Jamie Brown Kruse

Regulated firms in pollution permit markets with banking

This paper examines a competitive intertemporal market for bankable emission permits, such as sulfur dioxide allowances. Without profit regulation, firms are willing to bank permits if permit prices rise over time with the rate of interest, but will not bank if prices rise more slowly.The market achieves aggregate emission targets at least total cost if there is no profit regulation, but may not do so if firms are subject to profit regulation. Firms must arbitrage differences both in abatement cost and in the regulatory treatment of permits to achieve least total cost.

Flood Hazards, Insurance Rates, and Amenities: Evidence from the Coastal Housing Market

This study employs the hedonic property price method to examine the effects of flood hazard on coastal property values. We utilize Geographic Information System data on National Flood Insurance Program flood zones and residential property sales from Carteret County, North Carolina. Our results indicate that location within a flood zone lowers property value. Price differentials for flood risk and the capitalized value of flood insurance premiums are roughly equivalent-both exhibiting a nonlinear relationship in flood probability. Our results support the conclusion that flood zone designation and insurance premiums convey risk information to potential buyers in the coastal housing market. Copyright The Journal of Risk and Insurance, 2008.

Viewscapes and Flood Hazard: Coastal Housing Market Response to Amenities and Risk

Coastal amenities and risk are so highly correlated that separate identification within the hedonic framework is potentially challenging. In this study, we construct a three-dimensional measure of ocean view, viewscape, accounting for natural topography and built obstruction that varies independent of risk classification to disentangle these spatially integrated housing characteristics. A spatial autoregressive hedonic model is developed to provide consistent estimates of the willingness to pay for coastal amenities and risk. Our findings suggest that incorporating the GIS-based view measures can be successful in isolating risk factors from spatial amenities. (JEL Q24, Q26)

Bertrand-Edgeworth competition in experimental markets

The Bertrand-Edgeworth (BE) model describes competition among a group of price setting sellers, each of whom faces a production capacity constraint. We report on laboratory experiments that were designed so as to capture essential features of BE competition. These experiments permit us to evaluate different theories of BE competition: Competitive equilibrium (CE) pricing, Edgeworth cycles in prices, mixed strategy Nash equilibrium (NE) in prices, and tacit collusion. The experimental results indicate that while each of the theories helps to explain some aspects of the data, none of these theories are completely consistent with the data. In relative terms, the Edgeworth cycle theory provides better predictions than the other three theories. Most sellers adjusted their prices partially to their predicted Edgeworth price. The Edgeworth cycle theory is the only theory that predicts the kind of time dependence and cycling that was observed in most experiments.

Valuing Mitigation: Real Estate Market Response to Hurricane Loss Reduction Measures

This paper explores valuation of two measures of windstorm mitigation in a Gulf Coast city. Since the home owner is not able to reduce the probability that a hurricane or tropical storm will occur at the structures location, any voluntary mitigation intended to fortify the home is a form of self-insurance as defined by. This distinction is important because market insurance and self-insurance are substitutes and thus subject to the standard moral hazard problem. Using a unique Multiple Listing Service data set with detailed information on several hurricane mitigation features, we construct two models to test the influence of mitigation on resale price. The results of the hedonic study indicate that individuals place a positive value on a self-insurance type of mitigation.

Valuing low probability risk: survey and experimental evidence

Abstract This study uses a survey question and an economics experiment to elicit the value of a risk mitigation investment. For 93 subjects (48 males and 45 females) the responses to hypothetical questions are compared with a risk mitigation decision that has a salient outcome. We find no gender-differentiated responses to either the maximum accepted price in the economics experiment or hypothetical willingness to pay questions from the survey. In our design, the two procedures generate aggregate measures that were in close agreement, however individual decisions were seldom consistent.

A comparison of employment growth and stability before and after the Fort Worth tornado

Abstract This study examined the time series pattern of employment growth and stability in Fort Worth, Texas taking into account the March 28, 2000 tornado. The tornado is treated econometrically as an intervention and both the mean and conditional variance of employment growth were estimated. Overall, this regional labor market experienced a decline in the employment growth rate following the tornado. Among the sectors that exhibited differences in employment dynamics between the pre- and post-tornado periods, the mining sector experienced a significant increase in employment growth following the tornado while the service andwholesale, retail trade sectors experienced significant declines in employment growth in the post-tornado period. The manufacturing, service, and wholesale, retail trade sectors were characterized by greater stability (i.e., a lower level of employment growth volatility) in the post-tornado period than in the pre-tornado period. Interestingly, in several sectors, no differences in the time series dynamics of employment growth were detected between the pre- and post-tornado periods. These sectors included construction, finance, insurance, real estate, government, and transportation and public utilities.

The Impact of Project Impact on the Wilmington, North Carolina, Labor Market

In 1997, the Federal Emergency Management Agency (FEMA) announced a new initiative called Project Impact. The initiative was designed to make communities more resistant and resilient to the disruption and disaster associated with natural hazards. One of the pilot communities was Wilmington/New Hanover County, North Carolina, an area susceptible to hurricanes and tropical storms. This article examines the impact of Project Impact on this community’s labor market, allowing for the disturbances caused by the storms themselves. The findings suggest that the activities and coordination efforts associated with Project Impact coincide with improvements in the Wilmington labor market characterized by a lower natural unemployment rate and a reduction of labor market risk. These findings may be taken as evidence that Project Impact can improve the performance of a local economy. The results suggest that at the very least, increased interaction between public and private sectors may be associated with improved labor market conditions.

Location, cooperation and communication: An experimental examination

Abstract This study examines freeform non-binding communication and simplification as devices to facilitate cooperative outcomes using a fixed-price location choice duopoly in the spirit of Hotelling[Hotelling, H., 1929. Stability in competition, Economic Journal 39, 41–57]. We extend Brown-Kruse et al. [Brown-Kruse, J., Cronshaw, M.B., Schenk, D.J., 1993. Theory and experiments on spatial competition, Economic Inquiry 31(1), 139–165] which studied freeform communication for a uniform customer distribution. This work tests two more distributions that make collusion more or less risky. We also test a simple 2×2 model with similar Nash equilibrium predictions. When subjects cannot communicate, cooperation is easier to achieve and sustain in the 2×2 model. However, freeform communication is a robust facilitator of joint profit maximizing outcomes regardless of risk in cooperating.

Twister! Employment responses to the 3 May 1999 Oklahoma City tornado

This research examined the impact of the 3 May 1999 tornado on the Oklahoma City labour market. We estimated time series models that allow for time-varying variance in employment growth. The models include intervention variables designed to capture the tornados effect at initial impact as well as over the post-tornado period. In terms of total employment growth, the Oklahoma City Metropolitan Statistical Area (MSA) experienced an increase in employment growth and a reduction in labour market risk in the sample period following the tornado. The analysis also examined the effect of the weather event on eight industrial sectors. Five of eight sectors experienced significant decreases in labour market risk after the tornado. Our evidence suggests that Oklahoma City and surrounding communities that make up the Metropolitan Statistical Area survived the disaster without suffering any extended adverse labour market effects. Our results indicate that at least in the aggregate, the labour market improved. “… what has so often excited wonder, the great rapidity with which countries recover from a state of devastation; the disappearance, in a short time, of all traces of the mischiefs done by earthquakes, floods, hurricanes, and the ravages of war … all the inhabitants are ruined, and yet in a few years after, everything is much as it was before.” – J.S. Mill (1848)