A model intervenes: the many faces of moral hazard

This article builds on advances in social ontology to develop a new understanding of how mainstream economic modelling affects reality. We propose a new framework for analysing and describing how models intervene in the social sphere. This framework allows us to identify and articulate three key epistemic features of models as interventions: specificity, portability and formal precision. The second part of the article uses our framework to demonstrate how specificity, portability and formal precision explain the use of moral hazard models in a variety of different policy contexts, including worker compensation schemes, bank regulation and the euro-sovereign debt crisis.

First look at changes in flood hazard in the inter-sectoral impact model intercomparison project ensemble

Climate change due to anthropogenic greenhouse gas emissions is expected to increase the frequency and intensity of precipitation events, which is likely to affect the probability of flooding into the future. In this paper we use river flow simulations from nine global hydrology and land surface models to explore uncertainties in the potential impacts of climate change on flood hazard at global scale. As an indicator of flood hazard we looked at changes in the 30-y return level of 5-d average peak flows under representative concentration pathway RCP8.5 at the end of this century. Not everywhere does climate change result in an increase in flood hazard: decreases in the magnitude and frequency of the 30-y return level of river flow occur at roughly one-third (20-45%) of the global land grid points, particularly in areas where the hydro-graph is dominated by the snowmelt flood peak in spring. In most model experiments, however, an increase in flooding frequency was found in more than half of the grid points. The current 30-y flood peak is projected to occur in more than 1 in 5 y across 5-30% of land grid points. The large-scale patterns of change are remarkably consistent among impact models and even the driving climate models, but at local scale and in individual river basins there can be disagreement even on the sign of change, indicating large modeling uncertainty which needs to be taken into account in local adaptation studies.

Lightning as a space-weather hazard: UK thunderstorm activity modulated by the passage of the heliospheric current sheet

Lightning flash rates, RL, are modulated by corotating interaction regions (CIRs) and the polarity of the heliospheric magnetic field (HMF) in near-Earth space. As the HMF polarity reverses at the heliospheric current sheet (HCS), typically within a CIR, these phenomena are likely related. In this study, RL is found to be significantly enhanced at the HCS and at 27 days prior/after. The strength of the enhancement depends on the polarity of the HMF reversal at the HCS. Near-Earth solar and galactic energetic particle fluxes are also ordered by HMF polarity, though the variations qualitatively differ from RL, with the main increase occurring prior to the HCS crossing. Thus, the CIR effect on lightning is either the result of compression/amplification of the HMF (and its subsequent interaction with the terrestrial system) or that energetic particle preconditioning of the Earth system prior to the HMF polarity change is central to solar wind lightning coupling mechanism.

Assessment the Health Hazard from (222)Rn in Old Metalliferous Mines in San Luis, Argentina

Radon levels in two old mines in San Luis, Argentina, are reported and analyzed. The radiation dose and environmental health risk of (222)Rn concentrations to both guides and visitors were estimated. CR-39 nuclear track detectors were used for this purpose. The values for the (222)Rn concentration at each monitoring site ranged from 0.43 +/- 0.04 to 1.48 +/- 0.12 kBq m(-3) in the Los Cndores wolfram mine and from 1.8 +/- 0.1 to 6.0 +/- 0.5 kBq center dot m(-3) in the La Carolina gold mine, indicating that, in this mine, the radon levels exceed up to four times the action level of 1.5 kBq m(-3) recommended by the International Commission on Radiological Protection. The patterns of the radon transport process revealed that the La Carolina gold mine can be interpreted as a gas confined into a single tube with constant cross-section and air velocity. Patterns of radon activity, taking into account the chimney-effect winds, were used to detect tributary currents of air from shafts or larger fissures along the main adit of the Los Cndores mine, showing that radon can be used as an important tracer of tributary air currents stream out from fissures and smaller voids in the rock of the mine.

Determination of Thermal and Blue Light Photochemical Hazard Protection needed by Automatic Welding filters

Recent developments in biological research, has shown that the initial maximum permissible exposure (MPE) limits for protection of workers from risks associated with artificial optical radiations were more stringent than needed. Using the most recent MPE limits for artificial optical radiation this piece of work was focused on the investigation of the level of visible light attenuation needed by automatic welding filters in case of switching failure. Results from the comparison of different exposure standards were employed in investigating the need of Vis/IR and blue light transmittance requirement for automatic welding filters. Real and arbitrary spectra were taken into consideration for the worst and best case scenarios of artificial optical radiations. An excel worksheet developed during the execution of this project took into consideration the exposure from different light sources and the precision of the spectrometer used in measuring the transmittances of a welding filter. The worksheet was developed and tested with known product properties to investigate the validity of its formulation. The conclusion drawn from this project was that attenuation in the light state will be needed for products with the darkest state shade 11 or higher. Also shown is that current welding filter protects the eye well enough even in the case of switching failure.

HAZARD AREAS ASSOCIATED WITH MAJOR VOLCANOES IN THE CASCADE MOUNTAIN RANGE

http://digitalcommons.colby.edu/atlasofmaine2005/1014/thumbnail.jpg

FIRE HAZARD IN COCONINO COUNTY, ARIZONA

http://digitalcommons.colby.edu/atlasofmaine2005/1016/thumbnail.jpg

Fire Hazard in Coconino County, Arizona

Fire is a major management issue in the southwestern United States. Three spatial models of fire risk for Coconino County, Northern Arizona. These models were generated using thematic data layers depicting vegetation, elevation, wind speed and direction, and precipitation for January (winter), June (summer), and July (start of monsoon season). ArcGIS 9.0 was used to weight attributes in raster layers to reflect their influence on fire risk and to interpolate raster data layers from point data. Final models were generated using the raster calculator in the Spatial Analyst extension of ArcGIS 9.0. Ultimately, the unique combinations of variables resulted in three different models illustrating the change in fire risk during the year.

Hazard Areas Associated with Major Volcanoes in the Cascade Mountain Range

The Cascade Mountain Range in Washington State is the site of several active volcanoes that have the potential to erupt which would deeply affect the lives of those who live near them. This study explores the hazard areas associated with the five largest volcanoes in the region: Mt. Baker, Glacier Peak, Mt. Rainier, Mt. Adams and Mt. St. Helens. It was determined which geographic regions would be affected by tephra, pyroclastic blasts and lahar flows and the associated populations that live in each of these areas. The level of emergency preparedness necessary for a volcanic eruption could be better determined based on the findings of this study.

A general lagrangian approach for non-concave moral hazard problems

We establish a general Lagrangian for the moral hazard problem which generalizes the well known first order approach (FOA). It requires that besides the multiplier of the first order condition, there exist multipliers for the second order condition and for the binding actions of the incentive compatibility constraint. Some examples show that our approach can be useful to treat the finite and infinite state space cases. One of the examples is solved by the second order approach. We also compare our Lagrangian with 1\1irrlees'.

A general lagrangian approach for non-concave moral hazard problems

We establish a general Lagrangian for the moral hazard problem which generalizes the well known first order approach (FOA). It requires that besides the multiplier of the first order condition, there exist multipliers for the second order condition and for the binding actions of the incentive compatibility constraint. Some examples show that our approach can be useful to treat the finite and infinite state space cases. One of the examples is solved by the second order approach. We also compare our Lagrangian with 1\1irrlees'.

Moral hazard and nonlinear pricing in a general equilibrium model

The paper analyzes a two period general equilibrium model with individual risk and moral hazard. Each household faces two individual states of nature in the second period. These states solely differ in the household's vector of initial endowments, which is strictly larger in the first state (good state) than in the second state (bad state). In the first period households choose a non-observable action. Higher leveis of action give higher probability of the good state of nature to occur, but lower leveIs of utility. Households have access to an insurance market that allows transfer of income across states of oature. I consider two models of financiaI markets, the price-taking behavior model and the nonlínear pricing modelo In the price-taking behavior model suppliers of insurance have a belief about each household's actíon and take asset prices as given. A variation of standard arguments shows the existence of a rational expectations equilibrium. For a generic set of economies every equilibrium is constraíned sub-optímal: there are commodity prices and a reallocation of financiaI assets satisfying the first period budget constraint such that, at each household's optimal choice given those prices and asset reallocation, markets clear and every household's welfare improves. In the nonlinear pricing model suppliers of insurance behave strategically offering nonlinear pricing contracts to the households. I provide sufficient conditions for the existence of equilibrium and investigate the optimality properties of the modeI. If there is a single commodity then every equilibrium is constrained optimaI. Ir there is more than one commodity, then for a generic set of economies every equilibrium is constrained sub-optimaI.

Contracting with repeated moral hazard and private evaluations

A repeated moral hazard setting in which the Principal privately observes the Agent’s output is studied. It is shown that there is no loss from restricting the analysis to contracts in which the Agent is supposed to exert effort every period, receives a constant efficiency wage and no feedback until he is fired. The optimal contract for a finite horizon is characterized, and shown to require burning of resources. These are only burnt after the worst possible realization sequence and the amount is independent of both the length of the horizon and the discount factor (δ). For the infinite horizon case a family of fixed interval review contracts is characterized and shown to achieve first best as δ → 1. The optimal contract when δ << 1 is partially characterized. Incentives are optimally provided with a combination of efficiency wages and the threat of termination, which will exhibit memory over the whole history of realizations. Finally, Tournaments are shown to provide an alternative solution to the problem.