Shane Sanders

THE FATE OF DISPUTED TERRITORIES: AN ECONOMIC ANALYSIS

This paper presents a simple model to characterize the outcome of a land dispute between two rival parties using a Stackelberg game. Unlike Gershenson and Grossman (2000), we assume that the opposing parties have access to different technologies for challenging and defending in conflict. We derive the conditions under which territorial conflict between the two parties is less likely to persist indefinitely. Allowing for an exogenous destruction term as in Garfinkel and Skaperdas (2000), we show that, when the nature of conflict becomes more destructive, the likelihood of a peaceful outcome, in which the territory’s initial possessor deters the challenging party, increases if the initial possessor holds more intrinsic value for the disputed land. Following Siqueira (2003), our model has policy implications for peace through third‐party intervention.

RAISING THE COST OF REBELLION: THE ROLE OF THIRD‐PARTY INTERVENTION IN INTRASTATE CONFLICT

This paper presents a simple model to characterize explicitly the role that an intervening third party plays in raising the cost of rebellion in an intrastate conflict. Extending the Gershenson‐Grossman (2000) framework of conflict in a two‐stage game to the case involving outside intervention in a three‐stage game as in Chang et al. (2007b), we examine the conditions under which an outside party optimally intervenes such that (i) the strength of the rebel group is diminished or (ii) the rebellion is deterred altogether. We also find conditions in which a third party optimally intervenes but at a level insufficient to deter rebellion. Such behavior, which improves the incumbent government’s potential to succeed in conflict, is overlooked in some conflict studies evaluating the effectiveness of intervention. One policy implication of the model is that an increase in the strength of inter‐governmental trade partnerships increases the likelihood that third‐party intervention deters rebellion.

Do Economists Recognize an Opportunity Cost When They See One? A Dismal Performance or an Arbitrary Concept?

Ferraro and Taylor (2005) asked 199 professional economists a multiple-choice question about opportunity cost. Given that only 21.6% answered “correctly,” they conclude that professional understanding of the concept is “dismal.” We challenge this critique of the profession. Specifically, we allow for alternative opportunity cost accounting methodologies—one of which is derived from the terms definition as found in Ferraro and Taylor— and rely on the conventional relationship between willingness to pay and substitute goods to demonstrate that every answer to the multiple-choice question is defensible. The Ferraro and Taylor survey question suggests difficulties in framing an opportunity cost accounting question, as well as a lack of coordination in opportunity cost accounting methodology. In scope and logic, we conclude that the survey question does not, however, succeed in measuring professional understanding of opportunity cost. A discussion follows as to the concepts appropriate role in the classroom.

A Model of the Relative Income Hypothesis.

James Duesenberrys (1949) relative income hypothesis holds substantial empirical credibility, as well as a rich set of implications. Although present in the pages of leading economics journals, the hypothesis has become all but foreign to the blackboards of economics classrooms. To help reintegrate the concept into the undergraduate economics curriculum, the author constructs a model of the relative income hypothesis to present a few of its important properties and implications. Negative spending externalities, the effect of public provision taxes on wasteful spending races, and the Pareto implications of universal income growth are illustrated within a two-good consumption space as a method of introducing this rich literature to a greater number of introductory and intermediate economics students.

A Fallacy in the ANWR Drilling Debate: A Lesson on Scarcity Rents and Intertemporal Pricing under Different Market Structures

It is common knowledge that oil discovered today, or that is newly allowed to be developed, has no effect on prices until reaching the market. However, economic theory does not support common knowledge on this issue. By lowering the value of holding oil for future sale, a future oil supply increase makes it more profitable for firms to produce and sell oil presently. Under three distinct market structures, we use a two-period model to show students that the resulting increase in present supply decreases the present price of oil. Production decisions in the absence of scarcity rents are also discussed.

A Pedagogical Model of the Relative Income Hypothesis

Duesenberrys (1949) relative income hypothesis holds substantial empirical credibility, as well as a rich set of implications. Though familiar to the pages of leading economics journals, the hypothesis is all but foreign to the blackboards of economics classrooms. With the intention of introducing the concept to undergraduate economics students, this paper constructs a simple pedagogical model of the relative income hypothesis. The model extends upon the standard consumer choice problem to help students understand how positional considerations might influence a representative consumers utility maximizing behavior. Properties and implications of the hypothesis, including negative spending externalities, wasteful spending races, the effect of forced retirement savings programs upon wasteful spending races, and the Pareto implications of universal income growth, are illustrated within a two-good consumption space.

A Constructive Comment on “Rematches in Boxing and Other Sporting Events”

In the following note, I derive part of the boxing contest model developed by Amegashie and Kutsoati (2005), correct an error in its solution, and show that their main result may extend to a larger set of boxing contests. Specifically, there may well be a class of boxing matches in which two competitors will put forth greater aggregate efforts in response to a greater likelihood of a rematch, regardless of the degree to which their abilities differ. The revised solution is constructive in the sense that it builds upon the main result of Amegashie and Kutsoati.

A Natural Experiment to Determine the Crowd Effect Upon Home Court Advantage

Spectator effects represent a central concept in (behavioral) sports economics. A thorough understanding of the phenomenon promises to further our understanding as to the nature of performance production under pressure. In traditional home advantage studies, it is difficult to isolate the net crowd effect upon relative team performance. In a typical sports setting, multiple factors change at once for a visiting team. Experimental evidence suggests that supportive crowds may hinder task performance. In that it serves as home stadium to two National Basketball Association teams, the Staples Center in Los Angeles offers a rare natural experiment through which to isolate the crowd effect upon competitive output. Each team possesses equivalent familiarity with built environment, and teams face similarly sparse travel demands prior to games between one another. However, the team designated as “home team” in a contest enjoys a largely sympathetic crowd due primarily to season ticket sales. Moreover, crowd effects are sizable in motivating a home team win, raising the likelihood of such an event by between an estimated 21 and 22.8 percentage points. The point estimate implies that essentially the entire home advantage between the two teams is attributable to the crowd effect.

An Instructional Exercise in Price Controls: Product Quality, Misallocation, and Public Policy

A price control policy has several potential effects upon market welfare. These include deadweight loss, surplus transfer from producer to consumer, misallocative cost, and quality degradation. The present article provides accessible pedagogical models with which to incorporate the former two issues into a welfare analysis of price control. The analysis allows students to form a more complete understanding of price control policies.

Child Safety Seats on Commercial Airliners: A Demonstration of Cross-Price Elasticities.

The cross-price elasticity concept can be difficult for microeconomics students to grasp. The authors provide a real-life application of cross-price elasticities in policymaking. After a debate that spanned more than a decade and included input from safety engineers, medical personnel, politicians, and economists, the Federal Aviation Administration (FAA) recently announced that it would not mandate the use of child safety seats on commercial airliners. The FAAs analysis revealed that if families were forced to purchase additional airline tickets, they might opt to drive rather than fly, and driving represents a far more dangerous mode of travel. Given the relatively high cross-price elasticity between automobile travel and air travel, the FAA concluded that the mandatory child safety seat policy failed to pass the cost-benefit test—the policy would lead to a net increase in the number of fatalities. The authors review the FAAs decision-making process and highlight the role of economic analysis in developing public policy.