Ralph R. Frasca

Environmental pollution and world trade

Abstract In this paper we present a model that highlights the relationship between international trade and environmental pollution. It includes a small open economy that produces a domestic composite good and imports another composite good and energy products. The pollution is created by local production, global production and transportation. Given this model we demonstrate that free trade within the current political and economic context may produce a suboptimal level of welfare. The rationale is based upon the argument that transportation is energy-intensive and that, therefore, trade itself is a source of pollution. Consequently, under certain global conditions the introduction of an energy tariff in a small open economy raises social welfare and is superior to free trade. A consumption tariff adopted by a single nation will not have similar consequences because it has no impact upon local usage. However, when a consumption tariff is globally adopted there is the opportunity for a net benefit. Finally, we argue that a global tariff that raises both the price of energy and the price of the imported composite good may generate the greatest increase in welfare by reducing both energy-intensive production and energy-intensive trade.

Foreign investment and environmental regulations in LDCs

This paper examines the welfare and policy issues of pollution taxes and foreign-investment quotas for a small, developing economy. We consider each policy in isolation and joint optimum of them. We find that, for a country with capital inflows, an active environmental policy along with a liberal policy on foreign capital is optimal.

Regional pollution and multinational firms

Abstract This paper investigates the incidence of pollution control in a two-country, two good model of trade and investment when capital is internationally mobile. In this context, we show the trade-off between the regulation of pollution and national income in the host country and the interrelationship between policies pursued in the host country and the economy of the source country. One noteworthy result is that more restrictive pollution controls in the host country may cause a decline in the real income of the source country, the home of multinational firms.

The Inclusion of Fringe Benefits in Estimates of Earnings Loss: A Comparative Analysis

Over the last few decades fringe benefits have become an increasingly important component of employee remuneration. From 20 % of total employee compensation in 1966 they have grown to a current share of nearly 30%. (U.S. Department of Labor, Bureau of Labor Statistics, Bulletin 2319, 1988) This growth has been attributed to many factors; most prominently mentioned has been the preferential treatment given non-wage benefits under state and federal laws (See Rhine, 1987). The Bureau of Labor Statistics (BLS) explicitly recognized the significance fringe benefits in employee compensation when it began publication of the Employee Cost Index (ECI) in 1976. This allowed researchers to gauge temporal changes in wages and salaries and fringe benefits. However, this series did not reveal the dollar cost of the fringe benefits. Accordingly, the relative importance of fringe benefits in the total compensation package could not be estimated from this data. In 1987, the BLS remedied that problem by making available quarterly information on the Employer Costs for Employee Compensation (ECEC). Data on total employee compensation is now published for the entire civilian nonfarm economy, excluding the federal government. Future developments call for an increase in the number of published series and an expansion of coverage to include the federal government (BLS Bulletin 2285, 1988). Given the importance of fringe benefits in employee compensation it is essential that they be properly valued in estimates of lost earning capacity in personal injury and estimates of lost support to survivors in wrongful death. Incorrect omission of some benefits may underestimate damages while the incorrect inclusion of others may double count losses and result in exaggerated claims. Unfortunately, opinions on which benefits should be included and how those benefits should be valued have often differed. The primary purpose of this paper is to review and discuss those opinions. This review will then provide the background for a suggested alternative approach.

The provision of a public good under Cournot behavior: Stability conditions

ConclusionA public goods group in which the public good is voluntarily provided by the members of that group is likely to be concerned with both the amount of the good provided and the dynamic stability of its supply. Unless the behavioral model possesses a stable equilibrium there is no guarantee that the aggregate provision will eventually stabilize at the equilibrium value. With an unstable equilibrium the group may experience continual swings in the public goods supply. In order to avoid a perpetually changing public good supply, the public good group may have an incentive to create the conditions for a stable equilibrium.In every community discussed in this paper an increase in group size beyond some maximum will produce an unstable equilibrium. A public good community may, therefore, place a limit on membership that ensures a stable equilibrium.Without knowing the properties of a stable equilibrium, it may be impossible to understand why public good groups might place restrictions on entry. For example, McGuire has shown that in a homogeneous community with a normal public good, aggregate provision will be positively related to group size. If more of the public good creates net benefits for the community, there is seemingly no reason why the group should limit entry. The present analysis provides a rational reason for exclusive normal public good clubs with limited membership. If restrictions do not exist group size might increase and produce an unstable equilibrium, a situation in which the community could not depend upon a given supply of the public good.The type of individual that the public good community might want to attract is also partly explained by the stability conditions. From McGuires analysis it can be seen that entrants with a small absolute value for γ in their reactions functions are likely to increase the aggregate provision of the public good. In this analysis it was shown that these were precisely the same individuals who are likely to produce a stable equilibrium in the aggregate supply of the public good. Individuals with a large reaction coefficient overreact to changes in aggregate supply by the rest of the community and produce an unstable equilibrium. Such individuals may prove unattractive to the public good group for both of the above reasons; they may produce either a decrease in the aggregate provision or an unstable equilibrium.In all of the stability conditions there was a trade-off between group size and absolute value of the reaction coefficient. In other words, the permissible group size for a stable equilibrium could be increased if the absolute value of the γi of individual members was sufficiently restricted. The acceptable range of values of γi for a stable equilibrium becomes narrower as group size increases. This means that if larger groups wish to ensure a stable equilibrium in supply they must either spend more time and effort in the search and selection of potential members, or have some process of natural selection that restricts certain types of individuals from the public good group.Martin McGuires analysis examined the relationship between the voluntary provision of a public good and group size. In this paper, there has been an attempt to show how stability conditions can provide further insight into the group behavior discussed by McGuire. The stability conditions contained in this paper depend on a discrete time adjustment model. If the adjustment process is changed the stability conditions will be altered. It is believed, however, that the adjustment process assumed in this paper adequately reflects the assumption of Cournot behavior; i.e., each individual adjusts his provision to the amount provided by others in the previous period. Given this adjustment process, this paper has shown the circumstances under which consumer tastes and group size affect the stability of an equilibrium position.

Economic Issues and Arguments in High Income Child Support Cases

The goal of the child support guidelines is straightforward. It is to ensure that the non-custodial parent provides his or her fair share toward the financial support for the child and that the child shares in the parent’s standard of living. Like many easily stated goals its realization is not straightforward. This is especially so when courts attempt to set child support for non-custodial highincome parents. A simple extrapolation of the child support guidelines from low-income earners to high-income earners can result in substantial absolute dollar transfers in child support that do not necessarily serve the best interests of the child. Too high transfers may squander resources on present consumption and too low transfers may not satisfy the special needs of the child. It is the courts, not the economists, role to determine a “fair” child support award. This fits well with the economist’s own preference for leaving normative issues for others to decide. Of course, any determination of fairness by the courts should rest upon a firm understanding of the strengths and weaknesses in both the underlying economic methodology and economic data. In this setting, the testimony of a forensic economist who is familiar with family budgets and the empirical foundation for the child support guidelines can bring some clarity to the decision. The economist can present the latest data on family budgets and discuss any proposed theoretical construct for extending the guidelines for moderate-income earners to high-income earners. The Family Support Act of 1988 requires state legislatures to enact presumptive guidelines for child support payments. The Act does not impose upon the states either a specific set of guidelines that must be followed or a particular methodology for constructing the guidelines. It does, however, require the state governments to take into consideration child cost data and the incomes of the parents.1 To accommodate this analysis, it directs the federal government to collect data on child rearing costs and to distribute the results to the states.2 In response, the states have published tables and formulas for computing child support payments. Given the parent’s income and a few other factors, the state enacted guidelines impose a uniform system of payments for parents in similar economic circumstances. The specific guidelines differ by state; how-

The Valuation of Defined Pension Benefits as a Marital Asset: An Abundance of Approaches

In many marriages that end in divorce, the court must make a determination of which assets were created by the joint efforts of the husband and wife, and a determination of which assets represent the separate interest of each partner to the marriage. At the dissolution of the marriage, each is entitled to his or her separate assets, and to an equitable share of the marital assets. Consequently, the marital assets must be accurately valued to ensure their equitable distribution. It is in the valuation of the marital assets that the economist can often be of service to the court. A pension is an intangible asset defined by a set of rights that entitles the pensioner, under a certain specified set of conditions, to the future enjoyment of income. Rights to this future payment may depend upon numerous factors including previous and future years of service, past and current income, and survival. The value placed upon the total sum of these rights represents the value of the pension to the employee. A marital asset consists of a bundle of rights that were created during the marriage. The valuation of those rights is in the domain of economics. Of course, definition must precede valuation; and, it is the province of the law to adequately define those marital rights. Without a precise definition of the marital interest, the economist may overstep the bounds of his discipline and enter into an undue interpretation of the law. The value of the employee’s interest in the pension plan, and the value of the marital interest in the pension plan are not the same. The marital interest in a spouse’s pension may be defined to include greater or fewer rights than those that determine the unfettered value of the pension plan to the employee. For example, if years of service before the marriage affect future pension benefits, but benefits associated with years of service before the marriage are not included in the marital interest, then the marital asset would represent a subset of the pension rights. An alternative situation can arise if the court awards the non-employee spouse a percentage of the expected future pension of the employee spouse, where that future benefit is to be determined by the employee’s final salary. ~ Were the employee to quit today, the current salary would be the final salary. Therefore, the current rights of the employee and the current valuation of the pension would not include future salary increases from future efforts. In awarding the non

The Americans with Disabilities Act of 1990: New Opportunities for Forensic Economists

The Americans with Disabilities Act (ADA) of 1990, Public Law 101-336, is meant to have a far ranging impact upon the economy and the legal system. Legal experts have stated that enforcement of the act will result in substantial litigation, with from 12,000 to 15,000 charges to be filed in the year after the employment provisions take effect. ( The Bureau of National Affairs , Daily Report for Executives , 1992)1 Enforcement agencies have reinforced this view by suggesting that crucial sections of the act must be interpreted on a case-by-case basis.2 Given this background, it is very likely that forensic economists will be called upon to interpret and apply crucial sections of the act.3 Consequently, now is the time for potential analysts to familiarize themselves with the economic evaluations that may be required. As stated in the Act, its intended purpose is:4

Instability in voluntary contributions based upon jointness in supply

ConclusionThe results of this analysis can be briefly summarized as follows. Voluntary provision of a public good may produce an unstable supply of this good in large group sizes. The primary characteristic responsible for this instability is jointness in supply. Non-exclusionary spillovers without jointness in supply do not produce a similar instability in the system.In a voluntary situation an individual supplies a good up until private marginal cost is equal to private marginal benefit. With spillovers in joint supply the social marginal benefit is a positive function of group size. In this case, the optimum group size is unbounded. However, at some group size the adjustment by the rest of the community to a larger social marginal benefit will cause destabilizing responses to the individual provision. With spillovers in mutually exclusive consumption the size of the social marginal benefit is unrelated to group size. Therefore, the tendency for destabilizing responses to occur as group size increases does not exist.In a voluntary setting, the supply of both quasi-public and quasi-private goods will be suboptimal. Accordingly, the attainment of optimality may suggest a reason for community-wide coordination in the provision of each good. The instability in supply of the quasi-public good provides an additional reason for coordinated group provision of this good. All other things equal, the priority for governmental action might be placed upon the provision of the quasi-public good.