W. Cris Lewis

Export base theory and multiplier estimation: A critique

In recent years export-base related models have come under increasing criticism by regional economists. At the same time, the framework is being used implicitly in the great many studies including most socioeconomic environmental impact studies. The paper shows that the various alternatives commonly used at each step in the process of an export-base analysis (i.e., that is to specify one or more equations and estimate an indirect-direct employment multiplier) generates widely varying estimates of that multiplier, A recommendation is made that regional scientists turn their attention to other types of models including input-output frameworks and case studies for determining appropriate multiplier values.

Community Economic Development in Utah

The authors conducted a two-stage survey of community economic development professionals in Utah. Their objectives were to elicit information about three components of local development effort and to assess the success of differential strategies for development. Emphasis was given to the differential ratings of tools and programs by officials in large urban areas and those in smaller cities. The authors found that labor force quality, proximity to highways, the availability of other transport systems (e.g., commercial airports), the costs of energy and water, and the quality of local schools were important components of an effective development environment. But on the negative side, the survey also found a general lack of coordination among the various units of government and a lack of interest in or commitment to local development among business leaders.

New Findings on Strategic IRA Investing

This article explores the issue of strategic IRA investing, but does so from an unusual premise. Comparing the traditional IRA with the Roth IRA, the authors confirm the well-known conclusion that the Roth alternative is preferable if the income tax rate during the distribution period is greater than the tax rate during the accumulation period and vice versa. However, they take the analysis a step further, demonstrating that this conventional wisdom only holds, however, if the individual is investing only in an IRA. If an individual is making unsheltered investments and IRA contributions, the Roth IRA is preferable to the regular IRA when the two tax rates are equal. They conclude with a review of the implications of converting from a traditional to a Roth IRA.

Land-use controls and the political process

The use of land-use control ordinances and regulatory agencies is seen by some as the answer to externality-related land-use problems. Such devices necessarily shift the allocation of land and related resources from the market to the realm of the politician. Because of this, regulatory bodies often are in position to confer large gains on selected individuals or groups and large costs on others. This has led to a variety of pressures on regulators by developers and others who would benefit from zoning changes and by other groups who oppose such change. In this paper, a detailed analysis of land-use control decisions in one city demonstrates that applicants for rezoning decisions who have significant economic and/or political power are able to obtain favorable rezoning decisions with a significantly higher frequency than do those who lack such power. One explanation for this phenomenon is that those with such power, which is often shared with the regulators, are able to use their influence and relationships with the members of the regulatory board in order to obtain decisions in their favor. Indeed, they may even use their power to insure that the requests of others are denied. Advocates of strong land-use controls should realize the potential resource allocation costs that tend to be associated with politically- rather than market-oriented decisions.

A Return-Risk Evaluation of an Indexed Annuity Investment

This article focuses on a relatively new investment option, an indexed annuity account offered by at least one insurance company, which combines U.S. Treasury bonds with options on the S&P 500 Index that guarantees a minimum return of 2.7% per year and a maximum return (or cap return) equal to the 52-week percentage change in the S&P 500 Index following the date of purchase but no more than a return set by management which has been 8% or 9% in the past two years. (Contractually, the cap return cannot be less than 5% per year.) Using simulated investment results for 10-, 20-, and 30-year holding periods using actual rate-of-return data for the period 1946-2003, the author demonstrates that a hypothetical index annuity account does provide a relatively low-risk investment, although the cost, in terms of forgone returns on a pure equity investment, is relatively high. When the cap return was set at 9%, the index annuity account generally achieved higher returns and lower risk than did a long-term U.S. government bond investment.

Assessing Economic Damages in Personal Injury and Wrongful Death Litigation: The State of Utah

This paper reviews the basic law and practice of determining economic losses in personal injury and wrongful death cases in Utah courts and was written primarily for the benefit of forensic economists. The paper is organized as follows. The first two sections review precedent and practice in personal injury and wrongful death actions, respectively. The case where lost business profits are claimed as a result of death or injury is given special attention. Then considerations with regard to the death of a child and medical malpractice litigation are reviewed. Finally, issues surrounding prejudgment interest, punitive damages, income taxes, and the rules of scientific evidence are discussed. As a general rule, the approach to measuring the economic losses is not unlike those in most other states. The guidelines offered in Martin and Vavoulis (2005), which are followed by most forensic economists, generally would be accepted by the Utah courts.

Strategies for Maximizing Estate Wealth

The conventional wisdom that using tax-sheltered accounts such as Keogh plans, IRAs, 401(k) programs, etc. is an excellent way to save for retirement but a poor way to accumulate an estate is shown to be incorrect at least under a variety of reasonable circumstances. It is shown that net estate wealth (i.e., after income and estate taxes) generally will be greater by saving in such plans compared to saving in conventional (i.e., taxable) accounts. The misconception arises because the net wealth left after taxes on two estates of equal size at death will be less when a significant part of the assets are in tax-sheltered plans, but this is not a fair comparison because if all other factors (e.g., income and consumption during the accumulation period, pre-tax rates of return, etc.) are held constant, the estate associated with the tax-sheltered investment will unequivocally be larger at the time of death. It is also shown that saving in tax-sheltered plans during the early years of the lifecycle, followed by saving in a taxable account in the later years, will generate a maximum after-tax transfer to heirs.

Sources of Error in Estimating the Personal Consumption Offset inRetirement

The economic loss appraisal in a wrongful death action typically includes a year-by-year calculation of the personal consumption expenditures of the deceased, which is then subtracted from earning capacity in order to determine a net loss of support to the survivors. 1 Sometimes, perhaps even often, this is simply done over the period of the worklife expectancy with consumption in the retirement years either ignored altogether or implicitly included by applying the offset factor to the component added to earnings for contributions to a retirement program during the worklife. For lack of a better term, the latter will be referred to as the “worklife only” or WLO appraisal approach. Generally, part of the fringe benefit payment includes the employer’s contribution to Social Security and to a private retirement program. To the extent that such contributions for retirement income are made to programs that are actuarially fair, 2 then applying the offset factor against such contributions does at least partially account for income and consumption in the retirement period. That is, the contribution is the present value of the future retirement benefit, and, by applying the offset factor against that contribution, at least part of the foregone future consumption of the deceased also is accounted for. However, such adjustments are likely to be imperfect at best. Unless the deceased died on the first day of his worklife, the approach will not account for contributions made in previous years that will generate retirement income and consumption from that income. Further, the consumption offset factor during the earlier working years tends to be lower than in the retirement years due to

A Time-Series Analysis of the Medical Care Price Index: Implications for Appraising Economic Losses

The time-series properties of wage growth rates, discount rates, and net discount rates have been a subject of significant forensic economics research. Payne, Ewing, and Piette (1999) provides the most recent example of this type of study; others include Pelaez (1991); Bonham and La Croix (1992); Gamber and Sorenson (1993, 1994); Pelaez (1996); and Payne, Ewing, and Piette (1998). Surprisingly, the time-series techniques used in this research (i.e., unit root and cointegration tests) have not been applied to other variables that often are part of economic loss appraisals. This paper fills part of this void by applying appropriate time-series analysis to the medical care price index, which is an important variable in valuing life care plans. The time-series properties of a second variable, the net discount rate defined approximately as the difference between the discount rate and medical care inflation, will be the subject of a subsequent paper.1 The assumptions about the time path of the medical care price index is an important determinant of the present value of a life care plan. The experience of the authors is that some economists and/or life care planners assume a medical care inflation rate that is inconsistent with their assumptions concerning overall inflation, nonmedical care inflation, and the discount rate. For example, it is not unusual to see some historic average medical care inflation rate used together with a current interest rate for discounting. As the latter reflects expected not historic inflation, the two parameters are not consistent. Furthermore, it also is not unusual for the projected medical care inflation rate to be significantly higher (sometimes more than twice as high) than the projected overall rate of inflation. In cases involving long projection periods–70 years or more for an infant injured at birth–these assumptions often result in extremely large damage calculations.2 More fundamentally, these inconsistent assumptions can lead to results that are economic nonsense. This will be demonstrated below.

Measuring the Cost of Risk Reduction in Tax-Deferred Investing

This article uses a deterministic approach to quantitatively measure the cost of risk reduction associated with the periodic rebalancing of a tax-deferred portfolio between higher risk assets (equities) and lower-risk assets (bonds). The cost of risk is defined as the difference in annuity income at retirement between a non-rebalanced portfolio and an annually rebalanced portfolio. The author finds that the cost of risk reduction is 22-24% of annuitized retirement income. The author also shows that the gain from using a Roth-type account (with after-tax contributions and tax-free distributions) varies between 9.5% and 16.3% of retirement income compared to the level of retirement income generated by the more typical tax-deferred plan.