Terrorism will be high on the political agenda for many years to come. Various policies are open to a government fighting terrorism but, in any case, considerable costs are involved. In the competition for politicalnsupport, the costs and benefits of anti-terrorism policies will be debated. Better information about terrorism and its consequences can improve policy outcome if there is electoral competition. Over the last few years, economic scholars have analysed the effects terrorist acts have on various aspects of the economy. The findings of these impact studies are summarised in this paper. They capture, however, only part of the overall utility losses.nHence, several approaches to value public goods and conceptual issues concerning their application to terrorismnare discussed. In particular, the hedonic market approach, the averting behaviour method, the contingent valuation method and vote and popularity functions are reviewed. Further, an exploratory analysis of estimating individuals' utility losses using life satisfaction or happiness data is presented. This paper also discusses ansubstantially different approach combining measurement and decision-making, namely popular referenda.
In Part I the author was concerned with modeling the monthly logarithmicnCHF/USD exchange rate, ''s''. He rejected a model proposed by B.T.nMcCallum. Searching for a more appropriate framework a story by P. DenGrauwe was introduced, bringing complex cognitive processes and socialnpractices into the picture.nThis paper treats again P. De Grauwe's story, supplements it and embedds itninto a broader setting showing its links to a subtle concept of agents'nrationality. We derive a testable implication of this approach. Althoughnthe test result is negative, it will be helpful for the misspecificationnanalysis of B.T. McCallum's model (applied to ''s''), which will finally benpresented in Part III of this paper.
This study reports data from a field experiment that was nconducted to investigate the relevance of gift-exchange for charitable ngiving. Roughly 10,000 solicitation letters were sent to potential donors nin the experiment. One third of the letters contained no gift, one third ncontained a small gift and one third contained a large gift. Whether a npotential donor received a letter with or without a gift was randomly ndetermined. We observe strong and systematic effects from including gifts. nCompared to the no gift condition, the relative frequency of donations nincreased by 17 percent if a small gift was included and by 75 percent for na large gift. Consequently, including gifts was highly profitable for the ncharitable organization. The contribution of this paper is twofold: first, nit shows that reciprocity is an important motive for charitable giving, in naddition to the warm-glow motive. Second, the paper confirms the economic nrelevance of reciprocity by using field data. This extends the current body nof research on reciprocity, which is almost exclusively confined to nlaboratory studies.
"A crucial aspect of constitutional design is the provision of rules on how anconstitution is to be amended. If procedures for constitutional amendment are very restrictive,nchanges will take place outside the constitution. These changes are likely to be against thencitizens’ interests and their ability to influence the political process. We argue that thendevelopment of the constitution must be based on the rule of law. We propose directndemocratic rights that allow citizens to participate in the amendment process. The directndemocratic process of institutional change is theoretically and empirically analyzed. Annumber of counter arguments and issues for a gradual introduction are discussed."
Theoretical arguments and empirical evidence are advanced to bolster the claim that direct political participation via referenda and initiatives constitutes an advanced form of democracy with beneficial effects on Transition Countries.nDirect democracy raises trust and honesty and improves social outcomes. Per capita incomes and subjective well-being are raised.nStandard arguments against direct democracy (citizens' incompetence and lacking interest, danger of manipulation and emotionality, hindering progress and destroying civil rights, high cost) are rejected.nElements of direct democracy can be introduced at the national and local levels, and then proceeding further. Citizens should have the right to govern this process.n
Corporate scandals are reflected in excessive top management compensation and fraudulent accounts. These scandals cause an enormous amount of damage, not only to the companies affected, but also to the market economy as a whole. As a solution, conventional wisdom suggests more monitoring and sanctioning of management. We argue that these efforts will create a governance structure for crooks. Instead of solving the problem, they make it worse. Selfish extrinsic motivation is reinforced. We suggest measures which clash with conventional wisdom: selecting employees with pro-social intrinsic preferences, de-emphasizing variable pay for performance and strengthening the participation and self-governance of employees. These measures help to increase intrinsically motivated corporate virtue and honesty.
The analysis of monthly exchange rates is carried out using a model of McCallum, which is based on the concept of Rational Expectations. Applying the model to the CHF/USD exchange rate starting a misspecification analysis, the RE component appears to be a weak point of the model. The theory of rational beliefs of M. Kurz generalizes the RE concept introducing special consideration of Data Generating Processes (DGP). We find, however, some evidence speaking against the rational belief approach (with respect to the CHF/USD exchange rate) which is related to regime switchings and the presence of unobserved variables in the data-generating process. It appears that the rationality of economic agents depends on complex cognitive processes not discussed by Kurz, but taken into account in a ''story'' by Paul De Grauwe. This story will be supplemented in Part II of the paper in order to eliminate the RE component and to proceed with the misspecification analysis of McCallum's model.
"People behave pro-socially in a wide variety of situations that standard economic theory is unable to explain. Social comparison is one explanation for such pro-social behavior: people contribute if others contribute or cooperate as well. This paper tests social comparison in a field experiment at the University of Zurich. Each semester every single student has to decide whether he or shenwants to contribute to two Social Funds. We provided 2500 randomly selected students with information about the average behavior of the student population. Some received the information that a high percentage of the student population contributed, while others received the information that a relatively low percentage contributed. The results show that people behave pro-socially, conditional on others. The more others cooperate, the more one is inclined to do so as well. The type of person is important. We are able to fix the ‘types’ by looking at revealed past behavior. Some persons seem to care more about the pro-social behavior of others, while other ‘types’ are not affected by the average behavior of the reference group."
Under the assumption of normally distributed returns, we analyzenwhether the Cumulative Prospect Theory of Tversky and Kahneman (1992)nis consistent with the Capital Asset Pricing Model. We find that in everynfinancial market equilibrium the Security Market Line Theorem holds.nHowever, under the specific functional form suggested by Tversky andnKahneman (1992) financial market equilibria do not exist. We suggest annalternative functional form that is consistent with both, the experimentalnresults of Tversky and Kahneman and also with the existence of equilibria.
"Money *nAleksander BerentsennEconomics Departement, University of Basel, SwitzerlandnJune 10, 2003nAbstractnThis paper considers a monopolist’s supply of outside paper money in a random-matchingnmodel with divisible money and divisible goods. When binding supplynannouncements are feasible, the revenue-maximizing policy is characterized by anninitial period where the monopolist initiates a currency reform which destroys thenvalue of any old currency, and then issues new money, which the issuer taxes thereafternwith a constant gross growth rate of money. It is shown that this policy is time-consistentnif the trading history of the issuer is public information and if moneyndemanders respond to the relevation of defection by playing autarky."
