Addressing Risk and Uncertainty in Water Quality Trading Markets

Across the United States, water quality trading is being explored as a mechanism for reducing the costs of cleaning up impaired waterbodies. Trading between point sources, such as wastewater treatment plants, and nonpoint sources, such as agriculture, can cut costs for regulated entities needing to reduce pollutants, and generate revenue for agricultural producers who generate credits. However, water quality trading, particularly between point and nonpoint sources, can face inherent uncertainties around quantification of nonpoint source reductions, participant behavior, regulations, and market supply and demand. Effectively addressing uncertainties is crucial to ensuring the success of these markets and improving water quality. This paper establishes a framework from which to engage federal and state agencies, program developers, and stakeholders in a dialogue about these uncertainties and appropriate mechanisms for addressing them

The Effects of Retirement on Physical and Mental Health Outcomes

While numerous studies have examined how health affects retirement behavior, few have analyzed the impact of retirement on subsequent health outcomes. This study estimates the effects of retirement on health status as measured by indicators of physical and functional limitations, illness conditions, and depression. The empirics are based on seven longitudinal waves of the Health and Retirement Study, spanning 1992 through 2005. To account for biases due to unobserved selection and endogeneity, panel data methodologies are used. These are augmented by counterfactual and specification checks to gauge the robustness and plausibility of the estimates. Results indicate that complete retirement leads to a 5-16 percent increase in difficulties associated with mobility and daily activities, a 5-6 percent increase in illness conditions, and 6-9 percent decline in mental health, over an average post-retirement period of six years. Models indicate that the effects tend to operate through lifestyle changes including declines in physical activity and social interactions. The adverse health effects are mitigated if the individual is married and has social support, continues to engage in physical activity post-retirement, or continues to work parttime upon retirement. Some evidence also suggests that the adverse effects of retirement on health may be larger in the event of involuntary retirement. With an aging population choosing to retire at earlier ages, both Social Security and Medicare face considerable shortfalls. Eliminating the embedded incentives in public and private pension plans, which discourage work beyond some point, and enacting policies that prolong the retirement age may be desirable, ceteris paribus. Retiring at a later age may lessen or postpone poor health outcomes for older adults, raise wellbeing, and reduce the utilization of health care services, particularly acute care. Working Paper 07-3

SOME GUIDING PRINCIPLES FOR EMPIRICAL PRODUCTION RESEARCH IN AGRICULTURE

Constraints on production economic research are examined in three dimensions: problem focus, methodology, and data availability. Data availability has played a large role in the choice of problem focus and explains some misdirected focus. A proposal is made to address the data availability constraint. The greatest self-imposed constraints are methodological. Production economics has focused on flexible representations of technology at the expense of specificity in preferences. Yet some of the major problems faced by decision makers relate to long-term problems, e.g., the commodity boom and ensuring debt crisis of the 1970s and 1980s where standard short-term profit maximization models are unlikely to capture the essence of decision maker concerns.Production Economics,

The Independence Axiom and the Bipolar Behaviorist

Developments in the theory of risk require yet another evaluation of the behavioral validity of the independence axiom. This axiom plays a central role in most formal statements of expected utility theory, as well as popular alternative models of decision-making under risk, such as rank-dependent utility theory. It also plays a central role in experiments used to characterize the way in which risk preferences deviate from expected utility theory. If someone claims that individuals behave as if they "probability weight" outcomes, and hence violate the independence axiom, it is invariably on the basis of experiments that must assume the independence axiom. We refer to this as the Bipolar Behavioral Hypothesis: behavioral economists are pessimistic about the axiom when it comes to characterizing how individuals directly evaluate two lotteries in a binary choice task, but are optimistic about the axiom when it comes to characterizing how individuals evaluate multiple lotteries that make up the incentive structure for a multiple-task experiment. Building on designs that have a long tradition in experimental economics, we offer direct tests of the axiom and the evidence for probability weighting. We reject the Bipolar Behavioral Hypothesis: we find that nonparametric preferences estimated for the rank-dependent utility model are significantly affected when one elicits choices with procedures that require the independence assumption, as compared to choices with procedures that do not require that assumption. We also demonstrate this result with familiar parametric preference specifications, and draw general implications for the empirical evaluation of theories about risk.

“Do I look fat?” Self-perceived body weight and labor market outcomes

Research reporting that greater body weight is associated with lower wages and employment, particularly among women, focuses on how employers perceive workers. In contrast, we examine whether workers’ own perceptions of body weight influence labor market outcomes. Numerous studies find that misperception of body weight influences health behaviors and health, both mental and physical. For example, anorexia nervosa involves the over-perception of weight and raises the risk of cardiovascular disease. Do the health consequences of inaccurate self-perceived weight carry through to the labor market? We use the National Longitudinal Survey of Youth 1997 (NLSY97) to investigate patterns in weight misperception and three labor market outcomes. We find little evidence that either over-perception or under-perception of weight is associated with wages, weeks worked, or the number of jobs held for women and men.Accepted manuscrip

Does Medical Malpractice Law Improve Health Care Quality?

Despite the fundamental role of deterrence in justifying a system of medical malpractice law, surprisingly little evidence has been put forth to date bearing on the relationship between medical liability forces on the one hand and medical errors and health care quality on the other. In this paper, we estimate this relationship using clinically validated measures of health care treatment quality constructed using data from the 1979 to 2005 National Hospital Discharge Surveys and the 1987 to 2008 Behavioral Risk Factor Surveillance System records. Drawing upon traditional, remedy-centric tort reforms — e.g., damage caps — we estimate that the current liability system plays at most a modest role in inducing higher levels of health care quality. We contend that this limited independent role for medical liability may be a reflection upon the structural nature of the present system of liability rules, which largely hold physicians to standards determined according to industry customs. We find evidence suggesting, however, that physician practices may respond more significantly upon a substantive alteration of this system altogether — i.e., upon a change in the clinical standards to which physicians are held in the first instance. The literature to date has largely failed to appreciate the substantive nature of liability rules and may thus be drawing limited inferences based solely on our experiences to date with damage-caps and related reforms

A rational pricing explanation for the failure of CAPM

Many authors have found that the capital asset pricing model (CAPM) does not explain stock returns—possibly because it is only a special case of Merton’s (1973) intertemporal CAPM under the assumption of constant investment opportunities (e.g., a constant expected equity premium). This paper explains the progress that has been made by dropping the assumption that expected returns are constant. First, the evidence on the predictability of returns is summarized; then, an example from Campbell (1993) is used to show how time-varying expected returns can lead to the rejection of the CAPM.Capital assets pricing model ; Stock market