the greenhouse effect damages costs and abatement the buildup of so called greenhouse gases in the atmosphere co2 in particular appears to be having an adverse impact on the global climate this paper briefly reviews current expectations with regard to physical and biological effects their potential costs to society and likely costs of abatement for a worst case scenario it is impossible to assess in economic terms the full range of possible non linear synergistic effects in the most favorable although not necessarily likely case of slow paced climate change however it seems likely that the impacts are within the affordable range at least in the industrialized countries of the world in the third world the notion of affordability is of doubtful relevance making the problem of quantitative evaluation almost impossible we tentatively assess the lower limit of quantifiable climate induced damages at 30 to 35 per ton of co2 equivalent worldwide with the major damages being concentrated in regions most adversely affected by sea level rise the non quantifiable environmental damages are also significant and should by no means be disregarded the costs and benefits of 1 reducing cfc use and 2 reducing fossil fuel consumption as a means of abatement are considered in some detail this strategy has remarkably high indirect benefits in terms of reduced air pollution damage and even direct cost savings to consumers the indirect benefits of reduced air pollution and its associated health and environmental effects from fossil fuel combustion in the industrialized countries range from 20 to 60 per ton of co2 eliminated in addition there is good evidence that modest e g 25 reductions in co2 emissions may be achievable by the u s and by implication for other countries by a combination of increased energy efficiency and restructuring that would permit simultaneous direct economic benefits savings to energy consumers of the order of 50 per ton of co2 saved a higher level of overall emissions reduction possibly approaching 50 could probably be achieved at little or not net cost by taking advantage of these savings we suggest the use of taxes on fossil fuel extraction or a carbon tax as a reasonable way of inducing the structural changes that would be required to achieve significant reduction in energy use and co2 emissions to minimize the economic burden and create a political constituency in support of the approach we suggest the substitution of resource based taxes in general for other types of taxes on labor income real estate or trade that are now the main sources of government revenue while it is conceded that it would be difficult to calculate the optimal tax on extractive resources we do not think this is a necessary prerequisite to policy making in fact we note that the existing tax system has never been optimized according to theoretical principles and is far from optimal by any reasonable criteria

explaining the striking similarity in macroeconomic policy responses to the great recession the institutional power of macroeconomic governance this article offers an institutional explanation for the strikingly similar configuration of macroeconomic policy responses of advanced capitalist economies to the great recession in recent decades advanced economies have adopted a common structure of macroeconomic governance which organizes macroeconomic policymaking around monetary policy operated by autonomous central banks and sets limits on politicians policymaking discretion during the great recession this macroeconomic governance allowed central banks to enact unconstrained monetary expansion and governments to enact constrained fiscal expansion the argument here is empirically substantiated by focusing at how macroeconomic policies in response to the great recession have evolved in australia and sweden as well as by looking at parallel developments in the united kingdom and the united states

the real but limited influence of expert ideas a number of influential studies in political science argue that important economic policy changes in the rich democracies since the mid 1970s were caused by the introduction of new economic ideas this article claims that while experts exert strong influence over the selection of policy instruments their influence over the formulation of policy objectives is much weaker in the 1970s 1980s and 1990s the predominance of keynesianism in austria and denmark did not lead austrian and danish governments to maintain low unemployment longer than sweden where keynesianism was less strong but it did lead them to regard fiscal policy as an instrument that can be used to control the level of activity in the economy while their swedish counterparts relied instead on exchange rate and monetary policy

are optimal emissions really optimal four critical issues for economists in the greenhouse although the greenhouse effect is by many considered as one of the most serious environmental problems several economic studies of the greenhouse effect most notably nordhaus s dice model suggest that it is optimal to allow the emissions of greenhouse gases ghg to increase by a factor of three over the next century other studies have found that substantial reductions can be justified on economic grounds this paper explores into the reasons for these differences and identifies four partly overlapping crucial issues that have to be dealt with when analysing the economics of the greenhouse effect low probability but catastrophic events cost evaluation methods the choice of discount rate the choice of decision criterion the paper shows that i these aspects are crucial for the policy conclusions drawn from models of the economics of climate change and that ii ethical choices have to be made for each of these issues this fact needs wider recognition since economics is very often perceived as a value neutral tool that can be used to provide policy makers with optimal policies

discounting risk and inequality a general approach the common practice consists in using a unique value of the discount rate for all public investments endorsing a social welfare approach to discounting we show how different public investments should be discounted depending on the risk on the returns on investment the systematic risk on aggregate consumption the distribution of gains and losses and inequality we also study the limit value of the discount rate for very long term investments we highlight the type of information that is needed about long term scenarios in order to evaluate investments

inflation stabilization the experience of israel argentina brazil bolivia and mexico rampant inflation is a major economic problem in many of the less developed countries two out of three attempts to stabilize these economies fail inflation stabilization provides a valuable description and a critical analysis of the disinflation programs introduced in argentina bolivia brazil and israel in 1985 86 and discusses the possibility of such a program in mexico it documents the initial steps in stabilization as well as the reasons for failure as architects of the programs several of the authors are in key positions to assess which aspects were critical in getting the programs accepted and where to look for difficulties and failures in israel inflation was halted without recession the challenge to policy makers today is in shifting from stabilization to the revival of sustained growth this experience is described fully by michael bruno and sylvia piterman who examine the critical issue of exchange rates and by alex cukierman who uses modeling to analyze the interaction of money wages prices and activity under rational expectations that take the government s policy objectives into account endemic inflation and a sudden increase in external debt burden argentina s economy raising the wider issues of high inflation economies and stabilization that are discussed in the chapter by jose luis machinea and that by guido di tella and alfredo canavese eduardo modiano and mario simonsen take up issues of wages in brazil particularly the problem of finding an equitable way to deal with a wage freeze simonsen develops an ambitious game theoretic rationalization of incomes policy as a coordinating device for imperfectly competitive economies bolivia did reach hyperinflation price increases of more than 50 percent each month before stabilizing juan antonio morales shows how stabilizing the exchange rate in an economy where all pricing was already geared to the dollar achieved stabilization without a wage or price freeze and francisco gil diaz asks whether an incomes policy based program could work to control ever increasing inflation in mexico michael bruno is governor of the bank of israel guido di tella is a fellow of st anthony s college a professor at the di tella institute in buenos aires and a member of parliament in argentina stanley fischer is vice president of development economics and chief economist at the world bank rudiger dornbusch is ford international professor of economics at mit

distributional weights in cost benefit analysis should we forget about them many argue that it is socially inefficient to use distributional weights in cost benefit analysis and that doing so implies large inefficiency losses when distributional matters can be dealt with trough income taxation instead our results question this view by showing a large range of cases when distributional weights are second best optimal to use one example is when different provided goods affect tax revenues equally per dollar spent utility functions that are separable in the provided goods is sufficient for this most results hold for linear and non linear income taxes and whether they are optimal or not general policy implications are discussed

sustainability limited substitutability and non constant social discount rates abstract the paper shows how limited substitutability in consumption between different classes of goods affects the magnitude and time development of social discount rates it decomposes the discount rates into an absolute growth and a relative growth or substitutability effect the paper relates between good and intertemporal substitutability to the notions of weak and strong sustainability it analyzes under which circumstances low as opposed to high between good substitutability increases the weights given to long run environmental services

double co2 and beyond benefits costs and compensation abstract economic decisions over what action if any to take concerning the greenhouse effect tend to revolve around the social discount rate implicitly the debate concerns how to attribute intertemporal weights to welfare and implies a moral stance that is rarely given explicit recognition refocusing on the outcomes of current actions emphasises the role of compensation a conflict is apparent between the view that the current generation need be unconcerned over the loss or injury caused to future generations because they will benefit from advances in technology investments in both man made and natural capital and direct bequests and the requirement to avoid harming the innocent changes in units of welfare cannot be viewed as equivalent regardless of their direction in general doing harm is not cancelled out by doing good the result is a rejection of the potential compensation principle which underlies the current economic stance and a reconsideration of the acceptability of compensation altogether the concept of human rights and a non utilitarian perspective are used to show how cost benefit analysis denies the existence of inalienable rights and economics limits the moral considerability of harm

optimal growth resource amenities and the preservation of natural environments this paper examines the conditions for which it is optimal to permanently preserve natural environments in which a productive natural resource is found the conditions are more restrictive than those previously indicated in the literature on the economics of natural environments increasing consumption and declining commodity prices are not sufficient to warrant permanent preservation the initial capital stock can be an important determinant of the optimal level of preservation in addition resource amenity values will increase the initial resource price and decrease the rate of growth of the resource price the natural world provides a variety of services to the human community natural resources are essential inputs in the production of goods and services in addition the natural world generates a variety of amenity services including the scientific recreational and aesthetic value of preserved natural environments krutilla 1967 krutilla and fisher 1975a this paper examines the impact of resource amenity values on the optimal growth of an economy which depends upon natural resource inputs for the production of goods and services in particular the paper examines the conditions under which it is optimal to permanently preserve some natural environments in which the productive resource is found the conditions which warrant permanent preservation are more restrictive than previously indicated by the literature on the economics of natural environments increasing consumption and declining commodity prices are not sufficient to warrant permanent preservation in addition the initial capital endowment can be an important determinant of the optimal level of preservation

climate policy under uncertain and heterogeneous climate damages we highlight that uncertainty about climate damages and the fact that damages will be distributed heterogeneously across the global population can jointly be an argument for substantially stricter climate policy even if uncertainty and heterogeneity in isolation are not the reason is that a given climate risk borne by fewer people implies greater welfare losses however these losses turn out to be significant only if society is both risk and inequality averse and if climate damages are highly heterogeneous we discuss how insurance and self insurance of climate risk could theoretically mitigate this joint effect of uncertainty and heterogeneity and thus admit weaker climate policy insurance provides more efficient risk sharing and self insurance allows strongly impacted individuals to compensate damages by increasing savings we first use a simple analytical model to introduce the different concepts and then provide more realistic results from the integrated assessment model dice

the aggregation of climate change damages a welfare theoretic approach the economic value of environmental goods is commonly determined using the concepts of willingness to pay wtp or willingness to accept wta however the wtp wta observed in different countries or between individuals will differ according to socio economic characteristics in particular income this notion of differentiated values for otherwise identical goods say a given reduction in mortality risk has been criticized as unethical most recently in the context of the social cost chapter of the ipcc second assessment report these critics argue that being a function of income wtp wta estimates reflect the unfairness in the current income distribution and for equity reasons uniform per unit values should therefore be applied across individuals and countries this paper analyses the role of equity in the aggregation of climate change damage estimates using basic tools of welfare economics it shows one way of how wtp wta estimates can be corrected in aggregation if the underlying income distribution is considered unfair it proposes that in the aggregation process individual estimates be weighted with an equity factor derived from the social welfare and utility functions equity weighting can significantly increase aggregate global damage figures although some specifications of weighting functions also imply reduced estimates the paper also shows that while the postulate of uniform per unit values is compatible with a wide range of reasonable utility and welfare specifications there are also cases where the common value notion is not compatible with defensible welfare concepts

policy reform shadow prices and market prices how should public projects and policy reforms be assessed when market prices give misleading signals revenues and costs at market prices then give distorted measures of social gains and losses and our appraisal should use social opportunity costs or shadow prices we show how shadow prices may be integrated into an analysis of policy reform demonstrate the critical dependence of these prices on government policy and analyse their relations with market prices the model allows for a wide range of sources of impairment of price signals we also discuss key issues in the analysis of price reform and privatisation

discounting and distributional considerations in the context of global warming the economics of global warming is reviewed with special emphasis on how the cost depends on the discount rate and on how costs in poor and rich regions are aggregated into a global cost estimate both of these factors depend on the assumptions made concerning the underlying utility and welfare functions it is common to aggregate welfare gains and losses across generations and countries as if the utility of money were constant but it is not if we assume that a e co2 equivalent dlubling implies costs equal to 1 5 of the income in both high and low income countries a pure rate of time preference equal to zero and a utility function which is logarithmic in income then the marginal cost of co2 emissions is estimated at 260 590 usd ton c for a time horizon in the range 300 1000 years an estimate which is large enough to justify significant reductions of co2 emissions on purely economic grounds the estimate is approximately 50 100 times larger than the estimate made by nordhaus in his dice model and the difference is almost completely due to the choice of discount rate and the weight given to the costs in the developing world as well as a more accurate model of the carbon cycle finally the sensitivity of the marginal cost estimate with respect to several parameters is analyzed

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

monetary valuation of the social cost of co2 emissions a critical survey an expanding branch of research has estimated the potential costs of climate change which are often expressed as the social cost of carbon scc or the costs of an additional ton of co2 emissions estimates of the scc can be used by policy makers to evaluate climate change policies and greenhouse gas emission reduction projects by means of cost benefit analyses cbas such analyses are complicated by the wide range of scc values that have been reported in the literature and the large uncertainties involved in estimating the potential economic impacts and related costs of climate change this study presents a critical review of the reported scc estimates by examining some neglected consequences of climate change uncertain and extreme scenarios of climate change the discounting of future climate change effects the treatment of individual risk aversion and assumptions about social welfare in view of the many uncertainties and omissions in conventional cost benefit analyses of climate impacts and the scc alternative approaches to decision making should be considered for climate policy

equity and carbon emissions trading a model analysis carbon emissions trading is a key instrument of climate policy it helps to bring about emission reductions in that place where they are least costly however fair burden sharing is about more than just cost efficiency while focussing on the instrument of emissions trading this paper touches upon equity issues that frame decisions on emission rights allocation the analysis is based on the iclips model the model study gives new insights on how the equal per capita allocation principle influences the intertemporal emission paths and about the distribution of mitigation costs in the long run apart from the intuitive economic evaluation of model results this paper also attempts to provide an evaluation from an equity point of view for a variety of assumptions model results show that several developing countries could benefit considerably from joining an international emissions trading system thereby becoming potential collaborators in post kyoto climate agreements

limits to substitution between ecosystem services and manufactured goods and implications for social discounting this paper examines implications of limits to substitution for estimating substitutability between ecosystem services and manufactured goods and for social discounting based on a model that accounts for a subsistence requirement in the consumption of ecosystem services we provide empirical evidence on substitution elasticities we find an initial mean elasticity of substitution of two which declines over time towards complementarity we subsequently extend the theory of dual discounting by introducing a subsistence requirement the relative price of ecosystem services is non constant and grows without bound as the consumption of ecosystem services declines towards the subsistence level an application suggests that the initial discount rate for ecosystem services is more than a percentage point lower as compared to manufactured goods this difference increases by a further half percentage point over a 300 year time horizon the results underscore the importance of considering limited substitutability in long term public project appraisal

economic inequality and the value of nature abstract understanding what influences the value of nature is crucial for informing environmental policy from a sustainability perspective economic valuation should not only seek to determine a society s willingness to pay for environmental goods to devise an efficient allocation of scarce resources but should also account for distributional effects to ensure justice yet how economic inequality affects the value of non market environmental goods remains understudied combining recently developed theoretical results with empirical evidence this commentary shows that more equal societies have a higher valuation for environmental public goods and that non market benefits of environmental policy accrue over proportionally to poorer households on this ground we discuss implications for environmental valuation management and policy making and identify a number of fruitful areas for future research we conclude that environmental valuation should explicitly account for economic inequality and that encompassing assessments of the distributional effects of environmental policies must consider the distribution of non market environmental benefits

intergenerational discounting with intragenerational inequality in consumption and the environment it is now established that the consumption discount rate is determined by the growth of consumption multiplied by the elasticity of marginal utility but distributive concerns are rarely reflected in the literature assuming a social welfare function with inequality aversion we consider a consumption discount rate that can be decomposed into the growth effect and the intragenerational distribution effect the framework is then extended to include population change and inequality in the environment as an amenity in a utility with constant elasticity of substitution numerical examples illustrate that distributional effects turn non negligibly negative that may reduce consumption discount rate by 1 3 for plausible parameters once distribution is adjusted for both population and the environment

power and the ascendance of new economic policy ideas lessons from the 1980s crisis in israel recent explanations of transformations of macroeconomic policy under crisis conditions spotlight the intrinsic properties of ideas and the persuasiveness with which they are marketed bridging the divide between power and discourse approaches this article reveals the causal role played by the power resources of expert ideational entrepreneurs conditional on the political conjuncture in which they operate the authors exploit a fortuitous natural experiment from the early 1980s when the israeli economy spiraled into hyperinflation two similar proposals for economic stabilization and reform were offered by different teams of economists less than two years apart while the government rejected the dollarization plan its authorization of the stabilization plan inaugurated a new political economic regime this case in which similar programs were advocated by different ideational entrepreneurs in a largely stable institutional and economic context makes it possible to pinpoint why radically new ideas succeed or fail previously underutilized analytical tools are employed to conceptualize the power of idea carriers at both the individual and the group level

on international equity weights and national decision making on climate change abstract estimates of the marginal damage costs of carbon dioxide emissions require the aggregation of monetised impacts of climate change over people with different incomes and in different jurisdictions implicitly or explicitly such estimates assume a social welfare function and hence a particular attitude towards equity and justice we show that previous approaches to equity weighting are inappropriate from a national decision maker s point of view because domestic impacts are not valued at domestic values we propose four alternatives sovereignty altruism good neighbour and compensation with different views on concern for and liability towards foreigners the four alternatives imply radically different estimates of the social cost of carbon and hence the optimal intensity of climate policy

structure and performance with profit measures based on stock market prices the theory that there is a causal relationship between industry structure conduct and performance is the fundamental premise in the field of industrial organization the most carefully researched component of that general theory is the hypothesis that increasing industrial concentration will give rise to increasing profits this traditional view is important not only because of its prominence in the academic analysis of industrial markets but also because of its implications for government policy especially antitrust policy the traditional view typically has been tested by treating an accounting based measure of industry profit as the dependent variable with concentration and other structural variables as independent variables within a cross section of manufacturing industries at a given point in time numerous papers have found that concentration has a positive impact on profits the methodology adopted in this paper is different the profit measures are based on stock market prices and are adjusted for risk this is an improvement because accounting methods are so poorly adapted to the measurement of economic profit and because risk may vary with concentration 2 39 another methodological innovation is the choice of time series over cross section analysis the question asked is whether the change over time in each industry s level of concentration had an impact on profits this minimizes the problem of omitted or inaccurately measured independent variables since there should be less change in basic structural characteristics over short time periods within an industry than between industries at a single point in time 2 a second important advantage is freedom from a basic assumption of crosssection studies the assumption that the relationship between concentration and profit is homogeneous across industries if the assumption is invalid empirical results are subject to bias two tests 7 26 have firmly rejected the homogeneity assumption 3

accounting for heterogeneous private risks in the provision of collective goods controversial compulsory contracting institutions in horizontal hydrofracturing abstract common pool resources are frequently analyzed with a simple template the problem is the tragedy of the commons and the solution is political institutions thus the tragedy of the commons is resolved by governing the commons in this paper we argue that there is also the possibility of a tragedy of governing the commons if political institutions lock participants into a certain pattern of resource use and then there is an exogenous shock say a technological change that increases the risks to one group then the situation may no longer be a classic common pool situation and institutions may actually exacerbate rather than ameliorate distributional conflict we develop a general model showing that whenever there is heterogeneity in private risks some technological innovation could potentially turn a previously stable institution into a source of conflict we take the compelling recent example of horizontal hydrofracturing changing the welfare implications of the institution of compulsory pooling and use a new individual level dataset of landowners affected by compulsory pooling in new york to demonstrate the empirical support for our model

weight factors in cost benefit analysis of climate change equity considerations may justify the use of weight factors when estimating the costs of climate change this paper reviews different weight factors that have been used in the climate economics literature based on a simple model it is shown that although the different weight factors imply substantially different cost damage estimates they actually yield the same optimal emission reductions this paradox is explained by the fact that some of the approaches require that also the abatement costs are weighted and this offsets the effect of the diverging cost damage estimates the model is then used to analyse the importance weighting may have on the overall cost benefit analysis at present when most of the global emissions of fossil co2 originate from the industrialised countries the global optimal emissions are considerably lower if costs are weighted however the more the emissions in developing countries grow the less important becomes the introduction of weight factors in cost benefit analysis of climate change for the global emission reductions in the model developed here on a regional level the introduction of weight factors continues to play an important role implying substantially lower emissions in the rich region and slightly higher in the poor

distributional weights in environmental valuation and cost benefit analysis theory and practice abstract cost benefit analysis cba is built on the kaldor hicks efficiency criterion whereby projects that have aggregate positive net benefits are recommended even if those who lose are not compensated for their losses two kinds of problems can be identified with the use of the criterion first as income tends to affect monetary welfare changes positively the preferences of those with higher wealth have a larger weight in societal decision making second monetary welfare changes can be thought of as changes in real income which matter more for those with a lower initial wealth level both problems can be mitigated with distributional weighting despite their strong theoretical pedigree distributional weights have been largely neglected in practical cbas one exception being analyses in climate change economics we present the theory of distributional weighting and illustrate how weights can be applied empirically in an international environmental cba that deals with marine water quality improvements we show that different weighting schemes can result in different policy recommendations we also show that taking the income distribution within countries into account can change a country s willingness to participate in the water quality improvement program and that the income elasticity of willingness to pay wtp is an important indication of the direction of change

how should the distant future be discounted when discount rates are uncertain abstract the so called weitzman gollier puzzle is the fact that two seemingly symmetric and equally plausible ways of dealing with uncertain future discount rates appear to give diametrically opposed results the puzzle is resolved when agents optimize their consumption plans the long run discount rate declines over time toward its lowest possible value

subsistence substitutability and sustainability in consumption we propose a representation of individual preferences with a subsistence requirement in consumption and examine its implications for substitutability and sustainability specifically we generalize the standard constant elasticity of substitution ces utility specification for manufactured goods and environmental services by adding a subsistence requirement for environmental services we find that the hicksian elasticity of substitution strictly monotonically increases with the consumption of environmental services above the subsistence requirement and approaches the standard ces value as consumption becomes very large whether the two goods are market substitutes depends on the level of income we further show that the subsistence requirement may jeopardize the existence of an intertemporally optimal and sustainable consumption path our results have important implications for growth development and environmental policy

income inequality and willingness to pay for environmental public goods we study how the distribution of income among members of society and income inequality in particular affects social willingness to pay wtp for environmental public goods we find that social wtp for environmental goods decreases increases with income inequality if and only if environmental goods and manufactured goods are substitutes complements we derive adjustment factors for benefit transfer to control for differences in income distributions between a study site and a policy site for illustration we quantify how social wtp for environmental public goods depends on the respective income distributions for empirical case studies in sweden and the world at large we find that the adjustment for income inequality can be substantial

gamma discounters are short termist weitzman 1998 2001 proposed a simple gamma discounting method to characterize the term structure of discount rates today from the sole distribution of future spot interest rates this rule which justifies using a smaller discount rate for longer maturities is now used for long term policy evaluations in the uk france norway and potentially in the us but we show that there is no social preference within the discounted expected utility framework that generically supports this pricing model and its underlying criterion the expected net present value rule considering a standard lucas tree economy we characterize the term structure from a coherent joint distribution of future spot interest rates and future consumption levels when future growth rates are positively serially correlated efficient discount rates today are decreasing with maturity and the gamma discounting rule yields discount rates that are larger than the efficient ones

on the value of life in rich and poor countries and distributional weights beyond utilitarianism this paper discusses the use ofdistributional weights in cba based on a generalbergson samuelson swf in particular it illustratessome consequences of applying a swf characterized byconstant inequality aversion which includes classicalutilitarianism as a special case together with aconstant relative risk aversion utility function whencalculating the damage costs of global warming itextends and clarifies earlier unintuitive results andemphasizes that utility must be seen as fully cardinalin terms of levels in this context in the specialcase of utilitarianism on the other hand it issufficient to be able to make interpersonalcomparisons of utility changes

the social construction of an imperative why welfare reform happened in denmark and the netherlands but not in germany this article seeks to explain why denmark and the netherlands made dramatic progress reforming their welfare systems in the 1990s and why germany had a relatively slow start some possible explanations found to be incomplete are institutional differences in welfare programs the uniqueness of circumstances for example german unification and the balance of political power in governing institutions an important part of the puzzle is an increasing perception of the need to reform that was more widespread in denmark and the netherlands the social construction of an imperative to reform in these countries generated a political consensus that was elusive in germany but that may be developing under gerhard schroder s government

the impact of climate change on the balanced growth equivalent an application of fund the stern review added balanced growth equivalents bge to the economic climate change research agenda we first propose rigorous definitions of the bge for multiple regions and under uncertainty we show that the change in the bge is independent of the assumed scenario of per capita income for comparable welfare economic assumptions as the stern review we calculate lower changes in bge between a business as usual scenario and one without climate impacts with the model fund than the stern review found with the model page we find that mitigation policies give even lower changes in bge and argue that those policy choices should be the focus of the research effort rather than total damage estimates according to our results the current carbon tax should be below 55 tc sensitivity analyses show that the stern review chose parameters that imply high impact estimates however for regionally disaggregated welfare functions we find changes in bge that are significantly higher than the results from the stern review both for total damage as for policy analysis with regional disaggregation and high risk aversion we observe fat tails and with that very high welfare losses

a review of the stern review on the economics of climate change how much and how fast should we react to the threat of global warming the stern review argues that the damages from climate change are large and that nations should undertake sharp and immediate reductions in greenhouse gas emissions an examination of the review s radical revision of the economics of climate change finds however that it depends decisively on the assumption of a near zero time discount rate combined with a specific utility function the review s unambiguous conclusions about the need for extreme immediate action will not survive the substitution of assumptions that are consistent with today s marketplace real interest rates and savings rates

discounting and the representative median agent we derive a simple formula for the social discount rate sdr that uses the median rather than average agent of the economy to reflect the consequences of consumption growth on income inequality under reasonable assumptions the difference between the growth of median and mean incomes is used to adjust the wealth effect in the standard ramsey rule in a plausible special case the representative agent has the median income with inequality aversion elasticity of 2 1 5 1 the u k and u s sdr would be 1 0 5 0 25 lower than the standard ramsey rule this reflects two decades of inequality increasing growth and implies greater weight placed on future generations in public appraisal

the transformation of the swedish model economic ideas distributional conflict and institutional change this article examines the transformation of the swedish model of economic regulation from an ideational perspective while the majority of arguments about the decline of the swedish model have focused on the role of structural factors this article looks to illuminate the ideational factors that made possible both the emergence and the transformation of the swedish model the article details how during the 1930s and 1940s economic ideas provided the swedish state and its trade union allies with the means to construct the institutions of the swedish model by the 1970s however swedish business suffered diminishing returns to continued participation within these institutions and responded to labor s challenges by adopting a two pronged strategy of withdrawal from and ideological contestation of labor s supporting institutions the politics of ideas was key in this regard during the 1980s swedish business marshaled alternative economic ideas to contest and thus delegitimate existing institutions and the patterns of distribution they made possible swedish business thus began the process of overturning the swedish model long before capital mobility or domestic inflation was ever a problem by highlighting these factors the article offers an explanation of the transformation of the swedish model that stresses the centrality of ideational contestation for understanding institutional change in general

the validity of roi as a measure of business performance business performance at the corporate level is widely assessed by the return through changes in the price of the stock and dividends to shareholders however corporate level performance analysis whether for strategic or public policy purposes is inappropriate in many instances because of the heterogeneity of the corporation s operations the strategic business units sbus comprising a corporation are often very diverse profitability analysis grouping these entities together yields few of the insights needed for strategic or public policy decision making because of this heterogeneity profitability analysis is often advocated and undertaken at the sbu level the absence of an equity market at the sbu level means that a measuring instrument other than that based on stock price must be used to assess profitability due to the lack of alternatives the performance of an sbu is almost always based on accounting data in particular the accounting measure return on investment roi is widely regarded as the most useful measure and ultimate bottom line test of business performance james reese and william cool 1978 it is used both as an objective of management and as a dependent criterion variable to evaluate the effect of various factors on performance despite its widespread use roi has been extensively criticized as being a totally inadequate indicator of economic rate of return g c harcourt 1965 ezra solomon 1971 franklin fisher and john mcgowan 1983 roi most typically defined as net income total assets 1 does not properly relate the stream of profits to the investment that produced it the earnings numerator is a consequence of investment decisions made in the past but the assets denominator can be expected to have had influence on not only past and current earnings but also to have influence on future earnings because of this failure to produce an accurate mapping roi has been criticized as being so seriously flawed that it bears little if any resemblance to the crucial concept of internal or economic rate of return the shortcomings of roi are said to be so severe that its cross sectional variations can be completely explained by the inappropriateness of the measure due to a lack of proven validity empirical investigations using roi have been labeled by fisher and mcgowan as totally misleading enterprises and by george benston 1985 as of doubtful value those making use of accounting roi argue that the noise created by the accounting distortions need not be expected to drown out the underlying signal of economic return contained in roi and therefore roi is still appropriate for use in analysis f m scherer 1979 and william long and david ravenscraft 1984 this paper examines the validity of roi as a measure of economic rate of return by ascertaining the existence and extent of the association of corporate level accounting roi with stock return a widely accepted indicator of business performance the null hypothesis for the analysis is that roi has no validity as a measure of business performance and as such will not exhibit an association with stock return while the tests provide direct evidence on the validity of corporate level roi the same underlying theorized inadequacies of accounting roi are also present at the sbu level 1 conclu

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