that r d activity influences patent protection levels after a nation s research sector reaches a critical size an implication of this is that to raise patent protection levels in weakly protecting countries it is important to foster a significant research base in those countries and thereby create incentives for protecting patent rights

the effect of taxation on human capital this study finds a significant negative effect of proportional income taxation on human capital of the few earlier studies to address this issue most suggested a negligible effect of taxation on investment in human capital this earlier conclusion is shown to be incorrect by using a model that is more general in several respects than the models used previously

changing time attitudes in intertemporal analysis intertemporal analysis is extended by generalizing the time weight function of an investor s utility function to account for changes in time attitudes the resulting measures of decreasing constant and increasing time attitudes are comparable to the arrow pratt measures of risk attitudes they help to enrich intertemporal theory provide meaningful hypotheses for testing and broaden the scope for decision analysis over time effects of the time attitude measures are illustrated in a model of an agricultural firm

liquidity constraints and the substitutability between private and government consumption the role of military and non military spending i introduction using data for a number of economies we investigate i the relationship between private consumption and two types of government spending military and non military and ii the severity of liquidity constraints because of their importance for macroeconomic modeling in theory and practice 1 both issues have been the subjects of considerable theoretical and empirical investigation on the issue of liquidity constraints the most influential research has relied on hall s 1978 euler equation approach to the permanent income hypothesis in an attempt to reconcile hall s and flavin s 1981 methodologies hayashi 1982 modified hall s martingale result to allow for the possibility that a subset of consumers are liquidity constrained and showed that liquidity constraints can result in consumption s excess sensitivity to current income campbell and mankiw 1989 1990 1991 and jappelli and pagano 1989 have applied hayashi s methodology using data from the u s and several other oecd countries on the substitutability issue aschauer 1985 has modified hall s euler equation to allow for substitutability between government spending and private consumption and found that the two are substitutes for the u s karras 1994 however using a similar approach and data for 30 countries concludes that private and government consumption are better described as complementary or unrelated liquidity constraints and substitutability have been combined in studies by graham and himarios 1991 cushing 1992 and graham 1993 using u s data and by evans and karras 1996 for a number of countries a crucial limitation of most of these studies is the use of aggregate government consumption data which counterintuitively imposes a common substitutability parameter on all components of government spending 2 using recently available time series data for a large number of countries the present paper relaxes this restriction by decomposing government consumption into military and non military components enabling us to separately identify their relationship to private consumption the allocation of government consumption between military and non military functions has varied greatly across countries the appendix reports the average size of military and non military government shares in gdp as well as the military non military ratio by country over the 1970 1989 period average military expenditure as a fraction of gdp for example has ranged in our sample from 0 11 in mexico to 12 30 in jordan similarly the fraction of government consumption absorbed by military expenditure has ranged from 1 09 in mauritius to 66 82 in poland this sizable variability is promising in terms of cross sectional identification power but it also suggests that the estimated parameters must not be assumed to be common across countries the estimated model is derived in section ii which combines liquidity constraints and substitutability by nesting the approaches of hayashi 1982 and aschauer 1985 in the same section we discuss data sources and the estimation strategy which permits the estimated parameters to vary by country in a way that helps determine how they are influenced by country specific factors section iii estimates the model for a panel of the 66 countries for which annual data on all series are available for the 1970 1989 period the paper s main conclusions are given in section iv ii methodology and data we assume that consumers in economy i at time t derive utility from effective consumption c sup which we define as 1 mathematical expression omitted where c is private consumption g sup m and g sup nm are the military and non military components of government consumption the parameters theta sup m and theta sup nm measure the degree of substitutability between c and g sup m and c and g sup nm respectively

initial asset inequality and tariff formation a cross country analysis abstract using cross country evidence it is found that a country s initial asset inequality is positively and significantly associated with the formation of the average tariff rate even after controlling for the democracy index and some endowment measures

summits riots and media attention the political economy of information on trade and globalisation supply of information has increased rapidly through the growth of commercial media and technological innovations yet economists still blame anti globalists demonstrations and public opposition to trade liberalisation on poor information this paper analyses how the structure of the media industry affects the distribution of information on trade policy and globalisation we present an empirical analysis of belgian media reporting on trade policy and globalisation over the 1999 2002 period supports these hypotheses and finds strong negative bias in media coverage moreover we find that media coverage of trade policy and globalisation is highly concentrated around summit meetings of political leaders media attention in the popular press is heavily influenced by riots and demonstrations at summits the paper points at important implications for public information on trade policy and globalisation and for economists

endogenous tariff formation under representative democracy a probabilistic voting model wolfgang mayer 1984 applied duncan black s 1948 median voter theorem to investigate endogenous tariff formation under direct democracy this paper extends mayer s model from direct to representative democracy the extension from direct to representative democracy is straightforward if candidates possess perfect information one can still apply the median voter theorem for a candidate in a two party representative democracy also chooses the most preferred tariff of the median voter mayer 1984 himself fully recognized this direct extension 2 nevertheless if candidates possess imperfect information which is believed typical in the real world how the medianvoter outcome might alter or be modified remains unanswered the purpose of the current paper is to answer the question that candidates are something more than simply policy surrogates is the highlight of the article by james m enelow and melvin j hinich 1982 in contrast to direct democracy in which only policies matter in voter choices in a representative democracy candidates are thought to be judged by voters on the basis of both nonpolicy candidate characteristics and proposed policies in this paper i adopt the view of enelow and hinich 1982 and combine it with candidate uncertainty more specifically i consider a model incorporating candidates lack of information regarding voters nonpolicy preferences the model gives rise to probabilistic rather than deterministic voting 3 i show that in such a framework the equilibrium tariff is no longer dictated by the most preferred tariff of the median voter but is a weighted mean or even the mean of voters most preferred tariffs moreover the income distribution resulting from the equilibrium tariff tends to be more equalized than that from free trade the plan of the paper is as follows section i introduces the model of the paper it consists of an economic and a political structure section ii characterizes the equilibrium tariff and discusses its implications for income distribution concluding remarks are presented in section iii

a theory of time preference grant a taylor this article proposes that people generally prefer present consumption to future consumption because their expected utility from consumption eventually falls as their mental and physical abilities eventually decline with age moreover contrary to the ubiquitous intertemporal formulation with a constant rate of time preference and contrary to three recent theories of time preference that predict decreasing discounting as people age this article asserts that discounting increases over the life cycle this hypothesis is supported by data from the panel study of income dynamics as well as evidence from numerous previous studies jel d91 1 introduction despite the almost universal assumption of time preference in models of intertemporal choice an adequate explanation of why people discount the future has not been provided 1 olsen and bailey 1981 make a convincing case for positive time preference by contradiction i e without time preference models of intertemporal choice do not yield predictions consistent with observed behavior but they do not explain why individuals would rationally discount the future 2 three recent studies have attempted to provide the explanation rogers 1994 argues that societies that discount the future at a rate of about 2 will be the long run survivors in an evolutionary fitness situation 3 posner 1995 argues that discounting occurs because individuals have multiple selves that is people are weighting their present consumption far more heavily than their future consumption because the present self and the future self are in some meaningful sense separate persons 92 becker and mulligan 1997 argue that discounting occurs because of a rational defective recognition of future utilities 730 but as will be shown these three theories are inconsistent with empirical evidence on consumption over the life cycle in at least one important aspect this article constructs and empirically supports a new theory of time preference the hypothesis is that people do not have an intrinsic preference for present consumption relative to future consumption instead the instantaneous utility function also known as the felicity function is expected to vary with age just as people s physical and mental abilities vary with age in other words the ability to enjoy consumption eventually deteriorates over the life cycle along with other abilities this life cycle view of the expected utility function causes people to rationally devalue consumption in periods of low expected felicity that is discount future consumption perhaps this is what is meant by the cliche don t wait until you are too old to enjoy it moreover this causes individuals implicit discount rates to vary systematically with age 4 in fact this provides the testable implication of the theory the standard specification of intertemporal preferences holds the discount rate constant over th e life cycle 5 to be more precise in the early stage of the life cycle the capacity to enjoy consumption may be expected to rise hence a young individual s discount rate may be negative figure 1 illustrates this possibility with a hypothetical adult life cycle marginal felicity function for a given level of consumption u sub c c a c denotes consumption and a denotes age and its corresponding discount rate function rho a the vast majority of wealth is held by older people that is those in the declining stage of their abilities thus the preference for present consumption over future consumption appears to hold in the aggregate this view of intertemporal preferences may at first seem inconsistent with practically all dynamic analyses which are based on the notion of stationary utility on further consideration however the hypothesis is quite consistent with modern consumer theory since becker 1965 it has been widely accepted that households derive utility from commodities that are produced with market goods combined with household time and skills i

confusion en la tasa de descuento una perspectiva desde la economia ecologica factors impacting on the discounting process are mirrored in every aspect of human activities be it the philosophical the aesthetic the religious through to the environmental and scientific experiences in short discounting is a controversial concept and yet the economic profession seems to ignore that issues related to long term discounting are complex multifaceted and far from settled the environmental community in particular has expressed reservations about discounting because this process an inherently myopic one embodies a built in bias against the future generations it will be argued here that the danger to ecological sustainability is of a specific nature namely it relates to the lack of substitutability between human made capital and natural capital if this assumption is accepted then it follows that using a discount rate is an inadequate instrumentfor achieving sustainability thus it will be argued that the implementation of the precautionary principle e g in form of safe minimum standards of ecosystem protection provides a successful approach for achieving sustainability

the relation between savings and growth cointegration and causality evidence from asia the direction of causality between savings and growth remains unclear even though it is of critical importance for development policy in this paper granger causality analysis is undertaken for seven asian countries using the vecm engle and granger and var procedures we find that in most cases the direction of causality runs primarily from growth or income to savings although in some countries there is also evidence of a feedback effect from savings to income and growth thus development policy should focus less on promoting high savings rates and more on promoting high growth rates estimation of the savings functions are presented using engle and granger s static ols and stock and watson s dynamic ols dols procedures where appropriate the high savings rates in asia are found to be due to the high rate of growth of income per capita declining shares of dependent population and some special institutional features such as the high central provident fund rates in singapore interest rates ar

on what basis should health be discounted the discount rate to be applied in health care programmes should be based on the time preference rate for health and this same rate should be applied to costs as well due to the limited tradeability of health when eliciting its time preference rate the intertemporal choices must be framed in such a way as to resemble as closely as possible those facing health planners and decision makers

space agriculture and organization economists discuss differences in capital intensity or labor intensity very often but they consider differences in space intensity only relatively rarely yet differences in the spatial intensity of economic activities are fully as important indeed i will argue here that the main features that distinguish farming from manufacturing and most other urban economic activity are due to differences in space intensity for some parts of my argument it might seem more familiar to use the phrase land intensity rather than space intensity but other parts of the argument hinge on transportation communication and surveillance costs that depend on the distance between points whether or not the land between these points is farmed thus the phrase land intensity would not be generally appropriate in this paper the difference in space intensity between most types of farming and most types of urban industry is obviously colossal in the united states farming accounts for decidedly less than 5 of the national income but farming at least if we define it broadly enough to include ranching and forestry uses decidedly more than 95 of the area that is used by the entire economy though there are a few types of farming such as huge feeding lot operations that are not space intensive and also some types of urban industry that are fairly space intensive these are clearly the exceptions it would be commonplace today to find farms of say more than 500 acres that would utilize only one or two or three workers and produce a total output valued at a few hundred thousand dollars it would also be easy to find factories that occupy less than five acres yet employ several thousands of workers and produce a total output valued in the tens or hundreds of millions of dollars thus farming activities easily can be many thousands of times as space intensive as many types of urban industry the generalization that most farming is vastly more space intensive than most urban industry appears to hold for all countries and historical periods in which meaningful urbanrural comparisions can be made we cannot explain some of the most important economic realities without taking account of these differences in space intensity and when we do take these differences into account a number of important puzzles can be solved one of these puzzles has been attracting attention for quite some time for example in 1945 t w schultz observed in agriculture in an unstable economy that agriculture and industry tended to react quite differently to general economic fluctuations schultz noted that the prices of farm products reflect quickly a bullish or bearish turn p 131 but the prices of nonfarm products generally do not conversely the quantity of agricultural output in the aggregate responds slowly or not at all to the changes in economic expectations associated with business fluctuations p 131 whereas the output of industry is highly responsive to changes in economic expectations with production rising sharply when the outlook turns bright and falling abruptly when it becomes gloomy p 131 this observation was not so far as i know very controversial for many other economists had observed exactly the same thing and the pattern in the data is quite clear the data schultz presented showed that industrial production in the united states fell by nearly half between 1929 and 1932 whereas agricultural production fell by little more than 3 over the same period the prices received by farmers fell by more than one half whereas the prices farmers paid fell by only about a fifth schultz 1945 tables 15 and 16 the statistics probably understate the reduction in industrial prices to some extent because of secret discounting and possible changes in mancur olson is a professor of economics university of maryland

media coverage of biotech foods and influence on consumer choice in the last two decades few issues in the global agrifood sector have attracted as much media attention as biotechnology thousands of brief and in depth articles have been written focusing on diverse issues from the spectacle of ecological disasters to the promise of feeding a burgeoning world population among those accounts of alleged health risks could influence consumer perceptions and behavior directly indeed reporters across the globe have continued to draw parallels between biotechnology and other known food hazards such as mad cow disease and chemical contaminants such as dioxin they have also continued to raise the possibility of unknown long term health effects essentially framing biotechnology as a food safety risk marks and kalaitzandonakes marks et al there is evidence that this broad and often negative media coverage of biotechnology has raised public awareness influenced public perceptions and altered the public agenda on biotech foods in europe and elsewhere bauer durant bauer and gaskell this is not surprising as over 90 of consumers receive information about agrifood biotechnology primarily through the popular press and television hoban and kendall despite the apparent influence of media coverage on public perceptions however the question of whether such coverage has also affected consumer purchasing behavior has not been answered the answer to this question is broadly relevant with less than 2 of the u s population now engaged in agricultural production the average food consumer has diminishing personal experience and knowledge of agriculture

endogenous lobby formation and endogenous protection a long run model of trade policy determination this paper provides a theory of lobby formation within a framework in which trade policy is determined through political contributions under certain conditions free trade turns out to be an equilibrium outcome either when the government has a high affinity for political contributions or when it cares a great deal about social welfare moreover greater inequality in asset distribution results in a greater number of lobbies and in most cases more protection for each of these lobbies furthermore industries with higher levels of capital stock fewer capitalists more inelastic demand and smaller geographical dispersion are the ones that get organized

positive time preference the case for positive time preference is absolutely compelling unless there is an infinite time horizon with the expectation of unending technological advance combined with what we call drastically diminishing marginal utility this finding holds both in the positive and normative senses a corollary is that savings are interest elastic

anticipation and the valuation of delayed consumption this paper presents a model of intertemporal choice that incorporates savoring and dread i e utility from anticipat ion of delayed consumption the model explains why an individual with positive time preference may delay desirable outcomes or get unpleas ant outcomes over with quickly contrary to the prediction of convent ional formulations of intertemporal choice implications of savoring and dread for savings behavior empirical estimation of discount rate s and public policy efforts to combat myopic behavior are explored the model provides an explanation for common violations of the indepe ndence axiom as applied to intertemporal choice copyright 1987 by royal economic society

a theory of competition among pressure groups for political influence this paper presents a theory of competition among pressure groups for political influence political equilibrium depends on the efficiency of each group in producing pressure the effect of additional pressure on their influence the number of persons in different groups and the deadweight cost of taxes and subsidies an increase in deadweight costs discourages pressure by subsidized groups and encourages pressure by taxpayers this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful both are produced by the competition for political favors

is land leasing a solution to unaffordable housing the increase in u s mortgage rates from nine per cent in 1976 to fifteen per cent in 1982 raised monthly mortgage payments by about sixty per cent even before rising house prices in the united states over this period are taken into account not surprisingly attention has been focused on ways and means of counteracting spiralling housing costs one proposed solution is land leasing under such an arrangement the homebuyer purchases the house but leases the land there may be an option to buy the land at some time in the future land leasing reduces the overall purchase price and hence lowers the minimum down payment and the initial monthly mortgage payment in hawaii land leasing has been a readily available alternative to land owning throughout the postwar period the analysis of residential housing prices in hawaii provides some quantitative estimates of the relative prices of leasehold versus fee simple properties the average price differential is surprisingly small one explanation of these small price differentials for which a model is developed and tested here is that borrowing constrained households use high discount rates to calculate the present value of the future land price that they will in effect have to pay at the expiration of the lease these discount rates are estimated in a nonlinear hedonic property price equation the results are then employed to answer the question under what conditions would a leaseholder buy the land outright before the expiration of the lease

limits to cba in uk and european environmental policy retrospects and future prospects this paper reviews the contemporary debate and the now long standing role of cba in uk and european environmental policy appraisal epa and looks forward to possible future applications the position taken is that despite its limitations cba still has an important part to play in epa however with the increasingly contested nature of environmental and related public policies and outcomes its role will become less prescriptive and its findings more constrained by social justice and ethical imperatives future cba is more likely to continue to flourish as a component in a wider policy analysis and decision support system whatever decision support system is eventually adopted its value will be judged on how well it aids real policymakers operating iteratively in the non linear real world political economy

gmo standards endogenous policy and the market for information the paper develops a composite index of gmo standards restrictiveness for 60 countries assigning objective scores to six different regulatory dimensions using this index and its components we empirically investigate the political and economic determinants of gmo regulations for 55 countries controlling for spatial autocorrelation results show that many of the determinants highlighted in the theoretical literature such as the structure of the agricultural sector and the institutional environment are important determinants of the restrictiveness of the gmo regulation as a key result there emerges a prominent role of the market for information showing that the structure of domestic mass media public vs private is an important driver of gmo standards

distributive politics and economic growth a crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it in this paper we analyze the relationship between the two we focus on how an economy s initial configuration of resources shapes the political struggle for income and wealth distribution and how that in turn affects long run growth our main conclusion is that inequality is conducive to the adoption of growth retarding policies we derive this result from a simple political economy model of growth and present cross country evidence consistent with it the key feature of our model is that individuals differ in their relative factor endowments we distinguish between two types of factors an accumulated factor called capital and a nonaccumulated factor called labor growth is driven by the expansion of the capital stock which is in turn determined by individual saving decisions long run growth is endogenous as the aggregate production function is taken to be linearly homogeneous in capital and productive government services taken together the provision of government services is financed by a tax on capital because government services are productive a small tax on

mass media competition political competition and public policy if better informed voters receive favourable policies then mass media will affect policy because mass media provide most of the information people use in voting this paper models the incentives of the media to deliver news to different groups the increasing returns to scale technology and advertising financing of media firms induce them to provide more news to large groups such as taxpayers and dispersed consumer interests and groups that are valuable to advertisers this news bias alters the tradeoff in political competition and therefore introduces a bias in public policy the paper also discusses the effects of broadcast media replacing newspapers as the main information source about politics the model predicts that this change should raise spending on government programmes used by poor and rural voters

who owns the media the authors examine patterns of media ownership in 97 countries around the world they find that almost universally the largest media firms are controlled by the government or by private families government ownership is more pervasive in broadcasting than in the printed media government ownership is generally associated with less press freedom fewer political and economic rights inferior governance and most conspicuously inferior social outcomes in education and health the adverse effects of government ownership on political and economic freedom are stronger for newspapers than for television the adverse effects of government ownership of the media do not appear to be restricted solely to instances of government monopoly the authors present a range of evidence on the adverse consequences of state ownership of the media state ownership of the media is often argued to be justified on behalf of the social needs of the disadvantaged but if their findings are correct increasing private ownership of the media through privatization or by encouraging the entry of privately owned media can advance a variety of political and economic goals especially those of meeting the social needs of the poor

product standards trade disputes and protectionism trade disputes over national product standards are a growing source of tension in the international trading system the usual pattern is that a country introduces a new product standard for all sales of a good in its local market which is justified as necessary for consumer or environmental protection importers into the local market however challenge the standard as a disguised barrier to trade or green protectionism the paper develops a two country political economy model to explain such disputes it is shown how the political process can lead to a political failure which takes the form of either too many or too few product standards and disagreement between politicians in different countries over the optimal policy in a second step the model is used to evaluate whether two common proposals to settle or avoid such disputes mutual recognition of standards and harmonization can improve the political process

qalys versus hyes what s right and what s wrong a review of the controversy abstract the paper uses an axiomatic approach to the description of individual preferences for health status sequences to resolve the major issues at stake in the recent controversy over qalys versus hyes while the hye accounts for an individual s time preference for health qaly scores based on the time trade off method will generally differ from the number of hyes hyes do not represent preferences for health under risk unless the utility function for reference flows of health is linear collapsing the two step hye assessment procedure into a single step entails a loss of information as regards the utility of a health status sequence although the procedure does represent preferences for health it fails to supply a description in terms of hyes in the case of risk as a remedy a modified hye approach is proposed

declining discount rates the long and the short of it the last few years have witnessed important advances in our understanding of time preference and social discounting in particular several rationales for the use of time varying social discount rates have emerged these rationales range from the ad hoc to the formal with some founded solely in economic theory while others reflect principles of intergenerational equity while these advances are to be applauded the practitioner is left with a confusing array of rationales and the sense that almost any discount rate can be justified this paper draws together these different strands and provides a critical review of past and present contributions to this literature in addition to this we highlight some of the problems with employing ddrs in the decision making process the most pressing of which may be time inconsistency we clarify their practical implications and potential pitfalls of the more credible rationales and argue that some approaches popular in environmental economics literature are ill conceived finally we illustrate the impact of different approaches by examining global warming and nuclear power investment this includes an application and extension of newell and pizer discounting the benefits of climate change mitigation how much do uncertain rates increase valuations journal of environmental economics and management 46 2003 52 to uk interest rate data

are there environmental limits to cost benefit analysis this paper considers the problem areas found in applying cost benefit analysis cba to projects involving environmental costs or benefits this is particularly relevant given recent moves by the uk government to include environmental valuations in cba exercises and in other related appraisal activities following the publication of the pearce report the paper argues that a major problem lies in placing monetary values on non market goods the paper also addresses the problems of i differences between citizen and consumer values ii complexity of ecosystems iii irreversibility and uniqueness and iv intergenerational equity and discounting the extent to which cba is an institution open to capture is also discussed

political economy of the media and consumer perceptions of biotechnology although households are flooded with information through dozens of tv channels plenty of newspapers journals and radio the public is said to be poorly informed on many important issues for example european consumers oppose genetically modified gm foods despite scientists and official institutions claiming those products are safe these reactions are blamed on consumers being poorly informed there is an extensive literature on imperfect information see akerlof stiglitz an important implicit assumption in this literature is that such information problems may be solved by providing more information the problem is that information provision is assumed to be neutral however in reality most information is not provided by institutions whose objective is to foster the public good but by organizations who have an internal incentive to select certain information and certain forms of information over other information it is either provided by private sources with their own profitmaximizing objectives or by public sources that may have the formal goal of providing objective information but administrators and governments may have incentives to bias the information this issue is particularly relevant for consumers risk perceptions about gm foods over 90 of consumers receive information about food and biotechnology primarily through the popular press and television hoban and kendall extensive media coverage of possible risks can lead to decreased demand for example johnson shows how media coverage of product contamination by

towards a neoaristotelean theory of politics a positive account of fairness the argument suggests that it is very hard to separate how in fact economists use theory and how the subjects of economics use theory further we can explain why after a dazzling wave of the hands so much popular discussion of economic policies switches from real valued considerations to infinitely valued considerations and why it seems that only economists object it has been the fate of economists across the centuries to insist that costs do matter a proposition presupposing a world purged of infinities for if there is an infinite distance between commodities a noneconomist would have written down one word for the higher things and another for the lower then cost truly does not matter we have given a positive account of fairness and generated some implications about the content of public opinion which will be relatively straightforward to test