taxation and international migration of superstars evidence from the european football market we analyze the effects of top tax rates on international migration of football players in 14 european countries since 1985 both country case studies and multinomial regressions show evidence of strong mobility responses to tax rates with an elasticity of the number of foreign domestic players to the net of tax rate around one around 0 15 we also find evidence of sorting effects low taxes attract highability players who displace low ability players and displacement effects low taxes on foreigners displace domestic players those results can be rationalized in a simple model of migration and taxation with rigid labor demand jel f22 h24 h31 j44 j61 l83

occupational choice and the process of development this paper models economic development as a process of institutional transformation by focusing on the interplay between agents occupational decisions and the distribution of wealth because of capital market imperfections poor agents choose working for a wage over self employment and wealthy agents become entrepreneurs who monitor workers only with sufficient inequality however will there be employment contracts otherwise there is either subsistence or self employment thus in static equilibrium the occupational structure depends on distribution since the latter is itself endogenous we demonstrate the robustness of this result by extending the model dynamically and studying examples in which initial wealth distributions have long run effects in one case the economy develops either widespread cottage industry self employment or factory production employment contracts depending on the initial distribution in the other example it develops into prosperity or stagnation

losses from effluent taxes and quotas under uncertainty recent theoretical papers by adar and griffin j environ econ manag 3 178 188 1976 fishelson j environ econ manag 3 189 197 1976 and weitzman rev econ studies41 477 491 1974 show that different expected social losses arise from using effluent taxes and quotas as alternative control instruments when marginal control costs are uncertain key assumptions in these analyses are linear marginal cost and benefit functions and an additive error for the marginal cost function to reflect uncertainty in this paper empirically derived nonlinear functions and more realistic multiplicative error terms are used to estimate expected control and damage costs and to identify empirically the mix of control instruments that minimizes expected losses

regulating stock externalities under uncertainty abstract using a simple analytical model incorporating benefits of a stock costs of adjusting the stock and uncertainty in costs we uncover several important principles governing the choice of price based policies e g taxes relative to quantity based policies e g tradable permits for controlling stock externalities as in weitzman rev econom stud 41 4 1974 477 the relative slopes of the marginal benefits and costs of controlling the externality continue to be critical determinants of the efficiency of prices relative to quantities with flatter marginal benefits and steeper marginal costs favoring prices but some important adjustments for dynamic effects are necessary including correlation of cost shocks across time discounting stock decay and the rate of benefits growth applied to the problem of greenhouse gases and climate change we find that a price based instrument generates several times the expected net benefits of a quantity instrument

optimal asset allocation and risk shifting in money management this article investigates a fund manager s risk taking incentives induced by an increasing and convex relationship of fund flows to relative performance in a dynamic portfolio choice framework we show that the ensuing convexities in the manager s objective give rise to a finite risk shifting range over which she gambles to finish ahead of her benchmark such gambling entails either an increase or a decrease in the volatility of the manager s portfolio depending on her risk tolerance in the latter case the manager reduces her holdings of the risky asset despite its positive risk premium our empirical analysis lends support to the novel predictions of the model

status intertemporal choice and risk taking this paper takes the position that an individual s concern for relative status is expressed in her preferences we embed this hypothesis in an otherwise conventional model of economic growth and examine its consequences the model generates two kinds of equilibrium in the first all individuals always follow a deterministic consumption and investment strategy such a strategy must be linear in output is independent of payo s and technology and only depends on the discount factor this sort of equilibrium exists when the individual cares only about status and the individual production function is convex in investment in contrast the other kind of equilibrium involves convergence to a steady state in which there is persistent and endogenously generated gambling this kind of equilibrium exists in more plausible circumstances the individual has a utility function that may depend on consumption per se as well as implied status and individual production functions are concave we characterize the unique steady state in such a situation and prove that any dynamic equilibrium path must converge to it risk taking arises not from the presumption of a utility function with strictly convex segments as in friedman savage but naturally from a view of utility as depending on relative status our steady state is broadly consistent with the stylized facts that individuals both insure downside risk and to gamble over upside risk and generates similar patterns of risk taking and avoidance across environments with quite di erent overall wealth levels finally in contrast to friedman 1953 endogenous risk taking here is generally pareto ine cient

cross national price differences for pharmaceuticals how large and why bilateral drug price and quantity indexes based on comprehensive data for seven countries us canada france germany italy japan and the uk refute the conventional wisdom that us drug prices are much higher than elsewhere for laspeyres us weighted indexes previous drug price comparisons are biased by unrepresentative samples and unweighted indexes quasi hedonic regression shows that cross national price differences reflect differences in product characteristics and in their implicit prices which reflect the regulatory regime strict price regulation systematically lowers prices for older molecules and globally diffused molecules generic competition lowers prices in less regulated regimes which also have more price elastic demand

correlated uncertainty and policy instrument choice abstract for two decades environmental economists have generally maintained that benefit uncertainty is irrelevant for choosing between price and quantity instruments but that cost uncertainty matters with the identity of the efficient instrument depending upon the relative slopes of the marginal benefit and cost functions but in the presence of simultaneous correlated uncertainty such policy instrument recommendations may be inappropriate with plausible values of relevant parameters the conventional identification of a price instrument will be reversed to favor instead a quantity instrument the opposite reversal from the choice of a quantity instrument to a price instrument seems less likely to occur

taxing the rich affluent households can respond to taxation with means that are not economically viable for the rest of the population such as sophisticated tax plans and international tax arbitrage this article studies an economy in which an inequality averse social planner faces agents who have access to a tax avoidance technology with subadditive costs and who can shape the risk profile of their income as they see fit subadditive avoidance costs imply that optimal taxation cannot be progressive at the top this in turn may trigger excessive risk taking when the avoidance technology consists in costly migration between two countries that compete fiscally we show that an endogenous increase in inequality due to risk taking makes progressive taxation more fragile which vindicates in turn risk taking and can lead to equilibria with regressive tax rates at the top and high migrations of wealth towards the smaller country

the missing wealth of nations are europe and the u s net debtors or net creditors this paper shows that official statistics substantially underestimate the net foreign asset positions of rich countries because they fail to capture most of the assets held by households in offshore tax havens drawing on systematic anomalies in portfolio investment positions and a unique swiss dataset i find that 8 of the global financial wealth of households is held in tax havens 6 of which goes unrecorded on the basis of plausible assumptions accounting for unrecorded assets turns the eurozone officially the world s second largest net debtor into a net creditor it also reduces the u s net debt significantly the results shed new light on global imbalances and challenge the widespread view that after a decade of poor to rich capital flows external assets are now in poor countries and debts in rich countries i provide concrete proposals to improve international investment statistics

prescription drug expenditures in the united states the effects of obesity demographics and new pharmaceutical products author affiliation donald vandegrift professor of economics the college of new jersey 2000 pennington rd ewing nj 08628 usa vandedon tcnj eduanusua datta associate professor of economics school of business administration philadelphia university school house lane and henry avenue philadelphia pa 19144 usa dattaa philau edu corresponding author acknowledgment we wish to thank subarna samanta judith shinogle and karen conway for helpful discussions and comments julie l hotchkiss provided us with valuable suggestions for an earlier version of this article and we benefited from advice given by two anonymous referees at this journal ellie fogarty ravi kaneriya michael ferlise and leigh ann culbertson provided valuable research assistance 1 introductionduring the period 1990 1998 real per capita expenditures on prescription drugs in the u s increased by 84 1996 dollars gdp deflator beginning in 1993 the average annual percentage increase in prescription drug spending exceeded the overall percentage increase in national health expenditures by 1998 the annual percentage growth in prescription drug spending was more than 16 while overall spending on health care rose less than 6 compared to the previous year in total u s consumers spent more than 90 billion on prescription drugs in 1998 or 334 on a per capita basis centers for medicare and medicaid services 2002 not surprisingly prescription drug coverage and its associated costs have become issues in national as well as state political campaigns 1but the rising expenditures were not simply caused by higher prescription drug prices while the cpi consumer price index for prescription drugs rose by 42 nominal per capita expenditures on prescription drugs rose 120 during the period u s bureau of the census 2002 consequently higher rates of prescription drug consumption explain at least part of the story further while overall prescription drug spending has increased rapidly per capita prescription drug use in the united states varies widely by state in 1998 some states had per capita prescription drug spending of more than 400 while other states residents spent half that much while we do not wish to absolve the pharmaceutical manufacturers this data suggests that arguments placing the blame for high prescription drug costs on the prices and profits of pharmaceutical manufacturers may be missing a portion of the story the literature on prescription drugs suggests a number of causes e g new drug introductions aging of the population insurance coverage however berndt 2002 notes that a shortcoming of the existing literature is the lack of quantitative estimates of the causes for increased consumption of prescription drugs since the mid 1990s in a similar vein kane 1997 concludes that the effect of the managed care revolution has been difficult to separate out from the other forces affecting pharmaceuticals to better inform public policy we provide some quantitative estimates of the factors that have contributed to the increase in prescription drug expenditures we investigate the role of public health factors obesity smoking and alcohol consumption rates aging population 65 and over access to medical care managed care enrollments and the relative size of the uninsured population new pharmaceutical products income and unemployment on real prescription drug expenditures using panel data from all 50 u s states for the period 1990 1998 the estimates should allow better projections of the anticipated increase in prescription drug expenditures gauging the costs of smoking obesity and alcohol consumption is also important high costs associated with any of these public health problems make it easier to justify costly government programs to reduce their prevalence thus public policy responses to rising prescription drug expenditures will vary based on the source of the increase

the optimal elasticity of taxable income abstract the strength of the behavioral response to a tax rate change depends on the environment individuals operate in and may be manipulated by instruments controlled by the government we first derive a measure of the social benefit to affecting this elasticity the paper then examines this effect in the solution to the optimal income taxation problem when such an instrument is available first in a general model and then in an example when the government chooses the income tax base

a cost benefit analysis of slowing climate change there are many conflicting views regarding the true dimensions of the climate change problem often these viewpoints are based on different estimates of key parameters with little indication as to why parameter estimates vary so much and which ones might be the more reliable the prospects for a co ordinated strategy to tackle climate change appear dim little consensus has emerged for example regarding the costs of abating carbon emissions some take the view that considerable improvements in energy efficiency are available at negative cost by setting minimum efficiency standards for vehicles and domestic appliances e g mills et al 1991 others regard the macroeconomic costs of even small reductions in carbon emissions as substantial manne and richels 1993 in the judgement of other researchers a proportion of carbon emissions arise purely as a result of institutional failings either at a regional level in the subsidies paid to fossil fuel energy producers in the erroneous belief that this promotes economic growth shah and larsen 1994 in failure to deal with air pollution glomsrod et al 1992 and vehicle congestion in urban areas hughes 1994 or at a global level in failing to make appropriate transfers to those countries whose forests contain rich biodiversity which we would wish to preserve pearce 1991

can decentralized planning really achieve first best in the presence of environmental spillovers abstract it is generally accepted that decentralized policy choice in the presence of interjurisdictional spillovers is inefficient strikingly ogawa and wildasin 2009 find that in a model with heterogenous jurisdictions interjurisdictional capital flows and interjurisdictional environmental damage spillovers decentralized planning outcomes are equivalent to that under a centralized planner we first show the critical importance of two key assumptions no retirement of capital fixed environmental damages per unit of capital in obtaining this result second we consider a more general model allowing for capital retirement and abatement activities and show that the outcome of a decentralized market generally differs from the solution of a centralized planner s social welfare maximizing problem

competition in off patent drug markets issues regulation and evidence in recent years health insurers have placed a great deal of emphasis on the ability of generic medicines to deliver significant savings to overstretched health care budgets due to their lower cost and potential for a more efficient resource allocation in this paper we study market developments after patent expiry whether health insurance captures the financial benefits from cheaper generics and whether regulation and product differentiation among others have any power in explaining originator and generic price movements generic entry and diffusion we find that health insurance does not capitalize fully or fast enough on the cost advantage of generic medicines either because generic policies do not encourage their fast uptake or because generic drug prices are high and frequently tied directly or indirectly to originator drug prices we also find that reference pricing a particular form of reimbursement regulation encourages generic entry and reduces generic prices but only marginally finally in generic markets characterized by homogeneous products we find evidence of product differentiation which is impacting prices upwards rather than downwards if health insurance is to benefit fully from generic medicines it ought to encourage faster uptake and price competition and discourage price fixing regulation that ties generic prices to those of originator brands panos kanavos joan costa font and elizabeth seeley

income distribution and macroeconomics this paper analyzes the role of wealth distribution in macroeconomics through investment in human capital it is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital the initial distribution of wealth affects aggregate output and investment both in the short and in the long run as there are multiple steady states this paper therefore provides an additional explanation for the persistent differences in per capita output across countries furthermore the paper shows that cross country differences in macroeconomic adjustment to aggregate shocks can be attributed among other factors to differences in wealth and income distribution across countries

the economics of controlling stock pollutants an efficient strategy for greenhouse gases abstract optimal control theory is applied to develop an efficient strategy to control stock pollutants such as greenhouse gases and hazardous waste the optimal strategy suggests that at any time the marginal costs of abatement should be equated with the present value of the marginal damage of timely unabated emission the optimal strategy calls for increasingly light abatement over time as the pollutant stock accumulates the optimal policy applied to greenhouse gases suggests moderate abatement efforts at present with the potential for much greater future efforts

income inequality in the united states 1913 1998 this paper presents new homogeneous series on top shares of income and wages from 1913 to 1998 in the united states using individual tax returns data top income and wages shares display a u shaped pattern over the century our series suggest that the large shocks that capital owners experienced during the great depression and world war ii have had a permanent effect on top capital incomes we argue that steep progressive income and estate taxation may have prevented large fortunes from fully recovering from these shocks top wage shares were flat before world war ii dropped precipitously during the war and did not start to recover before the late 1960s but are now higher than before world war ii as a result the working rich have replaced the rentiers at the top of the income distribution

strategic pricing of new pharmaceuticals this paper provides empirical evidence on the leading factors affecting the prices of new pharmaceuticals both at introduction and after 4 6 and 8 years most important is the extent of therapeutic advance embodied in a new product for drugs which represent important therapeutic gains launch prices can be two or three times those of existing drugs used for the same purposes while drugs that largely duplicate the actions of currently available products are typically priced at comparable levels in addition the number of branded substitutes has a substantial negative effect on launch prices which reflects the importance of competitive pressures duplicate products thereby play an important economic role in pharmaceutical markets

the industrial organization of health care markets the u s health care sector is large and growing health care spending in 2011 amounted to 2 7 trillion and 18 percent of gdp approximately half of health care output is allocated via markets in this paper we analyze the industrial organization literature on health care markets focusing on the impact of competition on price quality and treatment decisions for health care providers and health insurers we conclude with a discussion of research opportunities for industrial organization economists including opportunities created by the u s patient protection and affordable care act

on income tax avoidance the case of germany abstract we present a micro estimate determining taxed income as a function of gross income and all major deduction options depending on household and asset categories it shows that tax savings strongly increase with increasing income resulting in an effective marginal tax rate 16 percentage points below the legislated one for the highest income groups this calls into question the intended distributional impact of progressive income taxation our estimate suggests aggregate income tax losses to the german fiscal authorities in the order of magnitude of 34 of wage and income taxes paid in 1983 relative to 1994 tax proceeds this percentage would amount to dm 105 b

financial development growth and the distribution of income a paradigm is presented in which both the extent of financial intermediation and the rate of economic growth are endogenously determined financial intermediation promotes growth because it allows a higher rate of return to be earned on capital and growth in turn provides the means to implement costly financial structures thus financial intermediation and economic growth are inextricably linked in accord with the goldsmith mckinnon shaw view on economic development the model also generates a development cycle reminiscent of the kuznet hypothesis in particular in the transition from a primitive slow growing economy to a developed fast growing one a nation passes through a stage in which the distribution of wealth across the rich and poor widens

generic entry price competition and market segmentation in the prescription drug market abstract this paper studies the effects of generic entry on post patent price competition for 18 prescription drugs recently exposed to competition an independent validating test of the generic competition paradox is conducted using a newly created data set each generic entrant is associated with an average 1 increase in the branded price the one way error component model accounts for intermolecular competition market segmentation and endogeneity of entry and finds branded prices increasing by 2 alternative definitions of entry suggest that price competition is confined to the generic market the unique payer type feature of the data offers empirical evidence supporting market segmentation

the equilibrium distribution of income and the market for status this paper explores the implications for risk taking behavior and the equilibrium distribution of income of assuming that the desire for status positions is a powerful motive and that it raises the marginal utility of consumption in contrast to previous analyses we consider the case in which status positions are sold in a hedonic market we show that such a complete hedonic market in status positions can be perfectly replicated by a simpler arrangement with a status good and a social norm that assigns higher status to those that consume more of this good the main result is that for a wide range of initial conditions the equilibrium distribution over income status and consumption is the same that this allocation requires inequality of income and consumption and that this allocation coincides with the optimum of a utilitarian planner

taxes and quotas for a stock pollutant with multiplicative uncertainty we compare taxes and quotas when firms and the regulator have asymmetric information about the slope of firms abatement costs damages are caused by a stock pollutant we calibrate the model using cost and damage estimates of greenhouse gasses taxes dominate quotas as with additive uncertainty this model with multiplicative uncertainty allows us to compare expected stock levels under the two policies and to investigate the importance of stock size and the magnitude of uncertainty on the policy ranking

rewarding trading skills without inducing gambling this paper develops a model of active portfolio management in which fund managers may secretly gamble in order to manipulate their reputation and attract more funds we show that such trading strategies may expose investors to severe losses and are more likely to occur when fund managers are impatient their trading skills are scalable and generate higher prot per unit of risk we study investment management contracts that deter this behavior if investors are short lived then the manager must leave rents to investors in order to credibly commit not to gamble if investors are long lived contracts that increase but defer expected bonuses after an outstanding performance implement the rstbest our model can explain a number of observed dierences

the influence of managed care on generic prescribing rates an analysis of hmo physicians retail expenditures on prescription drugs continue to grow annually by double digits while the share of prescriptions dispensed as generics remains relatively constant efforts to curtail rising drug expenditures have been exhibited by managed care organizations mcos yet drug expenditures continue to rise using the national ambulatory medical care survey namcs for 1997 2000 this study examines how managed care specifically health maintenance organizations hmos influence the physician s decision to prescribe the generic version of a multi source drug the findings show that hmo physicians are not significantly more likely to prescribe generic drugs than non hmo physicians among hmo physicians different cost reduction tools effect generic prescribing behaviour in different ways with the size of the effect depending on the patient and physician relationship with the hmo

regulation and competition in the taiwanese pharmaceutical market under national health insurance this article investigates the determinants of the prices of pharmaceuticals and their impact on the demand for prescription drugs in the context of taiwan s pharmaceutical market where medical providers earn profit directly from prescribing and dispensing drugs based on product level data we find evidence that the profit seeking behavior of the medical providers in the prescription drug market transfers the force of competition from the unregulated wholesale market to the regulated retail market and hence market competition still plays an important role in the determination of the regulated price we also find that the profit seeking behavior plays a similar role to advertising in that it increases the brand loyalty and hence lowers price elasticity an important implication of our study is that the institutional features in the pharmaceutical market matter in shaping the nature of pharmaceutical competition and the responsiveness of pharmaceutical consumption with respect to changes in price

efficient allocations with hidden income and hidden storage we consider an environment in which individuals receive income shocks that are unobservable to others and can privately store resources we provide a simple characterization of the unique efficient allocation of consumption in cases in which the rate of return on storage is sufficiently high or alternatively in which the worst possible outcome is sufficiently dire we show that unlike in environments without unobservable storage the symmetric efficient allocation of consumption is decentralizable through a competitive asset market in which individuals trade riskfree bonds among themselves in this paper we consider an environment in which individuals have random income and can accumulate assets through a storage technology their income realizations and their asset position are private information given these informational frictions we provide a simple characterization of the unique efficient allocation of consumption in cases in which the rate of return on storage is sufficiently high or alternatively in which the worst possible outcome is sufficiently dire we show that the symmetric efficient allocation of consumption is decentralizable through a competitive asset market in which individuals trade risk free bonds among themselves there is a large prior literature which examines the characteristics of efficient risksharing in dynamic settings in the presence of private information unlike our paper this literature generally finds that efficient allocations do not coincide with the equilibrium allocations of any economy with a competitive bond market see atkeson and lucas 1992 in particular the key difference between our paper and these preceding ones is that the earlier literature assumes either that agents cannot accumulate resources over time or that if they can this accumulation is observable in contrast we assume that both agents incomes and their stored resources are private information it is this combination of assumptions that leads to our result our findings are reminiscent of allen s 1985 he considers a dynamic principalagent relationship in which the agent is risk averse and has hidden stochastic income the

compensation incentives and the duality of risk aversion and riskiness the common folklore that giving options to agents will make them more willing to take risks is false in fact no incentive schedule will make all expected utility maximizers more or less risk averse this paper finds simple intuitive necessary and sufficient conditions under which incentive schedules make agents more or less risk averse the paper uses these to examine the incentive effects of some common structures such as puts and calls and it briefly explores the duality between a fee schedule that makes an agent more or less risk averse and gambles that increase or decrease risk with the growing interest in executive compensation and agency problems

pharmaceuticals in u s health care determinants of quantity and price the u s pharmaceutical industry has again become the focus of considerable controversy in understanding the economics underlying this industry distinctions between short medium and long run costs are critical as is that between economic and accounting costs consumers heterogeneous valuations create strong incentives for non uniform pricing and targeted marketing the conflict between static efficiency price new drugs low near short run marginal cost and dynamic efficiency price new drugs high maintain incentives for innovation is deep and enduring this trade off is becoming more severe as the relative costs of bringing new drugs to market have increased sharply

on environmental taxation under uncertain environmental damage this paper addresses optimal taxation when therelationship between the consumption of a dirty good and the resulting environmentaldamage is uncertain and treated as a randomvariable by policy makers the main purpose isto analyze how increased uncertainty measuredas a mean preserving increase in the spread ofthis random variable affects the optimalcommodity tax on the dirty consumption good incase the only task of government is to correctthe environmental externality and if thepreferences are characterized by nondecreasingabsolute risk aversion we find that thecommodity tax on the dirty consumption goodincreases in response to additionaluncertainty if on the other hand thegovernment provides a public good and uses alump sum tax in addition to the commodity tax it is possible that the commodity tax decreasesas a response to additional uncertainty evenif the preferences are characterized bynondecreasing absolute risk aversion a similarresult emerges although for different reasons if the lump sum tax is replaced by a laborincome tax

alternative approaches to cost containment in a cap and trade system we compare several emissions reduction instruments including quantity policies with banking and borrowing price policies and hybrid policies safety valve and price collar using a dynamic model with stochastic baseline emissions the instruments are compared under the design goal of obtaining the same expected cumulative emissions across all options based on simulation analysis with the model parameterized to values relevant to proposed us climate mitigation policies we find that restrictions on banking and borrowing including the provision of interest rates on the borrowings can severely limit the value of the policy depending on the regulator chosen allowance issuance path although emissions taxes generally provide the lowest expected abatement costs a cap and trade system combined with either a safety valve or a price collar can be designed to provide expected abatement costs near those of a tax but with lower emissions variance than a tax consistently a price collar is more cost effective than a safety valve for a given expected cumulative emissions outcome because it encourages inexpensive abatement when abatement costs decline

a theory of trickle down growth and development this paper develops a model of growth and income inequalities in the presence of imperfect capital markets and it analyses the trickle down effect of capital accumulation moral hazard with limited wealth constraints on the part of the borrowers is the source of both capital market imperfections and the emergence of persistent income inequalities three main conclusions are obtained from this model first when the rate of capital accumulation is sufficiently high the economy converges to a unique invariant wealth distribution second even though the trickle down mechanism can lead to a unique steady state distribution under laissez faire there is room for government intervention in particular redistribution of wealth from rich lenders to poor and middle class borrowers improves the production efficiency of the economy both because it brings about greater equality of opportunity and also because it accelerates the trickle down process third the process of capital accumulation initially has the effect of widening inequalities but in later stages it reduces them in other words this model can generate a kuznets curve

status the distribution of wealth private and social attitudes to risk this paper supposes an individual cares about his her own wealth not only directly but also via the relative standing that this wealth induces the implications for risk taking are investigated in particular such a model provides a natural explanation of the concave convex concave utility described by friedman and savage however there are a number of key differences between the present model and any model based on own wealth alone for example an equilibrium wealth distribution here may have a middle class further the status interaction involves an externality and an equilibrium wealth distribution may be pareto inefficient but also about the implied relative standing in the distribution of wealth has a long but checkered history an early exponent of such ideas was of course veblen 1899 it is indeed a notion which most economists reject albeit usually without explicit comment a notable and articulate exception however is frank 1985 for example see also the references frank cites on pp 33 34 it is however a notion with substantial intuitive appeal and it seems useful to ascertain its consequences before coming to a final judgement as to its merits the present paper is concerned with deriving the consequences of such valuation of status for risk taking what seems to be the sharpest possible model is adopted here this assumes that what is essentially ordinal rank in the wealth distribution enters von neumann morgenstern utility as an argument in addi tion to wealth itself thus higher wealth increases utility not only directly but also indirectly via higher status in the interests of both simplicity and drama it is typically assumed here that all individuals have identical utility functions which are concave in wealth but convex in status section 2 discusses how the model provides a natural explanation of the fundamental phenomenon addressed by friedman and savage 1948 that individuals may simultaneously purchase insurance and participate in lotteries although each individual here has a utility function which is concave in wealth itself utility can nevertheless be convex in wealth over some range when the indirect effect via status is included this effect is enhanced by the convexity of utility in status but will follow in any case if increasing wealth entails moving up in status much more rapidly than losing wealth entails moving down it is shown

the damage costs of climate change toward more comprehensive calculations it is argued that estimating the damage costs of a certain benchmark climate change is not sufficient what is needed are cost functions and confidence intervals although these are contained in the integrated models and their technical manuals this paper brings them into the open in order to stimulate discussion after briefly reviewing the benchmark climate change damage costs region specific cost functions are presented which distinguish tangible from intangible losses and the losses due to a changing climate from those due to a changed climate furthermore cost functions are assumed to be quadratic as an approximation of the unknown but presumably convex functions results from the damage module of the integrated climate economy model fund are presented next uncertainties are incorporated and expected damages are calculated it is shown that because of convex loss functions and right skewed uncertain ties the risk premium is substantial calling for more action than analysis based on best guess estimates the final section explores some needs for further scientific research

jeux sans frontieres tax competition and tax coordination when countries differ in size closer international integration is putting increasing pressure on existing national tax structures this paper uses a simple two country model to address a range of consequent policy concerns focusing particularly on the role of country size differences in size exacerbate the inefficiency from noncooperative behavior harming both countries the smaller country loses from harmonization to any tax rate between those set in the noncooperative equilibrium but both countries gain from the imposition of a minimum tax anywhere in that range the fully optimal response to freer cross border trade however may be to do nothing jel h20 h77

does option compensation increase managerial risk appetite this paper solves the dynamic investment problem of a risk averse manager compensated with a call option on the assets he controls under the manager s optimal policy the option ends up either deep in or deep out of the money as the asset value goes to zero volatility goes to infinity however the option compensation does not strictly lead to greater risk seeking sometimes the manager s optimal volatility is less with the option than it would be if he were trading his own account furthermore giving the manager more options causes him to reduce volatility managers with convex compensation schemes play an important role in financial markets this paper solves for the optimal dynamic investment policy for a risk averse manager paid with a call option on the assets he controls the paper focuses on how the option compensation impacts the manager s appetite for risk when he cannot hedge the option position on one hand the convexity of the option makes the manager shun payoffs that are likely to be near the money under the optimal policy the manager either significantly outperforms his benchmark or else incurs severe losses furthermore in examples of optimal trading strategies asset volatility goes to infinity as asset value goes to zero yet option compensation does not strictly lead to greater risk seeking as asset value grows large or if the evaluation date is far away the manager moderates asset risk for example if the manager has constant relative risk aversion crra asset volatility converges to the merton constant as asset value goes to infinity in some situations the manager actually chooses a lower asset volatility than he would if he were investing on his own because the leverage inherent in his option magnifies his exposure to the asset volatility in addition with all constant or decreasing absolute risk averse utility functions from the hyperbolic absolute risk averse hara class giving the manager more options causes him to reduce asset volatility in the crra case for example the manager targets a fixed volatility for his personal

migration and wage effects of taxing top earners evidence from the foreigners tax scheme in denmark this paper analyzes the eects of income taxation on the international migration and earnings of top earners using a danish preferential foreigner tax scheme and populationwide danish administrative data this scheme introduced in 1991 allows new immigrants with high earnings to be taxed at a preferential at rate for a duration of three years we obtain two main results first the scheme has doubled the number of highly paid foreigners in denmark relative to slightly less paid and therefore ineligible foreigners this translates into a very large elasticity of migration with respect to 1 minus the average tax rate on foreigners between 1 5 and 2 second we nd compelling evidence of a negative eect of the scheme induced reduction in the average tax rate on pre tax earnings of foreign migrants at the individual level this nding can be rationalized by a matching frictions