Fraas and Lutter raise two important points in their comment on Muller and Mendelsohn (2009): How to design policies for sources that yield negative marginal damages? How does statistical uncertainty in the marginal damages affect the trading ratios across emitters? We address both issues in this response. JEL: H53, Q53, Q58
American Economic Association Universal Academic Questionnaire Summary Statistics by Charles E. Scott and John J. Siegfried. Published in volume 102, issue 3, pages 631-34 of American Economic Review, May 2012
Society has several institutional mechanisms that promote the control of product health and safety risks and compensation of the income losses that these risks generated. For risks traded in the market, economic forces at work foster each of these objectives. Social insurance programs, such as worker's compensation, promote the compensation objective directly and influence safety incentives through the meritrating procedure. Two additional institutional mechanisms, which are the focus of this paper, are tort liability and regulation. Each of these institutions has assumed a more active role in the last two decades and has been the focus of considerable academic and policy debate. What is most noteworthy about these discussions is that both policymakers and economic analysts generally view each institution as the only societal response to the risk. In the field of legal scholarship, this narrow approach has been termed the tortcentric perspective by Richard Stewart (1987a, b). Such a piecemeal approach may be necessary in some cases as an analytic convenience, but it neglects potentially important interactions of the two systems. In this paper I explore the nature of the institutional interactions in Section I and examine the appropriate institutional design in Section II. The general conclusion is that risk regulation should play a dominant role in augmenting market incentives for risk reduction and that the scope of product liability remedies should be scaled back to reflect its subsidiary role.
This paper shows that banks exhibit a weaker (stronger) home bias in the extension of new loans when funding conditions in their home country improve (deteriorate). We refer to these changes in home bias as flight abroad and flight home effects, respectively, and show that they are unrelated to the better known flight to quality effect that arises during periods of market turmoil. Our results also indicate that global banks amplify the effect of homegrown shocks on foreign countries while they are a stabilizing factor for the supply of credit in their home countries.
We provide a novel account of experimental evidence for the endowment effect using the salience mechanism (Bordalo, Gennaioli, and Shleifer, 2011). The two-stage procedure implemented in experiments implies that the endowed good and other goods are evaluated in different contexts. We describe conditions under which the standard effect occurs, but also account for recent evidence such as a reverse endowment effect for bads and a role for reference prices in modulating the WTA-WTP gap.