Volume 65, Issue 2

The frequency of intense natural disasters has been on the rise worldwide over the past 40 years. Meanwhile, temperatures have risen on average, while both temperatures and precipitation have become more variable and more extreme. Their impacts are clearly visible in Asia and the Pacific region, which has seen some of the most damaging natural disasters. Recent scientific evidence points to the link between rising greenhouse gas concentrations in the atmosphere and climate variables such as temperature and precipitation that underlie floods, storms, droughts and heatwaves. Rising population exposure, greater population vulnerability, and increasing climate-related hazards are three main disaster risk factors behind the increased frequency of intense natural disasters. A study underlying this paper finds an association between more frequent climatological disasters (relating to droughts and heat waves) and rising temperatures; and between hydrometeorological disasters (relating to floods and storms) and people locating in harm’s way and precipitation anomalies. These findings underpin the necessity of greater prevention of natural disasters, and of integrating climate adaptation and mitigation in reducing disaster risks. With no let-up in the increasing costs of disasters to lives and livelihood, homes and infrastructure - such preventive measures must be part of policy and planning.

Using a real effort experiment, we analyze the dependence of tax evasion on the amount of effort invested to generate income. In three treatments, subjects were either endowed with income or had to work moderately or arduously to earn it. In line with prospect theory, subjects evaded more taxes when they worked hard for their income. We find little evidence for the prediction that tax evasion in the endowed treatment is higher than that in the moderate-effort treatment.

The question whether central banks should bear responsibility for financial stability remains unanswered. In connection with the use of interest rates, it is therefore not clear whether and how the Taylor rule should be augmented by an additional financial stability term. This paper reviews the normative and positive literature on Taylor rules augmented with exchange rates, asset prices, credit, and spreads. These measures have evolved as common indicators of financial (in)stability in the Taylor rule literature. In addition, our own analysis describes the development of these indicators for the core and the periphery of the Eurozone. Given the high degree of heterogeneity between euro area countries, the conclusion here is that an interest rate reaction to instability by the European Central Bank would be inappropriate in times of crisis. However, this conclusion is somewhat weakened if there is no crisis.

This paper is concerned with methods for analysing patterns of conflict. We survey dynamic games, differential games, and simulation as alternative ways of extending the standard static economic model of conflict to study patterns of conflict dynamics, giving examples for each type of model. It turns out that computational requirements and theoretical difficulties impose tight limits on what can be achieved using the first two approaches. In particular, we appear to be forced to model the outcome of conflict as being decided in a single final confrontation if we employ non-linear contest success functions. A simulation study based on a new model of adaptive, boundedly rational decision making, however, is shown not to be subject to this limitation. Plausible patterns of conflict dynamics emerge, which we can link to both historical conflict and standard tenets of military theory.