Published by De Gruyter

Volume 12 Issue 1

Issue of The Economists’ Voice

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Contents
Journal Overview

Publicly Available July 28, 2015

Frontmatter

Page range: i-iii

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Publicly Available July 25, 2015

Growing Apart: The Evolution of Income vs. Wealth Inequality

Michael Cragg, Rand Ghayad

Page range: 1-12

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Abstract

The gap between the richest Americans and the rest of the nation has changed dramatically over the past three decades – becoming one of the most challenging political and economic trends for the nation. For decades prior to that, the distribution of wealth and income had been relatively stable, so much that a central problem posed in the economics literature was to explain this stability. But beginning in the early 1980s, inequality began to grow rapidly and has recently been attracting substantial attention from policymakers and researchers reflecting a widespread concern that reflecting a widespread concern that growing labor incomes of senior executives, finance professionals, and successful entrepreneurs is entailing large economic costs to society. The dominant paradigm in the media and Washington is that inequality is purely a matter of divergence in earned (labor) income inequality which can be ameliorated by making earned income taxes more progressive and shifting spending to help the poorer. However, this is not the story: wealth inequality, as it turns out, is much worse. This warrants emphasis for a variety of reasons: (1) a growing body of research that suggests that in the head-on comparison it is wealth inequality, rather than income inequality or poverty that has a negative, statistically significant effect on economic growth.1 Bagchi and Svejnar (2013). (2) Historically societies have failed when wealth has become overly concentrated; and (3) the wedge between earned and unearned income tax rates reduces progressivity as capital income rises. We offer a number of solutions which should generate debate amongst economists as they test conventional wisdom.

Publicly Available June 17, 2015

The Political Economy of Net Neutrality Regulation

Dennis L. Weisman

Page range: 13-18

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Abstract

On February 26, 2015, the Federal Communications Commission (FCC) proposed sweeping new regulation for broadband providers. While regulation is typically driven by a combination of economic and political considerations, this article argues that the FCC’s initiative is long on politics and short on economics. For example, the FCC is not able to identify a non-transitory abuse of market power by broadband providers to justify its actions. There is no evidence of excessive returns being earned by broadband providers and the violations of net neutrality that the Commission can point to, including throttling and blocking of data, are conspicuously few in number. What is more, the FCC has yet to establish that the regulatory oversight it proposes would not stifle more investment than it stimulates. Broadband is an example of a two-sided market in which edge (content) providers represent one side of the market and consumers represent the other side of the market. Just as newspapers impose positive prices on both advertisers and subscribers, it is (quite generally) efficient in two-sided markets for both sides of the market to contribute to the total price. Two-sided markets are characterized by a seesaw principle in which a lower price on one side of the market tends to give rise to a higher price on the other side of the market. Hence, a ban on paid prioritization of traffic delivery over broadband networks essentially requires consumers to pay the full freight. The FCC is therefore in the unenviable position of having to justify a policy to regulate broadband that is distinguished by being both economically inefficient and socially inequitable. While the courts are disposed to give deference to expert federal agencies under the Chevron Doctrine, the lack of economic foundation to justify broadband regulation promises to make this tough sledding for the FCC. The strategy on the part of the broadband providers will be to run out the clock with litigation in the hope that the political winds shift in their favor post 2016.

July 21, 2015

Hurry or Wait – The Pros and Cons of Going Fast or Slow on Climate Change

Eleanor Denny, Jurgen Weiss

Page range: 19-24

Abstract

Climate change risk will likely force the de-carbonization of our electricity sector and thus involve massive investments in long-lived assets using many new and emerging technologies. Since technological progress (independent or dependent on deployment) will likely lower the future cost of those technologies, investing early and rapidly forecloses saving money by installing those technologies at a lower cost later. There are thus benefits to waiting until the costs of renewables fall further. However, there are also costs to waiting. First, given the longevity of greenhouse gases in the atmosphere, cumulative emissions matter and lowering greenhouse gas emissions earlier is beneficial. Second, there is significant uncertainty not only over the rate of change of the cost of low carbon technologies, but also over the cost of greenhouse gas emissions. The costs of waiting are complex in that the distributions themselves are unknown (and quite possibly have “fat” tails). There may also be complex timing issues such as points of no return in terms of global greenhouse gas concentrations, beyond which the costs of adapting to climate change effects become essentially infinite. Hurrying can therefore be considered an insurance policy against the unknown but perhaps increasing risk of catastrophic damage.

Publicly Available June 13, 2015

Climate Change Adaptation Will Offer a Sharp Test of the Claims of Behavioral Economics

Matthew E. Kahn

Page range: 25-30

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Abstract

Abstract: Concepts from behavioral economics can be used to make predictions concerning how climate change will impact the economy. Six new predictions from behavioral economics are compared to their rational expectations counterparts.

July 22, 2015

A Proposed Framework to Reduce Asymmetric Information in Equity Offerings

Ilanit Gavious

Page range: 31-36

Abstract

The security offering literature shows that firms offering their shares for sale to the public generally manage their earnings upwards around the offering to raise investor demand for the firm’s shares and increase their sale price. In addition, the literature demonstrates that earnings management around the offering increases the information asymmetry between the issuers and outside investors, thereby increasing the issue flotation costs. Markedly increased flotation costs imply, inter alia, a reduced demand for, and pricing of, the new shares offered – the opposite result of that sought by the issuing management. To date, mechanisms to prevent issuing firms from managing earnings opportunistically are non-existent. I address this current gap in the literature by proposing a disclosure-based framework for issuing firms aimed at reducing the extent of information asymmetry between them, outside investors and underwriters. Specifically, I present a mechanism where firms add a voluntary “honest disclosure” section in their issue prospectuses, in which they provide information that reduces uncertainty about their financial reports. I demonstrate that such voluntary disclosures by firms create a reality that encourages truthful reporting around the offering and results in a more effective capital market. The proposed framework does not require a change in current institutional mechanisms. Furthermore, as an integral part of the prospectus, the SEC will scrutinize the disclosure. Last but not least, the new section should not add significant cost to the issuer.

About this journal

Objective
The Economists' Voice (EV) is a non-partisan forum for economists to present innovative policy ideas.

Economists have much to contribute to the public debate on a wide range of policy issues. Anyone concerned about the economic policy challenges of today, whether they are students, policymakers, or other citizens, would benefit from being involved in economists’ policy-oriented debate. Monetary policy, fiscal policy, trade, exchange rate policy, development policy, labor market policy, and regulation as well as health care and pension reform are among the most important fields of economic policy discussions.　

The Economists' Voice creates a forum for readable analysis by leading economists on vital economic policy issues of our day. The focus is on the clear verbal presentation of important evidence-based arguments for a broad readership. Empirical papers on policy-relevant issues are also welcome.

The Economists’ Voice was shortlisted for Best New Journal in the 2007 ALPSP/Charlesworth Awards. Its focused policy articles fill a gap between the op-ed pages of the newspaper and journal articles in theoretical journals. Contributors include seven Nobel Prize winners, five past chairs of the President's Council of Economic Advisors, public intellectuals like Paul Krugman and Richard Posner, and a veritable "Who's Who" of modern economic theory and policy.　

Topics

Monetary policy
Fiscal policy
Trade policy
Exchange rate policy
Development policy
Labor market policy
Regulation
Health care and pension reform
and all other economic policy relevant issues

Article formats
Two types of articles are accepted. First, policy papers up to 10,000 words, which are subject to a double-blind referee process and contribute to the scientific debate on important policy issues. Second, short articles for our policy forum, between 600 – 3000 words. They contain a deeper analysis than a newspaper article/comment but are of comparable general interest.

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