Risks to the Long-Term Stability of the Euro

ANNA J. SCHWARTZ

There are grounds for immediate and long-term concerns with respect to the prospects for the stability of the euro's purchasing power. The immediate concerns arise from the pressures on the ECB to be more accommodative and the drive to weaken the Stability and Growth Pact. The long-term concerns arise from the spending obligations the member governments have assumed to provide pensions and health care to their aging populations for the next half-century, and the imminent enlargement of the EU to include ten states that are less economically and institutionally advanced than the present group of member states. The outlook is for greater spending by governments than their projected resources unless forces not now visible will strengthen the resolve of political leaders to serve the cause of a sound euro. (JEL L51); Atlantic Econ. J., 32(1): pp. 1-10, Mar. 04. ©All Rights Reserved

Occupational Assignment, Hiring Discrimination, and the Gender Pay Gap

ERIC J. SOLBERG

An identified, structural demand-wage equation is estimated using endogenous indicators for working part-time and occupational assignment. The wage equation is estimated by two-stage and ordinary least squares, and the pay gap is decomposed into explained and residual parts. Measures of gender-based wage discrimination are estimated after making adjustments to account for hiring discrimination and occupational preferences. The evidence indicates that gender differences in preferences for occupation explain much of the gap, yet there is still evidence of hiring discrimination. As a percentage of male wages, the discriminatory gap adjusted for hiring discrimination lies between 10.5 and 13.5 percent when estimated by ordinary least squares, and between 2.2 and 5.4 percent when estimated by two-stage least squares. (JEL J31, J16, J71); Atlantic Econ. J., 32(1): pp. 11-27, Mar. 04. ©All Rights Reserved

Public Capital and Small Firm Performance

KEVIN CHRIST AND RICHARD GREEN

Previous research on the role of public capital (infrastructure) in private production has emphasized potential complementarities between public and private capital at an aggregate level. Presumably such effects, if they exist, arise from benefits enjoyed by individual units of production. Because of the potential for them to be location-specific or capital constrained, it is conceivable that small businesses may benefit disproportionately from public capital. Tests using financial data for 871 small firms from 1992-96 indicate a positive and statistically significant elasticity between private labor productivity and the level of public capital in the area where the firms are located. Such a positive elasticity provides further evidence that public and private capital are complementary inputs into production and has important policy implications. (JEL J31, J16, J71); Atlantic Econ. J., 32(1): pp. 28-38, Mar. 04. ©All Rights Reserved

Economic Efficiency and the Common Law

THOMAS J. WEBSTER

Do legal rules based on the common law in the U.S. result in economically efficient outcomes? Beginning with Posner and Rubin, a substantial amount of literature supports the hypothesis that there is a natural tendency for common law to evolve over time so as to yield economically efficient court rulings. According to this view, disputants will litigate whenever the existing rules are inefficient. If the rules are efficient then no such incentive exists, in which case the legal rules are affirmed. By respecifying the Rubin model as a two-person, non-cooperative, simultaneous-move game, the analysis presented in this paper appears to support the arguments put forth by Landes, Gould, Tullock, and others that there is a general tendency for the disputants to pursue an out-of-court settlement. The analysis also suggests that it may also be in the litigant's best interest to negotiate an out-of-court settlement when the legal rules are efficient if the expected net present value of accident and avoidance costs is less than the litigants' court costs. Finally, it may pay to litigate even when the legal rules are efficient if the expected net present value of accident and avoidance costs is greater than the sum of the litigants' court costs. (JEL K00, K41, D61, C71, C72); Atlantic Econ. J., 32(1): pp. 39-48, Mar. 04. ©All Rights Reserved

Natural Monopoly Regulation in the Presence of Cost Misreporting

KEVIN M. CURRIER

This paper explores the implications of asymmetric cost information within the context of a regulated natural monopoly. The paper provides a unifying framework for the analysis of cost padding and exaggeration, both of which are referred to simply as misreporting of costs. The paper studies the incentives embedded in the regulatory regime itself and shows how simple comparative statics may be useful in detecting falsification of the cost report which the regulated firm must submit to the regulator. (JEL L43); Atlantic Econ. J., 32(1): pp. 49-61, Mar. 04. ©All Rights Reserved