Showing papers by "Gary S. Becker published in 2011"

Fear and the Response to Terrorism: An Economic Analysis ∗

Abstract: In this project we aim at explaining why small probability events such as being harmed by terror affect peoples’ behavior so much. Our argument is based on two corner stones. Terror affects not only the likelihood to be harmed but mainly, by generating fear, persons’ utility and well-being. Yet, fear can be handled and managed by accumulating required mental skills. Like other investments in human capital, it is not a "free-lunch" and it does not pay back the same to anyone. Individuals who had previously consumed large quantities of what turned to be a risky good, invest, overcome fear, and keep their consumption plans unchanged, especially when risk is negligible, while others substitute the risky activity by other consumption plans, falsely appearing as if they overstate the objective probability to be harmed. Data from the US and from Israel support out theory. For instance, using micro data on public bus routes and taxis we find that suicide bomber attacks carried out on buses have a substantial negative average effect on bus rides and positive effect on the use of taxis. By disaggregating the population into low and high frequency users we find no effect of suicide bomber attacks

On the Economics of Climate Policy

Abstract: We analyze the central features of economic policies to mitigate climate change. The basic structure of Pigouvian “carbon pricing” is shown to follow from a standard Hotelling problem for the intertemporal pricing of an exhaustible resource. We extend this analysis to consider the strength and timing of research incentives, the costs of implementation delay and the impact of anticipated future technologies on current carbon prices. We study a variety of issues related to the valuation of climate investments, including uncertainty as to the future timing and distribution of climate impacts and the appropriate social rate of discount for valuing policies. Under reasonable circumstances the insurance properties of climate investments may warrant unusually low discount rates. We use the same framework to argue that policy makers in developing countries will discount the expected returns from climate investments more heavily, because such investments have weaker insurance value in the developing world.

The Challenge of Immigration: A Radical Solution

Abstract: How can market-based solutions help solve the challenges of immigration? Nobel Prize winner Prof. Gary Becker, in this IEA Occasional Paper, proposes a radical policy which, if implemented by the coalition government, could raise over £600 million a year.Prof. Becker proposes that visas to work in the UK should be sold off. The coalition’s immigration cap scheme could be amended using this proposal to ensure that the most suitable immigrants are allowed in. The people willing to pay the most to live in the UK are likely to be the same people who would contribute most to our economy.