bank runs liquidity costs and investment distortions abstract in this paper we extend the diamond and dybvig 1983 model of intermediation to study further the conditions under which bank runs can occur and to consider how private parties might adjust to the existence of bank run equilibria we provide weaker necessary conditions for runs we then characterize how banks respond to the possibility of runs in their design of deposit contracts and investment decisions banks might choose to offer contracts that prevent runs but under some conditions the second best contracts will involve accepting some risk of runs in order to achieve higher expected returns from their investments

intergenerational equity and sustainability abstract this paper explores the limitations of conventional economic analysis of intergenerational problems and examines some of the alternatives suggested in the literature it is argued that proper consideration of future generations has at least three requirements first when future costs and benefits are considered it should be taken into account that they are to be enjoyed by different generations second the sustainability requirement should be adopted this represents an equity commitment to the future and implies the recognition that future generations have the right to nondeteriorated ecological and economic capacity the paper studies the ways in which the recognition of these rights might be incorporated into economic evaluation and management third an appropriate institutional network to enforce the recognition of these rights in decision making processes should be constituted its design and necessary functions are also analyzed

sustainability and externalities is the internalization of externalities a sufficient condition for sustainability in an important contribution in ecological economics van de bergh 2010 correctly concludes that sustainability does not imply zero externalities however he continues with the delphic statement delphic statements were uttered by the renowned oracle of ancient greece at delphi they were phrased in such a way as to be self fulfilling because alternative interpretations covered every possibility without externalities the problem of sustainability vanishes if this statement refers to an impossible economic process that produces no externalities then he is right however it might be interpreted as stating that whenever environmental policy internalizes environmental externalities then sustainability will be ensured in this note i assert that in the real world where externalities prevail their internalization or neutralization in the traditional way cannot lead to sustainability only if internalization takes a very specific form that results in the inviolable preservation of environmental rights of future generations in pure biological terms can sustainability be ensured after revised the original commentary i resubmit it the issues raised by the editor have been carefully considered

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

land degradation drought and food security in a less favoured area in the ethiopian highlands a bio economic model with market imperfections abstract this paper presents a bio economic model of andit tid a severely degraded crop livestock farming system with high population density and good market access in the highlands of ethiopia land degradation population growth stagnant technology and drought threaten food security in the area drought or weather risk appears to have increased in recent years the bio economic model is used to analyse the combined effects of land degradation population growth market imperfections and increased risk of drought on household production welfare and food security we find that the indirect effects of drought on household welfare through the impact on crop and livestock prices are larger than the direct production effects of drought provision and adoption of credit for fertiliser although risky in itself may lead to increased grain production and improved household welfare and food security provision of credit may have a negative effect on conservation incentives but this effect may be mitigated by linking a conservation requirement to the provision of credit for fertiliser

energy and physical capital a case of non classical dynamics we study the importance of considering different energy requirements for physical capital and final good production in an overlapping generations olg resource economy in contrast to the standard olg framework but consistently with the empirical evidence we assume that the accumulation of physical capital requires more energy than the production of consumption goods focusing on exhaustible energy resources we find that olg equilibria can exhibit non classical dynamics the economy generates complex dynamics where differing from the response predicted by the standard approach resource prices may not increase monotonically this result illustrates that the technological assumptions behind the energy inputs should be taken with caution in particular on dynamic analyses involving exhaustible energy resources

why do bank runs look like panic a new explanation this paper demonstrates that even if depositors are fully rational and always choose the pareto dominant equilibrium when there are multiple equilibria a bank run may still occur when depositors expectations on the bank s fundamentals do not change more specifically a bank run may occur when depositors learn that noisy bank specific information will be revealed or when they learn that precise bank specific information will not be revealed the results in this paper are consistent with the empirical evidence about bank runs it also implies that suspension of convertibility can improve the efficiency of bank runs

government taxes and banking crises abstract this paper analyzes the effectiveness of different government policies to prevent the emergence of banking crises in particular we study the impact on welfare of using taxpayers money to recapitalize banks government injection of money into the banking system through credit lines the creation of a buffer and taxes on financial transactions the tobin tax we illustrate the trade off between these policies and derive policy implications

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

exploiting ergodicity in forecasts of corporate profitability abstract theory suggests that competition tends to equalize profit rates through the process of capital reallocation and numerous studies have confirmed that profit rates are indeed persistent and mean reverting recent empirical evidence further shows that fluctuations in the profitability of surviving corporations are well approximated by a stationary laplace distribution here we show that a parsimonious diffusion process of corporate profitability that accounts for all three features of the data achieves better out of sample forecasting performance across different time horizons than previously suggested time series and cross sectional models as a consequence of replicating the empirical distribution of profit rates the model prescribes a particular strength or speed for the mean reversion of all returns which leads to superior forecasts of individual time series when we exploit information from the cross sectional collection of firms the new model should appeal to managers analysts investors and other groups of corporate stakeholders who are interested in accurate forecasts of profitability to the extent that mean reversion in profitability is the source of predictable variation in earnings our approach can also be used in forecasts of earnings and is thus useful for firm valuation

sustainability as opportunity this paper explores the relationship between sustainability concepts and contractarian principles of distributional fairness a commitment to equality of opportunity between contemporaries entails that life opportunities should be nondiminishing from generation to generation defining sustainability as nondeclining utility is analytically suggestive but practically problematic given the uncertainties that surround future preferences and technologies life opportunities may be sustained however by providing future generations with specific endowments of reproduced capital technological capacity natural resources and environmental quality in this setting capital resource substitutions are defensible only if there is compelling evidence that they would benefit both present and future generations

financial fragility and the exchange rate regime abstract we study financial fragility exchange rate crises and monetary policy in a model of an open economy with diamond dybvig banks the banking system the exchange rate regime and central bank credit policy are seen as parts of a mechanism intended to maximize social welfare if the mechanism fails banking crises and speculative attacks on the currency become possible we compare currency boards fixed rates and flexible rates with and without a lender of last resort a currency board cannot implement a social optimum in addition it allows bank runs to occur a fixed exchange rate system may implement the social optimum but is more prone to bank runs and exchange rate crises than a currency board a flexible rate system implements the social optimum and eliminates runs provided that the exchange rate and credit policies of the central bank are appropriately designed journal of economic literature classification numbers f3 e5 g2

are high growth firms one hit wonders evidence from sweden most firms do not grow and a small number of high growth firms seem to create most new jobs these firms have therefore received increasing attention among policymakers the question is whether high growth tends to persist we investigate this question using firm level data from sweden during 1997 2008 we find that high growth firms had declining growth rates in the previous 3 year period and their probability of repeating high growth rates was very low thus these are essentially one hit wonders and it is doubtful whether policymakers can improve economic outcomes by targeting them

the damage costs of climate change a note on tangibles and intangibles applied to dice economic cost benefit analysis of the costs of greenhouse gas emission abatement and climate change often points towards limited abatement this note elucidates one reason why this result is obtained the way in which the intangible damages are treated and the utility function is specified on the basis of the dice model it is shown that by putting the intangible damages directly into the utility function and by assuming them to grow with per capita income the optimal reduction increases and in the second case more than triples compared to nordhaus s original results

the value and applicability of bargaining in an intergenerational setting abstract this paper considers the effectiveness of a variation of coasian bargaining as a policy instrument for internalizing one or multiple intergenerational externalities the variation involves appointing a contemporary party to represent the interests of the affected parties who are currently unable to represent themselves potential criticisms of such a policy are considered and addressed and precedents to such a policy are put forth to test the value of such a policy a two period model in which two externalities exist in the production consumption decisions and with representative agents is used to compare the welfare effects of four scenarios 1 agents in each period optimize their period specific utility 2 a benevolent social planner chooses allocations in both periods to maximize a social welfare function 3 the externalities are internalized using a bargaining policy and 4 the externalities are internalized using a tax and subsidy policy i find that contrary to general consensus in the literature coasian bargaining can be adapted in such a way as to make it applicable in an intergenerational framework

optimal tax rules and public sector efficiency with an externality in an overlapping generations model abstract this paper examines optimal tax rules and public sector efficiency integrating them in a second best world with pollution by using an overlapping generations model the second best world is characterized by the comparative statics of green preferences the main results obtained are as follows first the marginal cost of public funds may be reduced by the externalities regardless of the choice of taxes second optimal environmental and non environmental tax rules are additively and directly affected by the dynamic efficiency of capital accumulation per unit labour decal and indirectly by it through the efficiency of the public sector environmental taxes going beyond pigovian ones may be welfare improving if the decal is improved by the environmental tax even optimal non environmental tax rules should additively and directly counter the dynamics of pollution to consider the income effects of the optimal tax system for the future third the additivity property or the principle of targeting does not hold even in the absence of incentive compatibility constraints the essential reasons for this are clarified as follows distortions that should be countered by taxes that is the income effects of the optimal tax system and the decal in this model break the equality between optimal environmental taxes and the externalities measured by governments finally growing environmental concerns may in fact increase pollution the inverse relationship between environmental and labour income taxes may not hold

information acquisition and financial contagion abstract this paper incorporates costly voluntary acquisition of information a la nikitin and smith 2007 nikitin m smith r t 2007 information acquisition coordination and fundamentals in a financial crisis journal of banking and finance in press doi 10 1016 j jbankfin 2007 04 031 in a framework similar to allen and gale 2000 allen f gale d 2000 financial contagion journal of political economy 108 1 33 without relying on any unexpected shock to model contagion in this framework contagion and financial crises are the result of information gathering by depositors weak fundamentals and an incomplete market structure of banks it also shows how financial systems entering a recession can affect others with apparently stronger economic conditions contagion finally this is the first paper to investigate the effectiveness of the contingent credit line procedures introduced by the imf at the end of the nineties as a mechanism to prevent the propagation of crises

markets and institutions in financial intermediation national characteristics as determinants abstract given the importance of financial intermediation and the rise of globalization there is little prior research on how national preferences for financial intermediation markets versus institutions are determined by cultural legal and other national characteristics using panel analysis for data on a recent 8 year period for 30 countries this paper documents that national preferences for market financing increase with political stability societal openness economic inequality and equity market concentration and decreases with regulatory quality and ambiguity aversion we confirm with robustness tests that our result for regulatory quality is independent of differences in national wealth and that our result for political stability is independent of both wealth and political legitimacy these results should be of much interest to managers scholars regulators and policy makers

sustainability in natural resource management abstract sustainability is the objective that many disciplines indicate as being essential to the resolution of environmental degradation although there is no agreement about what this term exactly means this study defines environmental problems as externalities most of these occurring between different generations we analyze the reasons why traditional solutions for externalities do not work in the intergenerational context our conclusions are on the one hand that traditional methods for evaluating the costs and benefits affecting different generations should be improved secondly an intergenerational redistribution of natural resource property rights is essential to guarantee equality of opportunities for all generations and therefore to ensure sustainability adequate redistribution of property rights will depend on the type of resource as well as on other factors such as the rate of return on its exploitation and the current generations propensity to consume in all cases however sustainability is sufficiently guaranteed by conceding property rights as a whole to the future

financial crises and political crises abstract the simultaneous determination of financial default and political crises is studied in an open economy model political crises accompany default in equilibrium because of an information transmission conflict between the government and the public multiple equilibria are possible if foreign lenders are pessimistic about the country s stability they demand a high interest on the debt exacerbating distortions and possibly leading to political crisis but if lenders are optimistic the cost of the debt falls and political crises disappear in such a case international liquidity packages can select the best equilibrium and rule out political crises at negligible cost

intergenerational transfers and the social discount rate this paper investigates the relationship between intergenerational asset transfers and the choice of the discount rate for use in cost benefit analysis in a model of a competitive overlapping generations economy constrained by a socially managed exhaustible resource provided that there are no distortions in capital markets and that all agents hold perfect foresight cost benefit techniques will result in a pareto efficient resource allocation if the discount rate is set equal to the market rate of interest but since the path of the interest rate depends on the level of intergenerational transfers cost benefit techniques do not ensure a socially desirable distribution of welfare between generations a social optimum will result only if intergenerational transfers are properly chosen and enforced decentralized private altruism may result in intergenerational transfers that both present and future individuals would agree are too small if members of the present generation attach positive weight to the general welfare of future generations not simply their personal descendants in a world where intergenerational transfers are non optimal second best policy making may imply a constrained optimum that is inefficient together these findings suggest that cost benefit analysis is at best a partial criterion to policy formulation that should be used only in conjunction with ethical principles that define the proper distribution of welfare between present and future generations

corporate growth and industrial structures some evidence from the italian manufacturing industry this work analyses the properties of corporate growth in a large longitudinal sample of italian manufacturing firms in particular it focuses on the statistical properties of growth rates and on the influence of proxies for relative efficiency upon relative growth in line with previous work the emergence of fat tails in growth rate distributions and the idiosyncratic nature of autocorrelation coefficients confirm the existence of a structure in the growth process richer than the one normally assumed by the gibrat law hypothesis and suggest the presence of firm specific drivers of growth at the same time there is a remarkable puzzle concerning the absence of any negative relationship between size and growth variance and only weak influences of relative efficiencies upon growth dynamics

how to decide when experts disagree uncertainty based choice rules in environmental policy environmental economists have traditionally addressed the issue of choice under uncertainty by applying the expected utility hypothesis when policymakers face a panel of experts with widely divergent beliefs the problem may more accurately be described as a case of choice under pure uncertainty arrow and hurwicz 1972 demonstrate that rational choice criteria under pure uncertainty will focus on the extremes of the state space not the midpoint as is typically assumed using nordhaus s dice model uncertainty based choices about global warming policies are evaluated linkages to the safe minimum standard and the precautionary principle are also discussed

ecological thresholds a survey abstract the existence of ecological discontinuities and thresholds has been recognised by ecological economics as a key feature to take into account in the study of environment economy interactions this paper reviews some theoretical developments and empirical studies dealing with ecological phenomena involving non linear dynamics the literature about this issue reveals that there is abundant evidence of discontinuities and threshold effects as the consequence of human perturbations on ecological systems however due to the complexities involved the predictive capacity of ecology is limited and large uncertainties still remain

does classical competition explain the statistical features of firm growth abstract we propose a statistical equilibrium model where the tendency for competition to equalize profit rates results in an exponential power or subbotin distribution the model supports and extends recent evidence on the laplace distribution of firm growth rates

banks debt maturity and financial crises abstract we develop a model in which the maturity of external debt of banks their level of international reserves and the term structure of interest rates are jointly determine self fulfilling runs may occur and banks take this possibility into account when choosing the structure of their assets and liabilities if the probability of a run is sufficiently small banks will deliberately choose an illiquid asset liability position and expose themselves to a run in that case short term debt will be cheaper than long term debt and the maturity structure of foreign debt will depend on attitudes towards risk

a mixed bentham rawls criterion for intergenerational equity theory and implications abstract this paper proposes a welfare criterion that balances the need for development and the concern for the least advantaged generations and explores its implications this criterion called the mixed bentham rawls criterion moderates the effect of discounting yet permits some degree of intertemporal trade off it is a weighted average of two terms a the sum of discounted utilities and b the utility level of the least advantaged generation we derive necessary conditions to characterize growth paths that satisfy our criterion and show that in some models with familiar dynamic specifications an optimal path exists and displays appealing characteristics

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

indicators of sustainable development some lessons from capital theory abstract interest in sustainable development has prompted a search for suitable indicators that might complement or supplant the traditional measures of economic success although there is no agreement about the precise meaning of sustainable development one idea which is increasingly in good currency is that sustainable development requires that the stock of capital that one generation passes on to the next be maintained or enhanced further this stock of capital is seen by some to comprise two elements manufactured capital and natural capital the extent to which these are believed to be substitutes or complements is one factor which separates the neoclassical school from some of its critics a premise of this paper is that if capital theory is relevant to sustainable development then it should also be helpful in developing indicators however even within the normal confines of economics capital theory is not a homogeneous body of analysis therefore an exploration of capital theory and its relevance to sustainable development can be expected to generate various perspectives on those measures most useful for gauging the sustainability of economic activity it is these linkages between capital theory in various schools of thought and possible indicators of sustainable development that are the subject of this paper

intergenerational discounting a new intuitive approach abstract this paper proposes a new intergenerational discounting approach for computing net benefits from the use of environmental resources the approach explicitly incorporates the perspectives of both the current and future generations as argued for by pigou pigou a c 1920 the economics of welfare 1952 4th edition london macmillan and ramsey ramsey f p 1928 a mathematical theory of saving econ j 38 543 559 and required by most national and international laws related to the use of these resources an equation for use in the calculation of net discounted benefits is developed which provides a middle position whereby both the reality of personal discounting and that of social discounting are included in a social welfare function

reconciling sustainability systems theory and discounting abstract most definitions of sustainability imply that a system is to be maintained at a certain level held within certain limits into the indefinite future sustainability denies run away growth but it also avoids any decline or destruction this sustainability path is hard to reconcile with the renewal cycle that can be observed in many natural systems developing according to their intrinsic mechanisms and in social systems responding to internal and external pressures systems are parts of hierarchies where systems of higher levels are made up of subsystems from lower levels renewal in components is an important factor of adaptation and evolution if a system is sustained for too long it borrows from the sustainability of a supersystem and rests upon lack of sustainability in subsystems therefore by sustaining certain systems beyond their renewal cycle we decrease the sustainability of larger higher level systems for example schumpeter s theory of creative destruction posits that in a capitalist economy the collapse and renewal of firms and industries is necessary to sustain the vitality of the larger economic system however if the capitalist economic system relies on endless growth then sustaining it for too long will inevitably borrow from the sustainability of the global ecosystem this could prove catastrophic for humans and other species to reconcile sustainability with hierarchy theory we must decide which hierarchical level in a system we want to sustain indefinitely and accept that lower level subsystems must have shorter life spans in economic analysis inter temporal discount rates essentially tell us how long we should care about sustaining any given system economists distinguish between discount rates for individuals based on personal time preference lower discount rates for firms based on the opportunity cost of capital and even lower discount rates for society for issues affecting even higher level systems such as global climate change many economists question the suitability of discounting future values at all we argue that to reconcile sustainability with inter temporal discounting discount rates should be determined by the hierarchical level of the system being analyzed

a just and efficient reduction of resource throughput to optimum abstract resource throughput in the economy e g of energy or materials must be progressively reduced by at least one order of magnitude to achieve an optimal level although this would solve the resource distribution conflict between the generations it would also aggravate the resource distribution conflict between persons of the same generation it is shown here that a solution to these two conflicts and efficient resource allocation are only possible if resource certificates are distributed to consumers free of charge and traded between them this paper builds on and integrates ideas developed in h daly s daly h e 1992 allocation distribution and scale towards an economics that is efficient just and sustainable ecological economics 6 185 193 article on allocation distribution and scale adding insights from the ecological footprint concept to propose a mechanism for facilitating intergenerational equity and drastically reducing resource throughput basically the mechanism involves rationing throughput equitably internalizing environmental and social externalities and substituting labour for resource use this can be achieved almost without a drop in prosperity both unemployment and dependence on scarce resources decline

bank fragility money under the mattress and long run growth us evidence from the perfect panic of 1893 abstract this paper examines how the us financial crisis of 1893 affected state output growth between 1900 and 1930 the results indicate that a 1 increase in bank instability reduced output growth by 2 5 a comparison of nebraska which had one of the highest bank failure rates with west virginia which did not experience a single bank failure reveals that disintermediation affected growth through a portfolio change among savers people simply stopped trusting banks time series evidence from newspapers indicates that articles containing the words money hidden significantly increase after banking crises then slowly die out

the intergenerational case of missing markets and missing voters a simple game formulation is used to examine the possibility of linking generations when a future generation will confront a risk that can be alleviated by an earlier generation s investment an insurance market will function provided that the overlapping generations are sufficiently near in time and share risks without propinquity or shared risks there is a need for intervention to overcome the problems of missing markets and missing voters this intervention should take the form of minimum environmental standards based on a notion of sustainability that is constitutionally enforced

discounting of long term costs what would future generations prefer us to do decisions with intergenerational consequences may leave future generations worse off i e not be pareto optimal if costs and benefits are not discounted correctly we point out that this happens if the conventional social discount rate is applied to intergenerational costs with that rate the justification of intergenerational costs benefits of a project are invested and the proceeds can cover future costs leads to an inconsistency over the long term eventually the supposed benefits of any project become larger than the entire gnp the conventional approach commits an error by treating the time preference component of the discount rate as if it represented creation of wealth while it really involves only redistribution the time horizon of the redistribution is limited by the duration of market transactions especially loans thus we recommend a two step discounting procedure with the conventional social discount rate for the short term about 30 years and the growth rate of the economy for the long term data for gnp per capita growth in the us the uk france germany japan and the soviet union since the industrial revolution combined with data for net economic welfare per capita suggest an intergenerational discount rate in the range of 1 to 2 for practical application the rate at which costs and benefits will grow over time is just as important as the discount rate only the difference between these two rates matters for many environmental costs these rates may be close to each other during the next few generations this implies that some of the uncertainty in the prediction of rates cancels and one can treat the problem as if the effective rate were close to zero the consequence for costs such as global warming or nuclear power can be very significant the valuation can increase by more than an order of magnitude compared to values based on conventional discounting

business fluctuations in a behavioral switching model gridlock effects and credit crunch phenomena in financial networks abstract in this paper we characterize the evolution over time of a credit network in the most general terms as a system of interacting banks and firms operating in a three sector economy with goods credit and interbank market credit connections change over time via an evolving fitness measure depending from lenders supply of liquidity and borrowers demand of credit moreover an endogenous learning mechanism allows agents to switch between a loyal or a shopping around strategy according to their degree of satisfaction the crucial question we investigate is how financial bubbles and credit crunch phenomena emerge from the implemented mechanism

are output growth rate distributions fat tailed some evidence from oecd countries this work explores some distributional properties of aggregate output growth rate time series we show that in the majority of oecd countries output growth rate distributions are well approximated by symmetric exponential power densities with tails much fatter than those of a gaussian fat tails robustly emerge in output growth rates independently of i the way we measure aggregate output ii the family of densities employed in the estimation iii the length of time lags used to compute growth rates we also show that fat tails still characterize output growth rate distributions even after one washes away outliers autocorrelation and heteroscedasticity

on the environmental discount rate abstract in this paper i show that environmentalism itself can provide a rigorous foundation for the low and declining discount rates that environmentalists seem to favor in long term cost benefit calculations if indeed it is a stylized fact that we are moving toward a world where environmental spending is increasingly important that scenario per se may significantly lower the social rate of return a formula is derived for the ratio of social to private discount rates as a simple function of two operational environmental parameters the formula is used to explain why the social rate of return ought to be lower than the private rate and why this gap called environmental drag when measured in terms of equivalent evaporation of national income may be expected to increase over time

the economic impacts of droughts a framework for analysis abstract droughts are a specific type of natural hazard economic assessments of drought impacts require a framework capable of accounting for its unique and particular characteristics traditional conceptual frameworks used to assess the impacts of natural hazards do not adequately capture all of the factors that contribute to the economic impacts of droughts such as the importance of the level and composition of hydraulic capital the dispersion of economic impacts across different economic activities and agents the temporality of drought events and the critical importance of policy making in shaping the short and long term economic impacts of droughts nor do traditional frameworks take account of the complex interaction between factors within the domain of decision making and underlying climate conditions we propose a new conceptual framework based around two sources of economic impact green water and blue water and argue that because each source of drought impacts the economy in different ways they must be differentiated in any assessment of economic impact

comparing futures a positional approach to population ethics abstract major questions in environmental economics concern choices about the future sensible decisions thus require rules for comparing the well being of potentially different sets of people in terms of both numbers and identities under different futures the central problem of normative population theory is that basic ethical principles that individually claim widespread acceptance yield unpalatable conclusions when combined no approach currently on offer is able to overcome all theoretical objections but decision making goes on and needs ethical guidance this paper proposes a practical approach to the welfare comparison of competing futures as a matter of expedience it accepts that some choices may be incommensurable and therefore unrankable but its defining characteristic is its recognition that the evaluation of well being is typically a momentary phenomenon dependent on an individual s position or reference frame a critical positional change arises from the very act of being brought into existence social welfare thus has to be continually re evaluated and the welfare basis for new decisions is subject to a ratchet effect although this approach abandons time consistency it does so without apology and since time flows in one direction without inconsistency in decision making

the impact of classes of innovators on technology financial fragility and economic growth in this article we study innovation processes and technological change in an agent based model by including a behavioral switching among heterogeneous innovative firms the model is able to replicate via simulations well known industrial dynamic and growth type stylized facts the main original element of the model is that firms are allowed to endogenously change among three different classes namely single innovators collaborative innovators and imitators moreover our analysis focuses on the impact of these three innovation categories on micro meso and macro aggregates we find that collaborative companies are those having the highest positive impact on the economic system furthermore we have paid particular attention to the role of credit market in promoting smart growth for this purpose we analyze the role of banks as sources of external funds for innovative entrepreneurs our results suggest a trade off between short term profit maximization and long term efficiency which prevents banks to foster investment in r d and technological progress the model is then used to study the effect that different innovation policies have on macroeconomic performance

why are distributions of firm growth rates tent shaped abstract recent empirical analyses on different datasets have revealed a common exponential behavior in the shape of the probability density of the corporate growth rates we present new evidence on this topic from the italian manufacturing industry and propose a very simple mechanism that under rather general assumptions provides a robust explanation for the observed regularities

do firms share the same functional form of their growth rate distribution a statistical test abstract we propose a hypothesis testing procedure to investigate whether the same growth rate distribution is shared by all the firms in a balanced panel or more generally whether they share the same functional form for this distribution without necessarily sharing the same parameters we apply the test to panels of us and european union publicly quoted manufacturing firms both at the sectoral and at the subsectoral naics level we consider the following null hypotheses about the growth rate distribution of the individual firms i an unknown shape common to all firms with all the firms sharing also the same parameters or with the firm variance related to its firm size through a scaling relationship and ii several functional shapes described by the subbotin family of distributions our empirical results indicate that firms do not have a common shape of the growth rate distribution at the sectorial naics level whereas firms may typically be described by the same shape of the distribution at the subsectorial level even if the specific shape may not be the same for different subsectors

explaining the distribution of firm growth rates empirical analyses on aggregated datasets have revealed a common exponential behavior in the shape of the probability density of corporate growth rates we present clear cut evidence on this topic using disaggregated data we explain the observed regularities proposing a model in which firms ability to take up new business opportunities increases with the number of opportunities already exploited a theoretical result is presented for the limiting case in which the number of firms and opportunities go to infinity moreover using simulations we show that even in a small industry the agreement with asymptotic results is almost complete

entitlements missing markets and environmental uncertainty reply abstract at one level dore and ward seem intent on immunizing received doctrine they say that i did not prove that rights violated nozick s principles of justice and that i did not prove that missing markets were the problem more telling they allege i did not prove that my story was better than the particular story favored by dore and ward that is they argue that there is an alternative approach based on the theory of public economics which is indeed operational 3 they then use the bulk of their comment to explain and defend this alternative model they hope to convince the reader that the model of public economics survives intact in the face of my alternative model to the extent that their model allows one to define the problem away it is not difficult to see why they find it so compelling more seriously dore and ward fail to make a coherent argument about the concept of rights and duties and the logic of a particular rights structure that happens to prevail they seem concerned that my article was tampering with some sacred social construct the status quo rights structure and that my article threatened the received wisdom of both public economics and paretian walrasian bliss indeed theirs seems to be a genuine fear that if economists release their grip on the certitude of received orthodoxy the floodgates will be open to all manner of bumbling regulators seeking to shift rights and wealth positions across generations my article is apparently threatening because it seems to suggest that the received wisdom may at times be misleading

the economic impacts of drought on the economy of iran an integration of linear programming and macroeconometric modelling approaches in this paper we provide economy wide estimates of the costs of drought in the cropping sector of the iranian economy using a linear programming model to estimate the direct costs on agriculture and a macroeconometric model to trace the indirect impacts on the rest of the economy the results indicate that a severe drought such as the one that occurred in the crop year 1999 2000 imposes a direct cost of 1605 million usd equivalent to 30 3 of the total value added of the cropping sector in iran this in turn leads to a 12 7 reduction in the value added of other agricultural sub sectors livestock fisheries and forestry in the rest of the economy the manufacturing and service sectors experience value added declines of 7 8 and 3 7 respectively in addition there is a substantial decrease in investment in the agricultural manufacturing and service sectors thus such a drought reduces overall gdp by about 4 4 and it would also result in decreased non oil exports increased food imports and a rise in inflation the results of some drought mitigation simulations are reported in brief such estimates strengthen the case for increased attention to drought strategies and management in agriculture in iran and elsewhere

natural disaster situations and growth a macroeconomic model for sudden disaster impacts the aim of this paper is to examine the relation between a natural disaster situation and its potential effects on the growth rate of output by means of a simple macroeconomic model which is later applied as a demonstration to a sample of countries affected by major natural disasters in the last two decades this quantitative application appears to support the model the main conclusions are that capital loss is unlikely to have an important effect on growth and that a very moderate response expenditure may be sufficient to prevent the growth rate of output from falling a general derived conclusion is that foreign and public disaster response may be better used to help actual victims and affected activities directly than to proceed on the rather unsound prima facie belief that the economy will be heavily affected by the disaster

the financial accelerator in an evolving credit network we model a credit network characterized by credit relationships connecting i downstream d and upstream u firms and ii firms and banks the net worth of d firms is the driver of fluctuations the production of d firms and of their suppliers u firms in fact is constrained by the availability of internal finance proxied by net worth to the d firms the structure of credit interlinkages changes over time due to an endogeneous process of partner selection which leads to the polarization of the network at the aggregate level the distribution of growth rates exhibits negative skewness and excess kurtosis when a shock hits the macroeconomy or a significant group of agents in the credit network a bankruptcy avalanche can follow if agents leverage is critically high in a nutshell we want to explore the properties of a network based financial accelerator

firm growth and laplace distribution the importance of large jumps abstract recent empirical studies have shown that firm growth rate distribution is not gaussian but closely follows a laplace distribution this robust feature of the growth rate distribution challenges existing models based on gibrat s model because it predicts a gaussian distribution first we analyze more than 100 000 japanese firms and empirically show that the laplace shape can be observed for the japanese firms then by using the theory of stochastic processes we theoretically show that the absence of jumps causes the discrepancy between gibrat s model and the laplace shape in particular based on the laplace shape and the law of proportionate effect we show that the firm growth process is a jump process in other words firm growth cannot be explained by the consequence of many small shocks but is determined by a few large jumps the widely observed laplace distribution reflects this jump property of firm growth dynamics

the concept of weak sustainability abstract this paper surveys the links between growth theory with exhaustible resources and the concept of weak sustainability it examines the underlying assumptions behind this concept and questions the usefulness of the weak sustainability index as an indicator of sustainable development

a bibliometric account of the evolution of ee in the last two decades is ecological economics becoming a post normal science abstract in ecological economics the debate on formalism and formalization has been addressed in the context of a lively discussion on ecological economics as a post normal versus normal science using ecological economics ee as a seed journal and applying bibliometric techniques to all 2533 the articles published in ee from january 1989 to december 2009 we analyze the evolution of the field of ecological economics aiming to shed light on this debate we observe the predominance and increased relevance of certain research topics methodological issues policies governance and institutions and valuation moreover collective action technical change and the environment and values stand as emergent themes of research finally we note that ecological economics experienced an empirical turn reflected in a shift away from exclusively formalized papers towards exclusively empirical and to a larger extent formal and empirical ones the combination of the prominent and emergent topics and the empirical turn mirrors the increasing awareness among researchers in the field of the need to address a key specificity of ecological economics the interdependence of the economic biophysical and social spheres on this basis we argue that at least through the lens of ee ecological economics has evolved towards a post normal science

a flexible assurance bonding system for improved environmental management abstract current methods of regulating activities that are known or suspected to be environmentally danaging are not working well they induce legal confrontation obfuscation and government intrusion into the inner workings of firms they tend to suppress technical and social innovation aimed at long term solutions they do not mesh well with the market signals that firms use to make decisions this paper discusses some of the underlying reasons for this problem and outlines a flexible environmental assurance bonding system designed to incorporate environmental criteria and uncertainty into the market system and to induce positive environmental technological innovation in addition to direct charges for known environmental damages an assurance bond equal to the current best estimate of the largest potential future environmental damages would be levied and kept in an interest bearing escrow account the bond plus a portion of the interest would be returned if and only if the firm could prove that the suspected damages had not occured or would not occur if damages did occur the bond would be used to rehabilitate or repair the environment and to compensate injured parties by requiring the users of environmental resources to post a bond adequate to cover potential future environmental damages with the possibility for refunds the burden of proof is shifted from the public to the resource user and a strong economic incentive is provided to research the true costs of environmentally innovative activities and to develop innovative cost effective pollution control technologies

on the problem of achieving efficiency and equity intergenerationally the paper compares two approaches to the problem of achieving the social goals of sustainability and intergenerational efficiency the first is a separated approach where the results of standard benefit cost analysis are later combined with intergenerational equity considerations the second in the tradition of institutional design is an integrated approach where efficiency and equity considerations are combined from the start it ap pears that several well known problems with dis counting can be avoided or mitigated by the second approach jel 02

automatic responses of crop stocks and policies buffer climate change effects on crop markets and price volatility abstract climate change has the potential to affect crop prices and price volatility however the economic models used in prior assessments largely do not include known automatic stabilizing factors crop storage can stabilize prices and u s crop policy tends to provide support that moves opposite prices we quantify effects of circa 2050 climate forcing on the inter annual variability of u s corn belt corn and soybean yields using statistical crop models and climate scenarios from regional and global climate models climate change generally reduces mean yields and increases the inter annual variability of yields in the midwestern u s using these yield impacts and an economic model with automatic market stabilizers we find only modest increases in price volatility although individual producers and states are negatively affected by the yield reductions the aggregate effect for all corn and soybean producer returns can be positive because of price increases moreover agricultural policies based on price levels or revenue variation offset some of the impacts of market variation on farm income our results differ from other recent results and temper concerns that increasing climate instability necessarily translates to greater uncertainty about agricultural commodity uses including as food and biofuels in the near future

innovation and corporate growth in the evolution of the drug industry abstract this work studies the processes of growth of the worlds top 150 pharmaceutical firms on the grounds of an original database which also allows disaggregate analysis at the level of single therapeutical classes and chemical entities our findings show that the industry whose long term evolution is driven by innovation imitation and permanent creation of new markets displays i fat tails in the distribution of growth shocks present at all levels of aggregation with relatively rare big spurs of growth ii a significant autocorrelation of growth rates iii a fall of variance of growth rates with size entirely dependent on corporate diversification patterns in turn plausibly shaped by the competence scope of each firm and iv different lifecycles of diverse types of products and persistent forms of heterogeneity across firms in terms of innovative output which however do not not seem to affect comparative growth performances

reconciling quantile autoregressions of firm size and variance size scaling the aim of this paper is to understand what economic mechanisms may cause the law of proportionate effect to break down for fast growing and shrinking firms recent evidence has highlighted that the first order coefficients of quantile auto regression of firm size decline across quantiles our theoretical results show that negative variance size scaling is sufficient to yield a decline in quantile auto regression coefficients if firm log size is laplace distributed conditional on size one period ahead however it is sufficient only for declining auto regression coefficients for fast growing firms under asymmetric laplace conditional log size if skewness is decreasing with size in other words if the growth of large firms is less dispersed and more left skewed size is a disadvantage for the growth of fast growers but not necessarily an advantage for fast decliners thus size related determinants of negative growth skewness such as diseconomies of growth market power and managerial attention issues impact on how the lpe is violated using data on dutch manufacturing companies from the business register of enterprises observed between 1994 and 2004 our empirical estimates of quantile regression models confirm the evidence of declining quantile regression coefficients for small medium firms 20 199 employees mainly in the right most quantiles and for the same subsample we find that growth rates variance and skewness are decreasing with size the theoretical propositions of the paper are thus corroborated

firm size and firm growth rate distributions the case of denmark there has been a recent renewed interest in the study of firm size distributions and firm growth rate distributions gibrat s law assumes firm growth rates are independent and identically distributed and that size is determined by a firstorder integrated process leaving the size distribution log normal this article analyzes these distribution patterns in an empirical context questioning the foundation of this model in a cross section analysis of four industries using danish data we show that the foundation and the outcome of gibrat s law are empirically far fetched in particular significant deviations from normality are found

do liquidity constraints matter in explaining firm size and growth some evidence from the italian manufacturing industry the paper investigates whether liquidity constraints affect firm size and growth dynamics using a large longitudinal sample of italian manufacturing firms we run standard panel data gibrat regressions suitably expanded to take into account liquidity constraints proxied by cash flow scaled by firm sales moreover we characterize the statistical properties of fi rms size growth age and scaled cashflow distributions pooled data show that i liquidity constraints engender a negative statistically significant effect on growth once one controls for size ii smaller firms grow more and experience more volatile growth patterns after controlling for liquidity constraints iii the stronger liquidity constraints the more size negatively affects firm growth we find that pooled size distributions depart from log normality and growth rates are well approximated by fat tailed tent shaped laplace densities we also study the evolution of growth size distributions over time our exercises suggest that the strong negative impact of liquidity constraints on firm growth which was present in the pooled sample becomes ambiguous when one disaggregates across years finally firms who were young and strongly liquidity constrained at the beginning of the sample period grew persistently more than those who were old and weakly liquidity constrained

on the existence of persistently outperforming firms this study analyses persistence in growth rates for a data set of manufacturing firms of all sizes previous quantile autoregressions of firm growth rates show that extreme growth events are likely to be negatively correlated over time thus questioning the existence of persistent outperformers by supplementing the quantile regression analyses with transition probability matrices our study shows that bouncing firms coexist with persistent outperformers this result is shown to be robust for all size classes as well as for the exclusion of firms who experienced acquisitions or spin offs

class racial conflict intolerance and distortions in urban form lessons for sustainability from the detroit region in this qualitative analysis into the equity conditions of urban sustainability an examination is presented into the complexity of one particular aspect of intra generational equity racial and class discrimination and its role in distorting urban form and in generating resource inefficient and environmentally destructive human activity patterns the article therefore focuses on the role of discrimination itself in encouraging ecological degradation the detroit region shows that racial and class conflicts can facilitate the shaping of the urban built environment as one population sub group largely white and upper income attempts to distance itself from another sub group that is largely black lower income and considered a threat the outcome is not only disinvestment and decline in the urban core but also excessive suburbanization as whites seek homogenous urban environments and use space to increase the distance between themselves and the black population the study shows that the lack of cooperation and tolerance across ethnic racial and class subgroups facilitates inefficient low density and scattered developments and excessive degradation of natural ecological systems

turnover activity in wealth portfolios we examine several subsets of the wealthiest individuals in the us and the uk that are compiled by forbes magazine and the sunday times since these are named subsets we can calculate the returns to wealth portfolios and calibrate a statistical equilibrium model of wealth distribution that accounts for the power law of wealth and the asymmetric laplace distribution of portfolio returns the model provides a relative measure of turnover activity that indicates how often changes in the composition of the wealthiest portfolios occur finally we investigate trends in equality mobility and turnover activity

managing water supply shortage interruption vs pricing abstract supply shortage is a common problem faced by a consumer solutions for allocating the limited supply include rationing queuing interruption and pricing while previous research has examined the welfare losses generated by each solution there is little evidence on their relative magnitudes within a common framework the objective of this paper is tospecify a model of consumer behaviour under service interruption to estimate the exact welfare loss of service interruption the same model is used to estimate the loss of a price increase intended to resolve a supply shortage using water consumption data collected for hong kong we find that relative to pricing service interruption is inefficient for water shortage management

intergenerational resource rights efficiency and social optimality the discipline of economics is generally defined as the science of the allocation of scarce resources between competing social objectives given an initial distribution of resources between economic agents how would they behave so as to improve their welfare according to the pareto criterion the agents would exchange commodities until the opportunities for fruitful exchange were fully exhausted and no agent could be made better off without rendering at least one other agent worse off pareto efficiency is a powerful concept in microeconomic analysis provided that the initial distribution of property rights is equitable allocative efficiency gives rise to the best of all possible worlds acknowledging that the assumptions of perfect competition are often violated firms are monopolistic information is incomplete and externalities exist economists have argued for the modification of institutions so that economic reality will conform more closely to the assumptions of the model that yields such gratifying results but microeconomic theory has always maintained that allocative efficiency is in itself insufficient to maximize social welfare bator 1957 a social welfare function is required to discriminate a social optimum among the array of efficient allocations that correspond to alternative assignments of property rights though economists have posited alternative functional forms for the sake of pursuing conceptual arguments welfare functions have remained elusive constructs for well known theoretical and practical reasons consequently a sharp line of demarcation has been drawn between questions of efficiency the province of economics and equity the principal focus of ethical and political discourse in resource economics however the line demarcating efficiency and equity is often crossed the term optimal depletion appears regularly where only efficient depletion is meant while political debates about resource exploitation over time are laden with questions of the proper distribution of our natural patrimony between generations resource economists have predominantly espoused particular use rules that guarantee efficiency but overlook potential improvements in social welfare achievable through the reassignment of property rights across generations we document the evolution and current status of the misuse of the term optimal depletion in section ii we develop a simple two generation three period general equilibrium model in section iii to illustrate how alternative distributions of resource rights between generations relate to alternative pareto efficient solutions in section iv we demonstrate how different social welfare functions affect the optimal solution and associated assignment of resource rights between generations

fairness stewardship and sustainable development abstract the welfare economic concept of fairness offers an attractive axiomatic foundation for the popular notion of stewardship fairness emphasizes the ex ante equal standing of all persons across and within generations this highlights the inextracability of poverty alleviation and environmental sustainability especially in the agrarian tropics where biodiversity loss deforestation and desertification are growing global concerns