Perry Shapiro

Micro-Estimation of the Demand for Schooling: Evidence from Michigan and Massachusetts

Abstract Both micro and macro studies of the demand for local public schooling are quite common. Micro studies, which rely explicitly on the use of survey instruments, allow for more extensive data sets and more variables, but are subject to response biases. This paper uses data for the state of Massachusetts to replicate an earlier Michigan micro study of school spending. The authors find generally similar results in both states; in particular, they find an income elasticity of demand that is substantially less than one. They suggest that such a result is consistent with a more general model that includes an educational production function.

A constitutional choice model of compensation for takings

Governments in the United States and in many other countries are compelled by constitutional strictures or social understandings to compensate their citizens when private property is taken for public use (Garner 1975). Economists and legal scholars influenced by economics have argued that compensation requirements promote economic efficiency (Epstein 1985, pp. 3-6, 199). Failure to require compensation would induce government to undervalue the cost of private resources and excessively expand the size of the public sector (deAlessi 1969). The insecurity of possession against expropriation would, in turn, induce such anxiety among landowners that they would plan too little investment on their land (Michelman 1967, p. 1214). In challenging the conventional wisdom, Lawrence Blume, Daniel Rubinfeld, and Perry Shapiro (1984; henceforth BRS) showed that it was inefjcient to pay compensation when the government destroyed private capital to provide a public good. In their model, compensation for takings is analogous to unconditional payments for hurricane damage, which induce seaside property owners to inefficiently discount predictable weather losses. Any guarantee of compensation induces the moral hazard of ignoring the probability that the government may take one’s land and destroy the capital on it in the process of supplying a valuable public good. The counterintuitive result is that compensation for takings may induce private landowners to place too much private capital on their land. In part because they regarded the BRS theory as having undermined the traditional economic rationale for paying compensation, Blume and Rubinfeld (1984) in a separate paper advanced a theory based on the idea that “just compensation” serves as a form of insurance for risk-averse property owners. On this view, Blume and Rubinfeld argued that compensation should be based on an inquiry of

Population mobility and transboundary environmental problems

A standard result in the literature on environmental economics is that efficient environmental policies regulating transboundary pollution will be adopted only if there is interjurisdictional coordination. Efficient policies can be adopted as a result of interregional treaties or mandated by a central authority. The present paper demonstrates that if there is perfect population mobility between the regions affected by the transboundary pollution, the efficient outcome is a Nash equilibrium of the policy game between regional authorities. This is true independently of what policies are available to the regional authorities. However, there may be more than one Nash equilibrium, so that policy coordination may be necessary in order to achieve the best equilibrium.

Internationally Mobile Factors of Production and Economic Policy in an Integrated Regional Union of States

There is a general class of model used to examine the expenditure and tax strategies adopted towards mobile factors by states that are members of regional unions (eg., federations, confederations or common markets). We develop a variant of this model, extended to allow for imperfect factor mobility between the region and the world, and characterize a game between states in which tax and expenditure policies are the strategies. It is shown that a Nash equilibrium to this game exists (though there may be multiple equilibria). We also argue that, unlike previous results, states have an incentive to levy non-zero taxes, or subsidies, on the migrant factor (with the precise mix of strategies depending on the degree of factor mobility). Generally, the strategies adopted lead to an inefficient supply of the factor to the region, as well as an inefficient distribution across member states.

HIGHWAY ACCIDENTS IN SWEDEN: MODELLING THE PROCESS OF DRUNKEN DRIVING BEHAVIOUR AND CONTROL

This research is an investigation into the effect of sanctions imposed for drunken driving on the control of fatal and serious injury accidents in Sweden. The analysis makes use of lagged relationships to avoid alleged shortcomings of other investigative techniques. This approach facilitates sorting out cause and effects among such influences on accidents as levels of alcohol consumption, distance driven, vehicle mix and rainfall on the one hand and arrests for drunken driving, jail, fines and licence withdrawal on the other. The data are based on individual records of accidents and persons arrested for drunken driving from 1976 to 1979. Criminal histories are available for all such drivers back to 1970. These data have been used to construct a monthly time series for each of the three major cities of Gotenborg, Malmo, Stockholm and for the rest of the country. The statistical analysis lends support to the hypothesis that control efforts work in Sweden to reduce accidents below what they might otherwise have been. The combination of apprehension and jail is shown to be effective in reducing serious injury accidents that represent close to 80% of all serious accidents, whereas for fatal accidents jail appears to be less effective than fines. A surprising result is that licence withdrawal is found to have a uniformly positive effect in reducing accidents, irrespective of the investigative technique used. This result is of particular interest since licence withdrawal is not regarded as a sanction in Sweden and its use receives much less attention than the much more costly use of jail as punishment.

State tax and policy competition for mobile capital

We characterise a model in which states engage in tax and policy competition with one another to attract mobile capital. The mix of policies chosen is shown to depend on the interaction between a desire to exploit capital for the benefit of domestic residents (labour) and a net marginal externality generated by capital. It is also argued that competition between states leads to an inefficient supply and geographical distribution of capital within the domestic economy if capital markets are not fully integrated.

Transfers in Federal Systems: A Critical Survey

Federations are characterized by an extensive and usually complex system of grants from their central (federal) governments to otherwise autonomous sub-national governments. Many of these transfers are purely redistributive while others are designed to stimulate additional subnational spending in certain functional areas, such as education and health. The transfers may be aimed at providing equity or economic efficiency, but they are commonly influenced by purely political considerations as well. For this reason there is a wide divergence between what the fiscal federalism literature has to say about what grants should be made on economic grounds and what actually occurs in practice. Nevertheless, the literature identifies three instances where transfers are justified.

Dynamics of rural-urban migration in a developing economy.

This paper introduces agglomeration economies into the Harris—Todaro model of rural—urban migration in a developing economy. With the assumption of agglomeration economies in the urban sector, our model is able to explain the dynamic process of migration, starting from a ‘rural-economy’ equilibrium and moving towards an ‘urban-economy’ equilibrium. It is shown that higher expectations about urban wages and employment, beyond a certain limit, will give rise to a sudden change in the dynamic property of the economy, causing it to move from a ‘rural’ equilibrium to an ‘urban’ equilibrium.

Revealed public preference and social utility

Methods of demand theory are applied to the problem of the existence of a social welfare function under specific public choice algorithms. Integrability conditions, necessary for the derivation of social demand functions from utility maximization, are used. The social choice function, which chooses the mean of all voters demand for public goods to be the public provision, is analysed in detail. Necessary conditions for the existence of a social utility function, and by implication, a transative social ordering, are derived for this case. These conditions imply restrictions on individual preferences.

Compensation for Taking When Both Equity and Efficiency Matter

Darryl Kerrigan is the master of a modest house at 3 Highview Crescent, Cooloroo, on the edge of the Melbourne International Airport. In The Castle, an Australian movie made in the early 1990s, Darryl receives an official notice that his property is to be condemned to make way for an airport expansion. The house with its many unique modifications, including a kennel for his racing greyhounds, is Darryl’s “Castle.” Because it is not just a house it is a “home” he is determined to remain and employs his friend, the solicitor Dennis Denuto, to challenge the condemnation. Denuto, a small time solicitor whose legal experience stretches to doing real estate conveyances, is well out of his depth with this case. Dennis knows Darryl is fighting the “big boys” on an issue that is clearly a constitutional challenge. Nonetheless, Denuto, as an act offriendship, agrees to represent Darryl. In response to a question put by the judge in the first court appearance, Denuto raises a constitutional challenge to the condemnation. Asked directly about the constitutional point, Denuto responds, “It’s the vibe of it [the Australian Constitution].” The judge is puzzled since she cannot recall any part of the Australian constitution that deals with the vibe. Naturally enough, Darryl-Denuto loses the first round. The movie continues to a victorious conclusion for Darryl, when a distinguished QC takes up the case. In the High Court, bewigged judges and all, Darryl’s attorney argues that Section 51 of the Australian Constitution which states “The Parliament shall … have the power to make laws for … the government of the Commonwealth with respect to:….(xxxii) The acquisition of property on just terms….” is the vibe.