environmental regulation and u s economic growth in this article we quantify the costs of pollution controls by reporting the results of simulations of the growth of the u s economy with and without regulation for this purpose we have constructed a detailed model of the economy that includes the determinants of long term growth we have also analyzed the interaction between industries in order to capture the full repercussions of environmental regulations however we have not attempted to assess the benefits resulting from a cleaner environment we find that pollution abatement has emerged as a major claimant on the resources of the u s economy the cost of emission controls is more than 10 of the total cost of government purchases of goods and services

dollars debt and international financial institutions dedollarizing multilateral lending financial dollarization is increasingly seen as a concern because of its tendency to contribute to financial crises and output volatility as a result the debate on financial dollarization has shifted in favor of a more proactive stance on dedollarization while often neglected lending from international financial institutions is an important source of financial dollarization in emerging economies and must be considered in any dedollarization strategy this article revisits old and new arguments in favor of international financial institution lending in the local currency and argues that any such initiative should rely at least initially on demand from residents seeking stable returns in units of the local consumption basket but who are reluctant to take on sovereign risk superior enforcement capacity enables international financial institutions to intermediate these savings currently invested in dollarized foreign assets back into the local economy the international financial institutions can offer investment grade local currency bonds and use the proceeds to dedollarize their own lending to noninvestment grade countries thereby reducing financial dollarization and fostering the development of local currency markets

political pluralism public policies and organizational choices banking branch expansion in india 1948 2003 data on the expansion of 94 commercial banks in india from 1948 to 2003 were analyzed to test the proposition that political pluralism wherein competing parties control the state and national governments of a nation can promote business expansion the results confirm that such political pluralism reduces the power of either government to constrain business decision making but that pluralism might at times lead to unhealthy competition between parties harming local expansion opportunities the data show that in india banks selectively exploit political pluralism to guide their expansion decisions

academic earmarks and the returns to lobbying abstract in this paper we estimate the returns to lobbying by universities to motivate our empirical work we develop a simple theoretical model of university lobbying for academic earmarks our statistical analysis shows that universities represented by a house appropriations committee hac or senate appropriations committee sac member spend less money on lobbying than those that are not represented in addition using instrumental variables estimations we show that universities without hac or sac representation may receive some benefit to lobbying for earmarks although in many estimations this benefit is not statistically different from zero however for universities with hac or sac representation a 10 percent increase in lobbying yields an additional 2 8 percent or 3 5 percent increase in earmarks respectively this suggests that there are large returns to lobbying for academic earmarks if a university is represented by a member of one the hac or sac but little or no return if not

the role of corporate donations in chinese political markets many corporations actively engage in political activities to enhance their relationships with politicians facilitating access to scarce resources and creating competitive advantages we investigate corporate donations to explore how they initiate interactions between firms and new local leaders in china specifically we propose that political turnover creates unique opportunities for firms to win over new officials via corporate donations especially in competitive markets moreover we find that firms that make generous donations at the beginning of a new city secretary s tenure receive more attention from representatives of new local leaders especially firms that were politically disadvantaged under a predecessor s governance empirical studies on the turnover of city secretaries between 2001 and 2012 in china strongly support our hypotheses consequently this study improves our understanding of how corporate donations initiate social exchanges between firms and politicians

the willingness to pay for work family policies a study of teachers recent evidence suggests that employers and employees may benefit from work family policies and that even non beneficiaries may support such policies the authors posit that these policies generate not only use values values for those who rely on them but also based on a particular norm of social justice need values values received by all individuals regardless of expectations of direct benefit combining the median voter model with the contingent valuation method which was designed to measure the willingness to pay for environmental goods such as national parks the authors capture the willingness to pay for seven distinct work family policies within a sample of 343 public elementary school teachers the results suggest that referenda to initiate work family policies in exchange for payroll deductions from teachers would pass depending on the specific deduction even respondents with no expectation of direct benefit may place a positive value on the policies consistent with the notion of need values

the impact of choice inconsistencies in stated choice studies a new test procedure revealing mutuallyinconsistent choices has been developed andapplied to stated choice data our analysisshows that inconsistent choices commonly occurin several stated choice tasks an applicationof the test to the norwegian value of timestudy data shows that failing to excludeinconsistent choices resulted in asubstantially higher value of time theinconsistent choices were made by less educatedparticipants as the tasks were undertaken inthe easy context of choosing travelalternatives with three attributes practitioners of more complex and cognitivedemanding designs should be particularilyconcerned with these results

social cost of environmental quality regulations a general equilibrium analysis the use of cost benefit analysis by federal regulatory agencies has expanded greatly in scope and sophistication unfortunately agencies continue to employ private cost rather than social cost to evaluate environmental quality regulations furthermore general equilibrium impacts and intertemporal effects of regulations are typically not included in the evaluation in this paper we estimate the social cost of environmental quality regulations mandated by the clean air and clean water acts we construct an econometric general equilibrium model of the united states to demonstrate that social cost estimates diverge sharply from private cost estimates we also demonstrate that general equilibrium impacts are significant and pervasive and that intertemporal effects of the regulations heretofore ignored are significant

money demand in open economies a currency substitution model for venezuela abstract this paper investigates the extent to which domestic money balances in venezuela are influenced by foreign exchange considerations to this end individuals are assumed to choose the levels of foreign and domestic money that minimize the borrowing costs associated with a given level of monetary services the solution to this optimization problem yields a closed form demand function for domestic money that allows for foreign exchange considerations this specification is estimated and the results point to an elasticity of currency substitution in excess of one conditioned on these estimates the paper estimates the risk premium for the period 1981 82 prior to the collapse of the exchange rate system in 1983

the structure of political institutions and effectiveness of corporate political lobbying this paper investigates how the structure of political institutions influences the effectiveness of corporate political lobbying by shaping the veto points and entry points that lobbying firms encounter and require respectively when attempting to influence public policies in so doing this study deepens our understanding of the strategic implications of institutional environments using large sample and cross country firm level data we find that the influence of firms lobbying activities on public policies is weakened when there are tighter constraints generated as a result of greater political partisan competition and more subnational government tiers we find that the negative association between the effectiveness of lobbying and political partisan competition is particularly pronounced in countries with lower electoral accountability and that the negative association between the effectiveness of lobbying and subnational government tiers is particularly pronounced in more centralized politi

contingent valuation and actual behavior predicting connections to new water systems in the state of kerala india in 1988 families in kerala state in india were surveyed to ascertain their willingness to pay for household connections to a piped water supply system in 1991 the families in these communities were surveyed again and their actual decisions recorded this article explores the validity of the findings of the 1988 study on the basis of actual behavior it looks at the question of benefit revelation did people behave as they said they would and it looks at the question of benefit transfer did people in one site behave as they were predicted to behave on the basis of the predictions of a behavioral model for a different site the data were also used to analyze the policy relevance of behavioral modeling coauthors are john briscoe bhanwar singh radhika ramasubban and ramesh bhatia copyright 1995 by oxford university press

monetary policy dollarization and parallel market exchange rates the case of the dominican republic abstract excessive money creation may give rise to inflation tax revenues and to a depreciation of the domestic currency this in turn leads to a shift away from the domestic currency into a foreign currency e g the us dollar hence the term dollarization from the domestic monetary authority s point of view dollarization is an unwelcomed phenomenomn thus the monetary authorities will attempt to arrest the dollarization phenomenon while maintaining the excessive money growth this paper develops and tests a model which analyzes the effects of monetary policy on dollarization and the parallel market exchange rates

currency substitution portfolio diversification and money demand we extend the thomas 1985 dynamic optimising model of money demand and currency substitution to the case in which the individual has no access to bonds denominated in foreign currency we show that in this case the demand for domestic money is influenced by portfolio decisions contrary to what defended by the portfolio balance approach to currency substitution the results obtained in this paper suggest that the significance of an expected exchange rate depreciation term in the demand for domestic money provides a valid test for the presence of currency substitution the results also suggest that in countries facing monetary instability and currency substitution restricting the availability of interest bearing assets denominated in foreign currency may have a destabilising impact on the money demand

variation in the real exchange rate as a source of currency substitution abstract this paper presents a shopping cost money service model in which it is shown that the real exchange rate influences the desired ratio of domestic to foreign currency bank deposits empirically it is found that if the real exchange rate value of the canadian dollar falls then us dollar deposits of canadians rise relative to canadian m2 this relationship is found to be cointegrated dynamic adjustment analyzed using an error correction model indicates a cyclical adjustment the results provide evidence that variation in the real exchange rate is a source of currency substitution and reinforces the argument that demand side factors influence the money stock jel e41

policy watch government analysis of the benefits and costs of regulation recently congress has shown a greater interest in assessing the economic impact of regulation this interest was driven in part by estimates that federal regulation costs several hundred billion dollars annually in 1996 congress required the director of the office of management and budget to provide estimates of the total annual benefits and costs of individual regulations this essay reviews the increasing use of economic analysis in regulatory decisionmaking critically assesses the first 0mb report and considers how the use of economic analysis can help inform regulatory decisionmaking it argues that policymakers need to address a growing body of evidence that casts doubt on the effectiveness and efficiency of much regulation

combining revealed and stated preferences consistency tests and their interpretations this article models the recreation demand for iowa wetlands combining survey data on both actual usage patterns i e revealed preferences rps and anticipated changes to those patterns under hypothetical increases in trip costs i e stated preferences sps we formulate and test specific hypotheses concerning potential sources of bias in each approach and discuss what can be learned about the validity of the models from such tests

monetary integration and currency substitution in the ems the case for a european monetary aggregate abstract this paper examines the phenomenon of cross currency substitution and the validity of monetary aggregation within the european monetary system using non parametric methods which exploit the relationship between intergroup substitution and separability the separability property is tested using the methodology developed by varian the nonparametric approach to demand analysis econometrica 50 945 974 1982 nonparametric tests of consumer behaviour review of economic studies 51 99 110 1983 and is violated in the case of most european countries suggesting that the hypothesis of zero currency substitution which forms the basis of national monetary aggregation should be rejected the results do however validate the use of monetary aggregates for the ems as a whole and i use a standard parametric demand for money approach to compare the performance of an ems divisia index with that of simple sum aggregates during the 1980s and 1990s

benefits and costs of food safety regulation abstract this paper begins with a review of the concepts and methods that can be used to quantify the benefits and costs of food safety regulations on the cost side where research is only beginning to emerge this paper also provides an analytical framework for measurement of the costs of statutory regulations in the form of design and performance standards this paper also discusses the use and limitations of currently available benefit and cost information for quantitative regulatory impact assessment using the assessment of the mandatory haccp and pathogen reduction regulations in the united states as an example the paper concludes with suggestions for future research on quantifying benefits and costs of food safety regulations

public goods and the value of product quality regulations the case of food safety abstract the paper examines preferences for product quality regulations our premise is that preferences for product quality regulations derive from preferences for both private and public goods the model is used to explain public attitudes toward a referendum measure to eliminate pesticide residues on food results from a survey of consumers are consistent with the conceptual model and show that preferences for public goods influence support for the product quality regulation the results help explain why consumption behavior is a poor predictor of political behavior and have implications for methods that use voting and market behavior to value public goods

the importance of ethics in environmental economics with a focus on existence values the importance of ethics and fundamental value judgments in environmental economics is high lighted by discussing the controversial concept of existence values the social value depends crucially on the social objective which is not necessarily self evident e g since some individuals tend to value nature intrinsically it is shown that the motives behind willingness to pay figures matter for the social value and the conventional view that people respond to cv questions solely in order to maximize their own utility or well being is questioned the importance of being explicit about value judgments is emphasized and it is argued that environmental economics should consider non conventional assumptions which take the social context into account to a larger degree

bureaucratic discretion or congressional control regulatory policymaking by the federal trade commission this paper extends stigler and peltzman s approach to regulation by incorporating a legislature the model yields comparative statics results and hence testable implications the paper then tests between two opposing approaches about regulatory agency behavior the first assumes agencies operate independently of the legislature and hence exercise discretion the second assumes that congress controls agency decisions the recent behavior of the federal trade commission provides the empirical setting substantial evidence is found for the specific predictions of the model including the hypothesis of systematic congressional influence over ftc decisions

currency substitution and the demand for money some evidence for canada recently the possibility that foreign and domestic currencies are substitutes has received considerable attention see 1 2 3 10 19 21 currency substitution has important implications for the working of flexible exchange rates if the degree of currency substitution is high small changes in the money supply would induce large changes in the exchange rate furthermore currency substitution would transmit the effect of monetary disturbances from one country to another indeed significant currency substitution would seriously undermine the ability of flexible exchange rates to provide monetary independence this paper examines the empirical importance of currency substitution in the framework of the demand function for money if currency substitution is important the expected change in the exchange rate should be a significant determinant of the demand for home currency in section 2 we undertake such a test for the canadian demand for money during the recent flexible exchange rate period there is considerable evidence that the forward exchange rate is a good measure of the expected exchange rate our own tests confirm these results for canadian data since 1970

determinants of automobile pac contributions to house incumbents own versus rival effects this paper examines pac contributions by the big threeu s automakers and japanese auto dealers to houseincumbents a regression model is estimated where paccontributions are a function of a firm s own ties toan incumbent s district as measured by firmemployment and those of rivals for the big three own and u s rival effects are positive further theresults do not indicate the presence of a free ridereffect employment by a foreign subsidiary has no neteffect on u s contributions for the japanesedealers japanese plant employment has a positiveimpact on contributions and that of the big three anegative

nonmarket strategy performance evidence from u s electric utilities this paper develops and tests a theory of the performance determinants of a firm s nonmarket strategy in shaping public policy outcomes building on the concept of political market attractiveness we argue that nonmarket performance is influenced by both the characteristics of a firm s regulatory and political environment especially rivalry among interest groups or politicians and by internal capabilities that enable a firm to mitigate political transaction costs using data on regulatory filings for rate increases made by u s electric utilities over a 13 year period we find empirical support for our approach

economic foundations of the current regulatory reform efforts raditional economic regulation focused on issues such as antitrust and setting prices for public utilities but in the last few decades the emerging role of environmental and risk regulation has transformed the role of reg ulation in the american economy rough estimates of the economic costs of gov ernment regulations exceed 500 billion hopkins 1992 this total can be divided up in various ways more than half the cost is attributable to paperwork require ments arising out of regulation but there is also more than 200 billion in direct costs of regulation including costs to business more than half of this amount is due to environmental regulation and much of the remainder is attributable to various forms of risk regulation about 100 billion involves government transfers such as the effects of the minimum wage while the rest involves costs paid by businesses regulatory benefits reduce the net burden of these efforts on society but there are no good estimates of the total of regulatory benefits regulatory interventions often have a sound economic foundation many econ omists would agree that markets have a difficult time spontaneously organizing to address all forms of environmental pollution and that consumers are unable to assess the risks associated with say prescription drugs however the existence of a rationale for some sort of government intervention in no way eliminates the need for obtaining the greatest benefit to society that can be derived from these regu latory expenditures during 1995 and 1996 the 104th congress has considered a flurry of bills intended to foster more cost effective regulatory policies by imposing greater

choice modeling and tests of benefit transfer choice modelling cm is a stated preference technique that is increasingly being used to generate estimates of non market values in cm applications respondents to a survey are presented with several sets of options which contain common attributes but at varying levels and are asked to select their preferred alternative from each set the information provided by respondents choices is used to estimate marginal rates of substitution and hence estimates of value in this paper the results from three separate cm applications are presented estimates are made of the value of improving the quality of wetlands the first two applications focused on the gwydir wetlands in new south wales australia one survey was conducted in sydney a major urban centre and the second was conducted in moree a rural centre close to the gwydir wetlands the third survey which was also conducted in sydney focused on the macquarie marshes another wetland in new south wales an objective of the study was to test the suitability of using cm derived estimates for benefit transfer both across different populations and across different wetlands cm is potentially suited to benefit transfer because it is possible to allow for differences in environmental improvements between sites as well as differences in socio economic characteristics between respondent populations several tests aimed at determining the validity of transfers using cm across sites and populations are presented these include tests of the equality of models implicit prices and estimates of compensating surplus

reconsidering heterogeneity and aggregation issues in environmental valuation a multi attribute approach the economic valuation of complex environmental goods composed of multiple attributes is an expanding field of research in ecological and environmental economics however several issues are still subjects of debate this paper focuses on three of them the linearity of the valuation function in the attributes aggregation criteria for obtaining social values and the heterogeneity of individuals utility functions a methodological approach based on multi attribute utility theory which enables us to contrast the impact of these concerns on the valuation of environmental goods is proposed we employ the methodology to value a protected natural area and from the results obtained we can conclude that the non linearity and the heterogeneity of the individual utility function are relevant aspects of environmental valuation that need to be taken into account when valuing environmental goods

the contingent valuation debate why economists should care t he contingent valuation method involves the use of sample surveys questionnaires to elicit the willingness of respondents to pay for generally hypothetical projects or programs the name of the method refers to the fact that the values revealed by respondents are contingent upon the constructed or simulated market presented in the survey a spirited and occasionally mean spirited battle over such methods is currently being waged involving competing factions within the federal government economists and lawyers representing business and environmental groups and interested academics as well at issue is a seemingly quite specific question should environmental regulations currently under development at both the department of the interior and the department of commerce sanction the use of the contingent valuation method in estimating the damage done by spills of oil chemicals or other substances covered by federal law more generally the debate raises broad questions about what economists have to say about the values that individuals place on public or private goods the two papers that follow this one make cases for and against the use of the contingent valuation method my aim here is to provide an overview of the technique and the debate surrounding it i also want to suggest why this debate should matter to economists both professionally and in their roles as citizens and consumers

combining revealed and stated preference data to estimate the nonmarket value of ecological services an assessment of the state of the science this paper reviews the marketing transportation and environmental economics literature on the joint estimation of revealed preference rp and stated preference sp data the rp and sp approaches are first described with a focus on the strengths and weaknesses of each recognizing these strengths and weaknesses the potential gains from combining data are described a classification system for combined data that emphasizes the type of data combination and the econometric models used is proposed a methodological review of the literature is pursued based on this classification system examples from the environmental economics literature are highlighted a discussion of the advantages and disadvantages of each type of jointly estimated model is then presented suggestions for future research in particular opportunities for application of these models to environmental quality valuation are presented

measuring the effectiveness of voluntary emission reduction programmes this paper examines the evaluation of state environmental policies aimed at reducing ground level ozone in order to meet air quality standards set by the us environmental protection agency several states with metropolitan areas that violate federal air quality regulations have adopted voluntary emission reduction programmes these programmes focus on emissions from mobile sources with the chief source being the automobile states are allowed to claim credit towards bringing their metro areas closer to compliance with regulations only if they can provide credible evidence that these voluntary programmes are successful in reducing emissions a model is developed to forecast aggregate traffic volumes so that one can assess the impact of the programme in reducing traffic flows during ozone action days background information on the difficulties of measuring the ozone problem and on the recent policies adopted by the us epa is provided using data from the atlanta georgia metropolitan area the accuracy o

assessing the economic viability of alternative water resources in water scarce regions combining economic valuation cost benefit analysis and discounting abstract this paper demonstrates a comprehensive methodology for assessing the viability of an environmental management plan that has long run economic and ecological impacts the case study under consideration is the implementation of a water resource management plan in a water scarce region of the world namely cyprus specifically this plan proposes to replenish a depleting aquifer with treated wastewater the proposed methodology first identifies the key stakeholder groups farmers and the general public who are hypothesized to derive economic values benefits from implementation of this plan and then uses stated preference methods to capture the total economic value of these benefits benefits are aggregated over the relevant populations of these stakeholder groups and weighed against the total costs of implementing the plan in a long run cost benefit analysis cba an econometrically estimated time declining trajectory of discount rates is used for the cba in order to assess the long run sustainability of the plan the results reveal that the net benefit trajectory estimated with the time declining discount rate takes one and a half to three times as long to come to a plateau compared to the constant discount rates of 3 5 and 6 emphasizing the importance of using declining discount rates and capturing the entirety of the benefits generated by such plans this methodology is particularly recommended for providing much needed information to support the implementation of the eu water framework directive which advocates the use of cba with consideration of the notion of sustainability for achieving the good water status for all european waters

effective interim collaboration how firms minimize transaction costs and maximise transaction value this study of automotive transaction relationships in the u s a and japan offers abta which indicate that transaction costs do not necessarily increase with an increase in reiation specijk investments we empirically examine the conditions under which transactors can simultaneously achieve the twin benejits of high asset specificity and low transaction costs this is possible because the dtfferent safeguards which can be employed to control opportunism have different set up costs and result in different transaction costs over dl erent time horizons we examine in detail the ractices of javanese firms which result in effective inteq n collaboration 1997 by john wiley sons ltd

are we willing to pay enough to back the bid valuing the intangible impacts of london s bid to host the 2012 summer olympic games using a contingent valuation survey this paper provides the first empirical test of the proposition that intangible impacts might justify hosting major sporting events on cost benefit grounds respondents drawn from london manchester and glasgow were asked for their willingness to pay wtp to host the 2012 olympic games in london on the basis of the intangible impacts that this event might provide annual mean wtp is 22 12 and 11 per year for 10 years in these 3 uk cities respectively an illustrative total uk wtp for intangible impacts is in the region of 2 billion statistical analysis of wtp determinants reveals a range of plausible explanatory factors such as respondents degree of support for the bid

dollarization in post hyperinflationary argentina abstract this paper analyzes the continued dollarization of the argentine economy which experienced a rapid decline in inflation following its hyperinflations of the 1980s first a measure of dollar currency circulating in argentina is developed thereby improving upon previous studies of dollarization and currency substitution that focused on dollar deposit holdings only second cointegration analysis of peso money demand in argentina finds a negative ratchet effect from inflation the reduction in peso money demand attributable to the ratchet mirrors the estimated stock of all dollar assets held domestically by argentine residents consistent with the hypothesis of irreversible dollarization

currency substitution and monetary autonomy the foreign demand for us demand deposits abstract this paper presents new evidence of currency substitution using the two step estimator of cointegrated systems developed by engle and granger 1987 we estimate and find cointegration among variables suggested by the money services model of currency substitution following engle et al 1989 we estimate an error correction model for each of five countries allowing isolation of long term from short term influences on the foreign demand for us demand deposits our results suggest that currency substitution is a potentially significant phenomenon influencing long term monetary policy independence

currency substitution and instability in the world dollar standard comment myron ross correctly points out in his comment that u s price inflation is better predicted by the american money supply mlus than by the broader ten country world money supply mlw over the whole statistical time series from 1960 to 1980 provided in mckinnon s 1982 article specifically he showed that american price inflation is more highly correlated with mlus lagged one or two years than with mlw similarly lagged however mckinnon s present tense assertion that in general growth in the world money supply is a better predictor of american price inflation than is american money growth applies only to the weak dollar standard of the 1970 s and early 1980 s as his preceding discussion intended but failed to indicate clearly only in this later period of volatile exchange rates and price level instability in the united states do alternative hard currencies such as the yen and deutsche mark become competitive as international stores of value and units of account hence international currency substitution associated with the ebb and flow of speculation against or for the dollar significantly destabilized the demand for mlus in the 1970 s and 1980 s and only in this later period might one expect the sum of these internationally substitutable monies ml to predict world and perhaps even american price inflation better than does mlus in contrast during the strong dollar standard of the 1950 s and 1960 s the dollar was unchallenged as international money exchange rates were by and large convincingly fixed speculation for or against the dollar was incapable of substantially altering u s interest rates or of directly affecting the demand for mlus because cyclical international influences did not then destabilize the demand for dollars mlus was by itself a fairly efficient predictor of american prices thus ross s statistical results for the period 1960 to 1980 show somewhat greater predictive strength in mlus compared to ml because the 1960 s data outweigh the dissimilar data of the 1970 s let us instead partition the sample of imf data around the year 1970 whence began the transition from fixed to fluctuating exchange rates and the maturation of alternative monetary systems in europe and japan after applying similar statistical correlation procedures to those used by ross we show a striking structural shift in the world s monetary system the explanatory power of mlw increases sharply as that of mlus declines moderately tan 1982 for the early period of 1960 to 1970 table 1 shows simple correlation coefficients between annual percentage changes in money supplies and changes in american and world wholesale price indices the mlus provides a good explanation of u s prices and of world prices one to two years hence whereas the broader definition of mlw in which mlus enters with a 50 percent weight does surprisingly poorly being insignificantly correlated with american or world prices apparently money growth in industrial countries other than the united states was not then an independent source of worldwide inflationary pressure during the strong dollar standard table 2 shows the same simple correlations between percentage changes in prices and money for the weak dollar standard of stanford university please note that a typographical error giving the last word in the original title as market appeared on the cover of the june 1982 issue of this review the title was correct in the table of contents and on the article

why is there so little money in u s politics in this paper we argue that campaign contributions are not a form of policy buying but are rather a form of political participation and consumption we summarize the data on campaign spending and show through our descriptive statistics and our econometric analysis that individuals not special interests are the main source of campaign contributions moreover we demonstrate that campaign giving is a normal good dependent upon income and campaign contributions as a percent of gdp have not risen appreciably in over 100 years if anything they have probably fallen we then show that only one in four studies from the previous literature support the popular notion that contributions buy legislators votes finally we illustrate that when one controls for unobserved constituent and legislator effects there is little relationship between money and legislator votes thus the question is not why there is so little money politics but rather why organized interests give at all we conclude by offering potential answers to this question this abstract was borrowed from another version of this item

willingness to pay for improved air quality in sweden the aim of the paper is to quantify individual willingness to pay measures of improved air quality in sweden by using the contingent valuation method cvm such measures are important for policy makers when deciding about public investments and policy instruments in order to regulate environmental impacts e g from road transportation and industry the mean willingness to pay wtp for a 50 reduction of harmful substances where the respondents live and work was about 2000 sek year which is of the same order of magnitude as earlier stated preference studies in nordic countries most parameters in the econometric analysis had the expected sign wtp was increasing in income wealth and education it was larger for men members of environmental organizations people living in big cities which are on average more polluted and people who own their house or apartment it was lower for retired people however the additional wtp for people in big cities although significantly higher than for other people

contingent valuation controversies and evidence contingent valuation cv has become one of the most widely used non market valuation techniques cv s prominence is due to its flexibility and ability to estimate total value including passive use value its use and the inclusion of passive use value in benefit cost analyses and environ mental litigation are the subject of a contentious debate this paper discusses key areas of the debate over cv and the validity of passive use value we conclude that many of the alleged problems with cv can be resolved by careful study design and implementation we further conclude that claims that empirical cv findings are theoretically inconsistent are not generally supported by the literature the debate over cv however has clarified several key issues related to nonmarket valuation and can provide useful guidance both to cv practitioners and the users of cv results

financial dollarization and systemic risks new empirical evidence abstract this paper explores the persistence of financial dollarization in a group of 79 economies with different levels of development our main hypothesis is that a high level of domestic debt combined with default risk explains this persistence even after a decline in inflation rates using the generalized method of moments gmm in a panel data analysis our results show that inflation risks caused by increasing probability of default account for financial dollarization more than inflation rate itself after the decrease in inflation rates the foreign currency denominated deposits remain large because of the high debt to gdp ratios particularly in speculative grade economies high public indebtedness leads to expectations of default dollarization is a rational response to the future inflation associated with investors expectations of default observed in highly indebted economies

referendum design and contingent valuation the noaa panel s no vote recommendation this paper considers the effects for offering a would not vote option in contingent valuation cv questions framed using the referendum format this approach arises from a suggestion made by the national oceanic and atmospheric administration s noaa panel on contingent valuation the noaa panel was asked to evaluate the use of this method for estimating the economic value of nonmarketed environmental resources in the context of natural resource damage assessments this test used the cv questionnaire developed for the study of the exxon valdez oil spill conducted by the state of alaska with in person interviews the findings suggest that when those selecting the would not vote response are treated as having voted against the program a conservative coding offering this option does not alter 1 the distribution of for and against responses 2 the estimates of willingness to pay derived from these choices or 3 the construct validity of the results

mortality effects of regulatory costs and policy evaluation criteria this article concerns the cost benefit of policies designed to reduce risks of mortality in specific instances the author points out that risk regulations directly reduce risk but they may produce offsetting risk increases regulated risks generate a substitution effect as individuals risk averting actions will diminish recognition of these effects alters benefit cost criteria and the value of life estimates pertinent to policy analysis particularly expensive risk regulations may be counterproductive the expenditure level that will lead to the loss of one statistical life equals the value of life divided by the marginal propensity to spend on health regulations with a cost of 30 million to 70 million per life saved will on balance have a net adverse effect on mortality because of these linkages excerpt

national capital city location and subsidiary portfolio expansion the negative effect of geographic distance to the capital city at inception on the speed of subsequent investments a multinational enterprise develops its subsidiary portfolio by investing in new foreign markets and subsequently pursuing further investments within these host countries we find that firms which locate their first equity investment closer to the national capital city can subsequently expand their subsidiary portfolio within the host country at a higher speed this effect is particularly strong in emerging economies further analyses of various contingencies support the robustness of our findings we discuss different theoretical mechanisms which could cause these effects in particular face to face interactions with governmental actors and opportunities to develop political connections our research contributes to the literature on internationalization processes by analyzing how the initial location choice affects the development of the subsidiary portfolio

evaluating the empirical evidence for currency substitution a case study of the demand for sterling in europe currency substitution has important implications for the cost of european monetary union if it is significant it will help to reduce costs of convergence to a single currency this paper informs the policy debate by testing for its existence on a consistent european database making use of cointegration methods the results demonstrate that in the two types of models tested there is no clear evidence of currency substitution in either the short or the long run and that therefore currency substitution between sterling and ec currencies cannot be relied upon as a mechanism or an aid to reduce the costs of monetary convergence copyright 1994 by royal economic society

willingness to pay and willingness to accept how much can they differ comment i agree with the point made by edoh y amiran and daniel a hagen 2003 that there can be a substantial or even infinite divergence between the wta and wtp for a public good even where there is a nonzero elasticity of substitution between market goods and the public good provided that the indifference curves are asymptotically bounded with respect to market goods in the manner they describe this is an important point they are also correct to point out that the elasticity of substitution is a local concept whereas their asymptotic boundedness condition applies also for discrete changes my 1991 paper used a local analysis because it was following the structure of the analysis in robert d willig 1976 and alan randall and john r stoll 1980 i wanted to show that while randall and stoll appeared to extend willig s local result on wta versus wtp from price changes to changes in the quantity of a public good the relevant elasticity was in fact different and involved the substitution elasticity as well as the income elasticity i view these points by amiran and hagen as not two separate results but essentially the same result their asymptotic boundedness condition generalizes my zero elasticity of substitution condition to discrete changes the asymptotic boundedness condition can be expressed as follows assuming a bivariate utility function u x q and given a reference point x q associated with a reference utility level u u x q there exists some q q such that for all q q there exists no x such that u x q u in other words no amount of x can substitute for the reduction in public good from q to q q in the case of a zero elasticity of substitution q q but as amiran and hagen show in their theorem 1 this is unnecessarily restrictive when dealing with a discrete reduction in q furthermore their theorem 2 can be viewed as a special case of their theorem 1 in which q 0 which makes q an essential commodity it is well known in consumer theory that the wta to avoid the loss of an essential market good is infinite their theorem 2 extends this result to the case of an essential nonmarket good but as their theorem 1 shows essentialness is not necessary for an infinite wta the boundedness condition is the key and this implies a fundamental lack of substitutability between money market goods and the public good

a latent class approach to investigating demand for genetically modified banana in uganda this study explores consumer acceptance and valuation of a genetically modified gm staple food crop in a developing country prior to its commercialization we focus on the hypothetical introduction of a disease resistant gm banana variety in uganda where bananas are among the most important staple crops a choice experiment is used to investigate consumer preferences for various attributes related to the banana such as bunch size technology producer benefit and price and examine their opinions on gm foodstuff choice data come from 421 banana consuming households randomly selected from three regions of uganda a latent class model is used to investigate the heterogeneity in consumers preferences for selected attributes related to the banana and to profile consumers who are more or less likely to accept gm bananas our results reveal that there is significant heterogeneity in consumer preferences across our sample gm bananas are valued the most by poorer households located in the rural areas of the eastern region these food insecure households would experience the highest benefits i e welfare gains from the commercial release of gm bananas in contrast urban consumers are less accepting of gm bananas and they would experience significant welfare losses if gm banana is released according to our welfare estimates both the total welfare benefits acquired by the gainers and the total welfare losses borne by the losers of this technology are significant and large these results suggest the need for further investigation of the overall welfare effects of the introduction of gm bananas on the ugandan society as a whole

assessing the option value of a publicly provided service the case of local transport the problem of identifying consumers valuation of local public transport services presents unique challenges this paper presents a theoretical and empirical study of this problem using a contingent valuation exercise illustrating two case studies in northern italy this serves as a basis for an econometric analysis aimed at highlighting the role of socioeconomic variables in the determination of the willingness to pay through public funds for the subsidization of public transport services findings suggest that social preferences for the provision of a public transport service cannot be directly deducted from observable market behavior furthermore the perception of mobility problems and the characteristics of social networks are likely to be much more important in determining the preferred supply level of public transport capacity than individual consumption levels

identifying a distinctive competence forecasting ability in the money fund industry testing the causal link between a firm specific competence and its antecedents or consequences has become a key objective for strategy research over the past decade on one hand case studies can identify a competence but with their small sample size their retrospective research design and their tendency toward sampling on the dependent variable they can not reliably test the causal connection between a competence and its antecedents or its consequences on the other hand variance decomposition studies demonstrate the existence of firm specific performance differentials but have not identified which particular competencies are responsible for them the present paper avoids both of these problems by measuring a particular competence across a large sample of organizations over a long period of time so that a test of statistical causality can be applied to the relationship of this competence to both its antecedents and its consequences the particular competence studied is the ability of money market mutual funds to forecast changes in short term interest rates a competence known from prior research to be both valuable and rare in particular we test the effect of forecasting ability on the economic surplus generated by the fund and its growth conversely we also test the effect of growth on the subsequent development of forecasting ability copyright 2000 john wiley sons ltd

perspective explaining influence rents the case for an institutions based view of strategy research in strategy has identified and tried to explain four types of rents monopolistic rents efficiency rents quasi rents and schumpeterian rents building on previous work on political and institutional strategies we add a fifth type of rent influence rents influence rents are the extra profits earned by a firm because the rules of the game laws regulations and informal rules are designed or changed to suit it to aid the analysis of the relationship between institutional context and firm performance and to provide a structure to guide research we develop a framework with five key components a an identification of the five fundamental problems of a market economy b a typology that describes the five different types of institutions that emerge to solve these problems c the market ordering mechanisms used by institutions to solve these problems d the common causes of weak institutional performance and e generic strategies used by firms to exploit these weaknesses of an institutional context to enhance firm performance we highlight potential applications of the framework as well as an illustrative research agenda that can advance the development of theory to explain the emergence and persistence of influence rents

an experimental approach to climate finance the impact of auction design and policy uncertainty on renewable energy equity costs in europe abstract this paper aims at shedding some lights on how policy induced uncertainty affects the cost of capital of renewable energy power plants to this end the paper focuses on renewable energy auctions and on the ongoing brexit negotiations first the paper reviews auction frameworks across europe and discusses the impact of the different designs on project risk then a stated preference approach is leveraged to investigate how policy design and the uncertainty regarding the future arrangements between the uk and the eu contribute to determine the cost of equity for renewable energy the results show that improved auction design can help to lower the equity cost between 0 5 and 1 5 the evidence on brexit is rather weak and if anything suggests only a higher relevance of these negotiations for english based investors than for those based in eu27

addressing negative willingness to pay in dichotomous choice contingent valuation this paper has four purposes first we outline the controversy surroundingthe issue of negative willingness to pay wtp in contingent valuation cv studies second we use monte carlo simulation to examine theperformance of alternative distributionalassumptions in estimating wtp in the presenceof varying proportions of the populationholding negative wtp values we focus ondichotomous choice cv dc cv where negativewtp values may be especially difficult todetect third we extend the simulation toinvestigate the performance of the mixturemodels that have recently been proposed forhandling identifying non positive wtp values fourth we extend the simulation to investigatethe performance of the nonparametric lowerbound turnbull approach results indicate thatthe relative performance of the dc cv modelingalternatives evaluated here which assumepositive wtp varies across the simulationsetting e g proportion of negative wtp butnone can be said to reasonably solve theproblem ex post this underscores theimportance of ex ante efforts to identify ifnegative wtp is likely to be prominent in agiven valuation setting in such cases appropriately handling negative wtp must beaddressed through ex ante survey design andmodeling choices that allow negative wtp

an aggregate measure for benefit cost analysis the kaldor hicks kh criterion has long been the standard for benefit cost analyses but it has also been widely criticized as ignoring equity and arguably moral sentiments in general we suggest the use of an aggregate measure khm instead of kh where m stands for moral sentiments khm simply adds to the traditional kh criterion the requirement that all goods for which there is a willingness to pay or accept count as economic goods this addition however runs up against objections to counting moral sentiments in general and non paternalistic altruism in particular we show these concerns are unwarranted and suggest that the khm criterion is superior to kh because it provides better information

currency substitution capital mobility and money demand abstract this paper re examines the currency substitution cs issue by specifying a general portfolio balance pb model where domestic residents demand for foreign money is distinguished from their demands for foreign non monetary assets the latter possibility which reflects international capital mobility as opposed to cs per se is already a key feature in the open economy macro literature the inclusion of foreign money leaves the usual asset demand functions unchanged in the pb model that ignores cs at least as far as the appropriate rate of return arguments and their signs are concerned although this suggests that cs is of limited importance in macro modelling it implication for the estimation of money demand functions is pursued an initial attempt is made to empirically isolate the separate efects of high capital mobility and currency substitution for canada germany the united kingdom and the united states the results while not conclusive due to high multicollinearity problems bring into question the empirical as well as the theoretical relevance of currency substitution

businesspeople in elected office identifying private benefits from firm level returns do businesspeople who win elected office use their positions to help their firms business leaders become politicians around the world yet we know little about whether their commitment to public service trumps their own private interests using an original dataset of 2 703 firms in russia i employ a regression discontinuity design to identify the causal effect of firm directors winning seats in subnational legislatures from 2004 to 2013 first having a connection to a winning politician increases a firm s revenue by 60 and profitability by 15 over a term in office i then test between different mechanisms finding that connected firms improve their performance by gaining access to bureaucrats and not by signaling legitimacy to financiers the value of winning a seat increases in more politically competitive regions but falls markedly when more businesspeople win office in a convocation politically connected firms extract fewer benefits when faced with greater competition from other rent seekers

the impact of consumer advocates on regulatory policy in the electric utility sector we examine the effect of consumer advocate participation in administrative procedures on regulatory policy we use a unique panel database of rate reviews conducted for us electric utilities from 1980 to 2007 to assess how state consumer advocates affect public utility commission decisions on utilities allowed financial returns and rate structures we find first that utilities experience fewer rate reviews in states with consumer advocates consistent with utilities strategically postponing requests for rate increases second after controlling for observed and unobserved state characteristics we find that pucs in states with consumer advocates permit returns on equity that are on average 0 45 percentage points lower than states without advocates equivalent to a 7 9 million 3 7 reduction in average utility operating income all else equal third consumer advocates are associated with lower residential rates relative to other customer classes our findings provide statistical support for the thesis that institutionalizing interest group representation in administrative procedures is one way for legislatures indirectly to influence agency determined policies

contingent valuation and the budget constraint abstract one of the most vehemently debated techniques for the valuation of environmental goods is the contingent valuation method critics of this method question its validity and reliability in many respects however at the moment the contingent valuation method is the only technique at hand for the assessment of non use values of environmental goods therefore it seems worthwhile to have a closer look at some of the criticism raised in this debate this paper deals with the so called budget constraint bias which is suspected of distorting the results of contingent valuation studies according to the critics of the contingent valuation method the stated willingness to pay for an environmental good as assessed by contingent valuation studies is systematically biased upwards because participants of such surveys do not properly observe their personal budget constraints it is maintained that respondents when asked about their willingness to pay for an environmental good do not regard the amount stated by them as reducing their budget left for the purchase of private goods in this paper it is shown that from a theoretical point of view respondents intuitively do the right thing when ignoring the seeming relationship between their willingness to pay for an environmental good and their capacity to buy private goods it is elucidated that contingent valuation surveys should focus on the assessment of the shadow price of an environmental good rather than of the respective willingness to pay therefore it seems that the budget constraint bias is meaningless with respect to the validity of the contingent valuation method

willingness to pay for environmental improvements in a large city evidence from the spike model and from a non parametric approach in this paper the contingent valuation method cvm is applied in order toestimate the social benefits of a set of environmental and urbanimprovements planned for the waterfront of the city of valencia spain asa consequence of the expansion and restructuring of its trading port asthe data show a high rate of zero responses we applied the spike model one of the most recent models in cvm literature since traditional models logit and probit are not suitable given the characteristics of our data the non parametric approach is also applied in order to test the validity ofthe spike model the results show certain similarities between the spikemodel and the non parametric approach

cents and sensibility economic valuation and the nature of nature 1 how do we attribute a monetary value to intangible things this article offers a general sociological approach to this question using the economic value of nature as a paradigmatic case and oil spills litigations in france and the united states as real world empirical illustrations it suggests that a full blown sociology of economic valuation must solve three problems the why which refers to the general place of money as a metric for worth the how which refers to the specific techniques and arguments laymen and experts deploy to elicit monetary translations and the then what or the feedback loop from monetary values to social practices and representations

environmental damage schedules community judgments of importance and assessments of losses available methods of valuing envi ronmental changes are often limited in their ap plicability to current issues such as damage as sessment and implementing regulatory controls or may otherwise not provide reliable readings of community preferences an alternative is to base decisions on predetermined xed schedules of sanctions restrictions damage awards and other allocative guides and incentives which are based on community judgments of the relative impor tance of different environmental resources and particular changes in their availability and qual ity such schedules can offer advantages of cost savings and consistency over current methods as demonstrated in the case of thailand coastal re sources jel q20

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

the determinants of industry political activity 1978 1986 c ampaign contributions made by corporate political action committees pacs are increasingly important and controversial in u s elections influence purchasing is often alleged by pundits and campaign finance reform is continually debated in congress in the academy social scientists have analyzed the allocation of interest group monies and have looked for possible impacts on legislation few however have tried to explain the total contributions of economic interest groups we shall analyze variations in contributions across industries and over time with an empirical model based on organizationally constrained profit maximizing behavior we assume that corporate pac contributions in an industry are raised to enhance industry profits subject to the constraints of organization costs and freeriding incentives our empirical work covers 124 industries over five election cycles from 1978 through 1986 both the costs and benefits of political activity vary across industries we argue that the benefits of political action are determined by direct contact with the government as a regulator or purchaser of industry output by government s ability to ameliorate adverse market conditions and by the industry s ability to solve collective action problems without government assistance the costs of industry political action arise mainly from collective action problems because effective political activity often requires concerted action by the constituent firms in each industry we also make a methodological contribution previous studies use statistical techniques that suffer from sample selectivity bias or else force the probability of acting politically to be explained by the same set of coefficients as is the amount of action taken we explain and employ a technique that accounts for both problems the results are consistent with the theses that industries follow investment oriented goals in deciding the amount of political action to undertake and that collective action problems are important constraints on industry political activity we can explain between 60 and 80 of the variation in contributions in our sample first we review existing work on corporate political activity particularly papers examining patterns of aggregate pac spending by industry then we present an organization cost constrained industryprofit maximizing model based on a comparison between an idealized zero organization cost industry and the more realistic case where organizing collective action is difficult the independent variables used in the analysis are also discussed and defined next we discuss the dependent variable and total industry contributions and explain our statistical method then the results are presented followed by a discussion of industry structure and political activity to make clear how our results can explain different contribution patterns we give examples using five actual industries

temporal reliability of willingness to pay from the national survey of fishing hunting and wildlife associated recreation the us fish and wildlife service s usfws national survey of fishing hunting and wildlife associated recreation fhwar has been a source of information on wildlife related recreation since 1955 the contingent valuation method has been used to estimate willingness to pay for recreation trips in the 1980 1985 1991 1996 and 2001 surveys however relatively little comparative analysis over time has been performed similar value elicitation formats were used in the 1991 and 1996 surveys for bass and trout fishing deer hunting and nonconsumptive wildlife recreation we statistically analyze these data to assess the temporal reliability of the willingness to pay we control for the effects of trip quality and socioeconomic variables and find that willingness to pay is significantly lower in 1996 for each activity a subtle but important change in the 1996 question format may drive the result of lower willingness to pay 1 a previous version of this article was presented at the 129th annual meeting of

firm and country level trade offs and contingencies in the evaluation of foreign investment the semiconductor industry 1994 2002 this paper examines the joint impact of firm and country level factors on the international plant location decisions of semiconductor firms from 1994 2002 we find that these factors interact to influence the location decisions of firms investing abroad in a given host country firms with more advanced technological capabilities are more likely to make investments in countries with greater technological sophistication but not in politically hazardous countries where they face greater expropriation hazards firms with less advanced technology are more willing to accept a trade off between country level political hazards and technological sophistication firms also trade off own versus other firm experience as sources of critical knowledge regarding the foreign investment environment

currency substitution and exchange rate instability the turkish case abstract in this paper we present evidence for the extent of currency substitution and its effects on exchange rate instability in turkey following the capital account liberalization in 1987 the private sector has responded to the failed stabilization efforts of successive governments by requesting higher real interest rates on government debt and by increasing its holdings of foreign exchange at the expense of domestic currency theoretical models of exchange rate determination indicate that exchange rate instability increases with the degree of currency substitution we use an exponential garch e garch model for exchange rate depreciation and find evidence in support of this hypothesis furthermore we test for the extent of currency substitution in determining short run dynamics of real money balances utilizing the expected depreciation series obtained from the e garch model

consumer capture of regulatory institutions the creation of public utility consumer advocates in the united states we examine the conditions under which state legislatures in the united states orga nized public utility consumers during the 1970s and 1980s by creating independent consumer advocates with resources and authority to intervene in public utility rate making procedures while economic factors notably utility fuel cost increases were important predictors state political conditions were estimated to have a larger impact on the probability of implemen tation we find that the pattern of adoption is consistent with the hypothesis that legislatures deploy institutions as a mechanism for insulating regulatory policies against future reform in general democrat controlled governments were significantly more likely to implement con sumer advocates when they were less certain about being re elected to office during this period we find also that the effect of political re election expectations was particularly acute for the creation of advocates representing solely residential consumers a relatively disorganized in terest group our results suggest that legislatures organize and publicly fund interest groups to protect supportive but vulnerable groups against adverse future political environments

economic valuation by the method of paired comparison with emphasis on evaluation of the transitivity axiom the paired comparison pc method is used to investigate reliability transitiv ity and decision time for binary choices among goods and sums of money the pc method reveals inconsistent choices and yields individual prefer ence order over the set of items being compared the data reported support the transitivity as sumption and demonstrate high reliability for individual preference order the paper also discusses using the pc method to obtain conser vative median and mean estimates of willingness to accept compensation for public and private goods the pc method may prove useful for valu ing public goods and warrants further study jel 426

willingness to pay and policy instrument choice for climate change policy in the united states abstract this paper provides the first willingness to pay wtp estimates in support of a national climate change policy that are comparable with the costs of actual legislative efforts in the u s congress based on a survey of 2034 american adults we find that households are on average willing to pay between 79 and 89 per year in support of reducing domestic greenhouse gas ghg emissions 17 by 2020 even very conservative estimates yield an average wtp at or above 60 per year taking advantage of randomized treatments within the survey valuation question we find that mean wtp does not vary substantially among the policy instruments of a cap and trade program a carbon tax or a ghg regulation but there are differences in the sociodemographic characteristics of those willing to pay across policy instruments greater education always increases wtp older individuals have a lower wtp for a carbon tax and a ghg regulation while greater household income increases wtp for these same two policy instruments republicans along with those indicating no political party affiliation have a significantly lower wtp regardless of the policy instrument but many of these differences are no longer evident after controlling for respondent opinions about whether global warming is actually happening

portfolio theory and currency substitution one of the major reasons friedman 1953 and johnson 1972 advocated flexible exchange rates was to eliminate supply side monetary substitutability which can incapacitate domestic monetary policy however contributors to the currency substitution literature including miles 1978 girton and roper 1981 and mckinnon 1982 have argued that when economic agents hold both domestic and foreign monies variations in foreign interest rates or expected future exchange rates can make domestic money demand functions unstable as economic agents shift resources in response to changes in prospective relative returns as a result they and others have claimed that flexible exchange rates may not secure domestic monetary autonomy l the major purpose of this paper is to demonstrate the conditions under which foreign and domestic monies are substitutes in demand when economic agents have motives to hold both and to contrast the determinants of currency substitutability with those of the more general concept of asset substitutability importantly it is demonstrated that the usual portfolio theoretic justification for including opportunity cost variables such as foreign interest rates foreign inflation rates or expected

exchange rate volatility and currency substitution abstract this paper employs a conventional small open economy portfolio balance macromodel to unveil new implications of currency substitution increased substitutability between foreign and domestic currency is found to affect the response of the exchange rate of both asset market and commodity market shocks in particular the extent of exchange rate overshooting and undershooting depends on the degree of currency substitution

endogenous deposit dollarization this paper explores sources of deposit dollarization unrelated to standard moral hazard arguments we argue that the equal treatment of peso and dollar claims on a bank in the event of default can induce banks to attract dollar deposits above the socially desirable level the distortion arises because dollar depositors are the only source of default risk in the model but they share the burden of the default with peso depositors as interest rates cannot be set contingent to the unobserved level of deposit dollarization the incentive to dollarize is reinforced by common banking system safety nets such as deposit and bank insurance our findings suggest that regulators in bi currency economies should depart from the currency blind benchmark and instead distinguish across currencies in a way that prevents undesirable currency mismatches even in the absence of moral hazard related to the relaxation of market discipline