capacity constraints and cycles in property casualty insurance markets underwriting cycles are unexpected in a structurally competitive industry where financial capital is the major determinant of output capacity arbitrage theories explain underwriting cycles as largely an artifact of institutional lags and reporting practices capacity constraint theories view insurance markets as characterized by real frictions that cause underwriting cycles by temporarily reducing the industry s capacity to insure risks arbitrage theories imply nofsystematic relationship between capacity and underwriting margins while capacity constraint hypotheses predict a negative relationship this article provides a test of the two theories by examining the empirical relationship between casacity and underwriting margins the results using data on four insurance lines generally support the capacity constraint hypothesis unanticipated decreases in capacity cause higher profitability and prices

inequality in energy and climate policies assessing distributional impact consideration in uk policy appraisal abstract the decarbonisation of the uk economy requires a myriad of policies that inherently produce winners and loser across society this study investigates how such distributional impacts are considered in the appraisal process for uk energy and climate policies using a scorecard developed to capture the guidance on policy appraisal and distributional analysis 79 impact assessments were evaluated the majority of these impact assessments either did not or only partially considered the impacts of policies on vulnerable groups in society with only eight assessments containing more detailed distributional analysis moreover a bias seems to exist as to which areas of energy and climate policy provide well founded analysis and which do not with further insights gained from interviews with relevant actors this research concludes that political motivation analytical difficulties and a lack of awareness of the prevalence and importance of distributional impacts are at the root of this insufficient consideration possible alterations to the current ia framework are presented which aim to more firmly embed the distributional impact assessment in the appraisal process

a theory of mutual formation and moral hazard with evidence from the history of the insurance industry nonprofit mutually owned insurance and banking organizations have significant market shares in the insurance and banking industries a first step in a systematic study of these financial mutual is to examine the reasons for their formation doing so provides empirical support for the view that these mutual arose as an efficient means of addressing contracting challenges caused by aggregate uncertainties and moral hazard a formal model with this property is presented we argue that information asymmetries do more to explain the kinds of contracts offered by financial mutual than do agency problems between owners managers and customers article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the liability insurance market t his paper offers an overview of the u s liability insurance market and the link between its performance and developments in tort law over the last few decades the dominant feature of the insurance market has been the intermittent periods of rapidly rising premiums and cutbacks on the availability of coverage the insurance cycle appears to be increasing in amplitude and since the 1960s has been concentrated increasingly in liability lines an episode of rising premiums in the late 1960s was followed by a six year period of declining and eventually negative growth rates in total liability insurance premiums over the 1975 1977 period the annual growth rate jumped to 30 percent then followed another period of declining real premiums until premiums nearly tripled in 1984 1986 accompanied by cancellations of policies and massive withdrawal of insurers from some lines this crisis had an economic impact beyond the insurance market leading to the withdrawal of many goods and services from u s markets in mid 1987 the market began to turn again with premiums falling by as much as 40 percent for some commercial policies since then aggregate revenue from premiums has been relatively stable the liability insurance market is intertwined with the tort system in addition to providing incentives to avoid accidents the tort system allocates the risks of accident costs in providing compensation for accident victims the modern expansion of liability in tort law as described by priest in this issue represents a shift in the burden of supplying insurance from first party insurance markets to liability or third party insurance markets clearly this shift will

reduction of fossil fuel emissions in the usa a holistic approach towards policy formulation abstract in the united states the response of the federal government to the global initiative of reduction of emissions of co2 has been limited with the kyoto protocol having entered into force in february 2005 there will be renewed international pressure on the united states for action concurrently the us economy growing modestly is characterized by large current account and budget deficits this situation calls for garnering additional revenue through repealing of the recent tax cuts an option available is to impose a modest carbon tax the rationale of such a tax is that it would address the twin objectives of additional revenue and reduction of emissions in this paper the impact of a hypothetical carbon tax imposed in a revenue neutral context on 2001 household incomes is analyzed primarily to ascertain its progressivity progressivity of any tax is strongly associated with its political acceptability the incidence of the hypothetical carbon tax is computed across the income quintiles it is observed that only the households in the highest income quintile and the lowest income quintile are impacted by the tax it is found that this tax is weakly regressive in the us context

a chinese sky trust distributional impacts of carbon charges and revenue recycling in china abstract the introduction of carbon charges on the use of fossil fuels in china would have a progressive impact on income distribution this outcome which contrasts to the regressive distributional impact found in most studies of carbon charges in industrialized countries is driven primarily by differences between urban and rural expenditure patterns if carbon revenues were recycled on an equal per capita basis via a sky trust the progressive impact would be further enhanced low income mainly rural households would receive more in sky trust dividends than they pay in carbon charges and high income mainly urban households would pay more than they receive in dividends thus a chinese sky trust would contribute to both lower fossil fuel consumption and greater income equality

european environmental taxes and charges recent experience issues and trends abstract the use of environmental taxes and charges in oecd countries increased by over 50 between 1987 and 1994 while revenues raised by environmental taxes and charges remain small relative to overall taxation they comprise a rising proportion in most european countries several european countries have either undertaken or are considering systematic shifts in taxes away from labour and onto the use of environmental resources potential negative effects on competitiveness and regressive distributional effects are the major cause of concern with regard to the introduction of environmental taxes a number of ways of mitigating such effects exist and have been implemented

tying the manager s hands constraining opportunistic managerial intervention we discuss and examine empirically a firm level equivalent of the ancient problem of tying the king s hands namely how to avoid managerial intervention that is undertaken to reap private benefits but is harmful to overall value creation that is managerial opportunism the link from managerial intervention to firm level value creation is moderated by employee motivation thus intervention in the form of managers overruling employees or reneging on delegation may demotivate employees particularly when the intervention is perceived as being unfair undertaken for personal gain etc we argue that a number of mechanisms such as managers staking their personal reputation employees controlling important assets strong trade unions etc may function as constraints on managerial proclivities to intervene thus reducing the problem of managerial opportunism we derive four hypotheses from these ideas and test them using path analysis on a rich dataset based on 329 firms in the spanish food and electric electronic industries

evidence of capacity constraints in insurance markets this article provides empirical support for the primary predictions of capacity constraint theories of property casualty insurance cycles the primary implications concern industry capacity and the difference between the price of insurance and noncapital costs referred to here as the price payment margin ppm capacity constraint theories predict that low capacity will lead to higher ppms and that capacity growth will follow ppm increases as insurers rebuild capacity price payment margin and capacity series are constructed using industry time series for 1949 90 the estimation finds that ppm growth varies inversely with capacity at the beginning of the period and also inversely with changes in capacity in addition declines in capacity are associated with ppm growth next period while increases in capacity generally have no significant effect on next period s ppm growth furthermore current capacity growth is positively correlated with last period s ppm growth

capacity constraints and the dynamics of underwriting profits paul d thistle the presence of an underwriting profit cycle in property liability insurance has become a stylized fact models of this underwriting cycle imply that the insurance market is governed by two regimes as capacity is constrained or not we apply the smooth transition regression model to insurance industry data for 1934 1993 to test for a regime shift we find a rapid shift between two distinct regimes with different dynamics when capacity is not restricted we find no evidence of a cycle the cycle is present in periods when capacity is restricted immediately following world war ii and after 1968 the underwriting cycle appears to be a recent phenomenon jel g22 c32 i introduction it is well known that the property liability insurance industry is subject to cycles in premiums and underwriting profits the main features of the underwriting cycle are also well known in a soft market coverage is readily available while premium revenue and underwriting profits are low in a hard market coverage becomes difficult to obtain while premium revenue and profits increase the onset of a hard market is typically quite rapid and is followed by the erosion of premium revenue and profits as market conditions return to a soft market 1 it is also generally accepted that the cycle has a period of approximately six years although there is some variation across lines and among countries this approximate period for the underwriting cycle is based on time series estimates of second order autoregressive models e g venezian 1985 and cummins and outreville 1987 understanding the causes of the property liability underwriting cycle is important for public policy and insurance regulation sof t markets may contribute to insurer insolvencies if firms price and underwrite too aggressively while high prices and restrictive underwriting in hard markets may disrupt the flow of goods and services a number of alternative theories have been proposed to account for the cycles in premiums and profits in the property liability insurance market initially attention focused on aspects of the process for determining insurance rates e g harrington and danzon 1991 1994 simmons and cross 1988 stewart 1981 venezian 1985 and wilson 1981 more recent research has developed equilibrium models of the underwriting cycle financial pricing models based on discounted cash flows imply that insurance prices are equal to policy expenses plus the expected present value of future claims under the policies issued 2 financial pricing models implicitly or explicitly assume perfect capital markets in the absence of capital market imperfections there should be no cycles and prices and profits should vary inversely with interest rates cummins and outreville 1987 and doherty and kang 1988 argue that if insurers have rational expectations then as a result of insurance accounting practices and inst itutional features of insurance markets underwriting profits follow an autoregressive data generating process which gives the appearance of a cycle the capacity constraint hypothesis developed by cummins and danzon 1991 gron 1994a b and winter 1988 1991a b 1994 is based on the fact that an insurer must have sufficient policyholders surplus capacity to support the policies it writes 3 capital market imperfections lead firms to rely on internal capital as the source of underwriting capacity this in turn implies that hard markets must be temporary and that soft markets will persist the capacity constraint hypothesis implies that premiums and profits will depend on interest rates and are negatively correlated with surplus or capacity in the short run in the long run capital enters the industry until the constraint is not binding so profits and surplus are not correlated in the long run cagle and harrington 1995 and cummins and danzon 1997 add the assumption that policyholders are willing to pay more for policies with higher financial quality lower insurer default risk and that insurer default risk is endogenous

poverty and distributional effects of a carbon tax in mexico abstract mexico recently declared ambitious goals in reducing domestic co2 emissions and introduced a carbon tax in 2014 although negative effects on household welfare and related poverty measures are widely discussed as possible consequences empirical evidence is missing we try to fill this gap by simulating an input output model coupled with household survey data to examine the welfare effects of different carbon tax rates over the income distribution the currently effective tax rate is small and has negligible effects on household welfare higher simulated tax rates maintaining the current tax base show a slight progressivity but welfare losses remain moderate welfare losses regressivity and poverty rise more with widening the tax base towards natural gas and the other greenhouse gases methane ch4 and nitrous oxide n2o mainly through food price increases for a complete analysis of the policy we simulate a redistribution of calculated tax revenues and find that the resulting effects become highly progressive also for high rates wider tax bases and even in the absence of perfect targeting of social welfare programs

co2 emissions and poverty alleviation in china an empirical study based on municipal panel data abstract industrial transition and climate change regulation to reduce co2 emissions will affect employment and further influence social poverty in this study we measured co2 emissions and the poverty alleviation index based on socio economic and energy consumption statistic data from 286 municipal cities in china for 2007 2014 analyzed relationships between co2 emissions employment rate and poverty alleviation index using simultaneous equations and interpreted the mechanism by which co2 emissions influence social poverty at the municipal level the results indicate that average co2 emissions from china increased by 32 9 with a rapid initial rise and then steady growth from 2007 to 2014 while the average poverty alleviation index increased by 25 19 during the same period co2 emissions had a significant positive relationship with employment rate in all industries in addition employment rate was negatively correlated with poverty alleviation in primary industry and positively correlated with poverty alleviation in non agricultural industry studying the mechanisms for co2 emission impacts on poverty alleviation can provide important references for adapting to global climate change promoting sustainable development and safeguarding the legitimate development rights of all countries especially developing countries

is the gasoline tax regressive in the twenty first century taking wealth into account abstract poterba 1991a has much influenced the literature on the distributional effects of carbon pricing poterba argues that the incidence of energy environmental taxes across households is better appreciated if the relative tax burdens are measured against total expenditure interpreted as a proxy for lifetime income instead of annual income this way however since the distribution of total expenditure is structurally more uniform the incidence of energy price increases is always less regressive than when annual income is used this outcome is often taken to lessen the relevance of equity concerns regarding carbon pricing almost twenty five years after poterba 1991a piketty 2014 revived the idea that wealth is a dimension of economic welfare constituting an increasingly important source of inequality we show that omitting wealth in measuring ability to pay means underestimating the regressivity of carbon pricing and its inequity towards younger people using household level data and statistical matching we revisit poterba s application and compare the distributional incidence of the us gasoline tax for different measures of ability to pay total expenditure income and wealth adjusted income regressivity is not a reason to forgo carbon pricing as a cost effective approach to climate mitigation but calls for consideration and compensation of the distributional effects

the distributional effects of emissions taxation in brazil and their implications for climate policy abstract the emission of greenhouse gases ghg generated by human activity is a major cause of global warming and climate change there is considerable debate about the choice of the best mechanism to reduce emissions under a climate policy the aim of this paper is to measure the impact of a policy of taxing ghg emissions on the brazilian economy as a whole and on different household groups based on income levels in 2009 the following databases were used supply and use tables household budget survey national household sample survey and emissions data from the brazilian ministry of science and technology and innovation a price system from a national input output model that incorporates the intensity of ghg emissions is used as well as a consumption vector broken down into ten representative households with different income levels the main results indicate that this taxation system was slightly regressive and had a small negative impact on output there were however significant emissions reductions

the architecture of economic systems hierarchies and polyarchies the authors present new ways of looking at economic organizations andsystems individuals judgments entail errors they sometimes reject good projects and accept bad projects the architecture of an economicsystem specifying how the decision making units are organized togetherwithin a system who gathers what information and who communicates what with whom affects its performance both because it influences thenature of errors that individuals make within the system and becauseit has a critical effect on the aggregation of individuals errors theperformance of two polar architectures decentralized polyarchical versus centralized hierarchical decision making authorities are analyzed and compared copyright 1986 by american economic association

price changes maintenance and the rate of depreciation this study estimates rates of deterioration and depreciation for a sample of used privately owned single and twin engine aircraft over the period 1971 1991 the adoption of a strict liability stan

impact of an emissions trading scheme on australian households a computable general equilibrium analysis abstract following the international commitment to tackle climate change issues many countries have introduced climate change policies to reduce emission levels australia also expects to follow the international pathways to implement a climate change policy to curb its greenhouse gas emissions in this context the former labor government in australia intended to switch its carbon tax policy to an emissions trading scheme ets after 2 years of its initial operation to achieve an emission target of 5 per cent below the 2000 level by 2020 by employing a computable general equilibrium model and a social accounting matrix database this article analyses the potential impacts of an ets with various revenue recycling options on australian households results show that an emission permit price of a 20 per tonne of co2 e would help australia to achieve the 2020 emission reduction target this permit price is likely to have a small contraction in australia s real gdp i e about 0 3 per cent and in real household consumption i e about 0 19 per cent the price of electricity is projected to increase by 13 per cent the revenue recycling options seem to create an improvement in the macro economy and there is a trade off between economic efficiency and equity in the australian economy with compensations the personal income tax reduction policy results in an economic efficiency with a positive change in real aggregate household consumption whereas providing an equal lump sum transfer brings benefits equally for all household groups increased government transfers based on recipients current pension and allowance rates generate more welfare gains for middle income household groups

coal taxation reform in china and its distributional effects on residential consumers abstract there is an ongoing reform in coal taxation in china from a quantity based to a price based approach while the coal tax could play an important role in resource conservation and air pollution reduction its distributional effect is not well studied this paper investigates the distributional effect of china s coal taxes on households before and after the reform we find that about 30 percent of rural households and six percent of urban households are directly affected by the coal taxes and that the directly affected households tend to be poor we also find that provinces are affected differently by the coal taxes the provinces that are more affected tend to have lower household income by the suits index we find that both the quantity based and price based coal taxes are regressive for residential consumers in china and that the coal taxation reform had little effect on the regressivity of the coal tax by simulation we find that the regressivity of the coal tax could be reduced if the tax rate were set to be positively correlated with provincial household income

a knowledge based theory of the firm the problem solving perspective in this paper we develop a knowledge based theory of the firm while existing knowledge based theory focuses on the efficiency of hierarchy in economizing on knowledge exchange we develop a theory of the firm that focuses on the efficiency of alternative organizational forms ingenerating knowledge or capability our theory begins with the problem as the basic unit of analysis arguing that a problem s complexity influences the optimal method of solution search and the optimal means of organizing that search the distinguishing feature that differentiates among organizational alternatives is the different way each resolves conflict over the selection of solution trials that is the way it chooses the path of search our theory predicts that efficiency demands that these governance alternatives be matched in a discriminating way to problems based on their associated benefits and costs in governing solution search thus our theory is among the first to simultaneously treat both the boundary choice i e internal versus external and the choice among alternative internal approaches to organizing

power in a theory of the firm transactions take place in the firm rather than in the market because the firm offers power to agents who make specific investments past literature emphasizes the allocation of ownership as the primary mechanism by which the firm does this within the contractibility assumptions of this literature we identify a potentially superior mechanism the regulation of access to critical resources access can be better than ownership because i the power agents get from access is more contingent on their making the right investment and ii ownership has adverse effects on the incentive to specialize the theory explains the importance of internal organization and third party ownership

energy and climate hand in hand financing res e support with carbon revenues abstract in italy the cost of support for renewable electricity res e is largely recovered through the a3 surcharge which weighs heavily on electricity bills using household survey data we show the a3 surcharge is markedly regressive carbon taxation in the non ets sector is envisaged as a means to reduce co2 emissions cost effectively and generate revenue to lower the a3 surcharge a non ets carbon tax would be less regressive than the a3 surcharge and its cost would be more evenly distributed across households we calculate the revenue of a 20 tco2 non ets carbon tax would have allowed a cut in the a3 surcharge of about 68 in 2011 and 39 in 2012 the impact of the carbon tax plus the reduced a3 surcharge would have been less regressive but the cost higher for most households the restrictions imposed in the simulations mean the results are only appropriate to render first round effects of the reform policy relevance in the vast majority of the eu member states the cost of res e support is largely paid by electricity consumers most often through specific surcharges rising electricity prices are a common concern given the implications for competitiveness and equity the member states facing this issue could conveniently address it through environmental tax reforms consistent with the climate and energy package replacing res e surcharges with carbon taxes in the non ets sector would permit cost effective reduction of co2 emissions while allocating the cost of res e support more equitably the difference in regressivity would stem from the different consumption patterns of home fuels including electricity and motor fuels across income distribution a cross country comparison of energy household budget shares proves the structural nature of this difference between home fuels and motor fuels moreover the notion that electricity consumers should pay for res e support is questioned on the grounds that electricity is a basic necessity good and res e support is a means of providing public goods notably energy security and climate protection

risk overhang and market behavior we show that exposure from past business transactions risk overhang can reduce activity in related business lines sometimes to the point where no new trade occurs we focus primarily on the role of overhang in nonlife insurance market disruptions our model predicts that the relative impact duration and character of supply disruptions are related to the extent of overhang these predictions are consistent with differences between the mid 1980s liability insurance crisis and the early 1990s catastrophe reinsurance crisis the overhang model predicts attributes of these crises that prior explanations relying on adverse selection do not we also discuss applications of the overhang model to disruptions in lending and securities markets

emission trading schemes potential revenue effects compliance costs and overall tax policy issues the case for the imposition of carbon emission taxes or tradable carbon permits in important tax jurisdictions is arguably strong based upon the polluter pays principle first proposed by pigou almost a century ago this paper briefly reviews the arguments for and against these market based instruments and discusses their relative advantages and disadvantages in a practical context in the case of australia the revenue effect of the proposed tradable carbon permits scheme is estimated to be a 11 5 billion in 2010 11 for comparison this is roughly equivalent to a quarter of the revenue from the goods and services tax the paper focuses on three neglected aspects of climate change taxation discussion to date how much tax revenue is likely to be raised and the administrative and compliance costs of an emissions trading scheme with particular reference to australia in discussing these issues the paper draws upon selected and relevant international experience particularly the european union emissions trading scheme the challenges of an emissions trading scheme including integration with the existing tax system particularly in an australian context are also discussed the paper concludes by emphasising the key challenges and issues facing this ultimate externality debate particularly from a taxation policy perspective

inertia and incentives bridging organizational economics and organizational theory organizational theorists have long acknowledged the importance of the formal and informal incentives facing a firm s employees stressing that the political economy of a firm plays a major role in shaping organizational life and firm behavior yet the detailed study of incentive systems has traditionally been left in the hands of organizational economists with most organizational theorists focusing their attention on critical problems in culture network structure framing and so on in essence the social context in which economics and incentive systems are embedded we argue that this separation of domains is problematic the economics literature for example is unable to explain why organizations should find it difficult to change incentive structures in the face of environmental change while the organizational literature focuses heavily on the role of inertia as sources of organizational rigidity drawing on recent research on incentives in organizational economics and on cognition in organizational theory we build a framework for the analysis of incentives that highlights the ways in which incentives and cognition while being analytically distinct concepts are phenomenologically deeply intertwined we suggest that incentives and cognition coevolve so that organizational competencies or routines are as much about building knowledge of what should be rewarded as they are about what should be done we argue that this recognition has important implications for our understanding of organizational inertia in the face of environmental change and that it opens up important new areas for further research

estimating welfare aspects of changes in energy prices from preference heterogeneity abstract the european union s energy and climate policy package is expected to cause an increase in end user prices of electricity and fuels this paper assesses the distributional effects of these price increases in cyprus by specifying and estimating a consumer demand system with price heterogeneity between households this novel method allows obtaining robust parameter estimates even when household expenditure surveys are limited as is the case in many european countries the empirical analysis is conducted both conditional on energy related household characteristics and unconditionally we then use the estimated demand system to conduct welfare analysis we find that the rise in energy prices results in welfare losses of eur 101 per household in 2009 prices in year 2020 or a nationwide welfare loss of more than eur 2009 33 million price increases will be regressive and will affect small and urban households more strongly than the rest of the population furthermore we find that the largest proportion of welfare loss is due to loss of household s income purchasing power caused by higher energy prices while the changes in relative prices induce deadweight loss which is a small part of welfare loss because of the limited substitutability of energy with other goods

carbon tax incidence on household demand effects on welfare income inequality and poverty incidence in thailand abstract studying the impact of a carbon tax on household demand can be relevant in terms of securing public acceptance of a carbon tax and clarifying the implications for policy design this paper aims to fill a gap in the academic literature by simulating carbon tax scenarios and estimating distributional effects of the tax on household welfare income inequality and poverty rates based on household consumption in thailand the study employs a microsimulation model incorporating the economy wide effects of the tax on prices and consumers behavioral responses to changes in prices the results indicate that a carbon tax is progressive in thailand under revenue recycling scenarios by expanding social transfer programs when carbon tax revenues are recycled through pensions for elderly people the carbon tax could reduce the poverty rate and improve the welfare of households in the lowest quintile the results imply that the distributional impacts of environmental taxes could result in favorable outcomes for income inequality and poverty reduction in developing countries

price cutting in liability insurance markets this article analyzes alleged underpricing of general liability insurance prior to the mid 1980s liability insurance crisis the theoretical analysis considers whether moral hazard and or heterogeneous information for forecasting claim costs can cause some firms to price too low and depress other firms prices cross sectional analysis of insurer loss forecast revisions which should be greater for firms with low prices caused by moral hazard or heterogeneous information and premium growth provides evidence consistent with low pricing due to moral hazard but not heterogeneous information the evidence also implies that shifts in the loss distribution produced large industrywide forecast errors copyright 1994 by university of chicago press

organizational politics and complexity coase vs arrow march and simon this article argues that the transaction cost approach to the problem of organizing economic activities is undermined by a neglect of the consequences of the complexity of the interconnections among such activities and in particular of the complexity generated by conflict and divergent interests of the agents involved with the increase of conflict organizational equilibria cease to exist thus hierarchy is in principle not necessarily an efficiency increasing remedy to the existence of transaction costs but can be explained also as a way to provide temporary equilibria in the everlasting organizational conflict

strict product liability and safety evidence from the general aviation market i introduction beginning in the 1960s the legal system in the united states began a gradual transition to a standard of strict product liability the proponents of the strict liability standard argued that such a move would enhance both economic efficiency and safety by placing the burden of accident prevention on manufacturers who presumably have lower marginal costs of preventing accidents than consumers 1 in addition it was argued that the adoption of a strict liability standard would make it easier for consumers to obtain financial compensation from manufacturers for any injuries that they suffered a key component of the strict liability standard is the notion of design defect according to which a manufacturer can be held liable if the risk of product injuries exceeds the product s utility based on current design standards 2 the manufacturers of short lived goods deemed to be guilty of design defect may replace existing products with safer versions passing on the higher costs associated with accident prevention and liability insurance to consumers in the form of price increases 3 the manufacturers of long lived products however may be physically or financially unable to retrofit previously sold items to bring them up to current design standards thus exposing manufacturers to retroactive liability for goods sold in the past in this situation the manufacturers of long lived products are faced with one of two choices a absorb the increased costs in the form of lower profits or b attempt to pass on the liability costs for the previously sold units to new customers in the form of higher prices this latter scenario may lead to a downward spiral in which sales fall leading producers to further price increases in an effort to recoup the sunk liability costs from an ever declining number of new units sold one of the industries hardest hit by the change in liability standards was the general aviation ga industry martin 1991 pattillo 1998 priest 1991 stimpson 1988 and viscusi 1991 among others have discussed the devastating impact of strict product liability on the manufacturers of ga aircraft 4 ga planes are an example of a durable good with extremely long service lives in 2005 the average age of the ga fleet in the united states was 34 yr although 75 85 of ga accidents are attributed to pilot error 90 of all accidents involving a fatality or serious injury result in a lawsuit against aircraft manufacturers 5 as a result of the increase in litigation claims and other legal expenses for aircraft manufacturers and their suppliers increased from 24 million in 1976 to 210 million in 1986 an increase of 775 6 as manufacturers attempted to pass on the higher liability costs by increasing prices sales of new aircraft over the same period declined by 90 from 15 451 units in 1976 to 1 495 units in 1986 according to the general aviation manufacturers association 2006 supporters of the move to a strict liability standard in the ga market have argued that it forced manufacturers to cease production of outmoded models of aircraft that suffered from design flaws and manufacturing defects thus improving the level of safety this claim they argue is consistent with the fact that ga accidents and fatalities declined following the transition to the strict liability standard 7 martin 1991 86 87 however argues that in formulating the rule of strict liability no one considered the distinction between products purchased and used as capital items with a long service life and those purchased as consumables general aviation airplanes are prime examples of a capital item that has a long service life each general aviation airplane in the active u s fleet that carries a manufacturer s data plate represents a separate product liability risk to that manufacturer the cost of that risk whether self insured or under written must be paid each year

a future for carbon taxes abstract carbon taxes have been frequently advocated as a cost effective instrument for reducing emissions however in the practice of environmental policies only six countries have implemented taxes based on the carbon content of the energy products in this paper we evaluate carbon taxes with regard to their competitiveness distributional and environmental impacts the evidence shows that carbon taxes may be an interesting policy option and that their main negative impacts may be compensated through the design of the tax and the use of the generated fiscal revenues

the effects of male and female labor supply on commodity demands we examine the effects of male and female labor supply on household demands and present a simple and robust test for the separability of commodity demands from labor supply using data on individual households from six years of the uk fes we estimate a demand system for seven goods which includes hours and participation dummies as conditioning variables allowance is made for the possible endogeneity of these conditioning labor supply variables we find that separability is rejected furthermore we present evidence that ignoring the effects of labor supply leads to bias in the parameter estimates

the semiflexible almost ideal demand system abstract the concept of a semiflexible functional form is applied to the almost ideal ai demand system this yields a demand model that is more parsimonious than standard ones while preserving a degree of flexibility that satisfies the curvature property of concavity of the underlying expenditure function at least locally and that preserves the desirable properties of the ai model aggregation across consumers and nonlinearity of the engel curves the model is illustrated with an application to a relatively large demand system emphasizing food consumption

distributional effects of subsidy removal and implementation of carbon taxes in mexican households abstract this paper presents a microsimulation using data from the national households income and expenditure survey nhies from 1994 to 2010 to determine the distributional effects of the price changes arising from energy and environmental policies and their impact on mexican households we reported simulations of several changes in energy prices as a result of partial or total energy subsidy removal including carbon tax in order to examine whether the subsidy mechanism and carbon tax tend to be progressive or regressive we evaluated the households burden in different income levels these simulations respond to the need for an assessment of economic and environmental impacts of energy subsidies in mexico this is of great importance for mexico because of effort that has been taken in the development of energy policies and the rising interest of the mexican government in mitigating carbon dioxide co2 emissions and their concomitant environmental damage

the impact of household consumption patterns on emissions in spain abstract the aim of this paper is to analyse the relationship between household consumption patterns and pollution in the spanish economy the analysis was carried using a social accounting matrix sam for the spanish economy prepared for 1999 taking the final demand of households as the exogenous account in the sam framework and combining this with the information provided by the household budget continuous survey on income and consumption ine 1999 we analyse the pollution produced by both the economy and households in order to satisfy consumption requirements we also consider the effects of income inequality on expenditure levels establishing a link between income level consumption patterns propensity to consume and co2 emissions

solvency regulation and the property liability insurance cycle i introduction the supply of property liability insurance in the u s appears to be extraordinarily cyclical liability insurance lines in particular fluctuate between soft markets of stable premiums and low returns to insurers and tight markets or insurance crises of rising premiums cut backs on availability and tight limits on coverage the soft markets of the early 1970s and early 1980s were followed in 1975 and late 1984 by sudden premium increases of hundreds of percent for some policies 1 in mid 1987 early july according to some reports the market began to turn around again premiums fell by as much as 40 percent and coverage limits increased up to 500 percent compared to the previous year 2 in a previous paper winter 1988 i addressed the puzzle of why some lines of insurance are apparently so vulnerable to fluctuations when conventional economic theory predicts that premiums will change only one for one with the present value of expected claims this paper examines a specific allegation raised during the most recent insurance crisis that existing regulation of property liability insurance exacerbates market fluctuations the principal enforcement role of state insurance commissions is to monitor the financial condition of insurers commissioners ensure that financial solvency standards are met so that policyholders are protected from the consequences of bankruptcy more precisely the regulations protect state guarantee funds which assume the liabilities of bankrupt insurers the regulators examine a number of financial ratios but the dominant measure of financial leverage is the ratio of the current volume of business to net worth or surplus insurers are restricted by state commissioners from writing more insurance than considered justified by their current net worth in order that realized policy claims can be met even if they turn out to be substantially higher than revenues would cover in determining the ratio of quantity of insurance to net worth regulators face an aggregation problem a sensible measure of the total quantity of insurance sold by a firm does not exist the total number of policies sold for example is meaningless insurance commissioners therefore use premium revenues as a measure of the volume of business historically insurers were allowed a value of two for the ratio of premiums to net worth before attracting the scrutiny of insurance commissioners according to a standard text on insurance published in 1982 for more than 40 years insurance commissioners have used the 2 1 rule as an indicator of the maximum safe premium volume that property and liability insurers might write the rule is that the premium volume should not exceed two times policyholder surplus that is net worth huebner et al 1982 the 2 1 rule was referred to as the kenney rule after the commissioner who first proposed it the standard for a safe premium to net worth ratio has changed over time insurers in most states are now considered to meet solvency requirements when the ratio of premiums to net worth does not exceed three or four as a measure of financial leverage in solvency regulation the premiums to net worth ratio has perverse effects suppose that demand is inelastic and that a supply shock to the market leads to an increase in premiums and hence revenue because the ratio of premiums to net worth has increased regulatory pressures on insurers to maintain safe solvency standards will lead to even tighter supply this regulatory pressure will lead to a further increase in premiums and revenue instead of signalling a more conservative leverage position the ratio of premiums to net worth increases leading to a more negative assessment by the regulator of the insurers financial viability and hence to further pressure to raise premiums

reflections on the double dividend debate we survey the history of carbon taxation the range of market based instruments mbis of environmental control and the state of the double dividend debate in order to suggest directions for future research into mbis returning mbi revenues as lower distortionary taxes rather than as lump sums raises aggregate welfare but we favour mbis which raise little or no revenue for reasons of political acceptability to interest groups at the same time the overall case for any environmental improvement is weaker because of general equilibrium interactions with prior distortionary taxes research seems most necessary on quantifying the efficiency benefits of market control of heterogeneous polluters the benefits of environmental improvement the tax interaction effect and the various information costs of an mbi all on a case by case basis for different pollutants and places

an integrated economic and distributional analysis of energy policies most public policies particularly those in the energy sphere have not only efficiency but also distributional effects however there is a trade off between modelling approaches suitable for calculating those impacts on the economy for the former most of the studies have been conducted with general equilibrium models whereas partial equilibrium models represent the main approach for distributional analysis this paper proposes a methodology to simultaneously carry out an analysis of the distributional and efficiency consequences of changes in energy taxation in order to do so we have integrated a microeconomic household demand model and a computable general equilibrium model for the spanish economy we illustrate the advantages of this approach by simulating a revenue neutral reform in spanish indirect taxation with a large increase of energy taxes that serve an environmental purpose the results show that the reforms bring about significant efficiency and distributional effects in some cases counterintuitive and demonstrate the academic and social utility of this approximation

a unified approach to incorporating demographic or other effects into demand systems a general method of introducing demographic effects into any demand system using modifying functions is described which permits complicated interactions of demographic variables with prices and expeditures theorems give properties the modifying functions must have to ensure integrability of the resulting system demand equations of the new system are given explicitly as functions of the original demand equations and the modifying functions the procedure is interpreted as altering a households technology and is shown to encompass adult equivalent scales and related methods examples of modifying functions are derived and applications of the technique to uses other than demographic variation are considered excerpt

distributional effects of a carbon tax on chinese households a case of shanghai abstract as an effective policy instrument to reduce co 2 emissions the effects of a carbon tax on distribution have been the critical factor in determining whether a carbon tax will be acceptable in china taking shanghai as an example which is the economic center and front runner of china this paper estimates the distributional effect of a carbon tax on households in various income groups by using the input output model and the suits index the results indicate that the comprehensive distributional effect of the carbon tax is regressive the expenditure of the low income group caused by the carbon tax accounts for 0 853 of the total expenditure while that of the high income group 0 712 the direct distributional effect presents a weak progressivity while the indirect one is significantly regressive and the latter is much larger than the former moreover the suits index of the carbon tax is 0 078 implying that the carbon tax burden on the low income group is the highest and thus that a carbon tax can intensify income inequality therefore when introducing a carbon tax some rational associated redistribution or compensation measures such as purposive transfer payments should be implemented to restrict or even eliminate the regressivity of the carbon tax

interest rates and insurance price cycles abstract property liability insurance prices and profits appear to move in a six year cycle the common explanation for the cycle amongst many industry analysts is that the insurance market is inherently unstable and that prices fail to converge on clearing levels our explanation is different we identify spot equilibrium prices using the capital asset pricing model but informational regulatory and contractual lags preclude instantaneous adjustment we therefore model the temporal movement of prices using a partial adjustment model in which actors form rational expectations the actual movement of insurance prices does seem to track closely those estimated by the partial adjustment model the cycle may be better viewed as a series of converging responses to changing spot prices

the modern expansion of tort liability its sources its effects and its reform this paper reviews the development of tort law during the 20th century with particular attention to the broad expansion of liability since the 1970s it attempts to explain the origins of the expansion of liability to present examples of its effects on product and service markets and to analyze the extensive efforts of the past five to six years toward liability reform efforts which i conclude have had only a slight relationship to the underlying sources of modern liability problems though the empirical evidence is thin virtually all studies of the effects of specific modern rules demonstrate that modern tort law has substantially dislocated product and service markets as one might expect of an assertive legal regime founded on largely noneconomic principles as we shall see market dislocations especially for insurance have increased sharply during the past decade

the welfare effects and the distributive impact of carbon taxation on italian households in this work the welfare effects and the distributive impact on italian households of the italian carbon tax are calculated the carbon tax has been introduced in italy at the beginning of 1999 asking for smooth increases over a number of years in the prices of most fossil fuels its welfare effects have been calculated using true cost of living index numbers and the compensating variation the parameters have been obtained through estimation of a complete almost ideal demand system using households data from 1985 to 1996 the welfare loss turns out to be quite substantial and affects italian households in a non negligible way but the distribution of welfare losses across different levels of total monthly expenditures does not allow sustaining the regressivity of carbon taxation as the effect becomes bigger as we move up the income distribution this evidence might encourage the use of carbon taxes at least in the transport sector as cost effective instruments of environmental policy especially after the ratification of the kyoto protocol on climate change

division of labor organizational coordination and market mechanisms in collective problem solving abstract this paper builds upon a view of economic organizations as problem solving arrangements and presents a simple model of adaptive problem solving driven by trial and error learning and collective selection institutional structures and in particular their degree of decentralization determine which solutions are tried out and undergo selection it is shown that if the design problem at hand is complex in terms of interdependencies between the elements of the system then a decentralized institutional structure is unlikely ever to generate optimal solutions and therefore no selection process can ever select them we also show that nearly decomposable structures have in general a selective advantage in terms of speed in reaching good locally optimal solutions

what do we learn about consumer demand patterns from micro data the aim of this paper is to assess the importance of using micro level data in the econometric analysis of consumer demand to do this we utilize a time series of repeated cross sections covering some 4 000 households in each of 15 years employing a number of different aggregation procedures we conclude that aggregate data alone are unlikely to produce reliable estimates of structural price and income coefficients however once certain aggregation factors as well as trend and seasonal components are included an aggregate model is not necessarily outperformed across all demand equations in terms of forecasting ability jel d12 c52 c31 the purpose of this paper is to develop a complete consumer demand system based on a time series of individual household data and to use it to measure the biases introduced into the study of consumer de mand behavior when aggregate data are used in place of the appropriate microeco nomic data we assess the suitability of ag gregate data through the impact on income and price elasticities and by evaluating the ability of both micro and aggregate based models to forecast aggregate consumer de mand the biases introduced by the use of aggregate data depend upon the way that household characteristics interact with in come and price effects and on departures of demand systems from linearity we explore the structure of microeconomic demand sys tems and the role of household characteris tics in the behavior of consumer demand both for the light this may shed on the pattern of future demands and for the im plications this behavior has for issues of aggregation consumer demand patterns typically found in micro data sets vary considerably across households with different household characteristics and with different levels of income we model this variability by making intercept and slope parameters in the budget share equations of our demand sys tem depend on household characteristics and by allowing for nonlinear total log expenditure terms in fact in theory consistent demand systems it is total ex penditure rather than disposable income that is allocated across goods we find that this general framework leads to a well specified data coherent demand system which is a quadratic extension of the popu lar almost ideal model of angus s deaton and john muellbauer 1980 the micro level estimates are shown to be sensitive to the treatment of endogeneity of total expen diture and to the specification of interaction terms with household characteristics in ad dition this specification is also shown to possess many attractive features for the evaluation of aggregate models

using what you know patented knowledge in incumbent firms and employee entrepreneurship prior studies have shown that the acquisition of relevant knowledge by employees in existing firms is associated with the creation of new firms through employee entrepreneurship some researchers propose that the transition to entrepreneurship may be explained by established firms undervaluing knowledge created by employees whereas other scholars maintain that firm strategies may lead to the underutilization of knowledge we ask the question of which of these drivers is more pronounced as an explanation of employee entrepreneurship and what technological factors matter in this relationship analyzing a unique data set we find that the likelihood of employee entrepreneurship increases with the inventor s assessment of the value of a patent for an invention developed while at the incumbent firm but dramatically decreases when the invention protected by the patent is commercialized by the firm licensed to third parties interdependent with other firms inventions protected by patents or technologically broad we also find that conditional on high valuation by the inventor a matching high valuation by the firm further increases the likelihood of transitioning to entrepreneurship in combination we show that a situation when both the inventor and the firm consider the invention valuable but the firm ends up not commercializing the invention is more predictive of employee entrepreneurship than simple differences in assessing the value of the invention the study refines our understanding of the drivers of entrepreneurship by underscoring the strategic explanation of employee entrepreneurship

quadratic engel curves and consumer demand this paper presents a model of consumer demand that is consistent with the observed expenditure patterns of individual consumers in a long time series of expenditure surveys and is also able to provide a detailed welfare analysis of shifts in relative prices a nonparametric analysis of consumer expenditure patterns suggests that engel curves require quadratic terms in the logarithm of expenditure while popular models of demand such as the translog or the almost ideal demand systems do allow flexible price responses within a theoretically coherent structure they have expenditure share engel curves that are linear in the logarithm of total expenditure we derive the complete class of integrable quadratic logarithmic expenditure share systems a specification from this class is estimated on a large pooled data set of u k households models that fail to account for engel curvature are found ro generate important distortions in the patterns of welfare losses associated with a tax increase

legal systems institutional environment and food safety in the aftermath of the recent food scares the united states and the united kingdom face major challenges to maintain a safe food system regulators on opposite sides of the atlantic are facing rapid product and process innovations changes in consumption behaviors expansion of international trade and discovery of new food hazards the u k and the u s demonstrate different approaches to manage safety risks this article will focus on two issues the reasons behind the differences in the american and english policy approaches to food safety and how these differences impact u s safety outcomes a comparative legal framework is provided to understand how food safety is elicited in the economy and the incentive implications of the different institutional settings these two different lenses because they differ so teach us about the fundamental sources of safety the u k s prevalent doctrine is parliamentary sovereignty and leads to a regulatory framework while the u s is based on constitutional supremacy and relies on a legal framework the source of safety under a regulatory framework is the government bureaucracy while the u s legal framework provides an important point of departure the constitutional standing of the firm and the consumer we argue that while the u k system is structured to work through a regulatory framework to enhance the supply of safety in the economy the u s system is much less directed the legal system the subject of this article plays an important role not only in discouraging breach but also in acting as a check on the discretionary authority of the regulator in the end the u s and the u k may have equally safe food systems but what differs is the fundamental source of the safety supply the practical implication is that safety in the food system emerges from several sources not just through regulation therefore direct importation of u k style regulatory approaches may not be effective within a u s constitutional setting

how to get what you want when you do not know what you want a model of incentives organizational structure and learning in this paper we present a model of the interplay among learning managerial intervention and the allocation of decision rights in the context of a generalized agency problem within this context actors face not only conflicting interests but also diverging cognitive visions of the right course of action we assume that a principal may obtain the implementation of desired organizational policies by means of appropriate design of the allocation of decisions or by means of costly intervention through authority or incentives and we analyze their consequences for organizational control and learning we show that the structure of allocation of decision rights is very powerful in terms of control but when the principal is uncertain about the course of action organizational structure and managerial intervention complement each other in nontrivial ways and must be carefully tuned we also show that there is a general advantage in maximizing the partitioning decision rights because it allows both higher control and higher levels of learning