The Journal of Economics

Volume XXXV No. 2, 2009

Economic Perspectives on Addiction: Hyperbolic Discounting and Internalities

Fritz L. Laux and Richard M. Peck

This paper provides an introduction, with critical interpretations, to the use of hyperbolic discounting as a model of behavior for the consumption of addictive goods. The exponential and hyperbolic discounting models are carefully reviewed, with particular emphasis on the implications for time consistency. We then present a simple explanation of the logic of market failure resulting from internalities and the economic inefficiency that can result when time inconsistent choices have intertemporal impacts. We then briefly review, with commentary, key work from the experimental and broader empirical literature that can be used to assess and critique the hyperbolic discounting model.

Should We Put Lotteries for Education on the Honor Roll or in the Corner?

Rex J. Pjesky

Many states have passed lotteries for education in the hopes of increasing education funding and ultimately improving educational outcomes. This paper looks at real per capital state and local direct education spending and finds strong evidence that lotteries for education have increased per capita education spending in those states that passed a lottery for education between 1978 and 2000. Further evidence in the paper suggests that money flowing into state and local budgets from a new source such as a lottery will be used to fund new spending, tax cuts, and deficit reduction.

Oil Exports and Economic Growth: A Comparative Study

Joshua J. Lewer

The world's essential need for oil and its sharp rise in real price during the 1970's and 2000's suggests that petroleum exports may be a better stimulator for economic growth than other exports for developing countries. Using advanced time-series techniques, a simultaneous equations model is developed to examine the relationship between oil exports and economic growth for ten petroleum producing countries over a thirty year period. While the empirical results indicate that both oil exports and "non-oil" exports were significantly related to the economic development for over half of the countries, the crude spot price had mixed growth results. Interestingly, the results of this paper suggest that by focusing on their comparative advantage in producing petroleum related goods, oil-exporting countries receive benefits from international trade equal to the size of their non-petroleum products and services.

Trends and Cycles of Tech-Pole Housing Prices

Wensheng Kang

This paper examines the transmission mechanism of tech-pole housing prices and investigates the economic forces behind it. For this purpose, the work develops an MCMC algorithm to extract the latent common trend and cycle of the integrating prices and conduct Bayesian stochastic search for restriction selection of the panel data model. The evidence shows that the transmission magnitude and persistence depend importantly on the degree of IT-industry intensity between two metropolitan areas. While the common stochastic trend behind the price dynamics is primarily determined by normal income, the monetary policy is responsible for the common boom and bust of tech-pole housing cycles. The policy implication for the real asset pricing and risk hedging strategies are also discussed.

Organizing Diversity: An Examination of U.S. Metropolitan Areas in the '90s

Mihai Nica

Even if metropolitan areas occupy only a small percentage of the total U.S. territory, they contain the majority of the nation's population and jobs, hence learning as much as possible about them is essential. This study classifies and describes metropolitan areas based on their propensity to specialize in goods-related or service-related employment, contributing to a better understanding of the relationships between some local factors and the probability that an area is specialized in a certain sector. An interesting conclusion of the study is that when classifying metropolitan areas, considering the type and size of the basic employment sector for each of them is helpful. Furthermore, the results suggest that the probability of an area being specialized in goods declines strongly with its crime rate. Indeed, areas specialized in goods tend to have lower crime and poverty rates and a relatively more equal income distribution.