THE EXTENDED COASE THEOREM AND LONG RUN EQUILIBRIUM: THE NONEQUIVALENCE OF LIABILITY RULES AND PROPERTY RIGHTS

Many authors have held that in a world with reasonable positive transactions costs, the assignment of liability for pollution damages affects profits, thus long run equilibrium. Therefore, the Coase Theorem fails for such cases. Others have defended the Theorem in such situations .
This paper shows that the disagreement has its roots in a confusion of liability rules and property rights. A simple general equilibrium model is used to show that the Theorem is correct for property rights assignments, but not for liability rules. Liability rules are shown to be, in effect, incomplete property rights, which leads to inefficiency .     

CRIMINAL OPPORTUNITY THEORY AND THE RELATIONSHIP BETWEEN POVERTY AND PROPERTY CRIME

Criminal opportunity theory suggests that community economic deprivation has two countervailing effects on property crime: it causes strain and disorganization which may encourage some individuals to offend, but it also simultaneously lessens opportunities to engage in property crime by reducing the supply of worthwhile targets in an area. The present study examines the relationship between economic deprivation and rates of burglary and motor vehicle theft for census tracts in two large American cities (Austin and Seattle). Regression analyses support the opportunity saturation hypothesis derived from criminal opportunity theory. This hypothesis suggests that the relationship between levels of deprivation and property crime is curvilinear where the positive effect of deprivation on property crime is stronger at low levels of neighborhood poverty than it is at high levels. Research and policy implications are discussed.     

EARNINGS GROWTH ON THE JOB AND BETWEEN JOBS

This paper uses detailed data on the salary histories of individuals to show how an individual's observed earnings growth can be decomposed into growth occurring on the job and growth occurring between jobs. It is shown that the relative contributions of these two components to overall earnings growth differ across race and education groups. Further, as predicted by the specific training hypothesis, the more mobile individuals are found to have smaller on-the-job earnings gains in absolute terms than the less mobile.     

A DESIGNER'S CHOICE BETWEEN SINGLE‐PRIZE AND PARALLEL TOURNAMENTS

In this article, I theoretically and experimentally compare a designer's profits from two tournament designs. The first design is a standard winner‐take‐all tournament with a single prize. The second design features two winner‐take‐all (parallel) tournaments with different prizes where individuals choose which tournament to enter before competing. I develop a simple model that illustrates how the relative performances of these designs change as contestants' abilities differ. The theoretical model shows that the designer's profit is higher (lower) in the parallel tournament when contestants' abilities differ greatly (are similar). I complement these findings with experimental evidence. The experiments show that the parallel tournament is more profitable under high heterogeneity, whereas under low heterogeneity, the designer is better off with the single‐prize tournament. Furthermore, high‐ability agents under‐participate and low‐ability agents over‐participate in the high‐prize tournament relative to the theoretical prediction. (JEL C72, D82, J33, M51, M52)     

ON OPTIMAL AND AD HOC STABILIZATION POLICY RULES

This paper compares the structure of ad hoc stabilization policy rules of the type suggested by Phillips with the structure of optimal policy rules derived for the same models using the Maximum principle. More particularly the paper suggests that the performance of ad hoc rules could be improved by reformulating them to accommodate both the lag structure and the forecast structure of the underlying macroeconomic model. The paper also illustrates the superiority of policy rules which utilize time-varying policy coefficients.     

THE EFFECT OF SELECTIVE INS MONITORING STRATEGIES ON THE INDUSTRIAL EMPLOYMENT CHOICE AND EARNINGS OF RECENT IMMIGRANTS

One effect of 1986's immigration reform was to make INS inspection of firms more costly relative to other industries. In response, we suggest, the INS refocused its enforcement efforts toward industries with a higher concentration of illegals per establishment, especially manufacturing. We test this hypotheses and model the effects of a selective monitoring strategy on the employment choice and wages of illegal workers. We find evidence of selective monitoring by the INS and that this policy has redistributed illegal workers from closely to weakly monitored industries. Specifically, we find a shift from the higher-paying manufacturing sector to the agricultural.     

ON FRUITFUL AND FUTILE TESTS OF THE RELATIONSHIP BETWEEN SEARCH AND PRICE DISPERSION

We exploit cross‐sectional and temporal differences in search intensity in order to examine the relationship between search costs and price dispersion using a hand‐collected panel data set from Jerusalem's Shuk Mahane Yehuda outdoor market. We present empirical evidence that price dispersion increases with the cost of search using several different measures of price dispersion; however, our interpretation of this finding is sensitive to the search proxy in question. We also address several acute difficulties facing empiricists seeking to test theoretical price‐dispersion models in which consumers are heterogeneous in their search behavior. (JEL L11, L13)     

FURTHER EVIDENCE ON THE RELATIONSHIP BETWEEN FEDERAL GOVERNMENT DEBT AND INFLATION

Does an increase in the federal debt cause inflation? Dwyer [1982] using a par value measure of debt, finds no support for such a causal link. Cox [1985] using a market value measure, finds evidence that increases in debt produce higher inflation rates. We reconcile these results by demonstrating that failure to capture the interest rate effects inherent in the market value measure accounts for the finding that debt "causes" inflation. Incorporating interest rates into our test equations using the market value series leads us to conclude that, like the par value series results, increases in federal debt do not cause higher rates of inflation.     

INTELLECTUAL PROPERTY AND THE NATURE OF SCIENCE

The debate about the patenting of research is perhaps the most passionate now taking place about science and scientific culture. It is widely maintained that the expansion of patenting since about 1980 betrays a scientific tradition to which norms of universalism and common ownership of knowledge were central. This paper goes back to mid-twentieth century debates about science and intellectual property (IP) to argue that many of the norms we take as so central to science were themselves first articulated to critique patenting practices. In particular, it looks at how an economist (Arnold Plant), a scientist/philosopher (Michael Polanyi), and an information theorist (Norbert Wiener) responded to such practices. It especially focuses on the role of intellectual-property concerns in the making of Polanyi's philosophy of science, which it excavates through a reading of his unpublished papers. This reveals that the modern field of ‘science studies’ is indebted for some of its key concepts to an earlier generation of patent wars – an inheritance that exemplifies some of the strange ways in which the sociopolitical meanings of ideas can change from generation to generation. The point is not that present-day critics of scientific patenting are wrong, but that the very terms of the debate are more deeply-seated in the development of scientific culture than any of us has realized.     

EVOLUTION AND SPONTANEOUS UNIFORMITY: EVIDENCE FROM THE EVOLUTION OF THE LIMITED LIABILITY COMPANY

We examine whether the unguided state-by-state evolution of limited liability company statutes has led to efficient interstate uniformity. Our evidence suggests significant uniformity has been produced in cases where the net benefits of uniformity are positive, and that such uniformity has not been produced by herd behavior. Our results are consistent with Alchian's intuition about the role of market processes, and suggests that the survival of efficient rules, fostered by the rational behavior of decentralized economic actors, are produced by forces beyond the control or foresight of individual lawmakers or legislatures.     

THE DEMAND FOR EXCESS RESERVES, LIABILITY MANAGEMENT, AND THE MONEY SUPPLY PROCESS

Commercial bank behavior is not adequately dealt with in existing macro models of the financial sector. The central role of a demand for excess reserves (or free reserves) function in models of the money supply process is particularly suspect. In this paper, it is argued that changes in commercial bank behavior induced by alterations in economic and financial conditions and various banking regulations, along with the central bank's approach to policy, have combined to alter the excess reserve function and the relationship between bank reserves and the money supply. Empirical work presented suggests that the "demand" for excess reserves has indeed undergone structural change. Thus, the study indicates that conventional approaches to commercial bank behavior and the demand for excess reserves need to be reworked.     

STRICT PRODUCT LIABILITY AND SAFETY: EVIDENCE FROM THE GENERAL AVIATION MARKET

This paper examines the impact of a strict product liability standard on the accident rate in the general aviation (GA) industry. Liability expenses increased by 775% between 1976 and 1986, reducing the sales of new GA aircraft by 90% and increasing the age of the GA fleet. Using both aggregate and model‐specific data, our results indicate that the increase in the age of the GA fleet increased the accident rate by 25%–35% during 1981–2000. In addition, the higher price of GA aircraft boosted sales of homebuilt planes, which have higher accident and fatality rates than GA aircraft. (JEL K13, L62, L15)     

THE VALUE OF CONSUMER CHOICE AND THE DECLINE IN HMO ENROLLMENTS

Health insurance contracts may restrict consumers' choice of medical provider (e.g., hospital) in order to minimize moral hazard inefficiencies. In this article, I assess the economic value of this strategy by comparing the estimated “option value” that consumers assign to provider choice to the negotiated discounts that insurers can achieve by negotiating with a restricted set of providers (i.e., volume discounts). Using a panel of federal employees' health plan choices from 1999 to 2003, I show that the practice of selective contracting (SC) with a limited set of hospitals reduced health maintenance organization (HMO) plans' expected utility by $62–$118, on average, for a standard reduction in the provider choice set. I also conduct simulations which show that by 2003 health plans using SC were theoretically unable to achieve sufficiently large volume discounts from hospital providers to fully compensate for the associated utility losses. My results help to explain the flight from HMO enrollments that occurred in the early 2000s. (JEL I10, I11, L15, D83, D12)     

FINANCIAL FRICTIONS AND THE CHOICE OF EXCHANGE RATE REGIMES

This article provides a quantitative assessment of the role of financial frictions in the choice of exchange rate regimes. I use a two‐country model with sticky prices to compare different exchange rate arrangements. I simulate the model without and with borrowing constraints on investment, under monetary policy and technology shocks. I find that the stabilization properties of floating exchange rate regimes in face of foreign shocks are enhanced relative to fixed exchange rate in presence of credit frictions. In presence of symmetric and correlated shock, fixed exchange rates regimes can perform better than floating. This analysis can have important policy implications for accession countries joining the European Exchange Rate Mechanism II system and with high degrees of credit frictions. (JEL E3, E42, E44, E52, F41)     

THE EFFECT OF FISCAL POLICY ON THE SHORT-RUN RELATION BETWEEN NOMINAL INTEREST RATES AND INFLATION

This paper presents a simple empirical model of the relation between the inflation rate and the nominal interest rate. We show that previous results found in the literature may be attributed to specification error and that there are natural explanations for the observed signs of previous Fisher equation estimates. Our results show that fiscal policy shocks may generate short run negative correlations between changes in inflation and changes in the nominal interest rates. These results illustrate the difficulty in discussing the relation between inflation and nominal interest rates without conditioning the analysis with specific assumptions on the course of the economy.     

AN EMPIRICAL CHARACTERIZATION OF THE DYNAMIC EFFECTS OF POLICE SPENDING ON VIOLENT AND PROPERTY CRIME

The study estimates the dynamic effects of shocks to police expenditures on measures of violent and property crime rates using annual U.S. state-level data for the period 1960–2015. We employ a structural panel VAR model and achieve identification by imposing the restriction that police spending responds to structural shocks to crime with at least a lag of 1 year. Results indicate that a shock to police spending leads to (a) persistent and significant decreases in violent and property crime rates and (b) significant and persistent negative impacts on crime rates in periods of high crime but little impacts in periods of low crime. Variance decompositions show that shocks to police spending account for moderate to large proportions of the variability of U.S. state-level crime rates. Our findings are robust across separate measures of violent and property crime rates, as well as to the inclusion of additional variables to the baseline panel VAR model. (JEL K42)