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We study second-best climate agreements in the presence of technology spillovers within and across countries, where the technology externalities within each country are corrected through a domestic subsidy of R&D investments. We compare the properties of two types of international climate agreements when the inter-country externalities from R&D are not regulated through the climate agreement. With an international agreement on emission quotas, the equilibrium R&D subsidy is lower than the socially optimal subsidy. The equilibrium subsidy is even lower if the climate agreement instead dictates that a common carbon tax should be imposed in all countries. Under a quota agreement, total quotas should be set low enough for the price of carbon to exceed the Pigovian level, whereas the opposite may be true under a tax agreement. We also show that social costs are higher under a second-best tax agreement than under a second-best quota agreement.

If communication involves some transactions cost to both sender and recipient, what policy ensures that correct messages -- those with positive social surplus –- get sent? Filters block messages that harm recipients but benefit senders by more than transactions costs. Taxes can block positive value messages, and allow harmful messages through. In contrast, we propose an ``Attention Bond,'' allowing recipients to define a price that senders must risk to deliver the initial message.The underlying problem is first-contact information asymmetry with negative externalities. Uninformed senders waste recipient attention through message pollution. Requiring attention bonds creates an attention market, effectively applying the Coase Theorem to price this scarce resource. In this market, screening mechanisms shift the burden of message classification from recipients to senders, who know message content. Price signals can also facilitate decentralized two-sided matching. In certain limited cases, this leads to greater welfare than use of even ``perfect'' filters.

The conventional view holds that domestic labor, not domestic capital, bears most of the long-run burden of a corporate income tax in an open economy due to the ability of capital to move across borders. This result assumes that domestic and foreign products (as well as investments) are perfect substitutes. This paper includes imperfect product substitution within a multi-sector open-economy model, and shows that much of the burden may fall on capital. To be sure, if savings falls sufficiently, much of the burden shifts to labor, but this fact also holds in a closed economy. Hence, the debate about tax incidence must focus more on the savings response and less on whether an economy is open or closed.

Economists and marketers are often interested in estimating demand for new products and in valuing other non-market goods. Due to the increasing recognition that elicited valuations are sensitive to whether decisions are hypothetical, economists have begun to utilize incentive compatible mechanisms with real goods and real money. This paper investigates preferences expressed in two of the most popular elicitation formats: experimental auctions and discrete choice experiments. We compare the bidding behavior of consumers in four different incentive compatible auctions to the behavior of consumers who made non-hypothetical discrete choices between five goods. Despite the fact that the choice task and auction mechanisms are incentive compatible, we find that auction bids were significantly lower, as much as two times lower in many cases, than valuations implied from choices. We also find that auction data imply own-price elasticities of demand for higher quality products that are significantly more elastic than those implied from choice data. Nevertheless, for the five goods evaluated, individuals' preference orderings were consistent across value elicitation methods. These findings hold important implications for economists' view of preferences and may provide some insight into retailers' prevalent use of markets with posted-prices: individuals were more willing to part with their cash when making choices versus bids.

This paper proposes an analysis of both doctors and patients' behavior in an agency model that accounts for the interplay between two highly debated health issues: drug advertising toward doctors and/or patients, and the serious problem of patients' noncompliance with their doctors' prescriptions. Due to the lack of individual data, we propose a structural approach inspired from the industrial organization literature. The model is estimated semiparametrically with product level data on the U.S. market for anti-glaucoma drugs. The results suggest that doctors' prescriptions are directly influenced by the probability of noncompliance, as well as advertising aimed at both doctors and patients. Advertisement toward patients (respectively, doctors) appears to have contributed to (respectively, slowed down) the reduction of the estimated average noncompliance rate.

This paper measures the impact of midwifery-promoting public policies on maternity care in the United States, using national Vital Statistics data on births spanning 1989-1999. State laws mandating insurance coverage of midwifery services are associated with an 18-percentage rise in midwife-attended births. The laws did not decrease rates of cesarean deliveries or lead to consistent effects on maternal mortality or Apgar scores. They did, however, lead to a statistically significant drop in neonatal deaths. Divergence between OLS and natural experiment estimates suggests that women are selecting into provider groups based on unobserved preferences and health.

A monopolist who originally charges a uniform price across all markets may switch to discriminatory pricing upon the entry of a competitor. As a result, intensified competition may lead to more dispersed prices as well as higher prices for some or all consumers.

There is a common perception that teacher attrition is driven in large part by the allure of higher paying jobs in alternative occupations. However, little is known about what teachers do when they leave teaching. We examine the extent to which teachers leave teaching for higher paying jobs by merging several years of administrative teacher records from the education system in Georgia with salary information from the Georgia Department of Labor. We find strong evidence that very few of those who leave teaching take jobs that pay more than their salary as teachers.

Cell phone use is increasing worldwide, leading to a concern that cell phone use while driving increases accidents. Several countries, three states and Washington, D.C. have banned the use of hand-held cell phones while driving. In this paper, we develop a new approach for estimating the relationship between cell phone use while driving and accidents. Our approach is the first to allow for the direct estimation of the impact of a cell phone ban while driving. It is based on new survey data from over 7,000 individuals.This paper differs from previous research in two significant ways: first, we use a larger sample of individual-level data; and second, we test for selection effects, such as whether drivers who use cell phones are inherently less safe drivers, even when not on the phone.The paper has two key findings. First, the impact of cell phone use on accidents varies across the population. This result implies that previous estimates of the impact of cell phone use on risk for the population, based on accident-only samples, may be overstated by about one-third. Second, once we correct for endogeneity, there is no significant effect of hands-free or hand-held cell phone use on accidents.

An expression for the welfare cost of a marginal increase in the public debt is derived using a simple AK endogenous growth model. This measure of the marginal cost of public funds (MCF) can be interpreted as the marginal benefit-cost ratio that a debt-financed public project needs in order to generate a net social gain. The model predicts an increase in the public debt ratio will have little effect on the optimal public expenditure ratio and that most of the adjustment will occur on the tax side of the budget.

Under the September 11th Victim Compensation Fund (VCF), victims' families were provided monetary compensation based on economic and non-economic losses in exchange for giving up their right to sue U.S. entities, such as airlines. Was the Fund successful in calculating economic losses, and should it be repeated in the wake of another such attack? This paper assesses the extent to which forensic economists influenced the Special Master’s decisions. We find that, for the most part, the Special Master's economic awards before collateral offsets were bounded by the presumed award amounts and the forensic economist's calculations, with substantial variation across claimants. This result implies that the Special Master's economic awards appear to have been significantly influenced by other factors offered during the VCF hearings, raising questions about fairness if a similar process is to be repeated in the future.

This paper develops a theory of the firm's weighted average cost of capital (WACC) and the marginal tax rate with risky debt and potentially redundant depreciation and interest tax shields. The tax shields' risks, the firm’s borrowing interest rate and its marginal tax rate are intertwined, and they must therefore be determined simultaneously. We capture these interdependencies by determining the borrowing interest rate endogenously, using the single-factor approximate arbitrage pricing theory. This research strategy: a) yields the correct discount rate for valuing the tax shields and shows how better WACC and marginal tax rate estimates can be generated, b) identifies the determinants of the firm's debt capacity in terms of asset characteristics and exogenous economic variables and c) specifies, numerically, how policy variables (corporate tax rate, tax rules, the risk-free rate) affect the market values of claims on the firm's output that are both private (debt, equity) and public (the tax claim).

This paper uses previously unexploited data to examine polluters' compliance with point-source water pollution regulations, a line of inquiry motivated by widespread apparent overcompliance. We use a nationwide panel of monthly plant-level effluent concentrations from 1991-1999. These monthly data allow us to observe month-to-month variability in discharges and therefore to test hypotheses not previously examined.We find that plants that have higher discharge variability have lower median discharges. This is strong evidence for the purported "safety margin" effect. This result then implies that average discharges, a common measure of polluter behavior, are not an accurate indicator of polluter behavior.In response, we construct a plant-specific implied probability of a violation that accounts for discharge variability. We show that plants in richer communities have lower violation probabilities. We further argue that plants are indeed overcomplying with the regulations even when accounting for the safety margin effect.

Each summer milk processors around the country participate in sealed bid procurements for the right to provide public schools with milk throughout the subsequent academic year. School district contracts are an important part of vehicle routing problems that milk processors solve on an ongoing basis. There are allegedly substantial cost savings for a milk processor from servicing a district that is directly adjacent to one they already service. In this paper, following the work of Krishna and Rosenthal (1996), we construct a procurement model allowing for cost synergies. The equilibrium bid function maps directly into an empirical specification. Using data from a time period when bidders were allegedly acting non-cooperatively, our structural parametric estimation results give significant support for the presence of cost synergies in the bidding.

This paper demonstrates that credit constraints can lead to the inability to enforce contracts, thereby creating inefficiency. If time elapses between the contract period and the enforcement period, a credit constrained agent that uses the proceeds of trade to fund consumption faces a greater cost to enforce a contract than an unconstrained agent. This allows the other party to a contract to hold up the credit constrained agent, thereby creating inefficiency. This is demonstrated for two types of enforcement mechanisms; enforcement of a one-time trade via the courts, and enforcement of a long-term trade via a punishment strategy.

This paper analyzes the choice of deductible in insurance contracts that insure against a risk that, as is common, might materialize more than once during the life of the policy. As was established by Arrow (1963), from the perspective of risk-bearing costs, the optimal contract is one that uses an aggregate deductible that applies to the aggregate losses incurred over the life of the policy. Aggregate deductibles, however, are uncommon in practice. This paper identifies two disadvantages that aggregate deductibles have. Aggregate deductibles are shown to produce higher expected verification costs and moral hazard costs than contracts that apply a per-loss deductible to each loss that occurs. I further show that each of these disadvantages can make an aggregate deductible contact inferior to a contract with per loss deductibles. The results of the analysis can help explain the rare use of aggregate deductibles and, in addition, might explain why umbrella policies that cover all types of losses are rarely used.

The Out-Of-Wedlock Birth Reduction Bonus (“Illegitimacy Bonus”), part of the 1996 welfare reform legislation, awarded up to $100 million in each of five years to the five states with the greatest reduction in the non-marital birth ratio. Alabama, Michigan, and Washington D.C. each won bonuses four or more times, claiming nearly 60% of award monies. However, for these bonus winners, changes in the racial composition of births accounted for between one-third and 100% of the decline in the non-marital birth ratio. The non-marital birth ratio fell most in D.C., averaging 1.5 percentage points per year over the award period. Declines in non-marital birth ratios in Michigan and Alabama were slight. But the non-marital birth ratio fell in D.C. in large part because the number of black children born there fell dramatically, and a decline in the black population alone accounted for one third of the decline in black births. Within-race changes in non-marital birth ratios raised the overall non-marital birth ratio 0.5 percentage points in Alabama, and lowered the non-marital ratio by one percentage point in Michigan, and by about three percentage points in Washington D.C. Because it was based on unadjusted changes in states’ aggregate non-martial birth ratios, the Illegitimacy Bonus rewarded racial/ethnic compositional changes at least as much as it rewarded declining non-marital birth ratios within major racial/ethnic groups.

Integrated economic and ecologic modeling systems can yield more precise predictions about the underlying physical system and the risks imposed to humans and the environment. But do more accurate risk assessments matter for environmental policy that is in part influenced by the consumers of this physical system? Herein we discuss a situation within the crown jewel of the US national park system in which the answer is no. For endangered cutthroat trout populations threatened by the invasion of exotic lake trout in Yellowstone Lake, if one accounts for the preferences of the average visitor, the optimal policy can be bluntly summarized as "fix the roads, forget the fish." To reverse this outcome, the typical visitor to the Park would have to be more forward-thinking and more generous toward a species that she would never see.

This study estimates the effect of hours worked at a part time job on GPA among 12th grade respondents to the annual 1991–2004 Monitoring the Future surveys. I use two stage least squares (2SLS) with indicators for various levels of unearned income, which are strong predictors of hours worked, as instruments. Results show that GPA increases with additional work hours up to 15 per week and then declines. 2SLS estimates are substantially larger than those from ordinary least squares and robust to exclusion restrictions variations. Working has a small negative impact on educational time, but a much larger quadratic impact, which is negative up to 15–20 hours per week, on time spent watching television and in social activities. Effects are stable across the sample period, larger for females, non-whites and metropolitan area residents, and linearly positive but substantially smaller for students with high future discount rates.

We study an R&D game in which a research unit undertakes a (non-observable) research effort and, if an innovation is obtained, auctions licenses to a pool of producers. Each producer has a private valuation for the license and suffers a negative externality when a competitor becomes a licensee. We compare the optimal rule for the allocation of licenses and the level of research effort implemented by the innovator in two scenarios: free licensing by the innovator vs. optimal regulation. As long as the cost of public intervention is sufficiently low, free licensing induces two different types of inefficiencies: an excessively high price for licenses and a suboptimal dissemination of knowledge, and an excessively low research effort. This indicates that public intervention should combine the following measures: (i) an antitrust agency which limits the royalties that innovators can ask for a license, and (ii) a direct subsidy to research activity.

We develop a political economy model of trade policy using a sector specific factor model with international capital mobility, looking for the relationship between protection and the composition of foreign capital. As foreign direct investment is remunerated at the marginal productivity of capital, an increase of the tariff raises its remuneration, increasing also the transfer of resources abroad. This is an additional cost of the tariff in terms of welfare. As external debt is remunerated at a given international interest rate, the additional cost of protection in terms of welfare does not appear. Then the equilibrium tariff with external debt is higher than with foreign direct investment. We present evidence for a panel of developing countries observed between 1970 and 1998 giving support to the main implication of the model. We find a significant effect of the composition of foreign capital on trade policy, implying that countries which have relatively more foreign direct investment than external debt also have less protection.

Firms agglomerate in one region due to increasing returns, input-output linkages and transportation costs. In the de-industrialised region factor prices are lower and a new technology may be profitable to adopt in that region instead, inducing a change in the technological leadership. This paper shows that the risk of locking in to an old technology is monotonically increasing in the benefits of agglomeration. Greater incompatibility between technologies also increases the risk of rejecting potentially superior manufacturing processes.

Recent declines in job tenure have coincided with a shift away from traditional defined benefit (DB) pensions, which reward long tenure. New evidence also points to an increase in job-to-job movements by workers, and we document gains in relative wages of job-to-job movers over a similar period. We develop a search model in which firms may offer tenure-based contracts like DB pensions to reduce the incidence of costly on-the-job search by workers. Either reduced search costs or an increase in the probability of job matches can, under fairly general conditions, lower the value of deterring search and the use of DB pensions.

Extant research finds inverse relationships between beer taxes and physical child abuse. This study extends the direction of research by investigating the relationship between beer taxes, other alcohol policies and child homicide deaths. The homicide death count for children 0-9 years old at the state level over 1981-2002 is used as the dependent variable. Negative binomial regression models with state and year fixed effects and other control variables are estimated. Results show an inverse relationship between per gallon beer taxes and child homicide deaths (elasticity approximately -0.19), and a direct relationship between alcohol retail outlet density and child homicide deaths (elasticity approximately 0.16). Very similar results are obtained when the dependent variable is changed to be the sum of child homicide deaths and child deaths classified as being due to 'undetermined intent', and when conditional maximum likelihood Poisson models are used instead of negative binomial models.

This paper examines inequality and mobility using measures of income and consumption. Consumption is claimed to be a better measure of permanent income and thus well-being, but most studies of inequality and mobility using U.S. data use income.This paper uses cohort data from the Consumer Expenditure Surveys on total consumption to impute consumption in the Panel Study of Income Dynamics. Then, we use this imputed consumption and actual income from the PSID to examine changes in inequality and mobility. Similar to earlier findings, we show that there has been a large increase in income inequality but no concurrent increase in consumption inequality in the 1990s. Conversely, income mobility and consumption mobility are similar during this time period.Finally, we link the concepts of inequality and mobility using a social welfare function. The results suggest that income mobility and consumption mobility more than offset the increases in inequality.

It is shown how corruption in the management of environmental resources can give rise to a comparative advantage in environment-intensive industries. International trade, in this setting, is not necessarily welfare improving. When corruption responds endogenously to the over-exploitation of resources, it is possible for international trade to generate forces that improve resource management by reducing corruption. Therefore, in this case trade could provide gains in addition to the usual gains.

The first file-sharing software, Napster, was shut down in 2001, but the copying technology’s impact on the music industry is still passionately debated. This paper uses micro-level data from the Consumer Expenditure Survey to examine the impact of Internet file sharing on music sales. Music industry representatives argue that the practice decreases CD sales, while supporters of file-sharing allege the practice could actually increase sales. Using household-level data from the Consumer Expenditure Survey, we find support for the claim that file-sharing has decreased sales.

This paper analyses the impact of the emergence of new funds on the portfolio decisions of mutual fund managers who are evaluated on the basis of relative performance within a dynamic model. Recent theoretical literature has pointed to the inefficiencies in portfolio selection caused by relative performance evaluation of fund managers. We find that the on-going process of creation of new funds, by posing an entry threat to the incumbent fund managers, greatly alleviates these inefficiencies. Hence the transitory market structure that characterises the mutual fund industry could explain why relative performance evaluation is widely in use.

In recent years, different levels of government in Canada and the United States have claimed that public complaints are an important source of information for the enforcement of environmental regulations. Public complaints provide monitoring at a lower cost than inspections but are inaccurate because citizens lack the information to assess a potential environmental threat properly. Little existing literature examines the use of public complaints in enforcing environmental regulations. Using a dataset of environmental reports in the province of Alberta between January 1996 and September 2002, this paper details the use of public complaints to enforce Alberta's environmental legislation and examines the effectiveness of public complaints in different industries and for different environmental threats. I find that that the majority of public complaints are simply odour complaints, and that public complaints are investigated less often over time and very rarely lead to enforcement action.

This paper examines representatives' voting on the HEALTH Act of 2003, which proposed a limit on noneconomic damages in medical malpractice lawsuits. The estimates show that the more campaign contributions a representative received from law firm PACs, the less likely he or she was to vote for the bill, while money from insurance and health care industry PACs increased the likelihood of an aye vote. These effects remain after controlling for the endogeneity of campaign contributions. Other factors affecting voting decisions include party affiliation, representative ideology, whether or not the representative was an attorney, the change in state malpractice premiums and payouts, and the change in the number of doctors in the state. There is no strong evidence that the AMA's strategy of naming certain states as being in "crisis" increased the probability that representatives from those states supported the bill.

``Absorptive capacity" – a firm's ability to assimilate information acquired from other firms – can depend on the amount of basic research it conducts. The optimal expenditures on basic research depend on its costs, and these expenditures in turn affect the amount of applied research a firm conducts to lower production costs. This paper shows that firms' expenditures on basic research can differ from the socially optimal levels, and the difference depends on the magnitude of the basic research costs and the amount of research collaboration between the firms. Policy responses that could bring firm behavior in line with that which is socially desirable are discussed as well.

In 1979, Australia abolished federal inheritance taxes. Using daily deaths data, we show that approximately 50 deaths were shifted from the week before the abolition to the week after. This amounts to over half of those who would have been eligible to pay the tax. Although we cannot rule out the possibility that our results are driven by misreporting, our results imply that over the very short run, the death rate may be highly elastic with respect to the inheritance tax rate.

This study examines the relationship between officer characteristics and racially biased policing. In particular, we explore the relationship between the officer's race/ethnicity and the nature and extent of excessive enforcement actions by race. We derive an efficient enforcement action theorem which suggests that if public safety is the sole concern of police agencies, then racially and ethnically biased policing will not be a persistent element of police practice. Alternatively, our political economic model suggests that police apply more severe sanctions against other-group drivers. Our results show that the race and ethnicity of officers have a significant and substantive impact on the intensity of enforcement actions by the Florida Highway Patrol against stopped drivers.