Social Security in Theory and Practice (II): Efficiency Theories, Narrative Theories, and Implications for Reform

166 countries have some kind of public old age pension. What economic forces create and sustain old age Social Security as a public program? Mulligan and Sala-i-Martin (1999b) document several of the internationally and historically common features of social security programs, and explore "political" theories of Social Security. This paper discusses the "efficiency theories", which view creation of the SS program as a full of partial solution to some market failure. Efficiency explanations of social security include the "SS as welfare for the elderly" the "retirement increases productivity to optimally manage human capital externalities", "optimal retirement insurance", the "prodigal father problem", the "misguided Keynesian", the "optimal longevity insurance", the "government economizing transaction costs", and the "return on human capital investment". We also analyze four "narrative" theories of social security: the "chain letter theory", the "lump of labor theory", the "monopoly capitalism theory", and the "Sub-but-Nearly-Optimal policy response to private pensions theory". The political and efficiency explanations are compared with the international and historical facts and used to derive implications for replacing the typical pay-as-you-go system with a forced savings plan. Most of the explanations suggest that forced savings does not increase welfare, and may decrease it.

Adverse Selection, Credit, and Efficiency: the Case of the Missing Market

We analyze a standard environment of adverse selection in credit markets. In our envi- ronment, entrepreneurs who are privately informed about the quality of their projects need to borrow from banks. As is generally the case in economies with adverse selection, the competitive equilibrium of our economy is shown to be ine¢ cient. Under adverse selection, the choices made by one type of agents limit what can be o¤ered to other types in an incentive-compatible manner. This gives rise to an externality, which cannot be internalized in a competitive equilibrium. We show that, in this type of environment, the ine¢ ciency associated to adverse selection is the consequence of one implicit assumption: entrepreneurs can only borrow from banks. If an additional market is added (say, a .security market.), in which entrepreneurs can obtain funds beyond those o¤ered by banks, we show that the e¢ cient allocation is an equilibrium of the economy. In such an equilibrium, all entrepreneurs borrow at a pooling rate in the security market. When they apply to bank loans, though, only entrepreneurs with good projects pledge these additional funds as collateral. This equilibrium thus simultaneously entails cross- subsidization and separation between di¤erent types of entrepreneurs.

Adverse selection, credit, and efficiency: the case of the missing market

We analyze a standard environment of adverse selection in credit markets. In our environment, entrepreneurs who are privately informed about the quality of their projects need to borrow in order to invest. Conventional wisdom says that, in this class of economies, the competitive equilibrium is typically inefficient. We show that this conventional wisdom rests on one implicit assumption: entrepreneurs can only access monitored lending. If a new set of markets is added to provide entrepreneurs with additional funds, efficiency can be attained in equilibrium. An important characteristic of these additional markets is that lending in them must be unmonitored, in the sense that it does not condition total borrowing or investment by entrepreneurs. This makes it possible to attain efficiency by pooling all entrepreneurs in the new markets while separating them in the markets for monitored loans.

Communication, Coordination, and Efficiency in Evolutionary One-population Models

We analyze the role of commitment in pre-play communication for ensuring efficient evolutionarily stable outcomes in coordination games. All players are a priori identical as they are drawn from the same population. In games where efficient outcomes can be reached by players coordinating on the same action we find commitment to be necessary to enforce efficiency. In games where efficienct outcomes only result from play of different actions, communication without commitment is most effective although efficiency can no longer be guaranteed. Only when there are many messages then inefficient outcomes are negligible as their basins of attraction become very small.

Incorporating waiting time in competitive location models: formulations and heuristics

In this paper we propose a metaheuristic to solve a new version of the Maximum Capture Problem. In the original MCP, market capture is obtained by lower traveling distances or lower traveling time, in this new version not only the traveling time but also the waiting time will affect the market share. This problem is hard to solve using standard optimization techniques. Metaheuristics are shown to offer accurate results within acceptable computing times.

Efficiency of recombinant human TNF in human cancer therapy.

Recombinant human tumour necrosis factor (TNF) has a selective effect on angiogenic vessels in tumours. Given that it induces vasoplegia, its clinical use has been limited to administration through isolated limb perfusion (ILP) for regionally advanced melanomas and soft tissue sarcomas of the limbs. When combined with the alkylating agent melphalan, a single ILP produces a very high objective response rate. In melanoma, the complete response (CR) rate is around 80% and the overall objective response rate greater than 90%. In soft tissue sarcomas that are inextirpable, ILP is a neoadjuvant treatment resulting in limb salvage in 80% of the cases. The CR rate averages 20% and the objective response rate is around 80%. The mode of action of TNF-based ILP involves two distinct and successive effects on the tumour-associated vasculature: first, an increase in endothelium permeability leading to improved chemotherapy penetration within the tumour tissue, and second, a selective killing of angiogenic endothelial cells resulting in tumour vessel destruction. The mechanism whereby these events occur involves rapid (of the order of minutes) perturbation of cell-cell adhesive junctions and inhibition of alphavbeta3 integrin signalling in tumour-associated vessels, followed by massive death of endothelial cells and tumour vascular collapse 24 hours later. New, promising approaches for the systemic use of TNF in cancer therapy include TNF targeting by means of single chain antibodies or endothelial cell ligands, or combined administration with drugs perturbing integrin-dependent signalling and sensitizing angiogenic endothelial cells to TNF-induced death.

Sex differences: From mental rotation to object location memory, an ERP study

Sex differences in cognition have been largely investigated. The most consistent sex differences favoring females are observed in object location memory involving the left hemisphere whereas the most consistent sex differences favoring males are observed in tasks that require mental rotation involving the right hemisphere. Here we used a task involving these two abilities to see the impact of mental rotation on object location memory. To that end we used a combination of behavioral and event-related potential (ERP) electroencephalography (EEG) measures.A computer screen displayed a square frame of 4 pairs of images (a "teddy" bear, a shoe, an umbrella and a lamp) randomly arranged around a central fixation cross. After a 10-second interval for memorization, images disappeared and were replaced by a test frame with no image but a random pair of two locations marked in black. In addition, this test frame was randomly displayed either in the original orientation (0° rotation) or in the rotated one (90° clockwise - CW - or 90° counterclockwise - CCW). Preceding the test frame, an arrow indicating the presence or the absence of rotation of the frame was displayed on the screen. The task of the participants (15 females and 15 males) was to determine if two marked locations corresponded or not to a pair of identical images. Each response was followed by feedback.Findings showed no significant sex differences in the performance of the original orientation. In comparison with this position, the rotation of the frame produced an equal decrease of male and female performance. In addition, this decrease was significantly higher when the rotation of the frame was in a CCW direction. We further assessed the ERP when the arrow indicated the direction of rotation as stimulus-onset, during four time windows representing major components C1, P1, N1 and N2. Although no sex differences were observed in performance, brain activities differed according to sex. Enhanced amplitudes were found for the CCW compared to CW rotation over the right posterior areas for the P1, N1 and N2 components for men as well as for women. Major topographical differences related to sex were measured for the CW rotation condition as marked lateralized amplitude: left-hemisphere amplitude larger than right one was measured during P1 time range for men. These similar patterns prolonged from P1 to N1 for women. Early distinctions were found in interaction with sex between CCW and CW waveform amplitudes, expressing over anterior electrode sites during C1 time range (0-50 ms post-stimulus).In conclusion (i) women do not outperform men in object location memory in this study (absence of rotation condition); (ii) mental rotation, in particular the direction of rotation, influences performance on object location memory; (iii) CCW rotation is associated with activity in the right parietal hemisphere whereas the CW rotation involves the left parietal hemisphere; (iv) this last effect is less pronounced in males, which could explain why greater involvement of right parietal areas in men and of bilateral posterior areas in women is generally reported in mental rotation tasks; and (v) the early distinctions between both directions of rotation located over anterior sites could be related to sex differences in their respective involvement of control mechanisms.

Locating emergency services with priority rules: The priority queuing covering location problem

One of the assumptions of the Capacitated Facility Location Problem (CFLP) is thatdemand is known and fixed. Most often, this is not the case when managers take somestrategic decisions such as locating facilities and assigning demand points to thosefacilities. In this paper we consider demand as stochastic and we model each of thefacilities as an independent queue. Stochastic models of manufacturing systems anddeterministic location models are put together in order to obtain a formula for thebacklogging probability at a potential facility location.Several solution techniques have been proposed to solve the CFLP. One of the mostrecently proposed heuristics, a Reactive Greedy Adaptive Search Procedure, isimplemented in order to solve the model formulated. We present some computationalexperiments in order to evaluate the heuristics performance and to illustrate the use ofthis new formulation for the CFLP. The paper finishes with a simple simulationexercise.