When corporate social responsibility meets the challenges of rising globalisation risks

Global firms are facing great difficulties in containing new risks along their supply chains: reputation risks, contestation risks, safety risks and markets risks, as well as the risk of having to deal with new laws and more binding norms. The lack of internal control on these Global Value Chains is revealed through different social or environmental crises. Mass media are mobilised by NGOs and citizens as a means of pressure, which undermines the reputation of firms and therefore their immaterial assets. These crises show that the codes of conduct and the so-called soft law instruments fail to control the supply chain, but at the same time, these instruments begin to set new standards to face these new risks. This paper discusses this evolutionary institutional process, and stresses how CSR is not only a fiction but starts having real effects by creating new institutions to respond to risks. We will focus on reputation risks and markets risks to show that, even though CSR might not have led to a completely new system of rules, the institutional process under study has a meaningful impact on the regulatory framework.     

Intentional Exposure Studies of Environmental Agents on Human Subjects: Assessing Benefits and Risks∗

In this article, I assess the benefits and risks of studies that intentionally expose research subjects to environmental agents. I describe these types of studies, identify their benefits and risks, compare them to other research methods that can be used to investigate the relationship between environmental exposures and disease, and discuss some issues related to research design and risk minimization. I argue that the benefits of intentional environmental exposure studies outweigh the risks when 1) the knowledge gained is likely to improve our understanding of the relationship between environmental exposure and disease, 2) this knowledge cannot be obtained by other methods, 3) the experiments are well designed, 4) the subjects will receive some benefits, such as medical evaluations, 5) risks are minimized, and 6) the risks to human subjects are less than those encountered in a typical Phase I drug study. Only in rare circumstances (i.e., when an intentional environmental exposure study is needed to implement an important environmental or public health intervention or regulation) may such studies expose research subjects to risks as high as those encountered in a typical Phase I drug trail.     

Intentional exposure studies of environmental agents on human subjects: assessing benefits and risks

In this article, I assess the benefits and risks of studies that intentionally expose research subjects to environmental agents. I describe these types of studies, identify their benefits and risks, compare them to other research methods that can be used to investigate the relationship between environmental exposures and disease, and discuss some issues related to research design and risk minimization. I argue that the benefits of intentional environmental exposure studies outweigh the risks when 1) the knowledge gained is likely to improve our understanding of the relationship between environmental exposure and disease, 2) this knowledge cannot be obtained by other methods, 3) the experiments are well designed, 4) the subjects will receive some benefits, such as medical evaluations, 5) risks are minimized, and 6) the risks to human subjects are less than those encountered in a typical Phase I drug study. Only in rare circumstances (i.e., when an intentional environmental exposure study is needed to implement an important environmental or public health intervention or regulation) may such studies expose research subjects to risks as high as those encountered in a typical Phase I drug trail.     

When risks turn to uncertainties: insights from the food markets in China and in Japan

The paper explores the relationship between risks and market organisation by means of two case studies. After defining the two concepts, it analyses how risks influence the functioning of markets, by means of the theory elaborated by Knight (1921). The Knightian focus on the role of judgments in risks analysis implies that the concept of rationality has to be enlarged beyond the rational choice theory. Similarly, markets cannot be defined anymore as simply an equilibrium between supply and demand: they are a special type of institution. Therefore, the analysis centres on how people make decisions and apprehend risks in relation to market structures. In the rest of the paper, two of the most prominent food safety crises in recent years are analysed based on this conceptual framework: the milk powder crisis in China (2008) and the sanitary crisis following the Fukushima nuclear accident (2011). It is shown that they represent two types of market risks, one generated by the food market organisation and the other one related to the definition of the product quality.     

Judgmental Discounting and Environmental Risk Perception: Dimensional Similarities, Domain Differences, and Implications for Sustainability

Environmental risks constitute a special category of risks because they often involve consequences that are highly uncertain, strongly delayed, occurring at distant places, and—therefore—mostly borne by others. Economic, decision–theoretic, and psychological research about the way people deal with such consequences is reviewed. Two major findings are presented: first, there is evidence that discounting mechanisms are stable across different preference dimensions (uncertainty, temporal, spatial, and social distance). Second, discount rates tend to vary across different problem domains (e.g., environmental vs. health vs. financial risks). In particular, it appears that temporal discounting is less pronounced for environmental risks than in other domains. Several factors are identified that affect the nature of the risk evaluation process, and it is argued that environmental risks differ from other risks on such factors. These environmental-risk characteristics may have important implications for policy strategies to promote environmental sustainability. Contrary to other domains, appealing to the public's long-term preferences may be successful. Also in policy making, insights from standard economic decision theory to environmental decision making should be applied with caution.     

Effects of Uncertainty Aversion on the Call Option Market

This article examines the effects of uncertainty aversion in competitive call option markets using a partial equilibrium model with the Choquet-expected utility setup. We find that the trading volume of a call option is negatively affected by uncertainty aversion, whereas the price of the call is practically independent of it.      

Comparing risk preferences over financial and environmental lotteries

This paper investigates whether preferences over environmental risks are best modeled using probability-weighted utility functions or can be reasonably approximated by expected utility (EU) or subjective EU models as is typically assumed. I elicit risk attitudes in the financial and environmental domains using multiple-price list experiment. I examine how subjects?? behavioral, attitudinal, and demographic characteristics affect their probability weighting functions first for financial risks, then for oil-spill risks. I find that most subjects tend to overweight extreme positive outcomes relative to expected utility in both the environmental and financial domains. Subjects are more likely to overemphasize low probability, extreme environmental outcomes than low probability, extreme financial outcomes, leading subjects to offer more support for mitigating environmental gambles than financial gambles with the same odds and equivalent outcomes. I conclude that EU models are likely to underestimate subjects?? willingness to pay for environmental cleanup programs or policies with uncertain outcomes.     

Regulating product markets: a growing challenge for open economies – with special references to agro-food product markets

In the present phase of internationalisation, processes of social construction of product markets are under stress. On one hand, the internationalisation of production processes gives more room for manoeuvre to the producers. On the other hand, the development of scientific technologies, embedded with new risks and uncertainties, makes it difficult to control the quality of products and production processes. The drive for competitiveness in a world where only free trade arguments seem to be heard limits the willingness of individual countries to take action. International institutions have been unable to launch the international co-ordination that could have helped countries to get out of this deadlock, though they need to fight climate change and pollution as well as the pressing new environmental hazards, which are illustrated with the case of the agro-food product markets in Europe. They should foster international processes of social construction of product markets to learn how to strike a better balance between free trade and safe trade principles before it is too late.     

Guaranteed renewability uniquely prevents adverse selection in individual health insurance

New models of multi-period insurance show that health insurance buyers can be protected against changes in premiums from health shocks associated with chronic conditions by the addition of “guaranteed renewability” provisions. These models assume that a buyer’s risk level in every time period is observed by all insurers. They also require a premium sequence that is “front-loaded,” which may be costly to buyers if capital markets are imperfect. We relax the common knowledge feature of the model by assuming that a person’s risk in any time period is known only by that individual and the current insurer. One might suspect that a premium sequence with higher later period premiums would be incentive compatible because low risks will have less desirable offerings from alternative insurers. However, we show that generally, only the original premium schedule is incentive compatible, and attempts to alter front-loading will not be an equilibrium.     

Reforming the European Common Agricultural Policy: From price & income support to risk management

Over the last 30 years, the European Union has significantly reformed its Common Agricultural Policy by introducing direct payments to farmers and reducing price support levels. While the European agricultural prices become more volatile, all economic models assessing these reforms remain static and ignore the risk dimensions. This paper develops an original stochastic computable general equilibrium model capturing the different sources of risk, farmers’ risk attitude and risk contingent markets. We find that the reduction of price support levels has modest market impacts but negative global welfare effects by exposing risk-averse European farmers to the world price volatility. This issue is not solved by the direct payments, which have negligible market and global welfare impacts through their wealth effects. On the other hand, we find that unbiased futures markets can solve this global welfare issue by allowing European farmers to transfer their price risks. Therefore, European policymakers should ensure well-functioning risk contingent markets rather than maintaining rigid intervention price levels.     

Brokering Interests: The Use of Market-Based Policies by Interest Groups

Objective. This article begins the process of broadly evaluating the role of nongovernmental actors in regulatory markets by specifically examining environmental groups’ use of the sulfur dioxide (SO2) market established by Title IV of the Clean Air Act Amendments of 1990. This research posits that the use of nonexclusionary markets in environmental quality regulation allows interest groups a nonpareil opportunity to seek to directly affect policy outcomes. Methods. This article uses two forms of analysis. The first part of the article provides a qualitative analysis of the motives of interest groups that use incentive‐based policies in an attempt to achieve their desired policy outcomes. The last section of the article uses empirical data from the Environmental Protection Agency's Allowance Tracking System to evaluate interest groups’ use of market‐based policies. Results. The use of market‐based mechanisms in public policies offers interest groups a new form of participation in the policy process, yet it seems that only “new” groups are willing to enter the market. Further, I find that though the participating groups may not be able to affect the relative price of allowances (as they claim they will), they nonetheless are able to reduce the absolute number of allowances available. Finally, using market‐based policies to achieve their preferred outcomes may be a “rational” decision for groups in that the “return” on their investment may indeed be quite high. Conclusions. One aspect of pollution markets is clear—they do create an interesting new mechanism of public activism for groups that wish to protect the environment but do not want to “lobby or litigate.” By purchasing pollution allowances groups attempt to directly affect environmental policy outputs without entering the policy cycle as it has been previously understood. As market‐based policies are employed more broadly, opportunities accorded to environmental groups for active involvement in seeking to limit ambient pollutants, as well as the groups’ potential impact, may only expand.     

Adjustment costs in labour markets and the distributional effects of trade liberalization: Analytics and calculations for Vietnam

This paper explores the implications of different labour market adjustment formulations for the analysis of trade liberalization across different sectors and households in the Vietnamese economy using computable general equilibrium (CGE) models. The model is calibrated to a model admissible Vietnamese data set for 1997.We use five different adjustment cost treatments in analyzing the effects of trade liberalization in Vietnam. We compare simulation results from each and show how different treatments can significantly affect the distributional impacts of policy reforms, such as the trade liberalization. First, labour is treated as fully mobile across all sectors in the economy. Second, the sectors of economy are broken down into the two blocks of agricultural and industrial-service sectors and labour markets are treated as segmented by sector block. No mobility of labour between blocks is allowed while labour within each sector block remains fully mobile. The third is the same as the second, but movement within each agricultural and industrial-service sector block involves transactions costs. In the fourth, mobility of workers from the agricultural to industrial-service sectors and vice versa is possible with transactions costs. Finally, we calibrate the model with unemployment but no adjustment costs for labour reallocation to explore how model results differ in terms of adjustments in the labour market and welfare effects.Our results indicate significant differences in the impacts from trade liberalization across these cases. The redistributional impact of trade liberalization is sharper against poor rural households with segmented labour markets and with transactions costs, while aggregate efficiency gains are similar to no adjustment cost analyses. The conclusion is the choice of model structure for labour markets is crucially important for the perceived distributional impacts of trade liberalization.     

Multilateral negotiations over climate change policy

Negotiations in the real world have many features which tend to be ignored in policy modeling. They are often multilateral, involving many negotiating parties with preferences over outcomes that can differ substantially. They are also often multidimensional, in the sense that several policies are negotiated over simultaneously. Trade negotiations are a prime example, as are negotiations over environmental policies to abate carbon dioxide (CO₂). We demonstrate how one can formally model this type of negotiation process. We use a policy-oriented computable general equilibrium model to generate preference functions which are then used in a formal multilateral bargaining game. The case is to study climate change policy, but the main contribution is to demonstrate how one can integrate formal economic models of the impacts of policies with formal bargaining models of the negotiations over those policies.     

Arbitrage,rationality, and equilibrium

No-arbitrage is the fundamental principle of economic rationality which unifies normative decision theory, game theory, and market theory. In economic environments where money is available as a medium of measurement and exchange, no-arbitrage is synonymous with subjective expected utility maximization in personal decisions, competitive equilibria in capital markets and exchange economies, and correlated equilibria in noncooperative games. The arbitrage principle directly characterizes rationality at the market level; the appearance of deliberate optimization by individual agents is a consequence of their adaptation to the market. Concepts of equilibrium behavior in games and markets can thus be reconciled with the ideas that individual rationality is bounded, that agents use evolutionarily-shaped decision rules rather than numerical optimization algorithms, and that personal probabilities and utilities are inseparable and to some extent indeterminate. Risk-neutral probability distributions, interpretable as products of probabilities and marginal utilities, play a central role as observable quantities in economic systems.     

Stable International Environmental Agreements with a Stock Pollutant,Uncertainty and Learning

In this paper I address the question of how uncertainty about damage costs and the possibility of resolving that uncertainty in the future affects the incentives for countries to join an international environmental agreement. I use a two-period model with a stock pollutant where the number of countries generating pollution can be arbitrarily large. The stability concept employed is such that size of the stable IEA can be anywhere between 2 and the grand coalition of all countries depending on parameter values. The dynamic structure allows two different membership rules for an IEA: fixed (countries commit at the outset to be members for both periods) or variable (countries decide each period whether to join). I show that with fixed membership learning results in at least as high membership and global welfare as no learning (unless both the expected value and variance of damage costs are high). With variable membership, learning leads to higher membership (in the second period) but lower global welfare than no learning. For most parameter values variable membership results in higher global welfare than fixed membership.     

Endogenous correlated equilibria in noncooperative games

Most of the results of modern game theory presuppose that the choices rational agents make in noncooperative games are probabilistically independent. In this paper I argue that there is noa priori reason for rational agents to assume probabilistic independence. I introduce a solution concept for noncooperative games called anendogenous correlated equilibrium, which generalizes the Nash equilibrium concept by dropping probabilistic independence. I contrast the endogenous correlated equilibrium with the correlated equilibrium defined by Aumann (1974, 1987). I conclude that in general the endogenous correlated equilibrium concept is a more appropriate solution concept for noncooperative game theory than the less general Nash equilibrium concept. I close by discussing the relationship between endogenous correlated equilibrium and the game solution concept calledrationalizability introduced by Bernheim (1984) and Pearce (1984).     

Physician duties in the conduct of human subject research

In this article, I examine a skeptical argument against the possibility of ethically justifying risky human subject research (rHSR). That argument asserts that such research is unethical because it holds the possibility of wronging subjects who are harmed and whose consent to participate was less than fully voluntary. I conclude that the skeptical argument is not in the end sufficient to undermine the ethical foundation of rHSR because it fails to take account of the special positive duty researchers owe their clients and future patients. Although the skeptical argument is defeated, it exacts certain novel concessions from the pro‐research position. Of particular importance are the admissions (a) that researchers presumptively owe a fiduciary duty to research subjects, (b) that because the most important risks of rHSR are unknown and unquantifiable that duty must be explicitly waived by all subjects before they participate in any protocol, and (c) that such waivers must be made by individuals who satisfy objective criteria of competence for giving fully voluntary consent. The implementation of procedures responsive to these concerns might have a dampening effect on the conduct of research. However, the article concludes with a consideration of the likely benefits to researchers and society of a more cautious ethical regime.     

General equilibrium with information sales

Consider a general equilibrium model in which information is an indivisible differentiated commodity for which satiation occurs at one unit. Suppose that uncountably many types of information are possible which can be costlessly combined by agents who desire information only because it helps them to maximize state dependent utilities under uncertainty. Similarity of information is expressed by a metric which reflects substitution possibilities among different information structures. Such a large pure exchange economy in which prices for (differentiated) information structures and (finitely many) ordinary commodities are determined simultaneously is consistent - equilibrium distributions exist.     

The Value of a Probability Forecast from Portfolio Theory

A probability forecast scored ex post using a probability scoring rule (e.g. Brier) is analogous to a risky financial security. With only superficial adaptation, the same economic logic by which securities are valued ex ante – in particular, portfolio theory and the capital asset pricing model (CAPM) – applies to the valuation of probability forecasts. Each available forecast of a given event is valued relative to each other and to the “market” (all available forecasts). A forecast is seen to be more valuable the higher its expected score and the lower the covariance of its score with the market aggregate score. Forecasts that score highly in trials when others do poorly are appreciated more than those with equal success in “easy” trials where most forecasts score well. The CAPM defines economically rational (equilibrium) forecast prices at which forecasters can trade shares in each other’s ex post score – or associated monetary payoff – thereby balancing forecast risk against return and ultimately forming optimally hedged portfolios. Hedging this way offers risk averse forecasters an “honest” alternative to the ruse of reporting conservative probability assessments.     

The cross-impact between financial markets,Covid-19 pandemic,and economic sanctions: The case of Iran

The main financial markets in the Iranian Economy include the stock exchange, foreign exchange, oil, and gold markets. The sharp fluctuations in these markets, especially those caused by the severe sanctions imposed on Iran in May 2018, and the pandemic outbreak of Covid-19 have led to more confusion and uncertainty among investors. One of the effective approaches to examine such unstable conditions is to study the co-movement(s) between markets to identify the leading variable(s). Thus, in the present study, Wavelet Coherence Analysis was applied to examine the co-movements between markets in a time period from September 2014 to June 2020, as an intense period of uncertainty in Iran. In other words, in this study, the markets were investigated in different sub-periods. Also, the Segmented Regression was performed to estimate the impact of sanctions and the Covid-19 pandemic on the co-movements of financial markets in Iran.The results showed that the oil price had a low co-movement with the other three markets, i.e. stock exchange, exchange rate, and gold markets. Thus, the oil market can be a suitable alternative for risk aversion investors. Meanwhile, the oil market could also act as a source of finance for the government during the sanctions period. That possibly explains the recent decision by the Iranian government to use the oil market to finance its budget deficit. Between the exchange rate and gold price, the gold price was identified as the leading variable. While the exchange rate and gold price did not show a significant co-movement in stable conditions, they did show a significant co-movement in unstable conditions, as in times of sanctions or during a global pandemic and thus influenced the investors’ portfolio risk. This result is important from a policy-making perspective. Based on this result, the policymakers can, especially during crises and unstable conditions, control the gold market and make it more stable by managing the foreign exchange market.